Global leaders call for euro debt action

US Treasury Secretary Timothy Geithner said EU governments must act to prevent a “cascading default” in the eurozone. The Chinese central bank governor and Brazil’s finance minister have also called for action to tackle the crisis.The meeting in Washington follows warnings from the IMF and the US Federal Reserve that the global economic recovery is at risk.

Geithner called for the European leaders to take stronger steps to prevent what he called “the threat of cascading default, bank runs and catastrophic risk” if some European nations default on their debts.

Governments from emerging economies have also expressed their concerns that financial instability in the West may de-rail the global recovery. Brazil’s finance minister, Guido Mantega, called on eurozone leaders “to ensure their actions stop contagion beyond the euro periphery” of Greece, Ireland and Portugal which have already received bailouts. Chinese central bank governor Zhou Xiachuan warned that all nations with large deficits—including the US and Japan should reduce spending. Speaking in New York to the United Nations the Indian Prime Minister, Monmohan Singh, said the global recovery had failed to take hold.

On Thursday G20 leaders pledged to take action to prevent the crisis escalating. However, there is not yet agreement on what measures to take. The Greek government has so far failed to meet targets set as part of its bail-out package with the EU and IMF.

German finance minister Wolfgang Shaeuble said on Saturday that he will meet his Greek counterpart, Evangelos Venizelos, in Washington to discuss the crisis. Reports that the EU may accept an “orderly default” on Greek debts have concerned some investors. The bailout deal agreed with Greece in July already included a limited move by private banks to swap existing Greek debt with longer term debt paying lower interest. Measures being discussed include a further expansion of the the European Financial Stability Mechanism designed to increase funds available to countries and banks which run into trouble.

However, the mechanism, agreed by leaders on July 21, has yet to pass most national parliaments. Governments have now given themselves to mid-October to pass the measure. “We are confident that all euro area member states will ratify the agreement,” said a spokesman for Olli Rehn, the EU head of monetary affairs.

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