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World leaders wrestle with eurozone issue

07:00 AEST Wed Jun 20 2012
AAP
World leaders at  G20 summit in Mexico
World leaders at G20 summit in Mexico

World leaders struggled Monday to inject confidence into the global economy at a G20 summit in Mexico dominated by a spiraling European debt crisis that is spooking markets and paralysing growth.

The heads of the 20 biggest economies welcomed Greek voters' decision to back parties that are committed to the terms of their European Union and IMF-led bailout, but there was no respite for the eurozone from the markets.

Hopes that the Greek vote had helped the single currency bloc get on top of the crisis took a hit as attention turned to the fragile economies of other EU members and Spanish borrowing costs soared to record levels.

Italian and Spanish stocks plunged and the euro fell against the US dollar.

US President Barack Obama, who fears the turmoil in Europe will drag down the broader world economy and damage his own hopes of re-election in November, was to hold a separate meeting later on Monday with EU leaders to discuss the crisis.

As he met the Los Cabos summit host President Felipe Calderon, Obama said the world was "very concerned" about slowing economic growth and said leaders must make sure they do what is needed to stabilize the financial system.

The US leader said the summit should ensure "the economy grows, the situation stabilizes, confidence returns to the markets and, most importantly we're giving our people the chance, if they work hard, to succeed and do well".

All eyes will be on Germany's Chancellor Angela Merkel, but there was no sign she might soften her hardline stance on the austerity measures Europe imposed on indebted eurozone members, which some argue have sabotaged economic growth.

"Elections cannot call into question the commitments Greece made. We cannot compromise on the reform steps we agreed on," Merkel told reporters on arrival in the Mexican beach resort of Los Cabos just ahead of the summit.

"We, as Europeans, will make clear in a common effort that we are tackling the growth problems in Europe decisively through a mixture of structural reforms, fiscal consolidation and stimulus for growth."

Merkel said that full details of the European plan would not be revealed until the European summit at the end of the month, but that she expected a "good" G20.

Eurozone powers agreed last week to provide a bailout loan of up to 100 billion euros to salvage Spain's stricken banks, but the deal failed to quell the intensifying storm on the debt market.

In a sign of the underlying tensions at the summit, EU Commission chief Jose Manuel Barroso bristled when questioned on European credibility and issued a fierce defense of the bloc's handling of the crisis.

"Frankly, we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy," he said.

European Council president Herman Van Rompuy said the draft G20 statement showed "support and encouragement for the euro area countries and leaders and for the European Union as a whole to overcome this crisis".

"We are not the only ones that are so-called responsible for the current economic problems all over the world," he said.

The International Monetary Fund (IMF), hoping to prevent a worsening of the global economic crisis, called last year for $US500 billion in an emergency firewall to support nations at risk of contagion, but the money has fallen short.

Leaders of the so-called BRICS - Brazil, Russia, India, China and South Africa - expressed reluctance in Los Cabos about stumping up more cash until existing funds had dried up and emerging nations were given greater IMF clout.

China's Vice Finance Minister Zhu Guangyao had predicted the group would pledge at least $US60 billion ($A59.45 billion) and thus boost the firewall up to the IMF's target of $US430 billion ($A426.06 billion).

The G20 summit, hosted by Mexico's President Felipe Calderon, was to last two days - with several of the powers present also holding important bilateral meetings on the sidelines.

After a keenly anticipated meeting, Obama and Russian counterpart Vladimir Putin issued a joint call for an end to violence in Syria and said its people should be allowed to democratically decide their future.

Obama sees his "reset" of relations with Russia as a key achievement, despite Putin's often strident anti-Western rhetoric, but the two leaders remain far apart on many issues, in particular the conflict in Syria.