Finance chiefs vow to support banks

Group of Seven finance chiefs vowed to support banks and buoy slowing econ-omic growth as Europe's debt crisis roiled financial markets and threatened a global recession. "We will take all necessary actions to ensure the resilience of banking systems and financial markets," G7 finance ministers and central bankers said in a statement released during talks in Marseille, France on Friday. "Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth." Renewed fears that European policymakers are failing to prevent a Greek default and contain their debt woes prompted investors to sell stocks and push the euro to a six-month low against the dollar on Friday. European bank and sovereign credit risk reached all-time highs as ten-year Treasury and German bund yields fell to record lows on demand for a haven. Germany moved toward insulating its banks against the fallout of a possible Greek default and Juergen Stark's resignation from the European Central Bank exposed the policy rifts aggravating the debt turmoil. Such shifts highlight the biggest risk to international expansion since the collapse of Lehman Brothers Holdings three years ago this month. The sense of disarray drew fire from G7 officials with US Treasury Secretary Timothy F. Geithner lobbying his European counterparts to get their act together. Canadian Finance Minister Jim Flaherty even suggested Greece may need to quit the euro. European authorities, "need to do whatever they can do to calm these pressures," Geithner told Bloomberg Television. "They have to demonstrate they have enough political will." Dogged by voter unrest and ideological splits, Europe's leaders have reignited investor unease less than two months since they detailed their latest remedy for a crisis nearing its second anniversary. Finland is demanding collateral from Greece in return for fresh aid and German lawmakers want veto power. Governments are also dithering over a revamp and management of their regional rescue fund and falling short of the closer budget ties investors say are needed to guarantee the euro's future. There are also questions over whether nations can cut deficits without derailing growth and creating even more debt. "We need Europe to have its moment of truth, to recognise that the current course isn't sustainable," Mohammad Al Erian, chief executive officer of Pacific Investment Management, said in an interview.