* G20 ministers pile pressure on Europe for debt solution
* Oct. 23 EU summit seen as crucial to stop contagion
* Japan, Canada warn of global recession if EU falls short
* Geithner says encouraged France, Germany on right track
By Catherine Bremer and Jan Strupczewski
PARIS, Oct 15 The world's leading economies
pressed Europe on Saturday to act decisively within eight days
to resolve the euro zone's sovereign debt crisis which is
endangering the world economy.
In unusually direct language, finance ministers and central
bankers of the Group of 20 major economies said they expected an
Oct. 23 European Union summit to "decisively address the current
challenges through a comprehensive plan".
French Finance Minister Francois Baroin, who chaired the
meeting, said Berlin and Paris, the leading euro zone powers,
were well on the way to agreeing a plan to reduce Greece's debt,
stop contagion and protect Europe's banks.
Non-euro countries highlighted the damage the European
crisis was already doing to their economies and underlined the
urgent need for action by the 17-nation single currency area.
"Europe needs to get its act together because unless the
crisis is put to an end, it will start to affect emerging
economies which have enjoyed strong growth," Japanese Finance
Minister Jun Azumi said.
His Canadian counterpart, Jim Flaherty, said the risk of a
global recession would be dramatically higher if next Sunday's
European summit failed to deliver.
British finance minister George Osborne told reporters his
continental euro zone colleagues "will have left Paris under no
misunderstanding that there is a huge amount of pressure on them
to deliver a solution to the crisis".
U.S. Treasury Secretary Timothy Geithner told reporters he
was encouraged that the latest EU moves towards an overall
strategy to tackle the two-year-old crisis contained the right
elements, notably a recapitalisation of European banks.
"They clearly have more work to do on the strategy and the
details, but when France and Germany agree on a plan together
and decide to act, big things are possible," Geithner said.
"I am encouraged by the speed and direction in which they
The communique urged the euro zone "to maximize the impact
of the EFSF (bailout fund) in order to address contagion". EU
officials said the most likely option was to use the 440 billion
euro fund to offer partial loss insurance to buyers of stressed
member states' bonds in a bid to stabilise the market.
Efforts by some countries to increase the IMF's warchest to
fight the crisis ran into resistance from the United States and
others on Friday, burying the idea for now and putting the onus
firmly back on Europe.
Geither said the IMF already had very substantial financial
firepower and Washington would support committing more of the
existing resources to supplement a well-designed European
strategy with more euro zone funding.
As the G20 finance ministers and central bankers met in
Paris, anti-capitalist protesters rallied around the world,
shouting their rage against bankers and politicians accused of
ruining economies and condemning millions to hardship through
greed and bad government.
Many of the protests, galvanized by the Occupy Wall Street
movement, were small and peaceful. But in Rome hundreds of
hooded rioters burned cars and smashed shop and bank windows in
some of the worst violence in the Italian capital for years.
RESISTANCE FROM BANKS
Germany and France are trying to put flesh on the bones of a
crisis resolution plan in time for the EU summit.
It will involve plans to recapitalise banks, make Greek's
debt mountain more sustainable and ramp up the firepower of the
bloc's rescue fund.
For once in the long-running crisis, the timetable is
ambitious. But analysts see risks that forcing banks, the main
source of business investment in Europe, to raise more capital
could doom the region's faltering growth, and that the reduction
in Greek debt may be too small to avoid a default.
There were growing signs that Athens' creditor banks will
fight any attempt to make them shoulder a bigger burden in
restructuring Greece's debts. The lead negotiator of the banking
lobby representing private bondholders said there were no
grounds to impose bigger "voluntary" losses on their debt than
the 21 percent agreed in July, which looks insufficient.
"We do not see that a compelling case has been made to
reopen the (July) deal. A deal is a deal," Charles Dallara,
managing director of the Institute of International Finance
(IIF) told the Financial Times.
The G20 statement pledged to ensure banks are adequately
capitalized and have sufficient access to funding, and said
central banks would continue to provide liquidity to banks as
Fears of a Greek default have undermined confidence on
volatile markets since late July, with global stocks
falling 17 percent from their 2011 high in May.
But they have picked up since the leaders of France and
Germany set an end-October deadline for comprehensive action.
NO CHANGE ON YUAN, FOREX LANGUAGE
While the European crisis was the main focus, Washington and
Beijing continued to spar over China's currency.
Geithner said China should let the yuan rise more rapidly to
benefit global growth.
Chinese Premier Wen Jiabao rebuffed U.S. pressure for a more
rapid appreciation, assuring exporters at the Canton Fair in
Guangzhou on Saturday that China's exchange rate would remain
"basically stable" to protect them.
Chinese negotiators prevented the G20 from going beyond
wording issued at their last meeting in Washington on the need
for emerging market nations' currencies to be more flexible.
Ministers agreed that advanced economies would cut deficits
while emerging economies would continue their move towards
greater exchange rate flexibility and boost domestic
French President Nicolas Sarkozy wants progress on bigger
goals such as setting parameters to measure global imbalances
and reining in speculative capital flows at a Nov. 3-4 summit in
Cannes, where France passes the G20 baton to Mexico.