The United States, China and other countries piled pressure on Europe on Saturday to comes to grips with its debt crisis before it risks causing bank runs and pushing the global economy into ruinous recession.
Treasury chief Timothy Geithner, in his most explicit warnings to date, said it was time for the European Central Bank to take a more central role in fighting the crisis.
The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally, Geithner told the International Monetary Fund.
Financial markets have been wracked by fears the Greek debt crisis could overwhelm other euro zone countries and banks.
Investors took some comfort on Friday from signs of new resolve by European officials to bolster their defenses after nearly two years of what many see as half-hearted action.
Many policymakers now talk openly of possible Greek default and the need for Europe to move much more aggressively to cope with it.
Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe, Geithner said.
His warning was echoed by China's central bank governor Zhou Xiaochuan, who urged quick action to bring greater financial stability to the European region.
The sovereign debt crisis in the euro area needs to be resolved promptly to stabilize market confidence, and forceful and credible fiscal consolidation measures are needed in relevant economies to alleviate sovereign debt stress, Zhou told the IMF.
The semi-annual gathering of the IMF and World Bank is dominated by worry about the risk that Europe now poses to the rest of the world.
A default by Greece could cause a domino effect in other highly indebted euro zone countries, officials fear, putting at risk Europe's banking system given the size of holdings of debt issued by weak European nations.
Canada's central bank governor, Mark Carney, told Canadian radio that the euro area's bailout fund should be more than doubled to the neighborhood of a trillion euros.
Geithner wants more cooperation among European policymakers -- who set their own tax and fiscal policy -- and their central bank that is mandated to focus on keeping inflation low.
European governments should work alongside the ECB to demonstrate an unequivocal commitment to ensure sovereigns with sound fiscal policies have affordable financing, and to ensure that European banks have recourse to adequate capital and funding to win the full confidence of their depositors and creditors, Geithner said.
The United States has been pushing for a heightened role for the ECB. Washington has pointed to the way that the Treasury and the Federal Reserve cooperated during the 2007-2009 financial crisis which threatened to engulf the U.S. banking system.
The United States wants Europe to leverage up the EFSF to give it more firepower. One option could be for the ECB to commit large amounts of funding, with the European Financial Stability Facility, Europe's temporary bailout fund, putting forward money to cover potential losses.
A senior lawmaker from German Chancellor Angela Merkel's conservatives said the euro zone's permanent rescue mechanism should be introduced sooner than mid-2013 to beef up private creditors' response to the Greek debt crisis.
Geithner and Fed Chairman Ben Bernanke met on Friday with top officials from the ECB and other national central banks from Europe, in part to discuss international financial regulatory reform.
In a reminder of how sensitive some European officials are to the ECB taking a more active role in the crisis, a board member of Germany's central bank, the Bundesbank, suggested the time was coming for the ECB to stop buying government bonds.
I think the time is coming for this to stop, said Joachim Nagel, adding that the ECB's bond buying was only supposed to be a temporary measure until the euro zone's bailout fund is beefed up with powers to buy bonds and lend to governments.
Another top ECB official sought to quash growing expectations that Greece will eventually default.
ECB Governing Council member Athanasios Orphanides said the idea of a Greek default was surreal but warned that it could occur as the result of a political accident.
Greece is in tense talks with the IMF and European authorities to secure a new 8 billion-euro installment of its rescue package.
In return, Athens has pledged deep austerity measures but negotiators are frustrated at what they say is Greece's slow reform pace. October's loan payment, however, is still widely expected to be made. The next installment is due in December.
Germany, as the strongest economy in Europe, plays a central role in any effort to curb a debt crisis but public opinion there has turned against further big bailouts for fellow euro zone countries.
Finance Minister Wolfgang Schaeuble said on Saturday he will meet his Greek counterpart, Evangelos Venizelos, while in Washington for the IMF meetings.
We are permanently in contact and talk a lot, Schaeuble said, a day after Merkel sought to dampen speculation about the chances of a Greek default by saying it was not an option for her.
The damage would be impossible to predict, Merkel warned members of her political party in Germany.
Greece's Venizelos was quoted by two newspapers on Friday as saying an orderly default with a 50 percent haircut for bondholders was one way to resolve the heavily indebted euro zone nation's cash crunch.
Speaking to Reuters on Saturday, Venizelos said Greece would stick to its austerity commitments.
(Additional reporting by IMF reporting team in Washington, Sakari Suoninen in Frankfurt, Writing by Glenn Somerville and William Schomberg; Editing by Andrea Ricci)