Greek debt crisis threatens to overturn carefully planned G20 agenda

“History is being written at Cannes” boasts a G20 hoarding at this resort city, home to the world's most prestigious film festival which is hosting the 2011 Summit of the 19 largest global economies and the European Union.

The slogan couldn't have been truer. Financial and economic history, if not the world's then that of the European Union is certainly being written here and the carefully planned agenda dealing with agriculture, price volatility, development and global governance has been turned on its head by the latest developments in the Greek debt crisis. The Greek crisis, which many believed was sorted out last week, has literally hijacked the G20 summit.

Greek Prime Minister Georges Papendreou's decision to seek his electorate's approval for the eurozone's bailout plan has caused consternation and anger in Europe with markets nose diving at this renewed uncertainty. Mr. Papendreou has been summoned to Cannes for an emergency meeting with German Chancellor Angela Merkel, French President Nicolas Sarkozy and IMF chief Christine Lagarde before major pre-summit bilateral talks between various world leaders get under way.

Mr. Papandreou goes to the meeting strengthened by the fact that his Cabinet gave its wholesale support to his proposal to hold a referendum. Ms. Merkel in a communique indicated that Germany still expected the October 27 agreement to go into effect, while Mr. Sarkozy, who reportedly was furious at the Greek decision, said dryly, “I am telling the Greeks that this is the only way out of the Greek debt crisis.”

Prime Minister Manmohan Singh, who arrived here on Wednesday in a pre-departure statement released to the media said that “The twin Summits of the European Union and eurozone a few days ago have helped to restore a measure of confidence in the markets, but much more needs to be done.” The Prime Minister's statement appeared to overlook the latest developments in Greece, which now threaten to overtake the planned Summit talks.

“Developing economies such as India need a conducive-global economic environment to address the vast challenges they face. In an increasingly interdependent world, we have to be wary of contagion effects and the import of inflationary pressures in our economy. We need to ensure that developing countries have access to requisite funds through multilateral development banks and to investible surpluses to meet their infrastructure and other priority needs.

“The issue of global governance will also come up for discussion. This is an issue of importance to India, and we will work with others to develop effective and representative global governance mechanisms and carry forward the process of reform of the international monetary and financial system,” says the statement.

Besides Mr. Sarkozy, with whom a meeting is scheduled for Thursday morning, Dr. Singh is to hold talks with British Prime Minister David Cameron, Australia's Julia Gillard, and European leaders Herman Van Rompuy and Mr. Jose Manuel Barroso. A meeting with U.S. President Barak Obama has not been confirmed.

However, the scheduled talks on six themes identified by the teams of economists who did the pre-summit preparations may now be scuttled by the Greek issue. The shadow of China also looms large over the summit. The decision by eurozone 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 Euros to about 1.4 trillion Euros (in case Italy and Spain find themselves similarly imperilled) was signed, with the EFSF head Klaus Regling flying to Beijing to gauge interest.

This Summit takes place with leaders almost certain that the Greeks will reject the present bailout plan when they vote in the referendum in January or February. And the three-month hiatus before that vote will be troubled, to say the least. Host country France is worried that its turn might come sooner rather than later. France has an 86 per cent debt to GDP ratio and its AAA rating has already been placed under scrutiny. With elections barely six months away, Mr. Sarkozy, who remains deeply unpopular, is reluctant to take austerity measures which could damage his presidential hopes. Mr. Sarkozy was counting on the success of the G20 Summit to boost his image as a leader able to shape policy and influence world events. But the seemingly unmanageable ground reality may just give the lie to those hopes.

President Sarkozy's office tried to be reassuring despite the turmoil in the markets. “We must show investors that the major economies are capable of providing a long term vision for international governance— through financial regulation and the transformation of international monetary systems. We will do this with determination and with unfaltering solidarity,” a communique from the Elysee Presidential Palace said.

“The G20 must show that each country — for its individual growth — has an interest in seeing that its neighbour is doing well,” the French Presidential office explained.

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