G7 to hold emergency eurozone talks, Spain top concern

Billionaire investor George Soros speaks at a forum during the annual IMF-World Bank meetings in Washington, September 24, 2011. REUTERS/Yuri Gripas (Reuters) – Finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks on the euro zone debt crisis on Tuesday in a sign of heightened global alarm about strains in the 17-nation European currency area.

With Greece, Ireland and Portugal all under international bailout programs, financial markets are anxious about the risks from a seething Spanish banking crisis and a June 17 Greek general election that may lead to Athens leaving the euro zone.

Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act.

“The real concern right now is Europe of course – the weakness in some of the banks in Europe, the fact they’re undercapitalized, the fact the other European countries in the euro zone have not taken sufficient action yet to address those issues of undercapitalization of banks and building an adequate firewall,” Flaherty told reporters.

The disclosure of the normally confidential teleconference came as European Union paymaster Germany said it was up to Spain, the latest euro zone country in the markets’ firing line, to decide if it needed financial assistance, after media reports that Berlin was pressing Madrid to request aid.

German Chancellor Angela Merkel and leaders of her centre-right coalition said in a joint statement: “All the instruments are available to guarantee the safety of banks in the euro zone.”

They effectively ruled out Spanish calls to allow euro zone rescue funds to lend money directly to recapitalize Spanish banks, which are weighed down with bad property debts, without the government having to take a bailout program.

Berlin is pressing reluctant euro zone partners, including close ally France, to agree to give up more fiscal sovereignty as part of a closer European fiscal union.

A G7 source, speaking on condition of anonymity because of the sensitivity of the issue, said there were concerns about the risk of a bank run in Spain, which is struggling to recapitalize nationalized lender Bankia (BKIA.MC) and smaller banks stricken by the collapse of a property bubble.

“There’s a heightened sense of alarm over developments in Europe, particularly in Spain,” the source told Reuters. “There is concern on whether there will be a bank run in Spain that could have repercussions beyond the euro zone.”

SPAIN TO TEST MARKET

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