LOS CABOS, Mexico: World leaders tried yesterday to convince financial markets that Europe can move fast enough toward a major overhaul of its banking systems that could help fix its debt crisis and restore confidence in a faltering global recovery.
At a Group of 20 leaders summit, Europe signaled it was considering euro-zone-wide integration of its banking sector, a major reform sought by the United States and other nations to break the cycle of highly indebted countries rescuing failing banks, which only pushes governments ever deeper into debt.
But the news that the G20 was readying a firm statement for restoring global growth and jobs, along with Europe's pledge of action, brought little relief to investors.
Risks grew that Spain, the euro zone's fourth-largest economy, would need a full-blown international bailout as its short-term borrowing costs jumped about two percentage points and longer-term debt yields hovered above 7 percent, heightening the danger it would be locked out of credit markets.
French President Francois Hollande said he and German Chancellor Angela Merkel, central players in a crisis that has run for more than two years, were both aware that the euro zone was responsible for providing the solutions.
"Mrs. Merkel and I know that Europe must have its own response," he said on the sidelines of the G20. "It must not be given to us from the outside."
"The IMF (International Monetary Fund) is not there to backstop the euro zone even if it has done so for some countries, as we saw in Greece," he added.
The dangers that Europe's escalating debt crisis would drive the global economy back into recession for the second time in less that four years dominated Monday's sessions among the G20 leaders of industrialized and developing nations, which represent over 80 percent of world output.
Under pressure from financial markets and anxious world leaders, Europe agreed on Monday to move toward a more integrated banking system.
Among commitments in a draft G20 communique obtained by Reuters was a pledge to consider concrete steps toward a "more integrated financial architecture" in Europe that would include common banking supervision and guarantees for bank depositors.
A G20 official said there was no guidance from European leaders or officials about any time frame for such a plan.
Diplomats said that US President Barack Obama carefully spelled out to fellow leaders the interlinked nature of the global economy with each region heavily dependent on demand from the European Union, the world's largest economic bloc, for their exports.
The draft communique showed the G20 leaders were poised to pledge that they would "act together to strengthen recovery and address financial market tensions."
It also said euro zone members would take "all necessary policy measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks."
Meanwhile, China on Monday offered $43 billion to the IMF's crisis-fighting reserves, rounding off a global push to nearly double the Fund's war chest to $456 billion to help protect countries from fallout from the euro zone debt crisis.
China's contribution was part of a pledge by Group of 20 countries made in April to supply the International Monetary Fund with extra firepower.
"These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members," said IMF Managing Director Christine Lagarde.
"They will be drawn only if they are needed as a second line of defense" when other IMF loans have been depleted, she said in a statement during a Group of 20 summit in Mexico.
The leaders of BRICS nations — Brazil, Russia, India, China and South Africa — said earlier that they "agreed to enhance their own contributions to the IMF" but had insisted that the money be used only after existing funds were depleted.
According to a chart published by the IMF, Brazil, Russia and India each pledged $10 billion, while South Africa offered $2 billion. G20 host Mexico also contributed $10 billion.
"Countries large and small have rallied to our call for action, and more may join," said Lagarde, who said total pledges had reached $456 billion — "almost doubling our lending capacity."
The BRICS sought to tie the loans to long-delayed reforms that would give the developing world more say at the Washington-based Fund by boosting their voting power as shareholders.
"These new contributions are being made in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares," the BRICS leaders said in a joint statement.
In their public remarks in Los Cabos, Chinese officials declined to discuss sums and stressed the need to implement IMF quota reforms agreed in 2010.
"If the quotas are not commensurate with the relative economic weight of the different countries, then it has to be changed," said He Jianxiong, director general of the international department of the People's Bank of China.
The five BRICS nations represent 43 percent of the world's population and about 18 percent of global economic output. They have about $4 trillion in combined reserves, with the lion's share held by export powerhouse China.
