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G20 to make reassuring statement
G20 to make 'reassuring' statement

G20 leaders are putting the finishing touches to a statement that aims to reassure global markets that action is being taken to support banks and economic growth.

European leaders are under extraordinary pressure from their international counterparts to loosen the straitjacket of their austerity programs and to allow the European Central Bank to open the lending floodgates.

A draft version of the G20 final statement suggests a formulation will be found that commits the leaders to a pro-growth agenda.

"All G20 members will take the necessary actions to strengthen global growth and restore confidence," it says, vowing that eurozone members will safeguard the stability of the single currency in the face of volatile markets.

Beyond the summit conference centre in the Mexican resort of Los Cabos, bond markets jacked up rates on Spanish and Italian debt on Tuesday amid self-fulfilling fears that the debt crisis that sank Greece was spreading once again.

Germany's Angela Merkel remains the driving force behind the eurozone's determination to privilege austere deficit busting over stimulus spending, although US officials say her position is softening.

"Discussion here has been balanced: we need the right mix of consolidation and growth stimulus at the same time," Merkel told reporters on Tuesday, saying the previous night's showpiece dinner had been a "very frank and honest exchange".

The draft G20 statement allowed no hint that Merkel or her allies might crumble and allow the ECB to pump out cash or to pool German debt with that of the weaker eurozone members in order to create low-interest eurobonds.

But it opened up the possibility of more lending and spending if the European economy continues to struggle.

"Should economic conditions deteriorate significantly further, those countries with sufficient fiscal space stand ready to co-ordinate and implement discretionary fiscal actions to support domestic demand," the draft reads.

EU Commission chairman Jose Manuel Barroso bristled at hostile questioning over why his rich continent needed so much support from abroad, declaring: "We are certainly not coming here to receive lessons from nobody."

Italy's Prime Minister Mario Monti adopted an ironic tone in remarks to the Italian press about the pressure Europe was under from its partners.

"This long discussion was progress in the sense it enabled us individually, very much like a GPS that is reset periodically, to see how we and our problems are perceived in the rest of Europe and in the world at large," he said.

Progress was made in Los Cabos in boosting the resources available to the International Monetary Fund to help protect vulnerable countries from the backwash of the eurozone crisis.