Osborne calls for 'decisive' action
Chancellor George Osborne has called for "decisive co-ordinated action" from governments and central banks around the world to restore health to the global economy.
Mr Osborne was speaking as officials from the European Central Bank (ECB) held an emergency conference call to discuss moves to stabilise Italy's financial position before markets open tomorrow.
Unconfirmed reports suggested that the ECB - including central bankers from the 17 eurozone countries - has agreed to intervene significantly in the markets to shore up the positions of Italy and Spain, probably by buying bonds issued by the administrations in Rome and Madrid.
G7 finance ministers including Mr Osborne were this evening expected to confer by phone about the implications of eurozone instability and the downgrading of US credit ratings.
The calls marked the end of a frantic weekend of activity as politicians and bankers battled to prevent further carnage on the markets, following the meltdown last week which saw almost £150 billion wiped off the FTSE 100 index in London.
Writing in the Daily Telegraph, Mr Osborne said that the UK cannot be "immune" to the instability on the continent, but insisted that the Government's austerity programme has made it a "safe haven in the storm".
Eurozone institutions like the ECB must now "do whatever is necessary to ensure financial stability in the euro area", while governments must act swiftly to deliver on promises of fiscal consolidation, said the Chancellor.
However he cautioned that this can only be "a bridge to a permanent solution". That solution should involve greater fiscal integration of the euro area, possibly including the creation of eurobonds backed by the whole 17-nation bloc rather than individual countries, he said.
Mr Osborne also called for swift action in the G20 group of major global economies to correct imbalances between creditor countries like China and the debtor countries of the West, along with structural reforms to boost competitiveness and growth and improve underlying economic performance.
In a statement, ECB president Jean-Claude Trichet confirmed that the bank had decided to "actively implement" its Securities Markets Programme by intervening in the market to ensure stability in the euro area. The statement did not specify what form the action would take, but it is understood that the Bank will buy up Italian and Spanish government bonds with the aim of driving down the interest yields which threaten their shaky budgets.