NEWS,12.05.2013

G7 to press on with bank reforms

Group of Seven finance officials agreed on Saturday to redouble efforts to deal with failing banks and gave a green light to Japan's drive to galvanise its economy.
British finance minister George Osborne said the finance ministers and central bankers meeting 40 miles outside London focused on unfinished bank reforms, with signs that plans for a eurozone banking union are fraying.
"It is important to complete swiftly our work to ensure that no banks are too big to fail," Osborne told reporters after hosting a two-day meeting in a stately home set in rolling countryside.
"We must put regimes in place ... to deal with failing banks and to protect taxpayers and to do so in a globally consistent manner," he said.
The emergency rescue of Cyprus after a near meltdown in March served as a reminder of the need to finish an overhaul of the banking sector, five years after the world financial crisis began.
Germany has come under pressure to give more support to a banking union in the euro zone. The plan could help strengthen the single currency area, but Berlin worries it may pay too much for future bank bailouts if it signs up to a scheme to wind up stricken lenders.
While the first step to create a single bank supervisor under the European Central Bank - looks set to be in place by mid-2014, a second pillar, a 'resolution' fund to close failed banks, is in doubt. And there is little prospect that a single deposit guarantee scheme will ever see the light of day.
A senior US Treasury official said the talks at the 17th-century Hartwell House zeroed in on the need not just for better bank supervision but also to clean up balance sheets so lending can pick up.
"There was a sense of urgency among the euro area participants," the official said.
German Finance Minister Wolfgang Schaeuble countered that the eurozone was no longer the main risk to the world economy.
As at previous international meetings, Japan escaped any censure for printing money on a scale that has pushed the yen sharply lower.
Osborne said the G7 - the United States, Germany, Japan, Britain, Italy, France and Canada - reaffirmed that fiscal and monetary policy should be aimed at domestic concerns, not currency manipulation.
"We will not target exchange rates," Osborne said. "I would say that the statement by the G7 of earlier this year was a successful statement and one that has been held to."
The yen hit a four-year low against the dollar on Friday , driven in part by Japanese investors shifting into foreign bonds, a move that had been expected since the Bank of Japan unveiled a massive stimulus plan.
But having urged Tokyo for years to do something to revive its economy, other world powers are not in a strong position to complain now that it is doing so. Then there is the fact that central banks such as the Federal Reserve and Bank of England have printed money in the way the Bank of Japan is.
Japanese Finance Minister Taro Aso said the G7 had levelled no criticism at Japan's monetary policy but Schaeuble said there had been "intense discussions" and that the situation would be monitored carefully.
Growth debate
Debate has also heated up about the need for governments to ease up on austerity, something Germany, Britain and Canada view with caution but Washington, Paris and Rome favour.
Osborne said there was less disagreement about whether governments should focus on debt-cutting or growth-boosting measures than is commonly assumed.
"Everyone is clear that there needs to be credible medium-term fiscal consolidation ... We also agreed that there needs to be flexibility," he said. "Growth prospects remain uneven and we can't take the global recovery for granted."
But his suggestion before the meeting that it should consider what more monetary policy could do to support economic recovery appeared to fall on deaf ears.
"There wasn't any call to do more," European Central Bank chief Mario Draghi told reporters after the meeting.
"It is quite clear that all central banks have done a lot, each one within its own mandate. So (the meeting) was just taking note of this ... All of us have really been active."
Several officials from visiting delegations questioned why Britain had called the gathering just three weeks after they and others met at International Monetary Fund meetings in Washington, but Bank of England Governor Mervyn King said the informal nature of the discussions had paid dividends.
"Freed from burden to agree a communique, the principals engaged more with each than I can recall before and as a result genuinely made real progress in taking forward some of the questions and issues that are facing the G7," he said.

