Sarkozy Under Pressure From G20 Leaders
Associate Editor, CNBC
The leaders of six members of the G20 group of world economic powers issued a joint open letter to the French president Nicolas Sarkozy on Thursday, calling for decisive action to be taken over the eurozone debt crisis.
The letter, signed by the leaders of Australia, South Korea, the UK, Canada, Indonesia and Mexico, calls for “hard policy decisions” to be agreed at the November meeting of the G20 in Cannes, during the French presidency of the G20. It also states that all members of the G20 should help restore confidence to avert a second financial crisis and global recession.
In the letter prime minister Julia Gillard of Australia, prime minister Stephen Harper of Canada, president Susilo Bambang Yudhoyono of Indonesia, president Felipe Calderon of Mexico, president Lee of South Korea and the UK’s prime minister David Cameron tell president Sarkozy: “We fully support your call yesterday that the priority of the G20 must be to “help the world find the path to growth”.
Significantly, the six leaders apply pressure on the French president to resolve the eurozone debt crisis.
“Eurozone governments and institutions must act swiftly to resolve the Euro crisis and all European economies must confront the debt overhang to prevent contagion to the wider global economy,” they wrote.
“The July agreement to strengthen the Eurozone Financing Facility was an important first step. Euro countries now need to ratify this agreement as soon as possible, alongside implementing reforms to deal with excessive deficits, improving economic competitiveness, and acting now to strengthen banking systems."
“The Eurozone must look at all possible options to ensure long-term stability in the world’s second largest international currency," they added.
French banks, particularly BNP Paribas , Credit Agricole and Societe Generale, have been the subject of market speculation for several weeks over fears about their exposure to Greek sovereign debt.
President Sarkozy and German chancellor Angela Merkel have met on several occasions to discuss the eurozone debt crisis in the last two months. The French president also recalled the French Assembly from its summer break to push through further austerity measures in the country after fears grew the French banking crisis could turn into a sovereign crisis.
Sarkozy was reportd to have assured US president Barack Obama on Wednesday the euro zone intends to resolve the euro crisis and support Greece, Reuters reported, citing a French presidential source.
The source told Reuters the two leaders, who met in New York on the sidelines of the annual UN General Assembly session, also discussed the idea of including the Chinese yuan in the International Monetary Fund's special drawing rights.
David Cameron played a significant role in drafting the letter and in coordinating the response to the current global economic crisis among the other world leaders, UK government sources told CNBC.com.
There was no immediate comment available from the Elysee Palace.
A spokesman for the prime minister told CNBC.com the letter was consistent with the government’s view of global economic events. The spokesman said that the omission of countries like China and the United States from the letter was not significant.
“All G20 nations need to take greater action to restore growth and confidence to the global economy that includes obviously China and the United States as they both have a significant impact on global economic growth,” the spokesman said.
News of the letter came as global markets were involved in yet another sell off.
European markets were down around 4 percent across the board on Thursdayafter economic data showed China's manufacturing sector contracted for a third straight month in September.
The world's second-largest economy is especially vulnerable to fading demand from the United States and Europe, its biggest export markets.
That followed the announcement by the Federal Reserve on Wednesday that it would be implementing “Operation Twist” whereby it would lower long long-term borrowing costs and bolster the battered housing market by saying it would sell $400 billion of short-term Treasury bonds to buy the same amount of longer-term US government debt.
This was its latest attempt to kickstart growth that slowed to a crawl over the first half of the year, but global markets were unimpressed.
The letter also included a commitment to making progress on the Doha round of negotiations on world trade, seen as a significant sticking point for several members who have been stuck in limbo since mid-2008 as the US, India and China failed to reach agreement over agricultural import rules.
“The failure to date to conclude a global trade deal is robbing the world of a much-needed economic stimulus," the letter said. "It is also affecting public confidence in our ability to deliver what leaders have promised to do repeatedly. International trade can be the engine of global growth and development and we must keep it moving forwards.”
The letter goes on to state that “the barriers to action are now political as much as economic.”
“We must send a clear signal that we are ready to take the actions necessary to maintain growth and stability for all for the future,” it concluded.