The setting for this year’s G-20 summit meeting is the Riviera Convention Center that hosts the Cannes Film Festival. President Obama will be walking the red carpet, but it’s the European leaders who are stars of this show.
The Europeans are facing pressure to erect a financial “firewall” that will prevent the debt problems now plaguing Greece from spreading to the rest of the Continent and beyond.
“The crisis in the eurozone has a direct effect on the American economy,” said White House spokesman Jay Carney. “It is why it’s so important that Europeans implement the important decisions that they made last week.”
Financial markets cheered last week’s sneak preview of the European rescue plan, even if some critics found the storyline far-fetched. But in a last-minute plot twist, Greece asked for a rewrite, with a call for a referendum.
Jacob Kirkegaard of the Peterson Institute for International Economics says no one knows how this big-budget drama will end.
“That very fragile deal, which was already very uncertain, has just gotten a lot more uncertain,” he said. “And if that unravels, you have a potentially uncontrolled Greek default with all the negative implications for the entire European economy and the global economy as a whole.”
Ultimately, the U.S. is even more concerned about what happens in other vulnerable European economies, such as Italy and Spain, and making sure that banks are strong enough to withstand whatever happens.
U.S. Largely A Bystander
The International Monetary Fund, which is partly bankrolled by the U.S., could play an important role in the rescue plan. But otherwise, says Undersecretary Lael Brainard of the Treasury Department, this is Europe’s problem to fix. The U.S. is offering moral support, but not cash.
“We are, along with other members of the G-20, going to stand with Europe and support Europe,” she said. “Europe has substantial resources that it can bring to bear to address the challenge and we have a lot of confidence that they will do so.”
Whenever that confidence wavers, U.S. stock markets take a beating, and the administration scolded Europe earlier this year for “scaring” the rest of the world. Kirkegaard says President Obama is in no position to lecture at this summit, though, given his own trouble in keeping America’s economy and federal budget on track.
“He will unfortunately come to the G-20 with a very depleted arsenal of political capital,” Kirkegaard said.
Meanwhile, Europe is looking to China as a possible source of cash for its financial firewall. Some argue that any gain in China’s influence must come at the expense of the United States. But Mike Froman of the National Security Council disagrees, saying it’s a natural progression in a world where economic power is shared more broadly.
“The whole idea of the G-20 is to recognize that emerging economies have an important role to play, commensurate with their size in the global economy; that they need to have a seat at the table and that there are certain responsibilities that go along with having that seat at the table.”
Still, any money that China supplies to Europe is likely to come with strings attached. And that could make it harder for European countries to press for reforms like a revaluation of Chinese currency.
Still, the Chinese currency, banking reform and all the other business that usually occupies leaders at a G-20 summit will have to settle for second billing this week. There’s just one big spotlight at Cannes, and it is shining brightly on the European debt crisis.