By ANTHONY FAIOLA The Washington Post
At the Group of 20 summit of major economies, taking place in Mexico, international pressure was building on Europe's leaders to take bolder action to save the euro amid fresh signs that investors are losing faith in the far larger economies of Spain and Italy.
But it was unclear Monday whether anything would be enough to stave off a broader crisis. Among investors, a bitter truth appeared to be sinking in: The problems in Europe are so widespread and so deep that a real solution is sure to be complex, hard-fought and anything but quick.
With the region's 2½-year-old debt crisis in danger of upending the global economic recovery, President Barack Obama on Monday held talks with German Chancellor Angela Merkel, the euro zone's most influential leader and toughest fiscal disciplinarian.
In comments that seemed to suggest Merkel should agree to an easing of the tough conditions attached to Greece's bailout, Obama said that he hoped Athens and its "international partners" could reform Greece "in a way that also offers the prospects for the Greek people to succeed and prosper."
Merkel is facing heightened calls from her peers in Europe and in other G-20 nations to do more to aid her country's ailing neighbors. European officials want the might of German wallets to stand behind a range of financial activity, from bank deposits to collective debt, across the 17-nation euro zone in a bid to shore up the currency's foundations, with leaders racing to reach a compromise before a pivotal European Union summit in Brussels next week.
French President Francois Hollande in particular is pressing for measured injections of fiscal stimulus, an effort largely aimed at economies, such as those of Greece and Spain, that are buckling under the deep austerity measures and budget cuts that Germany sees as the only cure for the region's debt crisis.
Markets initially rallied Monday after Sunday's elections in Greece, in which New Democracy, a mainstream party, beat a radical left-wing movement that wanted to throw out the nation's bailout deal with the European Union and the International Monetary Fund. Such a move would be widely seen as a step toward a messy exit from the euro for Greece.
But even a best-case scenario in the elections involved complications, and the positive market sentiment quickly fizzled. Investors began to realize that New Democracy would, at best, probably head a weak coalition government that would seek to renegotiate at least some of the tough conditions of Greece's financial rescue. On Monday, party chief Antonis Samaras was struggling to woo longtime political foes into a new government "of national salvation."
Even assuming that one is formed today, as many expect, Greece appeared set for at least several more weeks of uncertainty as politicians in Athens attempt to hash out a new deal with creditors - led by Germany - that appear willing to make only minor concessions.
More worrisome, borrowing rates for Spain and Italy surged Monday, with Spain's rising above the unsustainable level of 7 percent. Fresh data indicated that the number of bad loans in Spain's financial system was still growing, raising fears that Madrid will need a bailout significantly larger than the $100 billion package announced last week. Meanwhile, high debt levels, recession and a cumbersome process of economic reform were feeding growing concern about a full-blown debt crisis in Italy, the world's eighth-largest economy.
The fact that the Greek elections didn't calm markets suggested that Europe is running out of time to come up with bigger fixes for the crisis.
"The idea that Greek elections were going to provide clarity in Europe's crisis was always wishful thinking," said James Ashley, senior European economist at RBC Capital Markets in London. "For Europe, this is not going to be an easy fix."
Intense discussions have been under way for weeks among France, Germany and other EU governments in search of an accord before the Brussels summit next week. Hollande, in contrast to his predecessor, Nicolas Sarkozy, has sought to bring more voices into a circle of power that once was limited to Paris and Berlin. Demonstrating that approach, Hollande is scheduled to meet Friday in Rome with Prime Ministers Mario Monti of Italy and Mariano Rajoy of Spain, along with Merkel.
Hollande last week sent his European counterparts a proposed "growth pact" designed to raise $150 billion by the end of the year for use as stimulus, according to the French newspaper Journal du Dimanche.
But almost no one believes that a limited attempt to stimulate Europe's economies will solve the problems. Instead, leaders must come to terms with basic structural flaws in the currency union - not least of which is the role of the European Central Bank in backstopping the region's financial system and governments.
They must also figure out what to do about Greece.
In Athens on Monday, Samaras was trying to form a new governing coalition to lead a rudderless nation. He reached out to the Socialists, who are long-standing political rivals but nevertheless share New Democracy's pragmatic approach toward the bailout.
After winning about 30 percent of the vote, New Democracy is in a better position to form a government than it was after a less conclusive vote on May 6. But Greece - reeling from high unemployment and a deep recession - is running out of time. The country is, in essence, broke and in danger of not having enough cash to pay state salaries and cover care at state hospitals. Yet one of the first tasks for Samaras, should he succeed in forming a government, will be outlining billions in new cuts to meet the terms of Greece's bailout - something that will test the stability of any coalition.
So Samaras is seeking to renegotiate the terms of the bailout. But German officials suggested Monday that they are open to only minor alterations on the timing of budget cuts and not the kind of major overhaul Greek politicians have said they want.
"Elections cannot call into question the commitments Greece made," Merkel told reporters Monday before the G-20 summit. "We cannot compromise on the reform steps we agreed on."
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