Italian job a rare piece of G20 progress

Julian Harris
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POLITICIANS adore pomp and ceremony, yet last week’s sight of grinning world leaders lining up for their grand group photograph in Cannes seemed somewhat inappropriate.

While the glamorous French seaside town may be used to film stars coveting the limelight, on this occasion one may have expected a little more humility and even embarrassment from the protagonists of the Eurozone saga.

Credulous investors piled back into risk assets when Eurozone leaders finally announced some parts of a rescue package at the end of last month, having pushed back their deadline to 4am.

However, the failure of the G20 to achieve anything of substance – combined with ongoing political farce in Greece – has come as a timely reminder that the metaphorical can continues to be kicked down the road. With Italy’s economy looking in a more perilous state every day, a convincing solution to the debt crisis remains elusive.

“At the G20 finance ministers’ meeting on 15 October, the Eurozone governments were tasked with coming up with a credible plan to stop the rot in time for the week’s Cannes summit,” reminded Andrew Kenningham of Capital Economics in a note. “They failed to meet this deadline in spectacular fashion.”

Any hopes that the wider world would come to the rescue – including parts that actually have decent economic growth – were dashed, with no commitments made. Instead, we were left with sadly predictable diplomatic spin: “We stand ready to ensure additional resources could be mobilised in a timely manner,” the G20 assured.

A classic schoolboy trick followed – a solemn pledge to meet (yet another) deadline, as finance ministers were urged to work on “a range of various options” in time for the group’s February meeting.

There was some solid progress, however, with the Italian representatives agreeing to a “Staff Monitored Programme” from the IMF – essentially allowing external evaluation of the country’s efforts to get its finances under control, even without the supposed benefit of a bulked up IMF loan. The additional pressure, analysts hope, may finally see reforms being passed in Rome.

● European leaders hoped that governments from emerging economies might contribute to a new special investment vehicle (SPIV) through which Eurozone authorities could ease pressure in the bond markets of troubled member states. However, while such a deal remains on the table, no agreement was reached.

● Finance ministers have been tasked with looking at more conventional methods – “including bilateral contributions to the IMF, SDRs, and voluntary contributions to an IMF special structure such as an administered account.”

● A proposal for the IMF to issue Special Drawing Rights (SDRs) was reportedly knocked back by German chancellor Angela Merkel. If agreed to, the SDRs could be used by one member state to lend to others, as well as increase the reserves of a country, thereby providing more financial stability.

● Yet shadow chancellor Ed Balls hit out at the promotion of the IMF as a solution: “The IMF’s job is not de facto to become the central bank of Europe”, he said. “The IMF resources should not bail out Spain and Italy, that’s the ECB’s job.”