Euro crisis will define G-20 summit starting Thursday

CANNES, France -- Two-and-a-half years after digging themselves out of the deepest financial hole since the Great Depression, the world's economic powers that meet here this week have dug themselves another hole — and it's getting deeper.

That means the G-20 summit beginning Thursday will mirror those held in Washington and London in 2008 and 2009, when world leaders coalesced in crisis before dividing over whether to pursue growth or trim budgets.

Rave reviews followed the London summit, and by the time leaders met in Pittsburgh two years ago, they were on the road to recovery. Or so they thought; the wheels came off in 2010.

French President Nicolas Sarkozy has vowed that this summit will be patterned after London's, which he said at the time had been successful in "redefining capitalism." Great Britain's prime minister then, Gordon Brown, called it "the day the world came together."

Ah, the good old days.

Less than a week after European leaders announced a rescue plan to ease the eurozone's government and banking debt crises, Greek Prime Minister George Papandreou threw grease on the fire by calling for a national referendum on the deal rather than accepting its terms.

Most experts believe that given the chance, Greeks would vote against the latest bailout plan, despite its 50% write-down of some Greek debt. The debt crisis has hit hardest in Greece, where the government has been forced to cut services and raise taxes.

"The G-20 meeting becomes all the more difficult now that the (European Union's) bailout plans are effectively on hold," says Charles Kupchan, senior fellow at the Council on Foreign Relations.

"These crises keep hijacking G-20 summits," says Kati Suominen, an expert in global economics at the German Marshall Fund of the United States. "I would think the emerging G-20 economies that were just yesterday willing to help bail out the eurozone would be far less likely to step up to the plate after what happened in Greece."

The situation threatens to divide Europe just as President Obama and other world economic leaders descend on the Riviera for two days of intense discussions.

Obama has called on European leaders to solve their own crisis, much as the United States did with moderate success in 2009. But as in the past, he is likely to play a mediator's role in bringing factions together.

While the next few days and weeks will be crucial for Greece and Europe, it's also a test of whether the G-20 can continue to be the world's pre-eminent economic stabilizer.

After their initial success in London, the leaders agreed in Pittsburgh to seek "strong, sustainable and balanced growth." But what little growth there's been hasn't been any of those things.

Starting in Toronto and continuing in Seoul, South Korea, last year, G-20 leaders agreed to disagree. Some, including Obama, continued to pursue pro-growth policies. Others, led by Germany and Great Britain, veered heavily toward austerity and deficit reduction.

And developing nations such as China that have enjoyed greater growth have yet to take the bold steps needed to juice domestic consumption, thereby helping to rebalance the global economy between savers and spenders, creditors and debtors.

The question, says Daniel Price, former deputy national security adviser for international economic affairs in the Bush administration, is "will Cannes put us back on the trajectory of the Washington and London G-20 summits, in terms of repair and reform of the global economy?"

The answer may be: only until the next crisis.