US, Spain leaders urge united action on economy

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US President Barack Obama and Spain's prime minister called for a united fight against a global economic slowdown in a telephone call Monday, the Spanish government said.

The US leader and Prime Minister Jose Luis Rodriguez Zapatero spoke as world markets plummeted on deepening concerns over the sluggish pace of growth and the ability of governments to repay their sovereign debts.

"Both leaders highlighted the need to work in a coordinated manner to strengthen economic growth and avoid a slowdown," the Spanish premier's office said in a statement.

"Zapatero and Obama agreed to maintain contact between the economic teams of both governments so as to continue coordination with the twin goals of promoting stability and avoiding a global economic slowdown."

As Spain battles to convince markets it can repay its sovereign debt and cut a bloated budget deficit, Obama has defended the US economy against an historic downgrade of US AAA-rated debt by Standard & Poor's.

Obama backed Spain's repeated calls for faster implemementation of July 21 eurozone deal to throw a new lifeline to Greece and to expand the reach of their rescue mechanism, the government here said.

"On the developments in financial markets, Rodriguez Zapatero and Obama agreed on the need to accelerate the implementation of the agreements reached by the Eurogroup on July 21 and to reinforce their commitment to the euro project," the statement said.

Zapatero has been on the phone to fellow leaders in Europe and beyond since the risk premium paid on Spanish and Italian debt began to shoot higher August 2, delaying his depature to the southern Spanish nature getaway of Donona by three days.

The risk premium -- the extra rate Spain, Italy and other stressed nations must pay to borrow on the markets when compared to safe-bet Germany -- had raised fears that either country may eventually default.

Obama also called Italian Prime Minister Silvio Berlusconi Monday, with the focus also on the global debt crisis.

Italy has been dragged into the maelstrom of the eurozone debt crisis by investors spooked by its high public debt levels and low economic growth as well as by the current weakness of Berlusconi's centre-right coalition government.

Stock markets were dragged down around the world on Monday by investor nervous over the prospects for global growth following an unprecedented credit rating downgrade for the United States by ratings agency Standard and Poor's.

A debt default by either Spain, the eurozone's fourth-biggest economy, or Italy, the third-biggest, would dwarf any of the region's debt crises to date and throw into question the euro itself.

Spain and Italy's risk premiums fell only after the European Central Bank of sent a clear message that it would buy hard-hit Spanish and Italian bonds in the markets Monday.

Spain has launched reforms to strengthen bank balance sheets, cut spending, raise the retirement age, open up the labour market and sell off assets.

But Spain's faltering economy, with an unemployment rate of 20.89 percent, slowed in the second quarter, complicating its efforts to cut the deficit.

Economic leaders of the Group of 20 industrialised and emerging economies pledged in a statement Monday to maintain contact and "to ensure financial stability and liquidity in financial markets."

© 2011 AFP

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