G-7 Leaders Pledge to Cooperate in Tackling Spain, Greece

Finance ministers and central bank governors from the world’s leading economies agreed to coordinate their response to Europe’s financial crisis on a conference call that dealt with Spain and Greece.
Group of Seven officials said they will work together to help both euro-area countries place their public finances on a sustainable footing, Japanese Finance Minister Jun Azumi told reporters in Tokyo following the call today. Azumi said he urged European leaders to do more to address investors’ concerns about the region’s finances.

European representatives “said they will speed up their efforts to resolve those problems, which was encouraging to us,” Azumi said. “Japan is ready to provide support if there is anything we can do.” The officials didn’t discuss a possible Greek exit from the euro, he said.

Less than two weeks before a Group of 20 summit in Mexico that will take place as Greece holds its second round of elections in as many months, German Chancellor Angela Merkel is facing increasing pressure inside and outside the 17-nation euro area to to do more to stem the crisis. With the impact spilling over into the global economy, Spain for the first time today appealed for external funding for its banking system.

“The G-7 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,” the U.S. Treasury said in a e- mail.
European ‘Cloud’

President Barack Obama said June 1 Europe’s recession is weakening U.S. growth in the run-up to the presidential election in November after payrolls increased by the smallest amount in a year in May. Obama toughened his language on Europe saying the bloc’s leaders haven’t done enough to dispel the “cloud that’s coming over from the Atlantic.” Last month he spoke of “significant steps” that Europe has taken.

Unemployment in the single currency area is at a record while the European Commission forecasts the euro-region economy will shrink 0.3 percent this year.

As the turmoil that began in Greece in late 2009 spreads to Spain, Spanish Budget Minister Cristobal Montoro today urged the EU to provide new funds for the country’s banks. Prime Minister Mariano Rajoy said June 1 he’s prepared to give up some control of Spain’s public finances and its banking system so that they can take shelter in a European framework.

“Progress toward real fiscal union is crucial for resolving the euro-region crisis,” a Bundesbank official said.

The extra yield investors demand to hold Spain’s 10-year debt instead of benchmark German bunds reached a record 548 basis points on June 1, raising doubts about the Spanish government’s ability to fund itself. Montoro said the Treasury is struggling to sell bonds.