World leaders struggle to inject confidence into the global economy at a G20 summit in Mexico dominated by the spiralling European debt crisis that is spooking markets and paralysing growth.

Mexico’s President Felipe Calderon welcomed the US President Barack Obama, newly returned Russian leader Vladimir Putin and German Chancellor Angela Merkel to a conference centre in the hills above the resort of San Jose del Cabo.

Two days of talks began with US officials saying there had been a clear change in European thinking towards more growth-friendly policies and Mr Obama saying he was “encouraged” by what he had heard of Europe’s plans.

To build confidence in the frail global economy, the Group of 20 major powers said they “will act together to strengthen recovery and address financial market tensions,” according to a leaked draft communique.

“All G20 members will take the necessary actions to strengthen global growth and restore confidence,” it said.

The optimistic language, however, could do little to hide the dismal economic backdrop, with Spain’s sky-high cost of borrowing stealing the focus after the brief respite provided by Greece’s positive election result.

In Sunday’s pivotal polls in debt-ridden Greece, parties committed to the terms of their European Union and IMF-led bailout held off a strong challenge by a leftist anti-austerity party.

The International Monetary Fund has indicated that it could now be open to a renegotiation of Greece’s 130-billion-euro ($165 billion) bailout programme.

Speaking on the sidelines of the summit, senior US Treasury official Lael Brainard said “there is ample room for both sides to sit back down” and hammer out a new deal giving Greece “some more time” to meet its obligations.

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