Finance ministers of the Group of Seven and other economic powers will talk by phone later Tuesday on the eurozone crisis and the threat it poses to the world economy, several official sources said.
Finance ministers and central bank chiefs from the world’s seven most industrialized nations will confer at around 1100 GMT, the sources said.
Ahead of the talks, markets worried about sluggish world growth anticipated coordinated action by central banks, but the rumors later subsided.
Few details on the meeting’s agenda have emerged, with only Canadian Finance Minister Jim Flaherty revealing that the discussions would address Europe and troubled banks on the continent, the “real concern” of the moment.
“Those discussions also take place with some of the non-European members of the G20 who are concerned... with the potential consequences of a crisis in the eurozone,” Flaherty told a Toronto press conference late Monday.
“The real concern right now is Europe, the weakness in some of the banks in Europe, the fact they’re undercapitalized, the fact the other European countries in the eurozone have not taken sufficient action yet to address those issues of undercapitalization of the banks and building an adequate firewall,” he said.
Concern has grown that some Spanish banks could collapse without direct aid from Europe.
But Germany has resisted allowing funds from the region’s financial firewall, the European Stability Mechanism, to be lent directly to banks rather than via governments and has called on Madrid to request a proper rescue.
But Spanish Budget Minister Cristobal Montoro said Tuesday it was technically impossible to rescue the debt-laden economy, the fourth largest in the eurozone.
“Spain cannot be rescued in the technical sense of the term. Spain does not need that. Spain needs more Europe, more mechanisms allowing the integration of Europe,” he told Onda Cero radio.
Montoro did not explain why a rescue would be impossible but many analysts fear the size of the economy would stretch the resources of existing European rescue mechanisms.
As bond markets charge exorbitant rates to lend to Spain, however, investors believe Madrid may be forced to seek external aid to finance a bailout of the nation’s financial sector.
Spain’s record high risk premium showed the indebted country was being shut out of the bond market, Montoro said.
“What the risk premium shows is that Spain does not have the door of markets open to it and the challenge is to build confidence with these markets,” he told Onda Cero.