Europe under pressure as G20 finance ministers meet

US Treasury Secretary Timothy Geithner said the G20 was looking for a "clear commitment" from Europe, but said he believed the current resources of the IMF and European Union were enough to deal with the debt crisis.

Eurozone leaders were celebrating Slovakia's delayed ratification of new powers to the currency union's bail-out fund, but there was no respite from the crisis with Spain's credit downgrade underlining the threat to banks.

Group of 20 ministers from outside the eurozone made it clear heading into the Paris meeting that they expected answers on how Europe is coming to grips with the debt crisis.

"What you need is the clear commitment by the governments, that they will do what is necessary to hold this together and put as much resources behind this as is necessary," Geithner told CNBC television from Paris.

He said Europe "is clearly moving" to deal with the crisis but added: "The hard part is still ahead, which is to design a strategy that meets those objectives."

Europe is scrambling to deal with fears that a default by Greece -- and possibly other European nations -- would send shockwaves through the continent's financial and banking system.

European officials have already warned that banks are likely to lose more than the 21 per cent on Greek sovereign bonds already agreed on, and that those who fail to build up core capital buffers will be forced to accept public funds to shore up their balance sheets.

Japan, the United States and other nations have pressed for Europe to come up with a detailed plan to prevent the eurozone's weakness from pushing the world back into widespread crisis and recession.

"We have heard a lot of promises from eurozone countries but actions to date have fallen short of what is needed," Canadian Finance Minister Jim Flaherty said before departing for Paris.

"Clear and decisive action is critical to restoring confidence," he said.

South African Finance Minister Pravin Gordhan said Europe had been "behind the curve" and that solutions were needed in time for the summit of G20 leaders on November 3 and 4 in Cannes.

"We are looking for assurances from our European colleagues that by the time the summit of the G20 takes place, we will have a clear message that will create confidence," he said.

He warned the resources of the International Monetary Fund and Europe's rescue fund, the European Financial Stability Facility (EFSF), may be "inadequate" if debt contagion spreads further.

Emerging economies may then need to be called in to help, Gordhan said.

But Geithner rejected the notion of beefing up the IMF's resources or turning to other sources.

"As we look at the world today, the IMF has very substantial, uncommitted, available financial resources," he said.

"The problems that they are facing there in Europe are complicated to solve, but well within the resources that Europe has," he said.

German Finance Minister Wolfgang Schaeuble agreed, saying the IMF "has sufficient means to accomplish its mission."

"Europeans must themselves pay the largest part" of the cost of resolving the debt crisis.

German Chancellor Angela Merkel meanwhile fired back at Europe's critics, saying non-eurozone countries wanting rapid action should drop their opposition to a financial transaction tax.

"It is not possible that those outside the eurozone who are asking Europe to act are at the same time refusing a financial transaction tax," Merkel said in an allusion to, among others, the United States and Britain.

After meeting in Paris, the German and French finance ministers said they were working closely to come up with answers.

"I am convinced that together we will know how to protect the European currency and ensure its stability," German Finance Minister Wolfgang Schaeuble said after talks with French counterpart Francois Baroin.

The urgency of the debt crisis -- which has threatened to spread from small economies like those of Greece, Portugal and Ireland to eurozone heavyweights like Italy -- was confirmed by Spain's downgrade.

Standard & Poor's cut Spain's long-term credit rating by one notch to "AA-" with a negative outlook on Thursday, taking some of the gloss off Slovakia's ratifying of the expansion of the EFSF.

Slovakia gave Brussels a scare before becoming the last country in the 17-nation eurozone to agree to expand the bailout fund to 440 billion euros ($600 billion).

The new-look EFSF will be able to inject money into shaky banks or intervene instead of the European Central Bank to support weaker eurozone countries facing problems in raising fresh funds on the markets.

Amid US calls to further boost the fund's firepower, an EU source said the European Commission may "leverage" or increase the EFSF as much as fivefold to 2.5 trillion euros.

Highlighting concerns over European banks, analysts at Goldman Sachs said new bank stress tests that Europe's banking regulator may undertake could reveal the need to inject nearly 300 billion euros into lenders.

After a series of bilateral discussions the G20 ministers held a dinner meeting on Friday evening, with the main talks to follow on Saturday.

Following the finance ministers meeting there will be an EU summit in Brussels from October 21 to 23, then the G20 leaders summit in Cannes on November 3 and 4, after which leaders hope a long-term plan will be in place.