Angela Merkel brushed off criticism of her focus on austerity, as the leaders of the world’s 20 largest economies focused their attention on the crisis in the Eurozone. In Los Cabos the EU largely postponed the discussion on the specifics on how to save the euro to the EU summit at the end of June. The G20 ended with (the usual) broad declarations against protectionism, for stabilising financial markets and for growth.

German Chancellor Angela Merkel shoulders remained broad, withstanding the combined criticism of the United States, some Europeans and emerging economies. She seemed little impressed and refused to move away from her stance and although her rhetoric soften the substance did not . On the contrary, she left no doubt that she expected Greece to fulfil its obligations as soon as possible. This is not a step closer towards including Greece in a solution to the Eurozone crisis.

The specific results of the G20 summit are limited. The Eurozone countries agree to step up their efforts to stabilize their common currency and regain the trust of the financial markets. In return, the G20 has acknowledged that Europe has already made some progress on the issue. US President Barack Obama, the strongest non-European critic of Merkel’s austerity policy, has even said he sees a new mind set across Europe and has expressed his understanding of Brussels’ approach to tackle the crisis. The key message leaders wanted to convey was that the quarrelling was over – as of now, the G20 members want to work together to foster growth and minimize tensions on the international financial markets.

 

It is the second time that a G20 summit has been dominated by the euro crisis. The crisis will need to be solved at EU level. The EU summit at the end of June must live up to the G20’s expectations and not fall short of what’s been promised in Los Cabos if market fears are to be permanently eased.

International Monetary Fund (IMF) chief Christine Lagarde was pleased with the promises made at the G20 summit. IMF resources are set to be increased up by some $456 billion (360 billion euros). The money is not explicitly earmarked for bailing out ailing Eurozone countries, but it can be put to that use.

…break the feedback loop between sovereigns and banks.

– Christine Lagarde, IMF

Lagarde said in her closing statements: “We all are concerned about Europe, particularly the euro zone. In Los Cabos the seeds of a pan-European recovery plan were planted. This must be recognized. European leaders committed to take all measures necessary to safeguard the integrity and stability of the euro area and break the feedback loop between sovereigns and banks. Their intention to consider concrete steps towards a more integrated financial architecture is important…”

In their closing statement, the Eurozone countries promised to take whatever measures necessary to maintain the stability and integrity of the region and to keep financial markets functioning.

Merkel said that the Eurozone nations gave their political support to the shared currency. She said discussions took place concerning a “European institution that would embody the supervision of banks” and “more measures for growth, the adoption of guidelines for shared standards for deposit guarantees and bank reorganization.”

It remains to be seen if the European G20 leaders really recognized the challenges of the euro crisis and will in practise implement the steps urgently required. These steps must be concrete, quick and detailed if they are to restore confidence and include the creation of a banking union with effective regulation, to guarantee deposits and to supervise and regulate banks.

It seemed clear to most at the G20 that with the current Eurozone market conditions, austerity creates downward spirals of negative growth, lack of business and consumer confidence, and unemployment – thus perpetuating the economic problems, not solving them. The PIIGS (and the rest of Europe as well as the global economy) pay the price through youth and general unemployment. The weaker Eurozone countries are also picking up the tab in the form of paying higher yields when they issue their government bonds.

At the EU summit at the end of June there will be increased pressure on Merkel to pick up some (most!) of the tab before the un-employment soar further and the banking system implodes from the toxic feedback loop between sovereign debt and banks. If and when the Eurozone system is allowed to disintegrate, the size of the German tab could quantum leap to everybody’s regret.