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Thu November 3, 2011
Europe

Cannes Plays Host To An Economic Crisis

Originally published on Thu November 3, 2011 8:11 am

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.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

RENEE MONTAGNE, HOST:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEEP, HOST:

And I'm Steve Inskeep. Good morning.

In the end, the leaders of Europe say they will not be held up any longer by a small country on their southern shore. They're telling Greece to get in or get out, decide by early December if they can accept the terms of a bailout package or lose the euro as Greece's currency.

They've shown no patience for the Greek prime minister's plan to hold a referendum on the bailout plan for Greece. And the European ultimatum has the Greek government teetering, today, with reports from Athens that the prime minister may be forced to step down, and may have to make way for a temporary government until new elections can be held. Of course, nothing is certain at this hour. All of this is happening as leaders of the world's largest economies, including President Obama, meet today in the south of France. They hope to prevent Europe's debt problems from spreading.

NPR's Scott Horsley reports that Mr. Obama wants a resolution to the crisis, but it's up to Europe's own leaders to do it.

SCOTT HORSLEY, BYLINE: The setting for this G-20 summit meeting is the Riviera Convention Center that hosts the Cannes Film Festival. But while President Obama will be walking the red carpet, it's the European leaders who are stars of this show. And the prize is not the Palm d'Or, but alms for the poor; a financial firewall to protect poor countries on the outskirts of Europe from a debt-driven meltdown.

Otherwise, White House spokesman Jay Carney says, the damage could spread to our side of the Atlantic.

JAY CARNEY: The crisis in the eurozone has a direct effect on the American economy. It is why it's so important that Europeans implement the important decisions that they made last week.

HORSLEY: 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. And Jacob Kirkegaard of the Peterson Institute for International Economics, says no one knows now, how this big-budget drama will end.

DR. JACOB KIRKEGAARD: That very fragile deal, which was already very uncertain, well, has just gotten a lot more uncertain. And if that unravels, you have a potentially uncontrolled Greek default, which would have all the negative implications for the entire European economy and the global economy as a whole.

HORSLEY: Ultimately, the U.S. is less concerned about what happens to Greece than with protecting other vulnerable economies in Europe, such as Italy and Spain, and making sure that banks are strong enough to withstand whatever happens.

The International Monetary Fund, which is partly bankrolled by the U.S., could play an important role in the rescue plan. But otherwise, Undersecretary Lael Brainard of the Treasury Department, says this is Europe's problem to fix. The U.S. is offering moral support but not cash.

DR. LAEL BRAINARD: We are, along with other members of the G-20, going to stand with Europe and support Europe. 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.

HORSLEY: 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 the federal budget on track.

KIRKEGAARD: He will, unfortunately, come to the G-20 with a very depleted arsenal of political capital.

HORSLEY: 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. He says it's a natural progression in a world where economic power is shared more broadly.

DR. MICHAEL FROMAN: 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.

HORSLEY: 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.

The currency markets, 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 its shining brightly on the European debt crisis.

Scott Horsley, NPR News, Cannes. Transcript provided by NPR, Copyright NPR.