Experts cautious over equities rally

Optimism is blowing through stock markets around the world, lifting many of them to record high levels but this contrasts with widespread economic gloom and leads some analysts to wonder if some of it is just hot air.
Records have been created with increasing speed since the beginning of May.
The main DAX index in Frankfurt has reached a new record high level, and the markets in London and Tokyo have returned to the levels reached in October 2007 just before the financial crisis began.
Wall Street in New York is leading the way and sets a fresh record almost every day.
But the stock market in Paris lags behind. The main CAC 40 index has just risen to the level last reached in the middle of 2011 and is far below the record high level of almost 7,000 points set in October 2000, and still trails the 4,332 points registered just before the collapse of Lehman Brothers bank in the United States in September 2008.
Analysts at Swiss Life private investment managers commented recently that the markets "are swimming in the midst of paradox", questioning the strong rises at a time when the global economic situation is a long way from being stabilised and is even deepening in some places, including in Europe.
In financial circles, experts give various explanations for the rise of stock markets in mature economies.
Some hold that it is an artificial bull market driven by huge amounts of money pushed into economies by central banks. Others say that the rises are justified because investors are anticipating a recovery of the world economy and a recovery of those stocks which have fallen heavily.
"The dichotomy between the real economy and the financial sphere is widening and this is worrying," commented Guillaume Garabedian, a portfolio manager at French brokers Meeschaert Gestion Privee.
He held that that stock markets were rising mainly because central banks had been applying highly accommodating monetary policies, reducing their key interest rates, and pushing huge amounts of liquidity into the financial sector.
All classes of assets have been boosted by this, even the riskiest assets such as debt bonds issued by crisis-hit countries in southern Europe which are able to place their bonds despite still being in difficulty.
The rise of asset prices could even lead to a new financial bubble, some analysts are beginning to warn.
At Capital Spreads, Jonathan Sudeira said that "despite the efforts of the central banks, the volume of trading is falling and the high levels reached by some shares is beginning to look unjustified for traders who are being asked at the same time not to take account of the economic situation."
The "bulls", meaning those who think that share prices will continue to rise on a healthy and justified basis, also have their arguments. At the moment, they seem to have the upper hand.
"Extremely favourable" context
Portfolio managers in dealing rooms say that investors are encouraged by signs that the US economy is recovering, by underlying strength of activity in Germany, encouraging statements by the leaders of big companies about the outlook for the end of the year, and by the removal of the risk that the eurozone might collapse.
At French Natixis bank, economist Philippe Waechter said that apart from the policies of the central banks, the situation in the United States, still the guiding light for stock markets around the world, was satisfactory and explained why optimism had lifted the indices.
"There is growth, certainly it is moderate, but it is there and so there is positive anticipation," he said.
He noted that portfolio managers were looking for good rates of return from the shares they hold and consequently were inclined to go for riskier shares which offered higher returns.
In addition, companies which were cautious about trying to expand their businesses, were buying their own shares which pushed up the value of those stocks.
"Overall, we are in a context which is extremely favourable for stock markets," he said.
Garabedian said that the question boiled down to analysing the fundamental causes of the rise.
"Because if the markets are rising for reasons which are not sufficiently viable, the correction will be severe," he warned.

Clinton did not make Benghazi call

A seasoned diplomat who penned a highly critical report on security at the US consulate in Libya that was attacked last year defended his scathing assessment on Sunday but absolved then-Secretary of State Hillary Clinton.

