Europe won support from world leaders on Tuesday for an ambitious but slow-moving overhaul of the eurozone, even as pressure built in financial markets for quicker solutions to its debt crisis that threatens the world economy.
European countries showed at a Group of 20 summit they were considering concrete steps to integrate their banking sectors, a major reform long sought by the United States and other nations to break the cycle of highly indebted countries trying to rescue banks, which only pushes governments ever deeper into debt.
U.S. Treasury Secretary Timothy Geithner said a stronger framework for a fiscal and banking union to underpin the common currency would help restore Europe's economic growth and lower borrowing costs for deeply indebted eurozone countries.
"What they're also trying to do is to make sure that, in the very near term, they put in place a set of measures that can help make sure that they're supporting the financial system of Europe, and they are helping make sure that the countries that are undertaking these reforms, like Spain and Italy, can borrow at sustainable interest rates," he said.
Canadian Prime Minister Stephen Harper, a critic of Europe's progress to date, said the European Union now is addressing all the key issues required to get to the root of its crisis, ahead of an EU summit next week.
"What will be important, what we'll be watching for next week and going forward will be the concerted, coordinated action that will actually make these things happen," he said.
Financial markets have yet to be convinced.
Spain, the eurozone's fourth-largest economy, risks needing a full-blown international rescue as its longer-term debt yields hover above 7 percent, a level that has forced other euro countries to seek bailouts.
French President Francois Hollande said he and German Chancellor Angela Merkel, central players in a European crisis that has run for more than two years, were determined that the eurozone come up with its own solutions.
"Mrs. Merkel and I know that Europe must have its own response," he said on the sidelines of the G-20 meeting in Los Cabos, Mexico. "It must not be given to us from the outside."
The tensions over the world economy and the round-the-clock discussions contrasted with the laid-back atmosphere of Los Cabos, a beach resort at the tip of Mexico's Baja California. The summit declaration was drafted at a hotel next to the adults-only, clothes-optional Desire Resort And Spa.
CALLS FOR TIMELINE
G-20 leaders and the International Monetary Fund have pressured Europe, the world's richest region, to throw more support behind indebted eurozone members and lay out a clear timeline for building financial, fiscal and political union -- steps they view as crucial to saving Europe's monetary union.
Greece, Ireland and Portugal, overwhelmed by debt, have resorted to international bailouts, and the eurozone last week pledged up to 100 billion euros to shore up Spain's banking system. But investors see these as stop-gap measures until Europe commits to deep budgetary and political integration.
This would require eurozone nations to give up more sovereignty and share economic risk, steps that EU leaders say will take time among the 17 democracies that share the currency, especially for Germany which would foot the largest bill.
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 the summit of G-20 leaders of industrialized and developing nations, which represent over 80 percent of world output.
Among commitments in a draft G-20 communique obtained by Reuters was a pledge to consider concrete steps towards a "more integrated financial architecture" in Europe that would include common banking supervision, resolution of failed banks and guarantees for bank depositors.
These steps would help break the link between government debt and banking problems. Combined with fiscal discipline, measures to support growth and financial stability, they represent "important steps toward greater fiscal and economic integration that lead to sustainable borrowing costs," the draft communique said.
European Union Council President Herman Van Rompuy repeated earlier promises to launch the long process of eurozone at its June summit and finalize it before December.
"I will propose building blocks for deepening our economic and monetary union so that we can show to the rest of the world and to the markets that the euro and the eurozone is an irreversible project and that we want to deepen it and to give it a strong policy infrastructure," Van Rompuy said in a video message posted online.
Italy put forward a proposal for the eurozone's rescue funds to start buying the debt of stricken eurozone countries, such as Spain and Italy to start lowering their financing costs, European officials said. Italian officials have said the plans would be discussed at a meeting of finance ministers this week. But Germany said no specific initiative was discussed in Los Cabos.
A top U.S. official acknowledged that bold action from Europe will have to wait for the EU summit in late June.
"But we do expect to see a clear direction coming out of Los Cabos. European leaders are pledging to do all the necessary measures to safeguard their monetary union," said Treasury Dept. Under Secretary for International Affairs Lael Brainard.
Four areas are under discussion -- Greece working on reforms to stay within the eurozone; building a closer financial union; effective and credible financial backstops to relieve market pressures on Spain and Italy's borrowing costs; and a shift by Europe to support growth alongside austerity measures, she said.
One EU official said that banking union can move most swiftly while the vision of European fiscal union will take longer to realize, requiring intense political discussion. "It cannot be done from morning to night," the official said.
The eurozone's apparent progress was welcomed by another of its most frequent critics. "I think there are signs that the euro zone are moving towards richer countries standing behind their banks and standing behind the weaker countries," British Chancellor George Osborne said.
No less challenging was moving around the resort town which was teeming with Mexican military and police. Tight security stalled traffic and meetings were delayed. Russian Finance Minister Anton Siluanov had to make his way on foot after his car in the presidential motorcade was blocked by security.
G-20 leaders left little doubt that Europe is critical to stabilizing the global recovery.
U.S. President Barack Obama, at the discussion on the global economy which stretched through dinner on Monday, carefully spelled out to fellow G-20 leaders the risks to growth in an interlinked globe, diplomats said. He showed how each region is heavily dependent on demand from the European Union, the world's largest economic bloc, for their exports and for investment.
"He read out the figures, how much India, China, Korea, etc, how much they each depend on Europe and the European Union in an integrated global economy," said one G-20 official.
Another G-20 official described the conversation as frank. Each leader stressed the urgency of the situation and there was a strong call to get ahead of the crisis rather than fighting fires, the official said.
The draft communique showed the G-20 leaders were poised to pledge that they would "act together to strengthen recovery and address financial market tensions."
It also said eurozone 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."
Development groups complained that Europe's troubles have hijacked the summit and pushed into the background the G-20's work on addressing poverty and food shortages.
"Political courage seems to be in short supply in Los Cabos," said ONE, a global anti-poverty group founded by rock star Bono.
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