Greece may leave Euro, leaders admit
Baku, November 4 (AZERTAC). The G20 is planning to increase the crisis-fighting firepower of the International Monetary Fund after the start of its summit was dominated by the first open admission from EU leaders that it might be necessary for Greece to leave the eurozone if the single currency is to survive.
George Osborne said there was a "real sense of urgency" on a day that saw an emergency interest rate cut from the European Central Bank, backtracking from Greece over a referendum on its bailout conditions, and a recognition that the IMF may need extra resources to cope with a deteriorating global economy.
Amid distinct echoes of the financial market meltdown in the autumn of 2008, European leaders put massive pressure on the embattled government of Greek Prime Minister George Papandreou, forcing the abandonment of plans to hold a referendum and triggering a political showdown in Athens.
Downing Street sources said "strong political pressure to sort itself out" had been put on Greece, while Barack Obama said it was time to "flesh out" Europe`s bailout plan.
Share prices rose towards the end of the day as it became clear that Papandreou had been forced to shelve his referendum plans and was seeking to put together a government of national unity that would agree to Europe`s bailout conditions.
His hold on power looked increasingly tenuous last night after his decision to put the bailout terms to the Greek public was condemned by the finance minister, Evangelos Venizelos, and the opposition said the prime minister's resignation was a precondition for a national unity government. Papandreou was reported to have later indicated he could step down even if he won today's knife-edge vote of confidence in parliament.
"He was told that he must leave calmly in order to save his party," one source told Reuters on condition of anonymity. "He agreed to step down. It was very civilised, with no acrimony."
The summit host, Nicolas Sarkozy, took credit for changing sentiment in Greece, saying "the message addressed to the whole Greek political class by France and Germany" had focused minds. "Things are progressing," the French president added. "We have said clearly that we want Greece to stay in the euro, but we cannot wish for this if she does not want it herself. We have to defend the currency ... we cannot accept the breakup of the euro. That would mean the breakup of Europe."
Dealers said the mood had also improved after the ECB took action to halt Europe`s slide towards recession, cutting its key interest rate from 1.5% to 1.25%. In the summer, the ECB twice raised rates to head off inflationary pressure.
Mario Draghi, who took over as ECB president only this week, admitted: "What we are observing now is slow growth, heading towards a mild recession by year`s end." Draghi expressed strong resistance to the ECB being used as a lender of last resort, insisting that it was not its remit.
The G20 will now seek to shore up confidence both by beefing up the IMF's finances and by publishing an action plan for global growth that will include a call for Germany, China and Japan to expand their domestic economies and a commitment by Italy - seen as crucial in the fight to hold the euro together - to tackle its public finances.
"The only way to properly ensure market confidence in the eurozone is for the European Central Bank, alongside the bailout fund, to be given the political support it needs to act as lender of last resort when liquidity problems arise. That is the logic of the monetary union these 17 countries signed up to," Balls said.
The fragile sentiment in the markets was illustrated by Barclays chief executive Bob Diamond, who told the BBC it was conceivable that a major European bank could go bust if the crisis got worse: "The question is, can it be managed … without creating systemic risk, which was the big issue around the Lehman Brothers collapse."
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