Finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks on the euro zone debt crisis Tuesday in a sign of heightened global alarm about strains in the 17-nation European currency area.
In the hours before the teleconference, the euro rose for a third day, and the yen and dollar fell, Bloomberg Businessweek reported.
Europe's common currency strengthened 0.3 percent to $1.2532 as of 11:08 a.m. in Tokyo from $1.2499 at the close in New York Monday, extending its advance to the longest stretch since April. The 1 euro added 0.3 percent to 98.18 yen. Japan's currency was little changed at 78.34 per dollar.
The situation in Spain will be a big part of the teleconference, a European Union official told Dow Jones. Asked if the call was mainly to discuss Spain's debt and banking crisis, the person said: Not specifically. But obviously it will be a big part of the discussion.
On Tuesday, G20 official in Asia told Reuters the Group of 20 major economies will discuss encouraging countries with the fiscal capability to boost spending to help the euro zone and global economies.
Countries with sound fiscal positions will be encouraged to boost spending at the G20 level, the official, who declined to be identified, said. As of now, Germany and Canada could be seen as those having fiscal capabilities among the advanced economies.
Meanwhile, Germany has indicated that it is prepared to accept a grand bargain that would provide greater support for the worst-indebted euro zone nations in exchange for more centralized control over government spending in Europe, The New York Times reported.
Chancellor Angela Merkel said finding the way to more Europe, not less was the next task for the Continent's leaders. The world wants to know how we expect the political union to complement the currency union, she said at a news conference in Berlin Monday with José Manuel Barroso, the president of the European Commission. We have to find an answer in the foreseeable future.
German officials still swear that they are not talking about euro bonds, or jointly issued debt, which they view as unconstitutional. More likely is a plan to combine much of Europe's bad debt into a single fund with the idea of paying it off over 25 years, an idea gaining traction in Germany as an alternative to euro bonds, officials say.
With Greece, Ireland and Portugal all under international bailout programs, financial markets are anxious about the risks from a seething Spanish banking crisis and a June 17 Greek election that may lead to Athens leaving the euro zone.
Markets remain skeptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen. So we obviously believe that more steps need to be taken, White House Press Secretary Jay Carney told reporters.
Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act, Reuters reported.
The real concern right now is Europe of course - the weakness in some of the banks in Europe, the fact they're undercapitalized, the fact the other European countries in the euro zone have not taken sufficient action yet to address those issues of undercapitalization of banks and building an adequate firewall, Flaherty told reporters.
The disclosure of the normally confidential teleconference came as European Union paymaster Germany said it was up to Spain, the latest euro zone country in the markets' firing line, to decide if it needed financial assistance, after media reports that Berlin was pressing Madrid to request aid.
Merkel and leaders of her center-right coalition said in a joint statement: All the instruments are available to guarantee the safety of banks in the euro zone.
They effectively ruled out Spanish calls to allow euro zone rescue funds to lend money directly to recapitalize Spanish banks, which are weighed down with bad property debts, without the government having to take a bailout program.
Berlin is pressing reluctant euro zone partners, including close ally France, to agree to give up more fiscal sovereignty as part of a closer European fiscal union.
A G7 source, speaking on condition of anonymity because of the sensitivity of the issue, said there were concerns about the risk of a bank run in Spain, which is struggling to recapitalize nationalized lender Bankia and smaller banks stricken by the collapse of a property bubble.
There's a heightened sense of alarm over developments in Europe, particularly in Spain, the source told Reuters. There is concern on whether there will be a bank run in Spain that could have repercussions beyond the euro zone.
Spain's borrowing costs have soared to around 6.6 percent for 10-year bonds with the risk premium over safe haven German Bunds reaching a euro era record. Madrid plans to issue 1 billion to 2 billion euros in 10-year debt on Thursday in a key market test.
The G7 source said the United States, the current G7 chair, was unwilling to allow International Monetary Fund money to be used to support the euro zone, so there was little prospect of the global community acting as one to contain the crisis.
A senior Brazilian government official said the euro zone crisis would also be a central focus of this month's G20 summit in Los Cabos, Mexico.
We insist in our position that European countries with enough space to stimulate the economy, even via fiscal stimulus (not many that can do that), should do it now, said the official, referring mostly to Germany.
The euro climbed and safe haven U.S. and German bonds eased off last week's record low yields as speculation mounted that authorities will act to keep the euro zone intact and overcome the debt crisis.
EU leaders hold their next regular summit on June 28-29 and their chairman, Herman Van Rompuy, said he would put forward a roadmap to design a plan for closer economic union in the euro area by the end of this year.
He said he would present the main building blocks at the summit, including banking integration proposals on supervision, on deposit insurance and on resolution.
Germany, keen to limit liabilities for its taxpayers as the biggest contributor to euro zone rescue funds, has so far rejected proposals for a banking union with a joint deposit guarantee and a common resolution fund for failing banks.
Officials say such measures can come only at the end of a drive to closer fiscal union.