Leaders of the G-20 and guests, from left, FAO Director-General Jose Graziano da Silva, Australia's Prime Minister Julia Gillard, President Barack Obama, Spain's Prime Minister Mariano Rajoy, Germany's Chancellor Angela Merkel, China's President Hu Jintao, Cambodia's Prime Minister Hun Sen, India's Prime Minister Manmohan Singh, Mexico's President Felipe Calderon, Colombia's President Juan Manuel Santos and British Prime Minister David Cameron pose for the family photo of the G-20 Summit in Los Cabos, Mexico, Monday, June 18, 2012. (AP Photo/Andres Leighton)
LOS CABOS, Mexico (AP) — The leaders of the world's largest economies will portray themselves on Tuesday as united behind efforts to boost growth and job creation in order to repair a fragile global economy roiled by fears over the European financial crisis, according to a draft of the statement to be released at the end of the Group of 20 annual meeting.
It's far from certain, however, that the reassuring words will sooth markets whose harsh judgment of the official response to the crisis appears to be pushing Europe closer to deeper catastrophe by the day. On Monday, less than 12 hours after a Greek election quelled fears that the country could make a devastating exit from the Euro, fears about Spain drove that massive economy's borrowing costs dangerously close to the level where it would need a bailout.
The statement by the G-20 leaders includes language that appears aimed at easing the Spanish crisis by reassuring investors that Spain's treasury won't end up eating the costs of the up to 100 billion euro rescue of Spain's banks announced this month. Fears that the responsibility of paying back the bailout would fall on its government helped drive Spain's borrowing costs above the dangerously high 7 percent level.
"Euro area members of the G20 will take all necessary policy measures to safeguard the integrity and stability of the area ... and break the feedback loop between sovereigns and banks," the statement says.
It also places the G-20 on the side of those who have been arguing for a focus on job creation, including through government spending, instead of the budget cutbacks and austerity pushed most notably by German Chancellor Angela Merkel.
And it singles out China and Saudi Arabia for commitments to global economic well-being, lauding a Saudi pledge to keep oil prices from going too high by amping up production from its massive reserves, and praising China for a promise to move away from policies that keep its currency artificially low, giving Chinese exports a price advantage on world markets.
"We welcome Saudi Arabia's readiness to mobilize, as necessary, existing spare capacity to ensure adequate supply," the statement says. "We also welcome the commitment by China to allow market forces to play a larger role in determining movements" in the Chinese currency.
Germany feels that it has been unfairly burdened by its large contributions to international bailouts of economically weaker European countries that overspent for years and, in exchange, it has been insisting on steep cutbacks from aid recipients such as Greece.
Those cutbacks have led to dramatic economic hardship for voters in Greece and other countries. A growing number of European countries having been advocating spending and growth, not austerity, and the G-20 statement appears to place the group of the world's largest economies into that camp.
"We are united in our resolve to promote growth and jobs," the draft says, declaring that the leaders will announce the "coordinated Los Cabos Growth and Jobs Action Plan" to achieve those goals, although the draft does not provide details of the plan.
"Strong sustainable and balanced growth remains the top priority of the G20, as it leads to higher job creation and increases the welfare of people across the world," the statement reads.
It throws its support specifically behind greater government spending as a response to a worsening global economy, saying that countries with the resources "stand ready" to take fiscal action.
The plan says the Obama administration pledged to prevent sharp tax increases and government spending cuts from kicking in at the end of the year, as scheduled under current law, to avoid sending the U.S. into another recession.
As G-20 officials wrangled over last-minute changes in the wording of the statement, European leaders at the summit struggled to reassure the world Monday that they were on the path to solving their continent's relentless economic crisis.
A bailout for Spain's €1.1 trillion ($1.39 trillion) economy would likely outstrip the current global ability to bail it out, even after the International Monetary Fund announced late Monday that a round of contributions had increased its lending capacity to $456 billion, exceeding a round of pledges made in April.
The Spanish delegation to the G-20 bemoaned the rise in the country's borrowing costs and said the market reaction didn't correspond to the reality of Spain's economic strength.
The International Monetary Fund said in a staff report Monday that Europe was unlikely to conquer its budget problems without a greater focus on policies that promote growth. European governments should make it easier to hire and fire workers, simplify government regulations of the economy, and make it easier for workers to move to other European countries for jobs, the fund said, reforms could boost growth in the region by 4.5 percent over the next 5 years.
European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy urged markets to focus on a European summit at the end of the month that they said would help the continent move closer to deeper economic and political integration to match its single currency. The lack of common rules for the countries sharing the euro currency is seen as the primary cause of the current crisis. The EU summit would bring progress on common banking rules for member nations, Barroso and Van Rompuy said, although they cautioned, in sometimes defensive tones, against expectations of short-term results.
"I can assure you that even if we in June will not take definitive decisions, the path, the trajectory is very clear for everybody," Van Rompuy said. "In this case, the pace is less important than the decision we make."
Barroso took a more aggressive tone, declaring that "the crisis originated in North America" with the collapse of real-estate-linked financial products and taking a subtle dig at China and other non-democratic countries at the summit.
"Not all the members of the G-20 are democracies, but we are democracies, and we take decisions democratically. Sometimes this means taking more time," he said. "Frankly we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy, because the European Union has a model that we may be very proud of."
President Barack Obama met with a series of European leaders including Merkel.
Even the good news about Greece was overshadowed by lingering disagreement over the terms of the country's international bailout, which required harsh cutbacks in spending that many in Greece blame for widespread hardship suffered by ordinary citizens.
The parties that Europe hopes will form Greece's next government are committed to the bailout, but want to renegotiate some of the stricter terms.
However, Merkel indicated that finding room for negotiation might not be so easy, saying Greece had to hold its side of the bargain and that "we have to count on Greece sticking to its commitments."