Thomas Pickering, whose career spans four decades, stood by his conclusion in the report that decisions about the consulate were made well below the secretary's level.
His comments during several television show appearances were unlikely to quiet renewed Republican demands for accountability for the attacks in Benghazi that left four Americans dead, including US Ambassador Chris Stevens. Democrats say Republicans are trying to exploit the Benghazi deaths to undercut Clinton, an early favourite for the Democratic presidential nomination in 2016.
"We knew where the responsibility rested," said Pickering, who headed the Accountability and Review Board that investigated the attack, along with retired Admiral Mike Mullen, the former chair of the Joint Chiefs of Staff.
"They've tried to point a finger at people more senior than where we found the decisions were made," Pickering said of Clinton's critics.
Pickering and Mullen's report released in December found that "systematic failures and leadership and management deficiencies at senior levels" of the State Department meant that security was "inadequate for Benghazi and grossly inadequate to deal with the attack that took place."
The Obama administration has tried to move past the controversy, but a steady drip of new information is fuelling Republican claims that the government initially misled the public about the nature of the assault.
The House Oversight and Government Reform Committee last week heard a riveting minute-by-minute account from a former top diplomat in Libya about the two night time attacks on 11 September, 2012. Gregory Hicks, a former deputy chief of mission to Libya, detailed his phone conversations from Tripoli with Stevens.
Hicks and two other State Department witnesses criticized the Pickering and Mullen's review. Their complaints centred on a report they consider incomplete, with individuals who weren't interviewed and a focus on the assistant secretary level and lower.
Cover-up
The hearing produced no major revelation but renewed interest in the attacks that happened during the lead-up to the November 2012 presidential election.
The top Republican on the oversight committee, Republican Darrell Issa, said he wants sworn depositions with Pickering and Mullen. Issa said his panel has not been provided sufficient details on the State Department review, such as a list of everyone the investigators interviewed or a full transcript of those conversations.
"We want the facts. We're entitled to the facts. The American people were effectively lied to for a period of about a month," Issa said.
Republicans are insisting on exploring what happened at the consulate, what might be done to prevent future such attacks and what political calculations went into rewriting talking points the US Ambassador to the United Nations, Susan Rice, used on news shows the Sunday after the attack.
A series of e-mails that circulated between the State Department and the CIA led to weakened - and, in some cases, wrong - language that Rice used to describe the assault during a series of five television interviews the Sunday after the attacks.
"I'd call it a cover-up," said Senator John McCain, a Republican. "I would call it a cover-up in the extent that there was wilful removal of information, which was obvious."
2016 campaign
"I was surprised today that they did not probe Secretary Clinton in detail," Senator Kelly Ayotte said, of the review board.
One Republican eyeing a White House run, Senator Rand Paul, said at a public appearance that he thinks the Benghazi attack "precludes Hillary Clinton from ever holding office".
Clinton's allies said Republicans were looking to weaken her ahead of a potential 2016 campaign.
"This has been caught up in the 2016 presidential campaign, this effort to go after Hillary Clinton," said Senator Dick Durbin, a Democrat. "They want to bring her in because they think it's a good political show and I think that's unfortunate."

NEWS,08. AND 09.05.2013

Brazil wins race for next WTO director

The World Trade Organisation has settled on Roberto Azevedo of Brazil, a well-known diplomat and consummate insider in Geneva circles, to serve as its director general for the next four years, officials said on Tuesday.

The directorship is chosen by consensus in a complex and secretive process, and the runner-up is expected to concede afterward. Diplomats emerged from consultations Tuesday to rush past journalists out of the building, barely acknowledging that Azevedo had defeated Mexican former trade minister Herminio Blanco in the final round.
Two diplomats confirmed Azevedo's selection to journalists on condition of anonymity because they were not authorised to reveal the winner ahead of the formal announcement, but Azevedo also re-tweeted that he has been chosen for the job and comments from various trade circles began trickling in.
A formal announcement on his selection is not expected until Wednesday.
In Washington, Jack Colvin, a vice president of the National Foreign Trade Council, said Azevedo's selection reflects "his extensive experience and deep familiarity with international trade institutions and processes on behalf of Brazil and the focus he has placed on consensus-building in Geneva."
Under WTO rules, a meeting of member-nations must be convened no later than May 31 to formally appoint Azevedo. The selection - not an election - spanned months of consultations among ambassadors from all 159 members, most of them nations but also some territories such as Hong Kong and Macau.
Azevedo is to take over the organisation on September 1 from Pascal Lamy of France, who has been the director-general for eight years.
He is poised to become the first Latin American to head the Geneva-based trade organisation since its creation in 1995. He won out in a field that originally had nine candidates at the start of this year.
Azevedo will be taking over an organisation whose role as a multilateral forum for negotiations is, according to insiders and observers, in growing doubt.
In recent years, the WTO has been used more as forum to settle trade disputes and monitor policy than as a host for serious trade negotiations. That tendency reflects the rise of regional and bilateral trade negotiations among the major powers.
Azevedo, who has insider knowledge of the WTO's workings, calls himself a consensus-builder between developed and developing countries. He says he will set aside his Brazilian hat to take on the global role.
But it has been no secret during the selection process that member nations wanted the next director to come from a developing nation after having a director from one of Europe's major economies.
The original nine candidates also included contenders from Ghana, Costa Rica, Indonesia, New Zealand, Kenya, Jordan and Korea.

