Alf Young: No Cannes do for embattled G20

SOME called it the Cannes-do summit. But the two-day meeting of the G20 that ended in the French resort yesterday achieved next to nothing. This gathering of the 20 most powerful economies on the planet, responsible for some 85 per cent of worldwide GDP, was supposed to be about getting an ailing global economy back off its knees.

Given what happened, getting on to their knees might have been the most appropriate posture, when the four women and 16 men currently leading the G20 nations gathered for those obligatory souvenir album shots.

They had precious little time for any breakthrough thinking on where fresh growth is going to come from. Instead, from whatever corner of the globe they came, they all had to endure a two-day crash-course in euro turmoil.

First, this summit was hijacked by someone who wasn’t even supposed to be there. By the time you read this, George Papandreou may no longer be prime minister of Greece. But the quixotic Papandreou’s decision, without any advance warning, to put the latest eurozone deal to resolve his country’s sovereign debt crisis to a referendum of his people sent the whole Cannes process careering off the Croisette into some very choppy waters.

Nicolas Sarkozy and Angela Merkel had to summon him, like a naughty schoolboy, to a pre-summit showdown. He was told, in a move that came very close to breaching the national sovereignty of the cradle of democracy, that the referendum plan must be ditched. Furthermore, while the treaty setting up the eurozone has no provision for a member to exit, Greece was told emphatically it could leave the single currency if and when it wanted to.

Markets, which had been buoyed by the deal struck at the previous week’s eurozone summit, slumped again. Bond markets, in particular, having witnessed Papandreou’s delinquency, began to test other weak points in the eurozone’s armour. Step forward the Italian prime minister, Silvio Berlusconi, who probably holds the Guinness Book of Records’s entry for the most votes-of-no-confidence survived by any G20 leader.

When Berlusconi himself indicated he doesn’t need a proffered IMF bailout and plans to go on and on, the cost of servicing Italian government debt soared to new euro-era highs. Under pressure from his eurozone peers, the Italian PM says he is prepared to have the IMF monitor his fractious coalition’s efforts to curb spending.

But whether it’s a quarterly “public verification”, as the Cannes’ communique suggests, or simply “advice”, as Berlusconi’s own sources are hinting, remains to be seen. The new head of the IMF, Christine Lagarde, is already suggesting openly that Italy’s budget reform plans “lack credibility”. It’s certainly another layer of confusion in this everyday story of eurozone folk.

The new president of the European Central Bank, Mario Draghi, started his tenure this week with a surprise quarter-point cut in the ECB’s key interest rate. That reversed a rise implemented five months earlier by his predecessor, Jean-Claude Trichet. Growth was on the floor right across the continent, but Trichet was still, single-mindedly, focused on curbing inflationary pressures right to the end.

So would Draghi, previously governor of the Bank of Italy, be about to preside over a much more interventionist ECB, one that would act – as other central banks like our own Bank of England and the US Federal Reserve have done – as a lender of last resort to zone member states when all else fails? Not a bit of it.

Draghi went to Cannes, with the impact of his rate cut buried beneath the outcry over the Greek referendum plan, to insist that it was “pointless to think” that individual governments could have their borrowing costs reduced by a sustained period of external intervention.

The ECB might move into the sovereign bond markets from time to time, but, as in the Trichet era, it still isn’t in the business of bailing anyone out.

To borrow one of David Cameron’s favourite images, that just about put the final “big bazooka” through lingering hopes of the Cannes summit delivering anything of substance.

A key plank of the deal reached at the eurozone summit the previous week was to beef up the EFSF, the European Financial Stability Facility, a firewall that would be nearly tripled in size to a trillion euros, in part by persuading big creditor nations like China to devote some of their surpluses to the task of stabilising the eurozone.

An emissary had already been dispatched to Beijing. But here in Cannes, round the table, were the leaders of not just China but other nations with the biggest current account surpluses, like Japan, Saudi Arabia and Russia. Here, too, was Barack Obama, president of the G20 member with the biggest deficit. But leader, too, of a country that can still muster enormous financial firepower.

Just the moment to pass round the begging bowl? Bad move. Given Papandreou’s antics, Berlusconi’s gargantuan ego and the ECB’s refusal (backed by Berlin) to have anything to do with the whole interventionist business, the main non-European members around the table refused to cough up. Angela Merkel was the first to confirm that hardly anyone at the meeting had offered to put any money into the EFSF.

There was a Plan B to put more funds behind the IMF. It could even be done by repeating a deal Gordon Brown had orchestrated at the G20’s 2009 summit by enhancing the IMF’s special drawing rights, in effect allowing the fund to print money for any sovereign in trouble that needed it. America wouldn’t have that. Nor would Merkel, speaking for Germany.

Boosting the IMF’s firepower isn’t off the agenda altogether. There is to be further talk of what can be done in that regard in February, at the next G20 finance ministers’ meeting. But now that Merkel and Sarkozy have put the prospect of Greece leaving the eurozone on the table, who knows who else might be nudged towards the exit?

Three or four more months of deep uncertainty about eurozone stability can only compound the immediate reality facing Europe as a whole – an ongoing period of anaemic growth, squeezed living standards and rising unemployment. Little wonder Mr Cameron sounded so downbeat.

He and George Osborne both know that, with every quarter of near stagnation that passes, the credibility of their own austerity programme unravels. And the prospect of a decisive electoral victory in 2015 recedes.

They needed a deal on the eurozone at Cannes. If there is to be some IMF fix in February, they need it to be one that will not look as if any British taxpayers’ money is going into propping up our 17 neighbours, otherwise the eurosceptics at their backs will be all over them.

For those of us simply looking on and fearing for what this all means for the livelihoods of our families and friends, our biggest concern should be the failure of political leadership, demonstrated this week in the South of France, to measure up to the challenge this crisis represents.

They have been kicking this can – Cannes even – down the road for far too long. If they don’t match up to the challenge soon, it will explode.