The upcoming G20 summit is likely to focus on Greece's plans to hold a referendum on the EU bailout, which has the potential to speed up a Greek default and trigger a domino effect, experts said on Wednesday.
The prime minister of debt-burdened Greece, George Papandreou, said on Tuesday he would initiate a referendum on whether to accept the terms of a 130-billion-euro bailout package which involves new austerity measures. The austerity plan, aimed at avoiding a national default that would hammer Europe's banks and threaten the economies of Italy and Spain, has so far had a hostie reception in Greece.
"This time the G20 will work out a more consolidated position because we all understand that we are hostage to very serious events. If there is an explosion in the euro zone, there will be explosions everywhere," said Ruslan Grinberg, head of the Institute for International Economic and Political Studies in the Russian Academy of Science.
"Political actions often do harm to economic rationality. Papandreou's decision is one example of that."
But he said the referendum call was a shrewd move to shore up Papandreou's popularity at home, where he faces a parliamentary no-confidence vote on Friday, which he is far from certain to win given the increasing opposition within his own party.
GERMANY
Jacques Sapir, a research director at CEMI-EHESS, said Europe needs to print currency to save the economy, a move that is currently prohibited by EU law. The G20 is unlikely to persuade German Chancellor Angela Merkel to drop its opposition to changing that law before the 2013 elections.
"Germans have to alter their position, otherwise they will remain alone with the euro and call it the Deutsche Mark. The rich country always has to pay and there is no other alternative here," said Grinberg.
Printing money or allowing a Greek default are two of the small number of options Europe has, said Yakov Mirkin, head of the International Capital Markets Department, Institute of World Economy and International Relations at the Russian Academy of Sciences.
"This is a deadlock since Greece is part of the eurozone, and Greece, as a weak link, will immediately trigger a chain reaction of systemic risk."
Sapir said if Greece defaulted, debt-burdened Spain and Italy would be the next to leave the eurozone and then France would be forced to abandon the euro too.
"I believe that to protect the future of the EU idea and the Europe, they need (EU debt) monetization and then strict rules for the rest of EU countries with sanctions for violations," said Grinberg.
Sapir said emerging countries may have opposing views on EU debt relief options. Moscow, unlike China and Brazil, is likely to welcome euro weakening due to fears it will lose an export market for its energy.
"I expect the G20 to make statements that will calm the markets at least for the short-term," said Grinberg.
