G-20 leaders leave Europe's problems to Europe

CANNES, France -- Leaders of the world's major and developing economies left Europe Friday in the same way they found it — facing down its own government debt crisis, with little to show from their allies but encouragement.

Italy, the most fiscally troubled member of the G-20, agreed to open its books to the International Monetary Fund for independent assessment. China, perhaps the least troubled by years of global economic malaise, agreed to increase the flexibility of its exchange rate but made no specific promises. The United States, facing its own economic and political troubles, didn't open its checkbook at all.

The final communique from rain-drenched Cannes called for the IMF to step into the breach if more European nations besides Greece are threatened with imminent default. But no money was added to IMF's $390 billion pot — only the promise to deploy various options if necessary.

In that way, it was similar to Europe's pledge last week to create a $1.4 trillion firewall against future defaults: It's not clear where the money would come from.

"A few minor steps to promote growth and financial stability were agreed upon. But the outcome will do little to calm markets or redress the debts and imbalances that continue to threaten stability and growth," said Charles Kupchan of the Council on Foreign Relations, former director for European affairs at the National Security Council.

President Obama and senior administration officials put a positive spin on the two-day summit, held at the same Espace Riviera frequented by Cannes Film Festival glitterati. They said leaders from both developed and emerging economies agreed to stand behind Europe as it fills in the details and seeks to speed up implementation of its rescue plan.

But it was clear that, just as the U.S. solved its own crisis in 2008-09 by bailing out troubled banks and companies and enacting tough new financial regulations, Europe will have to be the financier of first resort.

"The European political leadership understands how much of a stake they have in making sure this crisis is resolved," Obama said in a short news conference after the conclusion of the two-day summit. "They're sending a message to the markets that they're standing behind the euro."

Based on events here, not all those political leaders are likely to be around to see the crisis through. Greek Prime Minister George Papandreou faced a difficult vote of confidence in Parliament following his aborted effort to hold a referendum on the revised bailout plan for his debt-ridden nation. Italian Prime Minister Silvio Berlusconi put himself at risk by agreeing to IMF monitoring.

The rescue plan, including a requirement that banks keep more capital on hand, will continue to be fleshed out when European finance ministers reconvene Monday. "What the world looks for at moments such as this is action," Obama said, indicating more work is necessary to save Europe.

Obama spent much of his two days here huddled with the eurozone's two major powers, French President Nicolas Sarkozy and German Chancellor Angela Merkel. They had calmed financial markets, as well as their fellow leaders, by reading Papandreou the riot act on Wednesday night and threatening to withhold further rescue fund loans until the referendum firestorm was past. A day later, Papandreou pulled the plug on the vote.

"We heads of state and government have one objective, which is to show that we have a hold on events, we have a grip, we are not simply subjected to events," Sarkozy said in a joint television interview with Obama at the end of the summit.

In a sense, preventing Europe's own rescue plan from unraveling was the major news at the summit, and it came before Sarkozy had called the first session to order. The entrance onto the scene of leaders from six continents merely put heft behind Europe's determination to climb out of its financial and economic disarray.

"One should not underestimate the intangible value of regular meetings among global leaders, nor the time it takes to come to agreements and act," said Kati Suominen of the German Marshall Fund of the United States. "But the G-20's failures to meet their prior commitments on global rebalancing, concluding the multilateral Doha trade round and crafting common principles for unwinding failing multinational banks risk undercutting the group's credibility and relegating it to irrelevance."

A number of U.S. experts in international economics and finance rated the G-20 a minor success on some fronts and an abject failure on others:

•The agreement to use the IMF as a backstop only if Europe runs out of money was seen as a net positive. Developing nations prefer to offer assistance through the fund, which can act as an enforcer of policy reforms undertaken by debt-racked countries.

•The continuation of financial system reforms first agreed to in Washington three years ago, and the bolstering of the Financial Stability Board's ability to police them, was applauded by Daniel Price, managing director of Rock Creek Global Advisors and formerly deputy national security adviser for international economic affairs under President George W. Bush.

•A pledge by countries with large trade and budget surpluses, such as China and Germany, to boost domestic consumer demand was rated thumbs-up, provided those nations follow through on their commitments.

•A commitment to increase growth and create jobs was viewed as a good thing but, like others, lacking in detail. "This is rhetoric only, as every member … will only do what they feel like doing," said Jacob Kirkegaard of the Peterson Institute for International Economics.

"The focus remains on 'confidence' and fiscal consolidation," said the institute's Edwin Truman, a former Treasury and Federal Reserve official. But references to using government benefits and other measures to spur growth "is important in tipping the discussion a bit toward stimulus."