Under pressure from financial markets and anxious world leaders, Europe agreed on Monday to move towards a more integrated banking system to stem a debt crisis that threatens the survival of the euro.
At a Group of 20 (G20) summit of the world’s leading industrialised and developing economies in this Mexican resort, Germany and its big euro zone partners took the unusual step of spelling out in detail measures to complete the economic and monetary union they launched to great fanfare 13 years ago.
Among the commitments in a draft G20 communique was a pledge to consider concrete steps towards a “more integrated financial architecture” in Europe that would include common banking supervision and firm guarantees to repay bank depositors.
The United States, the International Monetary Fund and European Commission have been urging EU member states to press ahead with a banking union to break the vicious link between deeply indebted governments bailing out illiquid financial institutions, worsening the sovereign debt problems and deepening the euro-zone crisis.
While that term did not appear in the declaration, the wording did suggest that Germany, which has rejected initiatives that might expose it to the cost of rescuing banks outside its borders, was growing more open to the idea of closer banking cooperation.
EU President Jose Manuel Barroso showed frustration over the pressure which is piling on Europe to act fast. He said G20 members must understand it will take time for the 17 euro zone democracies to agree on how to build a full financial, fiscal and political union and asked fellow G20 members to stop lecturing. “We certainly are coming here to receive lessons from nobody,” he said.
Leaders from the G20 countries representing more than 80% of world output agreed to prioritise boosting growth and job creation, hit hard by the focus on sharp budget cutbacks, which has contributed to an accelerating slowdown in the global economy.
In its strongest signal in three years that it would act to strengthen the recovery, the G20 said in their draft communique that countries without heavy debts problems were ready to act together to spur growth, if the economy slows a lot more.
The US has pressed Germany as well as China to stimulate spending in order to help the world economy.
Leaders are also set to confirm they will double the IMF’s firepower. IMF managing director Christine Lagarde said pledges now totalled $456 billion, up from the $430 billion in April.