China's exports jump 14.7% in April

China's trade accelerated in April in a possible positive sign for its shaky economic recovery.

Exports rose 14.7% over a year earlier, up from March's 10% growth, customs data showed Wednesday. Imports gained 16.8%, up from the previous month's 14.1%.
The stronger data suggest growth of the world's second-largest economy might be improving after an unexpected decline to 7.7% in the first three months of the year from the previous quarter's 7.9%.
Some analysts suggest Chinese trade data are distorted by reporting errors and unreliable as an economic indicator. Still, April's stronger numbers might help to reassure companies and investors after the weaker first-quarter growth jolted global financial markets.
"Subdued actual export growth in April points to sluggish global demand," said RBS economists Louis Kuijs and Tiffany Qiu in a report. "Reasonable import growth suggests domestic demand has held up better so far."
Surveys by HSBC Corp. and a Chinese industry group showed Chinese manufacturing growth weakened in April. HSBC said new export orders fell for the first time this year.
Some analysts have warned China's recovery is being shored up by state-led investment and bank lending and could be vulnerable if trade or investment weakens. The weaker-than-expected first quarter numbers prompted the World Bank and private sector analysts to trim forecasts for full-year growth, though to still robust levels of about 8%.
Chinese leaders are trying to nurture self-sustaining growth driven by domestic consumption instead of trade and investment. But consumer spending is growing more slowly than they want.
A Cabinet statement last month promised to improve the role of consumption as a driver of economic growth. It pledged changes in medical, pension and other policies but gave no details. Analysts say more government spending on such social programs will be required to free up household budgets for consumer spending.
April's stronger gains in imports compared with exports caused China's global trade surplus to narrow by about 1%, though to a still-wide $18.2bn.
China runs a deficit with most of its trading partners, which supply oil, other raw materials and industrial components, and makes up for it by running large surpluses with its US and European export markets.
China's exports to Europe, hurt by the continent's debt troubles, declined 6.5% to $25.9bn and the surplus with the 27-nation European Union narrowed by 32% to $7.9bn.
Trade with some European countries suffered even bigger declines. Germany's imports of Chinese goods fell 7.2% and France's by 6.7%.
Exports to the United States edged down by a fraction of 1% to $28.1bn while the trade gap with the US narrowed by 13% to $14.7bn.
China's data on exports have been under scrutiny since some analysts pointed out last year that they failed to match up with its trading partners' lower figures for their purchases of Chinese goods.
Some analysts suggested Chinese exporters might be inflating values on customs declarations as a way to evade Beijing's currency controls and bring money into the country for investment.
Kuijs and Qiu of RBS said that after factoring out irregularities, they estimated China's exports rose only by about 5.7% in April, about 9 percentage points lower than the reported level. They said they saw no obvious irregularities in import data and no reason to inflate the values of goods.

