President Barack Obama said on Wednesday he was deeply concerned about the continued euro zone crisis, blaming it on a lack of political will, and that market turmoil would continue until Europe has a concrete plan to deal with its debt woes.
Obama praised French President Nicolas Sarkozy and German Chancellor Angela Merkel, along with Greece and Italy and their moves to form unity governments to implement reforms, but he was critical of wider Europe.
The problem right now is a problem of political will. It is not a technical problem, Obama told a joint news conference with Australian Prime Minister Julia Gillard in Canberra.
I think there is a genuine desire on the part of leaders like President Sarkozy and Chancellor Merkel, but they've got a complicated political structure, said Obama.
We saw some progress with Italy and Greece putting forward unity governments that can implement some significant reforms. But at this point the larger Europe community has to stand behind the European project.
Obama's comments, some of the bluntest to date, added to a chorus of non-European policymakers urging greater action to deal with the 2-year-old crisis, and came as equity markets fell in response to a sell-off in euro zone bond markets.
Until we put in place a concrete plan and structure that sends a clear signal to the markets that Europe is standing behind the euro and will do what it takes, we are going to continue to see the kinds of market turmoil we saw, said Obama.
Asian shares fell on Wednesday and the euro slipped to its lowest levels in a month against the dollar and the yen.
MEAT ON THE BONES
Investors have been spooked by signs the crisis is spreading from heavily indebted Greece and Italy to the region's core nations, with yield spreads on Austrian, Belgian and French 10-year bonds over German Bunds hitting euro-era highs on Tuesday.
Obama said that while there had been progress in putting together unity governments in Italy and Greece, Europe still faced more than just a technical problem.
We're going to continue to advise European leaders on what options we think would meet the threshold where markets would settle down. It is going to require some tough decisions on their part, he said.
Ultimately, what they are going to need is a firewall that sends a clear signal -- we stand behind the European project, we stand behind the euro.
Canada's Finance Minister Jim Flaherty, speaking earlier on Wednesday in Japan, urged European leaders to put meat on the bones of plans to stem the contagion.
Until European countries build firewalls for their financial system, I think we will continue to see market volatility, he said. Some of us are frustrated by the failure of clear and decisive action in Europe.
China's central bank also voiced its concern, saying in its quarterly monetary policy report posted on its website that the European debt crisis was a prime risk to the global economy.
The sovereign debt problem in the euro zone will cause continuous turbulence in financial markets, and, if the crisis spreads to core member countries, it may cause global systematic risks, the report said.
Bank of Japan Governor Masaaki Shirakawa told a news conference there were signs the European crisis was starting to affect emerging economies through trade and other channels.
Dollar funding at European banks has also worsened and there are signs of dollar assets being squeezed, or so-called deleveraging, he said.
(Additional reporting by James Grubel in Canberra, Michael Perry in Sydney and Stanley White in Tokyo; Writing by Alex Richardson; Editing by Paul Tait)