Global finance officials pledged on Saturday to take bolder moves to confront a European debt crisis that threatens to plunge the world into another deep recession. But sharp disagreements about exactly what to do can't offer much reassurance to markets rocked by uncertainty in recent weeks.
Canada, the United States and other countries outside of Europe fear the economic fallout at home from the European crisis. They are raising the pressure on Europeans to settle their differences and agree on a plan to rescue heavily indebted European countries.
At a meeting of the International Monetary Fund in Washington, D.C., Bank of Canada governor Mark Carney called for "overwhelming" the problem by more than doubling the current 400 billion euro rescue fund to 1 trillion euros, an amount that would equal $1.39 trillion Cdn.
Carney, speaking to CBC Radio's The House, said European leaders must be prepared to provide a "big pot of money" to support some debt-riddled countries during a transition period toward stability.
'We're not an island'
Carney insisted Canada has "every tool we had" in the 2008 financial meltdown if another crisis were to strike the global economy.
"We've learned some very valuable lessons about what worked better than others," he said. "We're not an island. We will be affected if things get worse, but we can address it."
U.S. Treasury Secretary Timothy Geithner bluntly told officials at the IMF meeting that time was running short to stave off potential domino-style defaults in Europe. European governments, he said, need to join with the European Central Bank to provide stronger support to calm market fears.
'The threat of cascading default, bank runs and catastrophic risk must be taken off the table.' — U.S. Treasury Secretary Timothy Geithner
He said the ECB, the central bank for the 17 nations that use the euro as a common currency, should make sure that financially troubled countries trying to reform their economies can get loans at affordable rates and that European banks have access to the capital they need to operate.
Fears that Greece is in danger of defaulting on its debt have rattled U.S. and global markets. Such a development would add to the stress for major banks in France and Germany that have a large exposure to Athens's debt. It also would put further strain on heavily indebted Portugal and Ireland and even bigger economies such as Italy and Spain.
Bad week for markets
For the week, the Dow Jones industrial average fell 6.4 per cent, its worst performance since Oct. 10, 2008, when it dropped 18 per cent at the height of the U.S. financial crisis. The Toronto Stock Exchange plunged 6.6 per cent, while London, Paris and Frankfurt all fell about four per cent.
"The threat of cascading default, bank runs and catastrophic risk must be taken off the table," Geithner told the IMF's policy committee. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets even more severe."
The IMF panel, which sets policy for the 187-nation lending institution, wrapped up discussions at its annual meeting with a statement pledging to work decisively and in a co-ordinated way to deal with Europe's debt crisis.
The statement was similar to pledges of increased support made Thursday by finance officials from the Group of 20 major world economies. Both statements were short on specifics.
The IMF statement said the fund stood ready to back further efforts to deal with the crisis beyond bailout support for Greece, Portugal and Ireland.
"Today, we agreed to act decisively to tackle the dangers confronting the global economy," the IMF's managing director, Christine Lagarde, told reporters.
Critical test for Strauss-Kahn successor
It's a critical first test for Lagarde, who took over in June from Dominique Strauss-Kahn. He had guided the fund's response to the 2008 global financial crisis but was forced to step down in May after facing criminal charges in New York that included attempted rape of a hotel maid. Prosecutors dropped the charges because of concerns about the accuser's credibility.
The three days of discussion wrapped up late Saturday with a meeting of the development committee, which sets policy for the World Bank.
Flaherty said he is confident European officials will tackle the debt crisis.
"I'm satisfied certainly that they understand that it's imperative to take action," Flaherty told CBC News Network on Saturday during a break in the G20 meetings.
Flaherty stressed Canada is watching the Europe situation carefully and would react to any "shock" from the continent in a "flexible and pragmatic way" to protect Canada's economic growth.
"We've done it before and we'll do it again," the finance minister said.
Money announced for Horn of Africa
World Bank president Robert Zoellick announced at a final news conference that the World Bank planned to triple to $1.93 billion US the amount of humanitarian support the bank is providing to countries in drought-ravaged areas of the Horn of Africa. The World Bank has estimated that more than 13 million people in the region are in need of humanitarian assistance.
Zoellick said the increased support was aimed at trying to prevent the current humanitarian crisis from becoming a "perpetual crisis."
Lagarde refused to comment on reports that holders of Greek debt may be forced to accept bigger losses as a condition of further support to Greece to meet its payments.
She said the 17 countries in the eurozone should honour commitments made in July to revamp their rescue fund and countries receiving the aid should keep making the difficult decision on austerity plans to get control of their deficits.
"It's implementation first and foremost," she told reporters. "No qualification."
German Finance Minister Wolfgang Schaeuble told reporters that a second bailout package for Greece may have to be re-evaluated because of Athens's problems in fulfilling earlier financial promises.
This re-evaluation could include changing the terms of the voluntary contribution from banks and other private investors to Greece's rescue.