G20 Finance Ministers Meet in Crisis Mode
Business + Economy

G20 Finance Ministers Meet in Crisis Mode

PARIS — Top world finance ministers gathered here Friday amid fresh reminders of the instability gripping Europe’s economy, with Spain’s credit rating receiving a fresh downgrade, the strength of European banks called into greater question, and the Italian government confronting a confidence vote for its handling of public spending.

French Finance Minister Francois Baroin, meanwhile, said private investors will likely face greater-than-expected losses on their holdings of Greek bonds — beyond the roughly 21 percent included in a July rescue plan for the country. That July program has collapsed amid a deepening recession in Greece, and Baroin said on French radio Friday morning it is “more or less certain” that banks, pension funds and others will have to shoulder larger losses.

Baroin’s comments were among the most candid acknowledgments yet that European officials are negotiating a direct write-down in the value of Greek bonds — something private analysts have long said was necessary but that European politicians have tried to avoid as a stigma against the 17-nation euro currency region.

Baroin’s remarks also emphasized how the stakes have changed for the Group of 20 finance ministers, who gathered for what was originally envisioned by host nation France as a lofty discussion of issues such as better controlling world food prices and reforming the international monetary system.

Instead, they will be hunting for ways to keep a global slowdown from slipping into a new recession, trying to calm new tensions between the United States and China, and focusing pressure on Europe over its fumbling and so far ineffective response to government debt and banking problems.

The meeting takes place just days after the U.S. Senate approved a bill imposing tariffs on countries judged to manipulate their currency for economic gain — a key allegation against China that has been pressed most vocally by the United States. China responded by lowering the trading range for its currency, the yuan.

Europe, however, will be the central point of discussion. The U.S., Japanese and Canadian delegations arrived here with stern words for top European officials, urging them to act more forcefully to address government debt and banking problems that have kept world markets on edge for a year and a half.

According to wire service reports, Japanese Finance Minister Jun Azumi said he would emphasize Japan’s “bitter experience” in not pumping more capital into its banking system during a crisis in the early 1990s.

The slow response was blamed for contributing to Japan’s years of ensuing slow growth. Analysts at the International Monetary Fund and elsewhere fear Europe may be confronting lost decades of its own and have urged action on a number of fronts — including what IMF Managing Director Christine Lagarde has said should be an “urgent recapitalization” of European banks.

Europeans officials are moving in that direction and expect to approve a plan at a European summit next week, then present that to the G-20 heads of state when they gather in Cannes, France, in early November.

However, the speed and extent of the European effort remains unclear. In downgrading Spain’s credit rating on Thursday, the Standard & Poor’s agency said that Europe’s dimming growth prospects were likely to leave the country less able to pay its bills — an analysis that has been steadily repeated by top credit agencies across European countries over the last year. The Fitch ratings agency separately cut its ratings of several European banks.

In Italy, Prime Minister Silvio Berlusconi was expected to survive an afternoon confidence vote. But the country is under increasing pressure to meet short-term budget targets and make longer-term reforms in an effort to boost economic growth — changes many outside analysts doubt Berlusconi has the will to implement.

Much of Europe’s crisis response is centered around avoiding the need for a bailout of Spain and Italy, whose size and levels of outstanding debt would challenge the financial ability of countries such as France and Germany to support them.