Euro Crisis focus on Spain, Merkel faces G-20

The Group of 20 leaders have now focused their attention on stabilizing the Eurozone's banks, raising pressure on German Chancellor Angela Merkel to expand rescue measures as contagion engulfs Spain.

US President Barack Obama called for after-dinner talks with Euroarea leaders at the G-20 Summit in Mexico Monday evening.

The US Treasury department's top international negotiator, Lael Brainard, said Europe is making an effort to break the feedback loop between banks and government debt, the link that seems to be adding to Spain's difficulties.

G-20 chiefs met as Spain's borrowing costs rose to a Euro era record, and elections in Greece failed to dampen the threat of contagion.

Ms. Merkel, the leader Europe's largest economy, rejects pooling Euroarea debt or boosting deficit spending, said she will defend her policies with good arguments as World leaders press Europe to end the debt crisis now in its 3rd year. Mr. Obama blames the turmoil for slowing US employment growth.

The Euroarea's G-20 governments will commit to protecting the currency union at all costs, according to an excerpt of a draft of the statement that leaders will issue at the Summit's close.

Euroarea members of the G-20 will take all necessary policy measures to safeguard the integrity and stability of the area, improve financial markets and break the feedback loop between sovereigns and banks, according to a draft provided in advance..

The G-20 nations are committed to moving rapidly toward market-determined exchange-rate systems that are flexible to reflect underlying fundamentals.

Leaders welcomed China's moves to increase transparency of its exchange-rate policy and pledged to avoid persistent misalignments, and persistent devaluation of currencies, it said.

The EUR extended declines Monday as Spanish 10-yr bond yields rose above 7% mark that forced Greece, Ireland and Portugal to call for outside aid.

That fueled speculation Spain may need to request a sovereign bailout after the government called for as much as 100-B Euros (US$126-B) to shore up its blighted banks.

The European Central Bank can stop the debt crisis in the 17-nation Euro region almost immediately with massive government-bond purchases, Guillermo Ortiz, the chairman of Grupo Financiero Banorte SAB and Mexico's former central bank governor, said in an interview on the sidelines of the Summit in Los Cabos. The ECB has done quite a bit, Mr. Ortiz said. The problem is it needs to do more.

G-20 leaders are in Los Cabos for their 2nd consecutive summit to be dominated by the crisis.

Spain's Prime Minister Mariano Rajoy is also attending the talks, as the respite in markets after a victory for the pro-bailout New Democracy party in Greek elections on 17 June proved short-lived.

Ms. Merkel damped speculation that the terms of Greece's bailout might be relaxed.

The important thing is that the new government sticks with the commitments that have been made, Ms. Merkel told reporters. There can be no loosening on these reform steps.

China and Indonesia set the tone of the meeting by signaling growing exasperation with more than 2 yrs of European crisis-fighting that has failed to stem the threat of Global contagion.

Even as Mr. Obama said that now is the time to make sure that all of us do what is necessary to stabilize the world financial system, European leaders pushed back, saying they alone are not responsible for the slowing Global recovery.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.