Slovenia scrambles to avert bailout

Slovenia pledged on Thursday to sell 15 state firms including its second-largest bank, biggest telecoms operator and the national airline under a crisis package to avert an international bailout.
Prime Minister Alenka Bratusek said value added tax would rise from 20% to 22% from July but that the government was still in talks with unions on planned cuts to the public sector wage bill.
She said the budget deficit would soar to 7.8% of national output this year but the government aimed to bring it down to 3.3% in 2014.

Finance Minister Uros Cufer said the package would result in total savings of around €1bn in spending cuts and revenues.

US jobless claims fall to 5-year low

The number of Americans filing new claims for unemployment benefits dropped to its lowest level in nearly 5-1/2 years last week, signaling labour market resilience in the face of fiscal austerity.
Initial claims for state unemployment benefits fell 4 000 to a seasonally adjusted 323 000, the lowest level since January 2008, the Labor Department said on Thursday.
Claims for the prior week were revised to show 3 000 more applications received than previously reported. Economists polled by Reuters had expected first-time applications to rise to 335 000 last week.
US stock index futures pared losses on the report, while Treasury debt prices trimmed gains. The dollar trimmed losses against the yen.
The third straight weekly decline in claims pushed them further below the 350 000 mark, which economists normally associate with a firming labour market.
Claims are showing no sign of a pick-up in layoffs even as other parts of the economy such as manufacturing start to show strain from tighter fiscal policy.
"It's nice to see improvement in claims. We are not worried about the separation side of the equation. We continue to be worried about the hiring side," said Jacob Oubina, senior economist at RBC Capital Markets in New York.
A Labor Department analyst said no states had been estimated and there was nothing unusual in the state-level data.
The four-week moving average for new claims, a better gauge of job market trends, dropped 6 250 to 336 750 - the lowest level since November 2007.
Coming on the heels of data last week showing surprising strength in the labor market, the claims report could further assuage fears of an abrupt slowdown in the economy.
Employers added 165,000 new jobs to their payrolls in April and hiring in the previous two months was stronger than initially reported. The unemployment rate dropped to a four-year low of 7.5%.
The improvement in employment contrasts sharply with other data, including retail sales and manufacturing, that have suggested a cooling in the economy at the end of the first quarter, which persisted early in the April-June period.
The slowdown in activity after the economy expanded at a 2.5% annual pace in the first three months of the year has been blamed on higher taxes which went into effect on January 1 and $85bn in government budget cuts known as the "sequester."
The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid dropped 27 000 to 3.0 million in the week ended April 27. That was the lowest level since May 2008.

Obama set to renew focus on jobs

President Barack Obama travels to Texas on Thursday to put his focus back on job creation and economic growth after giving intensive attention to gun control legislation and immigration reform.
The president is due to hold events around the country to draw attention to his efforts to boost economic growth through jobs that benefit the middle class, a White House official said.
The trip comes as a poll shows Americans say what they want most from politicians in Washington is job creation and helping the economy grow.
In a visit to the Austin, Texas, area, Obama is due to visit Applied Materials which makes semiconductors and other technology, and a high school focused on math and science. He will also meet local residents and entrepreneurs.
Obama's jobs tour follows some policy frustrations for him. The president failed to persuade Congress to accept expanded background checks for gun buyers, a disappointing setback to his efforts to toughen gun rules after the December murders of 20 children and six adults at an elementary school in Newtown, Connecticut.
He is also at an impasse with congressional Republicans over a deficit reduction deal that he insists should include higher tax revenues, which Republicans oppose.
The president does appear to be making headway in his efforts to change immigration laws to open a path to citizenship for a portion of the 11 million people who are in the United States without proper documentation. However, final legislation is months off.
In the meantime, a Gallup poll released Tuesday found 86% of those surveyed this month ranked creating more jobs as their top priority for action by Congress and the president, tied at 86% with helping the economy grow.
Lower on the priority list were reducing the federal deficit at 69%, reforming the tax code 59%, reducing gun violence 55% and reforming immigration 50%.
The U.S. economy is recovering slowly after the deep recession of 2007-2009. Despite some encouraging signs of economic resurgence, such as stock market record highs, the jobless rate, while falling, remains at an elevated 7.5%.
The president will announce a competition for locations to site three manufacturing institutes where businesses, government and educational institutions will get funding to develop new technologies, the White House official said.
He will also issue an executive order requiring that newly released government data be made freely available in easily readable formats.
The president's jobs tour is also likely be a chance for him to argue that across-the-board spending cuts referred to as sequestration that went into effect March 1 are slowing economic growth and should be replaced.
The spending reductions went into force after congressional Republicans balked at the president's insistence that any alternative spending cuts be offset by some tax increases.
Some Republicans have welcomed the cuts as necessary austerity measures to check government overspending.

