Global finance ministers have ratcheted up pressure on Europe, naming next Sunday as D-Day for action against the spread of its sovereign-debt crisis.
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With the crisis threatening to infect Spain and Italy, after pushing Greece near a sovereign-debt default, ministers at yesterday's Group of 20 meetings in Paris called for an immediate end to the uncertainty.
"I think they will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the euro-zone crisis," George Osborne, the UK's chancellor of the exchequer, said, according to a Bloomberg News report. "The October 23 European Council is the moment people are expecting something quite impressive."
The UK is not part of the euro zone, but the stakes are huge for it and other countries that have tight economic links with the economic bloc. Increasingly strident rhetoric from the US in recent days has only increased the pressure on Europe to do something big - and soon.
The uncertainty over Europe's future has sent markets on a roller-coaster ride and dampened investor confidence around the world, including in the UAE. A recent survey of UAE-based investors' attitudes showed a slight dip in confidence in the third quarter.
A statement after yesterday's G20 meetings called on the EU to make the most out of its emergency bailout fund, the European Financial Stability Facility (EFSF), according to a Bloomberg News report. It also urged leaders to "decisively address" the zone's challenges at next week's meetings.
Plans were being discussed to increase the scope of the EFSF by having it guarantee 25 per cent of the value of bonds issued by troubled euro-zone countries, a Dow Jones report said, citing three unnamed officials.
"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," Timothy Geithner, the US Treasury secretary, said in a CNBC interview on Friday, according to Bloomberg News.
"The hard part is still ahead, which is to design a strategy that meets those objectives," he said.
High government debt levels across Europe have been a concern for a long time, but the issue became a crisis last year as Greece appeared to be on the brink of default. The IMF, EU and European Central Bank (ECB) arranged a bailout for the country last April, conditioned on Greece's meeting fiscal targets. Greece is expected to receive an additional €8 billion (Dh40.77bn) in bailout money next month after enacting hugely unpopular austerity measures.
Chief among current worries for European leaders is the spread of debt troubles if investors sell off bonds issued by countries perceived as overly indebted, pushing their yields upwards and raising the countries' borrowing costs.
Euro-zone authorities have already taken measures to counteract declines in bond prices and the rising risk of default. The ECB has been buying sovereign debt of selected countries, and the EFSF was seeded with €440bn of financial firepower. European parliaments last week finalised an even stronger EFSF, giving it the power to buy bonds and aid ailing banks.
European stock markets have climbed recently in response to the fresh pledges to put an end decisively to the crisis. The euro has also strengthened against the dollar. The euro was trading at $1.38 on Friday, up from $1.32 just 10 days earlier.
A report from Paris yesterday suggested that the euro zone was closing in on an agreement to bring forward the launch of the European Stability Mechanism (ESM), the permanent replacement for the EFSF. It was originally scheduled to be launched in 2013, but may now come into play next year, according to a Dow Jones report.
"There is broad consensus that the ESM is a better mechanism to deal with crises than the EFSF," a G20 government official told Dow Jones.
Also under consideration at the G20 meetings was drafting a list of the euro zone's most systemically important yet troubled banks. That could serve as a guide for future capital injections and rescues by the ESM or other support funds.
* with agencies