G20 calls for eurozone action ahead of summit

Governments of leading economies called yesterday for drastic action by European leaders to prevent the eurozone debt crisis from tipping the world into a new recession.

A statement by G20 finance ministers meeting in Paris warned that an EU summit next weekend must agree a long-promised package of new measures to calm markets and prevent the crisis spreading by "contagion".

The US, Australia and other non-EU countries agreed to consider the possibility of a larger IMF bailout fund to relieve heavily indebted nations – but not until the 17 eurozone countries had signed off on a massive new debt safety-net of their own.

"We have heard from eurozone colleagues the action they are working on, but I think they will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the crisis," said the Chancellor of the Exchequer, George Osborne.

Mr Osborne said that Britain was not opposed in principle to contributing to a larger IMF fund to calm market fears. But any increase in IMF emergency funds should be available for all countries, he added, not just the most debt-burdened eurozone nations.

France had pushed the US, China and others to "shock and awe" the markets by adding new ammunition to the IMF debt rescue funds – on top of what EU leaders may agree at their summit. The US opposed any statement at yesterday's meeting – apparently fearing that it would relieve pressure on EU governments to take action. The possibility of a bigger IMF bailout fund will, however, be discussed again by a full G20 summit in Cannes next month.

Although divisions remain between EU countries, the Brussels summit next Saturday is expected to find some way of boosting the capital of European banks and hugely increasing the potential scope of its bailout fund for debt-burdened nations (via the European Financial Stability Fund, or EFSF).

In a draft statement prepared for the close of yesterday's meeting, the G20 ministers said that they expected "further work to maximise the impact of the EFSF in order to address contagion and to the outcome of the European Council (EU summit) on 23 October to decisively address the current challenges through a comprehensive plan.".