Cameron: Britain must stay in EU

British Prime Minister David Cameron took on critics in his own Conservative party on Thursday, saying it would be wrong for Britain to leave the European Union.
Some pessimists "say there is no prospect of reforming the European Union, you simply have to leave", Cameron told an investment conference
"I think they are wrong ... I think it is possible to change and reform this organisation."
Cameron came under renewed pressure from EU sceptics this week when former finance minister Nigel Lawson said the prime minister's plan to renegotiate Britain's commitments to the EU before a planned membership referendum in 2017 were doomed to fail and the country should leave the bloc.
Cameron used his speech on Thursday to underscore his determination to keep on narrowing Britain's budget deficit at a "sensible and measured pace" and to help push for new trade deals between the EU and the United States and Canada.
He also said he would continue to defend Britain's financial services industry against some European measures such as a planned financial transaction tax which has been agreed by most countries in the eurozone and would affect the City of London.
"We shouldn't spend our time in politics endlessly bashing banks and financial institutions. If you want the economy to recover and if you want the economy to grow, you have got to play to your strengths," Cameron said.

G7 finance chiefs to discuss bank reforms

Some of the world's most powerful finance chiefs will meet in an English stately home on Friday and Saturday to try to speed up banking and finance reforms, with Cyprus' near meltdown fresh in their minds.
Finance ministers and central bank governors from the Group of Seven industrialized economies probably will not break new ground on how to fix the weak world economy as discussions at the International Monetary Fund took place just three weeks ago.
Officials from two of the G7 economies said the talks - on Friday and Saturday at a 17th-century country house 40 miles northwest of London - were likely to focus more on the slow progress of reforms to banking and finance around the world.
"It's very rare for a G7 to focus on financial regulation," one of the officials said, speaking on condition of anonymity.
The emergency rescue of Cyprus in March acted as a reminder of the need to finish an overhaul of the banking sector, five years after the financial crisis began.
"It makes sense for the G7 financial leaders to send out a message, from high up, that global efforts to ensure financial stability via appropriate regulation must continue," the official said.
Germany may come under renewed pressure to give more support to a banking union in the euro zone as it did at the recent IMF/G20 meeting in Washington.
The idea was proposed last year to help strengthen the single currency area but Berlin worries it may foot the bill for future bank bailouts.
While the first step - to create a single bank supervisor under the European Central Bank - looks set to be in place by mid-2014, a second pillar, a 'resolution' agency and fund to close failed banks, is in doubt. And there is little prospect that a third leg, a single deposit guarantee scheme, will ever see the light of day.
"We welcome those discussions," a senior US Treasury official told reporters in Washington. "I think Cyprus just further highlighted the importance of moving to break that feedback loop between sovereigns and bank balance sheets."
Another G7 official said new rules for derivatives trading and the Basel III plan for minimum bank capital levels were running behind schedule and would be among the issues the G7 would discuss, as well as the risk of a reversal in soaring share prices in some countries which contrasts with weak growth.
But some of the officials said they said they did not know why Britain, which is chairing the G7, had called the meeting.
"I am really annoyed that I've got to give up my weekend for this," one complained, adding the talks could have taken place on the sidelines of IMF's meetings in Washington in mid-April.
A British finance ministry official said there was value in informal talks among the world's biggest industrialized economies but declined to comment on the agenda.
Changed role for G7
G7 finance ministers and central bank governors used to hold global markets in their thrall when they met, given the combined financial firepower of the group's members - the United States, Germany, Japan, Britain, Italy, France and Canada.
But it lost its mantle as the main forum for thrashing out differences over the global economy in 2009 when responsibility was passed to the wider Group of 20 which includes emerging heavyweights such as China, Brazil and India.
Since then, the G7 has met on the sidelines of G20 and IMF meetings but has held few standalone meetings although officials say the smaller grouping makes for more open discussion.
"As often is the case, the G7 is a photo opportunity. But it's important that it stays together as a forum to address the issues," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
The U.S. official said Washington would keep up its calls on Europe to boost demand and maintain its focus on Japan's aggressive monetary policy which has raised US concerns about a weakening of the yen.
A Canadian official said discussions would again focus on the right degree of belt-tightening for debt-laden countries which are struggling to get their moribund economies growing and have relied heavily on massive central bank stimulus.
No communique and no formal decisions are expected at the meeting which would instead help prepare the way for a G20 leaders' summit in Russia in September.
It comes at a relatively good time for its host, UK finance minister George Osborne. He will be able to point to a few signs of life in Britain's stagnant economy that have taken some of the heat out of criticism of his austerity policies.
The meeting will also be a chance for the G7 to get to know new members of the group - such as the finance ministers of the United States and Italy - and to bid farewell to Mervyn King, who retires from the Bank of England in June.

