World leaders rush to contain Greek contagion

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Governments worldwide struggled Friday to end mayhem in the markets amid fears of a Greek debt conflagration as European leaders rushed to approve a 110-billion-euro bailout to keep Athens solvent.

US President Barack Obama said that he and German Chancellor Angela Merkel had agreed on the need for a strong response in a phone conversation, which came after a shock stock dive on Wall Street on Thursday that sowed panic.

"We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community," Obama told reporters at the White House.

"I made clear the United States supports these efforts and we'll continue to cooperate with European authorities and the IMF during this critical period," he said, as global stocks plunged.

Finance ministers and central bank governors from the Group of Seven (G7) of the world's top industrialised economies also discussed the increasingly global crisis in a conference call, Dow Jones Newswires reported.

Market upheaval added to pressure on leaders of the 16 euro nations meeting in Brussels to map out ways to keep Europe's public finances in check and prevent the Greek debt crisis from spreading to other countries.

"Greek crisis becomes global," read the title of an analysis by Germany's Commerzbank, which said that the European Central Bank had failed to calm investors worried about "contagion" from the Greek mess.

Merkel and French President Nicolas Sarkozy issued a joint statement ahead of the Brussels talks calling for a new "robust framework" for policing public finances and protecting the euro.

The summit is set to give final approval to emergency loans for Greece.

Spain and Portugal, struggling to fend off suggestions they could follow Greece's footsteps, blamed "attacks" from speculators for the market plunges and Madrid warned it could take legal action.

European stock exchanges suffered sharp falls, with the London FTSE 100 index shedding 2.62 percent, the CAC 40 in Paris falling 4.60 percent and the DAX in Frankfurt losing 3.27 percent.

Wall Street was also down, with the Dow index falling 0.74 percent.

Earlier, Japanese Prime Minister Yukio Hatoyama said he was "very concerned" as stocks in Tokyo plunged 3.10 percent and Australian Prime Minister Kevin Rudd said he was watching developments in Greece with "considerable concern."

Commenting on the rescue package for Greece from its euro partners and the International Monetary Fund, Rudd said: "Markets have judged those arrangements to be inadequate."

As the bailout -- an unprecedented rescue for a eurozone member state -- loomed, German lawmakers gave their approval for Berlin's 22.4-billion-euro (28.2-billion-dollar) contribution in a controversial parliament vote.

"(The bill) towards greater security for the euro was passed today with a large majority. This is a very important decision that makes clear that we will protect the single currency for our citizens," Merkel told reporters.

In a debate before the vote, Finance Minister Wolfgang Schaeuble said that Germany was "defending the European Union."

"That is the decision we are taking today, in a time of great uncertainty among people and on financial markets, not just in Europe," he said.

German mass-circulation daily Bild has dubbed the aid "the fattest cheque in history" and the bailout could hurt Merkel's governing coalition because of an upcoming legislative election in North Rhine Westphalia on Sunday.

Opinion polls show a majority of Germans are opposed to the rescue.

The Italian government and parliaments in France, Portugal and the Netherlands also backed the financial rescue for Greece.

Meanwhile US authorities have launched an inquiry after Wall Street's blue-chip Dow Jones Industrial Average plunged almost nine percent on Thursday, sparking panic before the index recovered to close down three percent.

Rumours swirled that the plunge was caused by a trader's mistake but after three days in which stocks have suffered steep losses because of concern about Greece's debt crisis, it was clear the sell-off was real for some investors.

"Speculators have been testing the resolve of policymakers," said Kathy Lien, director of currency research at Global Forex Trading, who said the market action evoked the situation in the 2008 crisis.


© 2010 AFP

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