By Dave Graham and Tetsushi Kajimoto
MEXICO CITY (Reuters) - The world's leading economies worked on Sunday to line up a deal in April on a second global rescue package worth nearly $2 trillion to stop the euro-zone sovereign debt crisis from spreading and putting at risk the tentative recovery.
Germany said it would make a decision some time in March on strengthening Europe's bailout fund, a move other Group of 20 countries say is essential to clear the way for throwing extra funds into the International Monetary Fund.
The twin proposals would build up massive international resources by the end of April - when the G20 group next meets - and convince financial markets they can stem the euro-zone's deep problems.
It would mark their boldest effort since 2008, when the G20 mustered $1 trillion to help rescue the world economy.
British finance minister George Osborne said there would be no additional resources committed to the IMF until euro zone countries bolstered their own efforts to stop contagion.
"We are prepared to consider IMF resources but only once we see the colour of the euro zone money and we have not seen the colour of the euro zone money," he told Sky TV. "I think that quid pro quo will be clearly established here in Mexico City."
German Finance Minister Wolfgang Schaeuble, whose government has taken a tough public line on aid for Greece, said European leaders will tackle the adequacy of the region's firewall during March. The issue will be debated at a European Union summit next week.
Germany's willingness to discuss the size of Europe's firewall appears to mark an important shift, although Berlin clearly hopes the extra funding will not be necessary and may stick to its guns if financial markets continue to improve.
"The month of March goes from March 1 to March 31. It will be reviewed again, also in the light of the developments that have since occurred, whether the stated dimension of the (European bailout) mechanism is enough or not," Schaeuble told reporters on Saturday.
A government official close to Chancellor Angela Merkel on Sunday took an even firmer line than Schaeuble's, insisting that there is enough money in the euro zone's rescue fund, known as the European Stability Mechanism.
"The German government's position is unchanged: we see no need to increase the upper limit of the ESM," the official said.
Still, some G20 negotiators are optimistic that Germany will be on board.
"Everyone in the euro zone and even in European Union is reasonably happy with combining the ESM and the EFSF, even Germany, but it is too early to say if this will be decided at the EU summit at the beginning of March," said Margrethe Vestager, economy minister of current EU president Denmark.
PUBLIC OPPOSITION
The German government faces public opposition to a second Greek bailout, and has balked at enlarging Europe's rescue fund on the grounds that it would undermine efforts to impose fiscal discipline on indebted countries.
The second Greek bailout package, recently agreed in principle, needs the approval of Germany's parliament, the Bundestag. Lawmakers will vote on Monday and it is expected to pass with opposition support but a poll in the Bild am Sonntag newspaper on Sunday showed 62 percent of Germans oppose further aid for Greece.
An agreement by Europe to merge its temporary and permanent bailout vehicles would create a $1 trillion war chest and open the door for other G20 countries to meet the IMF's request for $500-$600 billion in new resources, on top of its current $358 billion in funds.
Put together, this would total around $1.95 trillion in firepower.
DEBATE ON COMMUNIQUE WORDING
But the G20 has no intention of easing its pressure on Europe by giving it a strong signal now that new IMF money is in the bag. Its communique when two days of ministerial meetings end on Sunday will merely state that the world's leading economies will review the resources of the IMF in April without setting a date for a deal, G20 officials said.
Another official said there was debate between the United States and Europe over whether the communique should say an increase in the firewall was "essential" or just "important" to secure an increase in IMF resources.
U.S. Treasury Secretary Timothy Geithner said on Saturday Europe had come a long way in laying the foundations for a "credible" crisis response but could not rest there.
"It's important not to rest on that progress... That progress is in part based on expectations of more progress to come," he said.
Others also left no doubt the cash is needed to calm markets and secure economic growth. "In order to overcome the crisis, you have to get ahead of the curve and have a big enough bazooka," said Olli Rehn, European Commissioner for Economic and Monetary Affairs.
Japan's Finance Minister, Jun Azumi, said his country stood ready to contribute IMF funds once Europe has acted.
"I expect debate on strengthening of the IMF lending capacity will progress on condition that the problem of Europe's debt crisis is put to an end by the G20 meeting in Washington in April," he said.
Finance chiefs in their communique on Sunday will also cite rising oil prices driven by geopolitical risks as a threat to a tentative world recovery that is showing signs of strength, diplomatic sources said.
The price of oil vaulted over $125 a barrel on Friday, the highest level in nearly 10 months on concerns over Iran's nuclear ambitions.
Oil-producing members of the G20 said on Saturday they would take measures to avoid a rise in petroleum prices from hurting the world economy, Italy's deputy economy minister said.
(Additional reporting by the G20 team; Writing by Stella Dawson; Editing by William Schomberg and Todd Eastham)
114 comments