NEWS, 05.06.2012.

G7 action pending on Spain's debt crisis

 

Spain said today credit markets were closing to the euro zone's fourth biggest economy as finance chiefs of the Group of Seven major economies conferred on the currency bloc's worsening debt crisis but took no joint action.Treasury Minister Cristobal Montoro sent out a dramatic distress signal about the impact of his country's banking crisis on government borrowing, saying that at current rates, financial markets were effectively shut to Spain.The European Union's top economic official, Olli Rehn, said Madrid had not requested EU assistance, but German newspaper Die Welt said European officials were considering offering Spain a precautionary credit line via the bloc's rescue fund by mid-June."The risk premium says Spain doesn't have the market door open," Montoro said on Onda Cero radio. "The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt."Spain is beset by bank debts triggered by the bursting of a real estate bubble in 2008, aggravated by overspending by its autonomous regions.The premium investors demand to hold Spanish 10-year debt rather than safe haven German bonds hit a euro era high of 548 basis points on Friday, on concerns that it will eventually be forced to seek a Greek-style bailout.A precautionary credit line would give Spain the option of trying to raise funds on its own to recapitalise its banks and tapping the European aid if it failed to raise enough.Two Spanish government sources denied earlier on Tuesday that Madrid needed or wanted such a line from the European Financial Stability Facility or the International Monetary Fund.But Montoro said Spanish banks should be recapitalised through European mechanisms, departing from the previous government line that Spain could raise the money on its own and prompting the Madrid stock market to rise.His comments on Spain's borrowing sent the euro down after the 17-nation European currency earlier hit a one-week high against the dollar on hopes that the conference call of G7 finance ministers and central bankers might hasten action.The U.S. Treasury, which chaired that meeting, said in a statement that the G7 discussed "progress towards a financial and fiscal union in Europe" and agreed to monitor developments closely. But the group made no joint statement and took no immediate action.White House economic adviser Michael Froman said the EU had done a lot to address its debt problems but clearly more action was required to reduce market anxieties."Europe has taken a number of very important steps in the last months to address the crisis," Froman told a panel at the CSIS think-tank. "It's clear now from the markets that they expect more, and more is needed."Japanese Finance Minister Jun Azumi said the G7 finance chiefs agreed to work together to deal with the problems facing Spain and Greece."I see market anxiety over world economy largely stemming from Europe's problems," Azumi told reporters in Tokyo."Bigger solution" European leaders, alarmed by the latest turn of events, have begun thinking seriously about the economic union needed to make the single currency project secure. But that end-game is months or years away."What we have learnt since the weekend is that all the talk about a bigger solution, a bigger response from the politicians is gaining some steam," said Rainer Guntermann, strategist at Commerzbank in Frankfurt. "At the same time it doesn't look like they have a quick fix at hand, not a fundamental game changer at this point in time."One senior European G7 source, speaking just before the teleconference, said it was set to turn into a "Germany-bashing session", with other partners applying severe pressure on Berlin to