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G7 leaders in fresh talks on eurozone debt crisis

Financial markets remain twitchy as Spain hovers over abyss with €40bn needed for banks

Finance chiefs of the Group of Seven leading industrialised powers will hold emergency talks on the eurozone debt crisis today in a sign of heightened global alarm about strains in the euro currency.

Financial markets remain anxious about the risks from a seething Spanish banking crisis that needs at least €40bn pumped into the banks.

"Markets remain sceptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen.

"So we obviously believe that more steps need to be taken," White House press secretary Jay Carney said yesterday.

Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act.

"The real concern right now is Europe of course -- the weakness in some of the banks in Europe, the fact they're undercapitalised, the fact the other European countries in the euro zone have not taken sufficient action yet to address those issues of undercapitalisation of banks and building an adequate firewall," Mr Flaherty said,

The disclosure of the normally confidential teleconference came as European Union paymaster Germany said it was up to Spain, the latest eurozone country in the markets' firing line, to decide if it needed financial assistance, after reports suggested that Berlin was pressing Madrid to request aid.

German Chancellor Angela Merkel and leaders of her centre-right coalition said in a joint statement: "All the instruments are available to guarantee the safety of banks in the euro zone."

They effectively ruled out Spanish calls to allow eurozone rescue funds to lend money directly to recapitalise Spanish banks, which are weighed down with bad property debts, without the government having to take a bailout programme.

Germany remains keen to limit liabilities for its taxpayers as the biggest contributor to eurozone rescue funds, has so far rejected proposals for a banking union with a joint deposit guarantee and a common resolution fund for failing banks.

Before meeting European Commission President Jose Manuel Barroso in Berlin last night, Ms Merkel said they would consider the "medium-term goal" of the need to put systemically important banks under a European supervisory authority.


She said the 17-nation eurozone "needs more Europe, not less" but initiatives like a banking union can only be "medium-term goals" and not quick fixes to the debt crisis.

Meanwhile, a German government paper revealed that Germany does not expect Europe to take any final decisions on strengthening economic policy co-ordination between member states until the spring of next year.

The eight-page paper, entitled 'More Growth for Europe - Employment, Investment, Innovation', lays out a timetable for closer fiscal integration, a step Ms Merkel believes is crucial to winning back the confidence of financial markets after more than two years of crisis.

But the plans may worry investors more than reassure them because Berlin expects nearly a full year of consultations and debate before decisions on the path to a so-called "fiscal union" are finalised.

The paper, which officials said was approved by chancellery, finance ministry and foreign ministry last Friday, says that the European Commission and European Council President Herman Van Rompuy are likely to come up with concrete proposals on closer policy co-ordination in time for a December summit of EU leaders.

"On this basis, the European Council could sign off on the plans at its spring 2013 summit," the paper reads.


Irish Independent