George Osborne pushing for united response

George Osborne insists "good progress" is being made towards securing a shared international agenda for tackling the global debt crisis as he prepares for a second day of talks with international finance ministers.

The Chancellor will hold discussions with the G7 industrialised economies in Marseille today but divisions over how to stimulate growth means securing decisive action will be difficult.

Following yesterday's round of meetings Mr Osborne said there was a "strong feeling" of support "for credible fiscal consolidation plans for countries with high budget deficits like the one we have in Britain".

He added: "What's important now is a concerted international agenda to deal with the global debt crisis and support growth along the lines I set out in London with Christine Lagarde, the Managing Director of the IMF.

"I think we are making good progress towards that goal."

Mr Osborne and Prime Minister David Cameron were forced to defend their economic policy yesterday after IMF head Christine Lagarde said the UK's stance remained "appropriate" but "the heightened risk" meant a need for a "heightened readiness to respond".

Mr Cameron said: "We have one of the biggest budget deficits anywhere in the world and that's why the OECD and Christine Lagarde from the IMF and others have said that Britain is quite a special case with its vast deficit and we have got to deal with that.

"The reason we have interest rates that are as low as Germany's but our national deficit is bigger than Greece's is because we have got a plan to deal with our debts and we mustn't give up on that plan."

Ms Lagarde, IMF managing director, met Mr Osborne at the Chatham House think tank in London ahead of the G7 and warned the risks from stagnating growth were increasing and had to be weighed against risks of sovereign debt.

She said: "The policy stance remains appropriate. But the heightened risk means a heightened readiness to respond, particularly if it looks like the economy is headed for weak growth and high unemployment."

Mr Osborne insisted the coalition's deficit reduction plans were flexible enough to deal with the deteriorating economic situation.

It comes as Mr Osborne took delivery of an advance copy of the report by Sir John Vickers into preventing a repeat of future bank bailouts.

It is expected to recommend breaking up the banks - separating high street operations from investment banking - and is due to be published on Monday.

Shadow Business Secretary John Denham said: "The publication of the Vickers report on Monday is to be welcomed, as is the indication that banks will be asked to implement a ring fence between retail and investment arms.

"But of more immediate concern are the small and medium sized businesses that are crying out for finance today - the Vickers recommendations won't change that. The Government's self-lauded Project Merlin is failing to deliver increased net lending to SMEs - the Bank of England's preferred measure of success. The narrow remit, given to Vickers, means that it won't address the long term finance needs of UK businesses."

PA