A meeting of G20 nations concluded Saturday with an ultimatum to the European Union: fix the simmering debt crisis in one week. The “or else” implied in the ultimatum is a complete meltdown of the global economy, worse than that which followed the Lehman collapse.
The meeting of G20 leaders, according to Bloomberg, saw an endorsement of segments of the plan currently being devised by the EU with three main aims: keep Greece from defaulting, recapitalize the banks and halt the contagion currently playing hob with the EU economy. Leaders gave the EU until Oct. 23 to come up with deliver of a completed plan; on that date European leaders will meet in Brussels.
Joachim Fels, London-based chief economist at Morgan Stanley, was reported to say in a note to clients on Sunday that that meeting “has the potential to turn into a positive historic moment. But it could also easily turn into a negative catalyst.”
The complete details of the plan have yet to be released; however, those familiar with it have cited a number of elements, including a write-down of Greek debt by as much as 50%—a measure that is unpopular with banks holding the bonds. It also includes a strengthening of the European Financial Stability Facility, the rescue mechanism for peripheral states’ bailouts, and a way to bolster the banks.
The debt write-down is not the only unpopular measure. EU leaders cannot agree—yet—on ways to strengthen the stability facility or even how to shore up banks. Even the basic rescue of Greece is in question, as Athens must push through still more tough economic measures as the population demonstrates against those already approved.
It has failed thus far to make the numbers required to receive the financing included in the bailout deal reached in July—a deal now in danger, since it originally included a write-down of some 21% of Greek debt, a measure now seen as inadequate.