Finance chiefs of the G7 group of industrial nations have held emergency talks about the eurozone debt crisis.
They come amid fresh worries about the eurozone’s economy, underlined in data showing that private sector activity, including in Germany, fell in May.
The talks ended without a G7 statement, but Japan’s finance chief vowed a “speedy” response to the crisis.
Meanwhile, Spain’s finance minister said the credit markets were “effectively shut” to his country.
Speaking ahead of the G7 talks Cristobal Montoro told Spain’s Onda Cero radio “the door to markets is not open for Spain”.
Worries about the suffering Spanish economy and its ability to service its debts has pushed the cost of its government borrowing on the money markets very close to unsustainable levels.
The teleconference of finance ministers and central bank chiefs came just a few days after US President Barack Obama blamed Europe for slow growth in the US economy.
G7 countries outside the eurozone fear Europe’s failure to get to grip with its worsening financial position will be a drag on global recovery.
With mounting concern about Spain’s economy, there is speculation that Europe remains split over a clear way forward, especially on whether to launch common bonds to help ease borrowing costs.
But Germany repeated its position that fiscal union must precede the introduction of eurobonds.
Wolfgang Schaeuble, Germany’s finance minister, said in an interview with the Handelsblatt newspaper on Tuesday: “The government has always said that before we start talking about joint debt management, we need real fiscal union.”
The subject of eurobonds, which would consolidate eurozone debt and reduce the interest rate countries must pay to borrow money, was a divisive issue at a European Union summit last month.
‘Three months left’
There was concern that some eurozone countries “have not taken sufficient action yet to address those issues of undercapitalisation of banks and building an adequate firewall”, he told the Reuters news agency.
Spain’s banking crisis and worries that Greece may be forced to leave the euro bloc have caused panic in the financial markets in the past few weeks. And now there are fears Cyprus may be forced to join Greece, the Republic of Ireland and Portugal in seeking a bailout.
Billionaire investor George Soros told a conference in Italy over the weekend that Europe had about “three months to save the euro”, but that leaders did “not understand the nature of the crisis”.
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The risk premium says that… we have a problem in accessing markets when we need to refinance our debt”
Spain’s treasury minister
Many politicians, officials and economists believe that the creation of eurobonds is the way forward. And in France, Greece and elsewhere in Europe, there appears to be a backlash against austerity measures that many people complain are too severe.
However, Mr Schaeuble repeated Germany’s firm resolve on both issues.
And on austerity, the finance minister said that countries must press ahead with budgetary cutbacks. “We cannot spare the affected countries the reform,” he told Handelsblatt.
Mr Schaeuble said Spain was doing “everything right” with its reform measures, but acknowledged that the country was under severe pressure because of a rise in borrowing costs.
“We need to manage this… through close and trusting co-ordination,” he said.
There were several unconfirmed reports over the weekend that Spain’s prime minister, Mariano Rajoy, had been holding talks with European leaders about how to recapitalise the country’s banks.
Spanish lender Bankia alone has asked for 23.5bn euros (£19bn) to help repair a balance sheet that has a vast exposure to the property market.
Bankia was heavily exposed to Spain property lending bubble
The financial problems come as new data on Tuesday showed that the eurozone’s economies appear to be slowing.
The Markit purchasing managers’ index fell to 46 in May from 46.7 in April, its lowest level in almost three years. A figure below 50 indicates contraction.
German output fell for the first time in six months, while declines in Spain and France accelerated.
The eurozone’s private sector has now contracted for four months in a row.
The May figures indicate that “the economy is contracting at the fastest pace for around three years”, said Markit’s chief economist Chris Williamson.
“Companies report business activity to have been hit by heightened political and economic uncertainty, which has exacerbated already weak demand, both in the euro area and further afield.”