G20 to endorse growth plan and urge more financial integration in Europe

Leaders of the G20 economies are preparing to endorse a communique pledging further action on growth, increased resources for the International Monetary Fund and fresh commitments by the European Union to do more to integrate to solve its problems.

The G20 leaders representing 80% of the world economy are meeting in the luxury resort of Los Cabos, Mexico, against a backdrop of incessant economic storms, mainly coming from the eurozone.

Plans for an after-dinner meeting between the US president, Barack Obama, and the leading four eurozone countries attending the G20 were scrapped officially because the issue of the eurozone had been discussed enough.

There may also have been fears that tensions were starting to escalate between eurozone leaders, notably the two EU figureheads, José Manuel Barroso and Herman Van Rompuy, and other G20 countries about the slowness with which the EU was addressing its problems.

In a sign of the tensions, the Italian prime minister, Mario Monti, said no one thinks the EU "is the only source of the problem". The crisis "had its origins in imbalances in other countries, including the US".

Among the commitments in a draft G20 communique, which emerged on Tuesday, was a pledge to consider concrete steps towards a "more integrated financial architecture" in Europe that would include common banking supervision and firm guarantees to repay bank depositors.

The G20 communique states that euro-area members of the G20 "will take all necessary policy measures to safeguard the integrity and stability of the area, improve financial markets and break the feedback loop between sovereigns and banks".

The US, the IMF and European commission have been urging EU member states to press ahead with a banking union.

The term banking union does not appear in the text, but the wording suggests Germany may be willing to shift a little in further talks due to be held between EU leaders both in Rome on Friday and then at a full gathering of EU heads of state in Brussels next week.

In the most substantive development, the emerging countries agreed to increase funding for the IMF in a move that will see changes in the composition in the board of the IMF in return.

China, Brazil, Mexico, India and Russia all announced contributions to the IMF to bolster a "second line of defence",. China will contribute $43bn (£27.4bn), the official Xinhua news agency reported. The others' share was $10bn each.

In total, the IMF's crisis intervention fund has been increased to $456bn.

Britain is not making any further contributions after already increasing its funding in the spring.

There were fears though that the resources will still not be enough to deal with the crisis

"There is concern that the firewall available may not be adequate to deal with contagion," the Indian prime minister, Manmohan Singh, said at the summit. "The resources currently expected to be mobilised by Europe and the IMF are less than was estimated a year ago, and the crisis is actually more serious."

He added: "Financial markets normally favour austerity, but even they are beginning to recognise that austerity with no growth will not produce a return to a sustainable debt position."

In a message to Germany, he added: "Austerity in the debt-ridden members of the eurozone can work only if surplus members are willing to expand to offset contraction elsewhere in the currency area."

Conflicting messages were coming from Germany as to whether it was willing to delay Greece's current bailout plan.

The German chancellor, Angela Merkel, took a tough line, saying there could be no backsliding in the previously negotiated timetable, but other German leaders sounded a more flexible note.

Greece must achieve a budget surplus, excluding debt-service costs, of around 4.5% of gross domestic product from 2014 onwards, compared with a deficit of 5% in 2011. Athens is expected to ask to be given until 2016 to achieve the target. A slower timetable would add to borrowing needs in the meantime.

Obama met Merkel on the fringes of the summit to press her to do more. With the US election only five months away, he is desperate to see the gloom lift from world markets.

"The president was encouraged by what he heard regarding ongoing discussions in Europe about the paths they are pursuing to address the crisis," White House spokesman Jay Carney said.

David Cameron, the British prime minister, is due to lead a G20 discussion on trade on Tuesday, warning of the dangers of protectionism, and arguing that ending trade barriers may be one of the best ways to boost growth at a time when governments cannot afford to boost spending.

The Russian president, Vladimir Putin, showed a determination to go in the opposite direction, saying: "It is time to stop pretending and come to an honest agreement on the acceptable level of protectionist measures that governments can take to protect jobs in times of global crisis," he said.

"This is particularly important for Russia as our country will join the WTO this year and we intend to take an active part in the discussions on the future rules for global trade."