It was a deceptive calm. The feeling of confidence generated by the October 27 agreement in Brussels aimed at finding a solution to the Greek debt crisis was shattered on Monday by the surprise announcement by Prime Minister Georges Papandreou that he would hold a national referendum to approve or reject the agreement. European leaders could hardly contain their surprise and anger at Mr. Papandreou's decision which seeks to shore up his weak government by a simulacrum of public consultation.
Bourses nosedived on Tuesday with the future of the Euro once again at the heart of market nervousness. The carefully planned agenda of the G20 Summit which opens on Thursday in the Riviera city of Cannes was also turned upside down by this new state of uncertainty. Issues like regulation to curb volatility in commodities and exchange markets, chapters on development, food security, agriculture or global governance are likely to be pushed off the agenda which will in all probability be hogged by the one burning question of the day — the future of the Euro and the fate of large Euro-zone economies like Italy or Spain with its ripple effect on economies across the world.
India is an invitee with Prime Minister Manmohan Singh scheduled to arrive here on Wednesday, but unlike China, India will not be supping at the top table. The PM will meet President Nicolas Sarkozy for a brief one-on-one meeting on Thursday morning. Chinese President Hu Jintao who has already spoken to Mr. Sarkozy will dine privately with him on Wednesday.
This year the G20 Summit, which brings together the world's 20 largest economies will be anything but dull. Cannes already looks like a fortress with around 12,000 anti-riot police deployed in the downtown area and it is impossible to move around without special passes. Over 10,000 anti-globalisation protesters have begun gathering in the neighbouring city of Nice despite attempts by French police to exercise strict controls on the border with Italy. Protesters are determined to make their voice heard and police fear infiltration by anarchists belonging to the “Black Bloc” movement, mainly from Italy, France, Germany and Spain, who actively seek confrontation with law enforcement personnel.
The shadow of China also looms large over the summit. The decision by Euro-zone leaders to seek outside funding for the European Financial Stability Facility (EFSF), essentially from China, is causing serious political ripples here. Opposition Socialists, several prominent right wingers as well as the extreme right in France and political heavyweights in Germany have denounced the move to seek Chinese help. One socialist leader described the attempt to ask China to back the Euro-zone's bail out fund as “a financial Munich” — appeasement of an ever voracious China.
The Europeans began wooing the Chinese almost as soon as the agreement in Brussels to boost the leverage of the EFSF from the present €440 billion to about €1.4 trillion (in case Italy and Spain find themselves similarly imperilled) was signed, with EFSF head Klaus Regling flying to Beijing to gauge interest.
But China has made it increasingly plain that its nod to forking out some €70 billion to back the EFSF will come at a cost. “The last thing China wants to do is throw away the country's wealth and be seen as just a source of dumb money,” Li Daokui, a member of the monetary policy committee of China's Central Bank said in an interview last week. China could also ask for better access to European markets and demand that the West stops harping on the country's human rights policy.
French officials on Monday were quick to underline that Chinese investments in the EFSF would be of a purely commercial nature, not linked to political concessions. But few believed them.
