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G20 to focus on eurozone

03. November 2011. | 10:49

Source: Voice of Russia

The deepening crisis in the eurozone may dominate over all other issues on the Cannes G20 summit’s agenda, Director of the French Institute of Political Sciences Caroline Postel-Vinay said during the Moscow-Paris video conference held on the eve of the summit.

The deepening crisis in the eurozone may dominate over all other issues on the Cannes G20 summit’s agenda, Director of the French Institute of Political Sciences Caroline Postel-Vinay said during the Moscow-Paris video conference held on the eve of the summit.

The G20 leaders will have to address complicated issues: what real measures need to be taken to prevent the eurozone from sliding into what may become a disastrous catastrophe for the European Union, a key mega project of the second half of the 20th century. When the G20 format was only just beginning to emerge in the late 1990s, a major financial crisis broke out in Asia, threatening to shatter the foundations of global fiscal stability. It took tough austerity measures to avert the looming cataclysms.

But the global financial system has suffered considerable changes in the past years. In the opinion of Russian economist Yakov Mirkin, not only economic, but also some other, extraordinary mechanisms may be now needed, including restrictions on financial transactions for countries whose sovereign debt exceeds a certain level, like Greece, for example, whose enormous budget deficit generated a eurozone debt crisis. French researcher Jacques Sapir thinks that the problem is not only about Greece.

"When Mr. Papandreou proposed a referendum, he undermined trust in a European consensus, fragile as it is, on bailout aid to his country. The sums Greece was supposed to receive were lower than it had requested. But half of the Greek debt was intended for write-off. However, the idea of a referendum threatens to derail this plan and push the risks higher. Some European and American banks have already raised objections to the debt write-off principle for the Greek banks."

Two themes are likely to take center-stage in Cannes: the slow global recovery after the 2008 crisis and Greece’s bombshell decision to hold the bailout referendum. Ruslan Grinberg, Director of the Russian Institute of Economics, believes that against the backdrop of Europe’s financial woes, the G20 leaders may take a much more consolidated stance than they ever have.

"Everyone realizes that we are all hostages to very unpleasant events. If the eurozone explodes, the whole world may explode. The G20 will most likely pass decisions that will calm down financial markets for a while and will show solidarity, may be partially fictive, but that’s better than nothing."

Yakov Mirkin is less optimistic. He thinks that the global finances in their current turbulent state will be increasingly harder to regulate. But, he says, the crisis can be overcome if an opinion prevails among the eurozone partners that the debt of each individual member state is the internal debt of the entire eurozone.

Another issue the G20 leaders will have to look at is how to minimize the so-called “high-speed” speculative trading that leads to “financial bubbles”.

The potentially worsening situation in the eurozone will inevitably affect other countries, whose leaders will gather in Cannes today. For instance, an industrial slump in the eurozone will be a very unfavorable scenario for Russia, the largest supplier of energy resources to Europe.


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