India made its presence felt at the G-20 Summit by deliberating the core issues of the Eurozone crisis and also pledging to help relieve the financial burdens felt by several EU states. The seventh G-20 Summit at Los Cabos, Mexico issued a strong message from non-European members to Europe to end the bickering so that Eurozone’s finances can be supervised by the EU, the European Central Bank and the International Monetary Fund (IMF). India’s PM, Manmohan Singh, a noted economist, stated that a crisis in the European banking system can choke trade and economic growth not just in the Eurozone but throughout the world.
Singh emphasised the need to provide liquidity to European banks without neglecting issues of solvency. The situation is so grave that the IMF has been trapped by a major resource crunch. Noting the seriousness of this situation, he has pledged to contribute $10 billion to the IMF’s $430-billion firewall.
He told the participating leaders at the G20 whose countries account for 80 percent of the global GDP, to send “a strong signal to the markets that the Eurozone countries will make every effort to protect the banking systems and the global community will back a credible Eurozone effort and response.”
He vehemently opposed separating growth from austerity because it hampers the process of recovery.
In a pointed message to Germany, he said that, “Austerity in the debt –ridden members of the Eurozone can work only if surplus members are willing to expand to offset contraction elsewhere in the currency area.”
Calling the relationship between the two as contentious, he pointed out that “synchronised austerity” across many countries is not the right medicine when growth is weak. Both are necessary. Singh further emphasized this with his comment that liquidity must be provided along with an effective “adjustment programme”.
This reflects the general discontent in the rest of the world with the way Eurozone leaders are attacking the sovereign debt crisis. Promising and providing massive funds without a structural adjustment of the economies in the crisis-affected countries is not going to solve the problem. Most, if not all of the bailout money, has been used to rescue banks in the troubled countries.
The 14-page G-20 Summit Declaration strongly emphased the need for growth because austerity alone will not solve the debt problem of the Eurozone. Earlier, Germany and Britain insisted on austerity measures to set the Eurozone in order.
For the first time, the declaration also included in its preamble the issue of infrastructure in developing countries which India has been striving to accomplish during the last three summits. Further, the Declaration also called for ending of the mechanical credit rating system and advocated for transparency and competition.
Further, the agreement for IMF quota-reform must be accelerated which will please developing countries. Singh said that quotas had to reflect economic weights in a simple and transparent manner and that GDP be compared on a Purchasing Power Parity basis. He insisted that Europe needed to move towards a banking union to help strengthen financial stability, and that lending rules would not be discriminatory to poor and developing countries.
Thus, the Indian proposal on almost all important issues found favour at the Summit.
The European Union and other NGOs have decried this event as a gigantic waste of time as the draft declaration of the summit has ignored so many of their issues and concerns.