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U.S. wants G-20 to focus on growth

ReutersA supporter of the Socialist Pasok party stands at a pre-election rally in an Athens suburb.

WASHINGTON (MarketWatch) -- The United States will push a global growth agenda at the two-day Group of 20 leaders' summit in Mexico next week, the Obama administration said Friday.

"The overwhelming focus of this G-20 is going to be reflecting … the critical importance of global growth and global recovery, and the European piece is the most central piece at the moment," according to Michael Froman, a senior White House adviser to President Barack Obama.

Obama will travel to Los Cabos, Mexico on Monday and Tuesday for talks with leaders of the G-20, a group of the most influential global economies including the established industrial powers in Europe and North America, as well as emerging markets such as Brazil, South Korea and India.

The meeting gets under way on Monday night with discussions on the global economy. The leaders are also expected to talk about global flash points like Syria and Iran.

But White House officials said that concern over the deepening European crisis would get the bulk of the attention. "Europe will be at the center of discussions in Mexico," said Lael Brainard, Treasury undersecretary for international affairs. "The stakes are high for all of us."

Brainard pointed out she saw a "growing recognition" in Europe of the need to support growth in the face of a weaker outlook. There might have to be "recalibration" of some of the austerity measures now in place, she said.

European leaders won't be making decisions at the summit, the officials said.

Rather, they said they want the European officials to discuss their "vision" for resolving the crisis, with the talks as a "catalyst" for future actions at the upcoming Europe summit later in June.

Jacob Kirkegaard, a research fellow at the Peterson Institute, said he expected the EU council to take a significant step forward on the issue of a banking union. This would make the European Central Bank more willing to go big or act decisively to help calm the crisis.

Just ahead of the G-20 talks, Greeks will be voting in an election that is seen by many as a referendum of whether the country should stay in the euro zone.

Brainard said Greece faces what she called "a complex political situation." European and Greek officials must find a way to keep Greece in the euro zone, she added.

Kirkegaard said there could be an equally negative reaction in global markets to either the far-left Syriza party winning the election, or a failure for any one party to form a governing coalition.

In the short run, he elaborated, the ECB would respond by restarting its securities-markets program by purchasing additional Spanish and Italian debt.

Asked what steps the United States might take if there was market turmoil on Monday in the wake of the Greek elections, Brainard replied that the government "always" has tools to combat such events.

It may take some time for the full outcome of the Greek elections to become clear, she noted.

Obama will have a bilateral meeting with Russian President Vladimir Putin on Monday in their first meeting in three years. The president also will hold talks with Chinese President Hu Jintao.

Experts at the Peterson Institute for International Economics said the G-20 should work with Russia and China to double the International Monetary Fund's crisis-response capital to $1 trillion.

Fred Bergsten, director of the Peterson Institute, said member countries should find a way to convince emerging countries, including China, Russia, oil-exporting countries and others to contribute more to the $430 billion fund.

In return for funds from emerging countries including China, Europe must agree to give up some influence at the IMF, he added. "We think that is totally reasonable and long overdue and should be put in place, and this [G-20 summit] is the time to do it."

Late Friday, the executive board of the International Monetary Fund finalized the details of its $430 billion crisis capital fund, and said it would only draw on the new resources if its existing funds were low, the agency announced late Friday.

The rules agreed by the board "envisage that the IMF would only draw on the new agreements after it has committed most of its existing quota and NAB (New Agreement to Borrow) resources," the organization said in a statement.

Bergsten also said the immediate problem in Europe is that the withdrawal of bank deposits that could trigger a crisis. In response, a banking union could create a pan-European deposit-insurance fund for the larger European institutions 'that would restore confidence and quell bank runs, even in Greece."

Kirkegaard said that he believed there has been much too close a relationship between European banks and their national bank regulators.

Morris Goldstein, senior fellow at the Peterson, said the key question is whether Germany is willing to take on the potential liability of a European-wide deposit insurance.