(See GMEET for more on the Los Cabos summit, TOP CRIS for debt-crisis news.)
June 20 (Bloomberg) -- World leaders told Europe to pull together to overcome its debt crisis, endorsing a road map for tighter integration to cut borrowing costs and prevent further damage to the global economy.
With Spain readying a request within days for as much as 100 billion euros ($127 billion) for its struggling banks, euro- area leaders at a Group of 20 summit in Mexico pledged to take "all necessary policy measures" to defend the currency union. The U.S. committed to cut spending while avoiding a "sharp fiscal contraction" in 2013.
"We have a profound interest in seeing Europe prosper," President Barack Obama told reporters today in the Mexican beach resort of Los Cabos at the summit's close. "Our friends in Europe clearly grasp the seriousness of the situation and are moving forward with a heightened sense of urgency."
G-20 leaders arrived for their second consecutive summit dominated by Greece, as the country at the source of the debt crisis voted in elections that threatened to trigger the euro's first exit. Within hours of victory for pro-bailout parties, investor focus shifted to Spain as borrowing costs breached the 7 percent level that forced sovereign bailouts for Greece, Ireland and Portugal.
Spanish Banks
Spanish Prime Minister Mariano Rajoy, attending his first G-20, was prodded to spell out the scope of Spain's bank bailout as the deepening debt crisis in Europe exposed tensions among the world's biggest economies. China led a group of developing nations that pledged more money for the International Monetary Fund to stem the turmoil while chastising the euro area's guardians for damaging market confidence.
G-20 chiefs "talked about how we need clarity on Spain's application as soon as possible," German Chancellor Angela Merkel, head of Europe's biggest economy and the key player in more than two years of crisis fighting, told reporters. "We all know that banks that aren't properly capitalized are a real source of turmoil and risk for the economy."
In its final statement, the G-20 backed Europe's plans to consider a more integrated banking industry with common deposit insurance, a step that Merkel has resisted. With attention shifting to a summit of European Union leaders in Brussels on June 28-29, the G-20 supported EU plans for closer economic union "that lead to sustainable borrowing costs."
The euro rose yesterday to near a one-month high against the dollar, while Spanish 10-year bond yields edged below 7 percent after reaching a euro-era record of 7.29 percent on June 18.
Global Concern
"The G-20 has been very helpful in underscoring for euro- zone leaders the concern and expectations of the global community," Daniel Price, managing director of Rock Creek Global Advisors LLC, a Washington-based consultancy, said in an e-mail.
With the global recovery slowing, emerging countries boosted their pledges to the International Monetary Fund's global firewall, almost doubling the fund's resources to $456 billion. Officials from China to India and Brazil also used the G-20 platform to signal growing exasperation with Europe's response to the debt crisis now in its third year.
Brazil's Finance Minister Guido Mantega said the crisis in the euro area was affecting global trade, and called for a "change of direction" to combat the turmoil. Indonesian President Susilo Bambang Yudhoyono touted a need for more "rigorous methods to manage the crisis," warning a failure to deliver would bring "unsettling consequences to all of us."
'Unacceptable' Interest Rates
French President Francois Hollande, who has clashed with Merkel on euro-region debt sharing and the balance between austerity and growth, called for faster action, saying that "it's not acceptable" for Spain to shoulder such high borrowing costs.