LONDON/BRUSSELS U.S. Treasury Secretary Timothy Geithner said on Wednesday that financial markets want to see euro zone countries put into action their $1 trillion (693.9 billion pound) standby package designed to stabilise the euro.
Geithner, on a visit to London, also urged European countries to work for a globally consistent approach to financial reform as the European Union said it might go it alone with a crisis levy on banks.
After talks with Chancellor George Osborne, Geithner said of the EU plan to support indebted states: "It's a good program (and) has got all the right elements. What markets want to see is action."
The fund would provide heavily conditioned loans to euro zone governments that had difficulty borrowing on capital markets after a separate bailout for Greece failed to calm fears of a sovereign debt default in southern European countries.
European shares .FTEU3 rallied as much as 3.5 percent from Tuesday's nine-month lows before paring gains to 2.4 percent on the session while Wall Street indexes wilted in late afternoon trading. For full story, see .N
But the euro fell for a third straight session against the dollar, pressured by continuing signs of banks' reluctance to lend to euro zone counterparts exposed to peripheral European sovereign debt.
Italian Prime Minister Silvio Berlusconi sought to support the euro with a vigorous defence of his government's 25 billion (21.2 billion pound) euro austerity package.
Berlusconi's cabinet approved the package of cuts with an emergency decree late on Tuesday, joining European peers Spain and Portugal in pushing through spending cuts to stave off contagion from the Greek crisis.
But the country's largest union announced plans to strike, saying the measures including a freeze on salaries for state workers and steep cuts in funding of regional governments which it said would hit the poorest workers hardest but spare the rich.
"The sacrifices required are indispensable to save the euro," Berlusconi said, calling Italy's spending cuts less draconian than those approved by most of its EU partners. "For years, Italy -- like many countries in Europe -- lived above its means. We are all in the same boat."
GERMANY ACTS ALONE
Geithner's stress on coordination of new regulation appeared aimed chiefly at Germany, Europe's biggest economy, which stunned markets and angered EU partners by unilaterally banning some speculative financial trades last week.
He was due to meet German Finance Minister Wolfgang Schaeuble in Berlin on Thursday after dinner in Frankfurt with European Central Bank President Jean-Claude Trichet.
On his flight to Europe from China, Geithner told reporters he would "emphasise the importance of a carefully designed global approach" to the next stage of financial reform.
The executive European Commission outlined a framework on Wednesday for a levy on banks' assets, liabilities or profits to pay in advance for the cost of future crises, setting the stage for a showdown on the tax at Group of 20 summit in Toronto next month.
"On this question, we can go forward by ourselves, on our own," Michel Barnier, the EU's financial markets chief, told Reuters. "It is not up to the United States to pay for the financial stability of Europe.
The Commission said the proceeds of a bank levy should be reserved for national bank resolution funds, putting Brussels at odds with France and Britain, which want the money to help strapped national budgets.
Fears that Europe's debt crisis could engulf some banks have made them reluctant to lend to each other as happened during the 2007-09 financial crisis.
The costs for banks to borrow dollars from each other crept up to a new 10-month high on Wednesday.
Money markets are "pricing in for a credit crunch," said Michael Pond, Treasury strategist at Barclays Capital in New York. A crisis of confidence is developing once again."
The Paris-based Organisation for Economic Co-operation and Development said the global economy was recovering faster than expected from recession with Asia leading the way, but remained at risk due to huge debts in industrialized countries.
The OECD survey was relatively upbeat about the euro zone, forecasting growth of 1.2 percent this year and 1.8 percent in 2011 -- a more optimistic forecast than the European Commission's forecasts for 0.9 and 1.5 percent growth this year and next, respectively.
The OECD also said banks remained vulnerable, noting the high price of credit default swaps to protect bond investments.