European leaders scrambled to buy themselves time in the battle to save the eurozone Tuesday, promising their G20 partners they would integrate their banking sector and restart growth. Backed by key EU members including Germany, France and Britain, the G20 summit followed two days of talks in the Mexican beach resort of Los Cabos during which leaders from outside Europe demanded they take firm and quick action.
"In Los Cabos the seeds of a pan-European recovery plan were planted," said IMF managing director Christine Lagarde, looking forward to next week's European summit, when more a more concrete action plan is expected to emerge.
US President Barack Obama spoke for many of his colleagues when he expressed relief at Europe's "heightened" urgency, adding: "I am confident that over the next several weeks, Europe will paint a picture of where we need to go."
In the joint statement, the G20 leaders pledged to "take the necessary actions to strengthen global growth and restore confidence."
And the heads of Europe's major economies agreed "to consider concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalization, and deposit insurance."
But, far from the moat-ringed conference center on a rocky hills above San Jose del Cabo, bond markets jacked up rates on Spanish and Italian debt amid self-fulfilling fears that the crisis that sank Greece is spreading again.
The leaders said eurozone members will "take all necessary measures" to stabilize the single currency bloc, including moves to "break the feedback loop" that has weak governments piling on more and more debt to bail out their banks.
In addition, should economic conditions worsen once more, the countries with more leeway in their budgets "stand ready to coordinate and implement discretionary fiscal actions to support domestic demand," it said.
The United States, the International Monetary Fund and the European Central Bank have all urged greater banking integration in Europe, hoping to instill more confidence as banks falter in some of the worst-hit nations.
Obama, worried Europe was not moving resolutely enough to contend with an economic crisis that could torpedo his hopes of re-election in November, huddled in a special meeting with European leaders.
He met with Germany's Angela Merkel, France's Francois Hollande, Spain's Mariano Rajoy, Italy's Mario Monti and Britain's David Cameron as well as European Union chiefs Jose Manuel Barroso and Herman van Rompuy.
Shortly after the Obama-EU meeting, the wording of the final G20 communique was confirmed, but there were few clues given about the path forward.
The new element was the move towards a banking union. Europe-wide guarantees on deposits and a central authority to close banks that go bust are seen as a way to promote the flow of cash through the system and give more confidence to lend.
Supporters believe union would break a cycle in which banks are obliged to rely on their own troubled countries' governments and central banks, creating a vicious cycle of mounting debt that brings down all of the institutions.
Germany, the largest economy in Europe, has resisted debt burden-sharing out of concern that its own comparatively healthy system will be obliged to help out weaker banks in countries that have lacked discipline.
Merkel remains the driving force behind the eurozone's determination to privilege austere deficit busting over stimulus spending, although US and other officials say her position is softening.
"European leaders committed to take all measures necessary to safeguard the integrity and stability of the euro area and break the feedback loop between sovereigns and banks," Lagarde said.
The G20 summit followed hot on the heels of Sunday's pivotal polls in debt-ridden Greece, where parties committed to the terms of their EU and IMF-led bailout held off a strong challenge by a leftist anti-austerity party.
The IMF has indicated that it could now be open to a renegotiation of Greece's 130-billion-euro ($165 billion) bailout program.
But hopes that the Greek vote had helped the single currency bloc turn a corner in the crisis were dashed as attention moved onto the fragile economies of other EU members and Spanish borrowing costs soared to record levels.
US officials have called for Greece to be given more time to get its affairs in order, but Merkel remained unmoved.
"Elections cannot call into question the commitments Greece made. We cannot compromise on the reform steps we agreed on," she told reporters on Monday.
Progress was made in Los Cabos in boosting the resources available to the IMF to help protect vulnerable countries from the backwash of the eurozone crisis.
China led emerging powers in topping up pledges to bring the new pool for emergency loans up to $456 billion (361 billion euros), though only in exchange for a greater say in Fund affairs.
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