do more to stimulate growth and help the euro zone.The source, who requested anonymity due to the confidential nature of the call, confirmed that Germany was pushing Spain to accept international aid, as Greece, Ireland and Portugal have done, to help it recapitalise stricken banks."They don't want to. They are too proud. It's fatal hubris," the source said of the Spanish government.Berlin and the European Central Bank have so far resisted pressure from Madrid to ride to its rescue without forcing Spain into the humiliation of an internationally supervised bailout.French Foreign Minister Laurent Fabius said Europe must find a solution to the Spanish banking crisis that did not add to Madrid's already heavy budget deficit.The ECB holds its monthly rate-setting meeting on Wednesday and European Union leaders meet on June 28-29 to discuss a strategy for overcoming the crisis, which began in late 2009 when Greece revealed it had covered up a huge budget deficit.Contagion Investors have fled peripheral euro zone sovereign debt amid worries about Spain's banking crisis and fears that a June 17 Greek election could lead to Athens leaving the currency bloc, setting off a wave of contagion around the euro area.Spain will test the market on Friday by issuing up to 2 billion euros ($2.5 billion) in medium- and long-term bonds at auction.Emilio Botin, chairman of the nation's biggest bank, Banco Santander told Reuters Spanish banks needed about 40 billion euros in additional capital, adding that "there is no financial crisis in Spain".Montoro said the bank recapitalisation figures were "perfectly accessible" but analysts were perplexed about his comments on Spain's ability to raise debt.His comments appeared aimed at pressuring the ECB and EU paymaster Germany to find ways of helping. But the central bank has so far shunned calls to resume purchases of Spanish government bonds, and Berlin has rejected allowing direct aid from the euro zone's rescue fund to recapitalise Spanish banks without setting conditions for the government.The festering euro zone crisis has sparked mounting concern outside Europe. On Monday, a G7 source said fears that capital flight from Spain could escalate into a full-fledged bank run had triggered the emergency conference call.Pressure is building in particular on Germany, the biggest contributor to euro zone rescue funds, to back away from its prescription of fiscal austerity for the region's weaker economies and to work harder on fostering growth.Berlin argues it is already doing its share by encouraging generous domestic wage settlements, accepting the prospect of higher-than-usual German inflation and most recently agreeing that Spain should have more time to achieve its fiscal targets.Chancellor Angela Merkel opened the door on Monday to the prospect of a euro zone banking union in the medium term, saying she would consider the idea of putting systemically important cross-border banks under European supervision.However, Berlin is so far resisting a joint deposit guarantee for euro zone banks and a bank resolution fund, both of which would create new liabilities for German taxpayers.A German government strategy paper seen by Reuters showed Berlin does not expect final decisions on strengthening economic policy coordination until March 2013, with only a roadmap being agreed at this month's summit.The ECB could contribute by cutting its main interest rate, lowering its deposit rate to try to shake loose some 700 billion euros parked overnight in its vaults by anxious banks, or by providing a third big liquidity injection to banks. But most analysts it will await the outcome of the Greek election and the EU summit before taking decisive action.