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Obama calls Euro leaders to urge action

08:29 AEST Thu Jun 7 2012
AAP
US President Barack Obama (Getty)
US President Barack Obama (Getty)

US President Barack Obama has called British, German and Italian leaders to press the case for Europe to come up with an "immediate plan" to resolve the widening eurozone debt crisis.

Obama, facing re-election in November and concerned that Europe's problems are dragging down the US economy, spoke of the need for action to bolster the single currency bloc and global growth.

"The leaders agreed on the importance of steps to strengthen the resilience of the eurozone and growth in Europe and globally," White House spokesman Jay Carney said of Obama's telephone calls to German Chancellor Angela Merkel and Italian Prime Minister Mario Monti on Wednesday.

Earlier, Obama and British Prime Minister David Cameron said Europe had to come up with an "immediate plan to tackle the crisis and to restore market confidence", a Downing Street spokeswoman said.

The exchanges came as pressure mounts on Europe's leaders to stabilise Spain's stricken banking system so as to avoid a costly bailout of the whole country and as Greece goes into June 17 polls with its eurozone future at stake.

The European Central Bank meanwhile refused to offer recession-hit eurozone economies an easy-money boost, keeping interest rates steady at 1.0 per cent.

A hint of a rate cut to come, however, plus reports the US Federal Reserve might be ready for more stimulus action, buoyed stock markets, which posted strong gains, and the euro, which rose sharply against the dollar.

European leaders are under intense pressure to try to resolve the crisis at a June 28-29 EU summit as Spain struggles to keep the debt wolves at bay and Germany holds its hardline stance that reform and austerity come before growth.

Madrid is now asking for deeper eurozone integration so that European rescue funds can be directly pumped into lenders, thereby avoiding the Irish trap where saving the banks forced the country into a massive bailout.

Spanish Finance Minister Luis De Guindos said Madrid has to move quickly, making a decision within the next two weeks on how to help its lenders who are struggling to raise 80 billion euros ($A102.83 billion) to shore up their books.

Europe "must help nations in difficulty", Spanish Prime Minister Mariano Rajoy said on Tuesday as he called for a list of EU reforms viewed with suspicion by Germany including deposit guarantees, a banking union and eurobonds.

The proposal gaining the most traction outside Germany is to integrate the eurozone's national banking systems, which would sever the link between banks and sovereign finances.

But powerhouse Germany resisted the pleas, saying whatever help the EU can provide to an increasingly desperate looking Madrid should come from the tools, and according to the rules, already in place.

German government spokesman Steffan Seibert said the reforms asked for by Rajoy required long-term changes beforehand, reiterating that only governments can apply for cash from the European bailout funds.

ECB chief Mario Draghi sought to calm fears, saying the eurozone debt crisis is "far" from as bad as the global market meltdown in the wake of the 2008 collapse of US investment bank Lehman Brothers

"We are rightly alarmed but I would say that we are still far away from that situation," he said.