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White House: New moves ahead to save euro

June 6, 2012 at 2:30 AM   |   Comments

BRUSSELS, June 6 (UPI) -- Europe will likely soon step up its effort to overcome the euro crisis, the White House said, as Spain said it could no longer save its banking system alone.

The stepped-up effort could include a possible tighter economic union within the eurozone and "progress toward financial and fiscal union in Europe," White House spokesman Jay Carney said.

"European leaders seem to be moving with a heightened sense of urgency, and we welcome that," he told reporters in Washington Tuesday.

"We anticipate and hope that there will be expedited action in the weeks ahead, in the run-up to the G20," he said.

U.S. President Barack Obama and other leaders of the Group of 20 major economies -- 19 countries plus the European Union -- are to meet June 18-19 in Los Cabos, Mexico.

Finalizing emergency measures to lessen the European sovereign-debt crisis is widely expected to be a central topic of the meeting of leaders who represent more than 80 percent of the gross world product and two-thirds of the world population.

Carney's comments Tuesday followed a conference call among finance ministers and central bankers from the Group of Seven leading industrialized nations -- including U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke -- to pressure Europe to act more quickly and forcefully to contain the crisis, as Spain increasingly became cut off from financial markets.

The British newspaper The Daily Telegraph described Obama as being "exasperated" by Europe's failure to mobilize its vast resources to control the crisis.

Other non-EU G7 countries, including Canada and Japan, have also expressed frustrations about Europe.

"We're four years into the crisis and we're still trying to get a sense of what the game plan is," Canadian Prime Minister Stephen Harper said in an interview with the Financial Times Tuesday.

"We need measures that are going to be decisive," Harper said. "If the eurozone is serious about the fact that it's a single economic bloc, then it has to be prepared to take all measures necessary to stabilize its fiscal and banking situation."

Japanese Finance Minister Jun Azumi said after the G7 conference call, "The Europeans gave us powerful assurances that they will move swiftly" to address the crisis.

Officials from Spain, which isn't in the G7, participated in the call.

German Chancellor Angela Merkel suggested Monday EU leaders consider putting the largest banks in the 27-nation EU bloc under direct European supervision, opening the door to more centralized oversight of the region's financial sector.

The integration is expected to include a common European deposit guarantee mechanism like the U.S. Federal Deposit Insurance Corp. and a eurozone-wide recapitalization fund, the Financial Times reported.

If approved, the proposal would not go into effect until Jan. 1, 2018, Michel Barnier, the European commissioner responsible for the internal market, told The New York Times.

"It's important to wait until 2018 as we wanted to avoid mixing this up with the current problems," he said.

Some senior G7 officials pushed EU leaders to come up with immediate plans to assist Spain and contain the spreading crisis.

Spanish Prime Minister Mariano Rajoy said Tuesday his country was "in an extremely difficult situation" and needed Europe to stand by euro membership's mutual obligations.

"Europe must say where it is going and show that the euro is an irreversible project that is not in danger, that helps nations in difficulty," he told the Senate of Spain, the upper house of Parliament.

Rajoy, a conservative, pressed for eurobonds, whose risk and debt would be shared among the 17 eurozone members' economies, both weak and strong.

Spanish Finance Minister Cristobal Montoro separately confessed Spain was close to no longer being able to raise money and needed help to stay afloat.

"The market is no longer open," he said.

"What the risk premium is saying is that as a government we have a problem when it comes to accessing the markets in order to refinance our debt," Montoro said in an interview with Spanish radio station Onda Cero.

The risk premium is the extra interest rate that investors demand to hold Spanish debt, compared with German debt, which is considered the safest in the eurozone.

Spain's risk premium closed Tuesday at 5.1 percent, meaning the yields it had to charge on 10-year bonds were 5.1 percent higher than those of Germany.

Despite the pleas, Spain's leaders held out against a formal EU-International Monetary Fund rescue similar to the bailouts of Greece, Ireland and Portugal, calling instead for EU action to recapitalize Spanish banks.

"The European institutions must open up and help us facilitate bank recapitalizations," Montoro told the radio interviewer.

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