G20: Eurozone will take all necessary measures

The Group of Twenty (G20) promised to do what it can to support global growth without actually outlining any specific steps it plans to take, while Europe promises to take 'all necessary policy measures' to combat the current sovereign debt crisis. G20 EXPRESSES A COMMITMENT TO GROWTH"All G20 members will take the necessary actions to strengthen global growth and restore confidence," according to the G20 leaders declaration published after the two-day summit in Los Cabos, Mexico, adding that "advanced economies will ensure that the pace of fiscal consolidation is appropriate to support the recovery." Yet even the G20's "Los Cabos Growth and Jobs Action Plan" only pinpoints the group's "commitment to take strong and decisive action" without actually defining the policy measures that are expected to be implemented. ALL EYES ON THE EUROZONE AND SPAIN IN PARTICULARWith regard to the Eurozone, leaders at least repeated that they plan on moving towards a stronger, more integrated fiscal union and the G20 indicated that "we support the intention to consider concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalisation, and deposit insurance." The statement also gives specific praise to Spain and Europe's support of its bank recapitalisation plan. Worth noting, with the exception of a comment on China's flexibility in loosening its control of its currency, a reference to agricultural problems in Africa, and the slightest of nods to the "Greek government", Spain is one of the few countries mentioned specifically in the 14-page declaration. Madrid has been struggling with its banking sector rescue as the Spanish government watches borrowing costs soar to record levels due to worries that the southern country could itself require a bailout and some investors fear it will "become the next Greece". Yet the Eurozone itself sought to reassure the world via the G20 statement: "Euro area members of the G20 will 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." Spain, which has been promised up to €100bn in aid, has been facing just that last problem. Countries bailing out their financial sector are quickly finding that they themselves then become in need of a bailout. In this context, Spanish Prime Minister Mariano Rajoy is attempting to convince Eurozone leaders that the European bailout funds be directly injected into its banks so as to bypass the effect on the country's own borrowing costs.DON'T FORGET US FISCAL ISSUESLest we think that only Europe is under the G20's watchful eye, markets should remember that more trouble lies on the horizon from the world's number one economy: "Recognising the need to pursue growth-oriented policies that support demand and recovery, the United States will calibrate the pace of its fiscal consolidation by ensuring that its public finances are placed on a sustainable long-run path so that a sharp fiscal contraction in 2013 is avoided." The US will most likely have to wait until after November's presidential elections to tackle its spending problems...the question is whether markets are willing to wait.NEXT STEPS...In any case, there's no denying that the Eurozone was on centre stage at the G20 summit. As far as next steps, several leaders said they are expecting to see progress at the European Council summit at the end this month. So while markets await a formal announcement of a coalition government being formed in Greece by midday today, stay tuned for reactions to the bigger issues at hand in the Eurozone...JM