US Treasury Secretary Timothy Geithner went into exceptional talks with European finance ministers on the debt crisis on Friday, but Finland held to its objections to a new bailout for Greece.
IMF chief Christine Lagarde warned that the economic crisis in developed economies has entered a "dangerous new phase" worsened by feeble political leadership Photo: AFP
After the world's main central banks joined forces to pump dollars to banks squeezed by fear of debt contagion, the EU is under strong pressure to end months of bickering over a second financial rescue for the near-bankrupt government in Athens.
As European Union nations began critical talks in Poland, Austria said default for Greece could eventually prove to be the least costly outcome.
"I am very confident, that the next tranche can be disbursed in October," Austrian Finance Minister Maria Fekter said of eight billion euros in blocked existing loans.
But she added: "Should there be a situation, that this way suddenly becomes more expensive than an alternative, we do have to think about this alternative."
Greek Finance Minister Evangelos Venizelos insisted that Athens was sticking to its austerity-drive commitments to lenders and that the meeting would help make that clear.
"It's a great opportunity to send a very clear message," he said. "We are on track to implement the programme."
Despite Geithner's rare presence at EU talks, at the invitation of the current EU president Poland, European counterparts were quick to underscore that the United States itself is carrying the world's biggest sovereign debt pile.
"There are problems in Europe and in the United States," said German Finance Minister Wolfgang Schaeuble.
"We have to solve our problems on both sides of the Atlantic, to get more stability in the financial markets."
Warning of a "weakening" in global growth, he said both sides had their work cut out.
"We Europeans have to do our homework together and the Americans have to do theirs.. We're not telling each other what to do, but we're exchanging views," he added.
Belgian Finance Minister Didier Reynders echoed that.
"First of all I want to know how it is possible in the US to go back to a balance situation," he said, referring to the US deficit.
Geithner, wary that the crisis could spread far beyond Europe's shores and tip America back into recession, did not himself speak to waiting reporters.
"One thing's for sure, he hasn't just come to pick mushrooms in our beautiful forests," said Polish Finance Minister Jacek Rostowski, whose country is not in the eurozone but currently leads the EU.
Britain's Chancellor (finance minister) George Osborne also changed plans at the last minute and was to join the talks. Although Britain is not in the eurozone, the Bank of England has joined the joint central bank action.
Driven by taxpayers tired of funding repeated bailouts, Finland's finance minister said anger among partners over its demand for cash collateral from Athens before handing over further loans was far from resolved.
"I think we are going to negotiate about it, but unfortunately I don't see that we can find a solution tonight," Jutta Urpilainen told reporters.
The Finnish demand for collateral followed April's electoral breakthrough for a far-right party opposed to further bailouts.
Reynders warned that "if Finland wants guarantees, it will obviously get a lesser return."
Austria's Fekter said that guarantees should be acceptable only if "open for all... there should be a solution everybody can use if they want to."
In Washington, IMF managing director Christine Lagarde called for bolder action on both sides of the Atlantic.
The eurozone, US, Japanese, Swiss and British central banks took markets by surprise on Thursday by announcing they will provide dollars to commercial banks threatened by their exposure to the eurozone's debt mountain. This boosted stocks sharply, drove up bank shares, and supported the euro.
In Wroclaw, ECB president Jean-Claude Trichet said such coordinated moves represent "a pillar of stability and confidence".
The European Commission now foresees a mere 0.1-percent growth for the final three months of the year, worse than previously thought. EU Economic Affairs Commissioner Olli Rehn warned that "financial market turmoil is set to dampen the real economy.
With markets convinced that Athens is headed towards default, and some suggesting it could ditch the euro, French President Nicolas Sarkozy and German Chancellor Angela Merkel insisted on Wednesday that Greece belongs in the eurozone.
Rehn said he expected auditors from the EU, ECB and IMF to complete their review of Greece's efforts by the end of September.
But the eurozone also has to resolve Slovakia's refusal to stage an early parliamentary vote on ratification of the second, 160-billion-euro bailout agreed in principle back in July.
Ministers from across the EU are hopeful this afternoon they can complete an agreement on the "six-pack" -- a raft of new laws -- that will at long last sanction states that break existing budget rules.