The euro traded lower Tuesday as traders reacted to a communique after a conference call among finance ministers of the world's seven wealthiest economies focused on trying to find a way out of Europe's debt crisis.
The common currency was down 0.37 per cent at $1.24 US late in the afternoon.
Japan's finance chief Jun Azumi has reportedly said in Tokyo that the European members in the call pledged to "speed up their efforts" to contain the crisis.
It was not clear what pledges were made by Europe's representatives, which included Germany, France, Italy and Britain.
Canada's finance minister, Jim Flaherty, disclosed Monday that the call, usually confidential, would be held today.
Flaherty's office in Ottawa released a statement, but it did not provide details of any pledge from European leaders.
"The G7 counterparts reviewed developments in the global economy and financial markets and the policy response under consideration, including the progress towards financial and fiscal union in Europe."
The U.S. Treasury Department said the conference among the finance ministers and central bank presidents ended with agreement to keep monitoring developments closely in the runup to a leaders' summit of the Group of 20 major economies on June 18-19 in Los Gatos, Mexico.
The statement said the talks considered how to forge a stronger financial and fiscal union in Europe.
Taking central focus was Spain, whose own finance minister appealed Tuesday for European leaders to set up a method for its troubled banks to get direct financial help.
Cristobal Montoro warned that the country's high borrowing costs mean that it faces increasing trouble accessing credit markets.
"The door to markets is not open for Spain," Montoro said.
Data suggests slump ongoing
Lenders want to know whether that will prevent Spain from bailing out its troubled banking sector, which is weighed down by bad real estate loans.
Adding to the crisis was the uncertainty of how Greeks would vote in an election on June 17 that is widely seen as a referendum on whether the country will continue with the austerity measures that are a condition of continued international bailouts required to keep it part of the currency zone.
The urgency of finding a response to the crisis was underscored by data that suggested that services and manufacturing output in the eurozone slumped at the sharpest rate in almost three years last month.
London-based Markit Economics said its composite index of purchasing managers in both industries fell to 46 from 46.7 in April. A reading below 50 indicates an economy in contraction.
The G7 call came ahead of a summit of European leaders on June 28.
It’s expected the European Commission and the European Central Bank will propose a "banking union," which would oversee banks and perhaps even be granted the authority to bail out financial institutions directly. Now, they can only rescue national governments.
“There’s no divergence in views when it comes to how to tackle this crisis overall,” a spokesman for EU Commissioner Olli Rehn said in Brussels.
With files from The Canadian Press and The Associated PressGerman finance minister Wolfgang Schaeuble firm on eurozone measures - Economic Times
G7 finance ministers back greater fiscal and financial union in eurozone - The Guardian
Finance ministers from the developed world have thrown their weight behind moves towards greater "fiscal and financial union" in the eurozone as the best way to tackle the debt crisis threatening to destroy the single currency.
The British chancellor, George Osborne, and other finance ministers from the G7 group of industrialised nations and central bankers discussed the growing pressure on Europe in a telephone conference on Tuesday. British officials described it as a "stocktaking session" in advance of the G20 summit in Mexico on 18-19 June.
David Cameron flies to Berlin later this week for talks, and will tell the German chancellor, Angela Merkel, that Britain will support greater fiscal governance in the eurozone. Finance ministers, fearful that the crisis could derail the global economy, are keen to find swift solutions as the Spanish prime minister, Mariano Rajoy, warned that his country faces "extreme difficulty".
Earlier Rajoy's treasury minister, Cristóbal Montoro, admitted that Spain was effectively shut out of the bond market, unable to raise cash because of the high interest rates demanded by investors. G7 finance ministers made clear that the EU's ongoing crisis will dominate the G20 summit. Michael Froman, a senior economic adviser to the US president, Barack Obama, said: "The eurozone crisis is the most significant threat to growth."
The prime minister discussed the eurozone crisis in a phone call with Obama on Tuesday night. The call was one of a series the president is holding with world leaders before the G20 summit.
The White House said Obama also used the call to commend Britain for the special forces raid in Afghanistan over the weekend which freed four hostages.
A statement issued by the US treasury, which currently chairs the finance chiefs' group, said: "The G7 ministers and governors reviewed developments in the global economy and financial markets and the policy response under consideration, including the progress towards financial and fiscal union in Europe. They agreed to monitor developments closely ahead of the G20 summit in Los Cabos [in Mexico]." The statement was issued after the Guardian reported that European leaders were drawing up a blueprint for what is described as a federalised eurozone.
The new French government and the European commission have voiced strong support for a new eurozone "banking union" to save the single currency, but the French may balk at having to surrender sovereignty over their budgets and fiscal policies. The EU's four key players – the European council president, the European commission president, the president of the European Central Bank and the head of the 17-strong eurozone finance ministers – are due to present proposals to an EU summit at the end of the month.
Cameron will tell Merkel in Berlin Britain would welcome moves towards fiscal governance in the eurozone. Downing Street believes survival of the euro is vital to the British national interest and a single currency can only succeed if it co-ordinates monetary and fiscal policy. But the UK will not be writing any blank cheques, as Cameron showed when he vetoed a proposed amendment to the Lisbon treaty last December that would have embedded the new eurozone fiscal compact within the architecture of the EU. This meant France and Germany had to take the lead in drawing up a parallel treaty.
The prime minister may find himself in the slightly curious position of encouraging Merkel to take steps towards greater pooling of eurozone sovereignty that she currently finds unacceptable. Cameron believes, for example, the eurozone should give serious consideration to eurobonds – jointly issued bonds which would enable debt-laden countries to benefit from the strong financial position, and lower borrowing costs, of Germany.
Britain does not currently detect any moves in Berlin towards accepting eurobonds. Ministers do, however, detect interest in Berlin to using the European financial stability facility to support European banks. That would involve the eurozone countries jointly guaranteeing savers' bank deposits.
One British official said: "The German position is evolving. It is not shifting dramatically."
Finance ministers were keen to touch base ahead of the G20 summit after the recent weak job figures in the US and the poor growth figures in China. Rajoy told the Spanish senate Europe must underline the "irreversibility" of the euro by agreeing a common banking union and backing eurozone bonds. Montoro and Rajoy are determined to avoid a full-scale bailout, because of the tough conditions that would be attached to the funds, but want the eurozone to inject cash into its banks – not allowed under current rules.
However, Jeremy Cook of foreign currency trading group World First, said Spain should apply for a formal bailout: "Although politically destructive and obviously humiliating, it is time for Spain to ask for help from the IMF."
Economists at US bank JP Morgan estimated on Tuesday that Spain might require a bailout of €350bn (£283bn), of which €75bn needs to be pumped into its struggling banking sector.
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