(Manuel Balce Ceneta ~ Associated Press)
The continent's financial woes grabbed the attention of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank during the lending institutions' annual meetings.
Treasury Secretary Timothy Geithner told the IMF panel that the debt crisis posed the most serious threat to the global economy and that failure to take bold action raised the risk of domino-style defaults by heavily indebted European countries.
He said the European Central Bank should try to ensure that governments pursuing sound reforms could get loans at affordable rates and that European banks have access to the capital they need to operate. The ECB is the central bank for the 17 nations that use the euro as a common currency.
Global financial markets plunged last week on fears of a possible default within weeks by Greece on its government debt and on worries a default would cause runs on major European banks with heavy exposure to Athens' debt.
"The threat of cascading default, bank runs and catastrophic risk must be taken off the table. Otherwise, it will undermine all other efforts, both within Europe and globally," Geithner said. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets even more severe."
Geithner was one of a number of finance leaders demanding forceful action.
Mark Carney, the head of Canada's central bank, called for "overwhelming" the problem with a big increase in Europe's rescue fund for heavily indebted countries.
In an interview with CBC radio, Carney suggested that a European financial stability fund should be increased from 440 billion euros to 1 trillion euros. At current exchange rates, that would be the equivalent of expanding a $590 billion fund to $1.35 trillion.
"You need a big pot of money," he said.
For Christine Lagarde, who took over as head of the IMF in June, the debt crisis was a tough first test. Lagarde has warned that without strong and collective action, the world's major economies risk slipping back into recession.
To avoid that, finance officials of the Group of 20 major economies pledged Thursday to "take all necessary actions to preserve the stability of banking systems and financial markets."
But private economists have questioned whether the plan goes far enough to deal with market concerns that a Greek default is a virtual certainty.
German Finance Minister Wolfgang Schaeuble said a second bailout package for Greece may have to be re-evaluated because of Athens' problems in fulfilling earlier financial promises.
This re-evaluation could include changing the terms of the voluntary contribution from banks and other private investors to Greece's rescue, two European officials said.
One of the officials said that Germany and other rich eurozone nations, including the Netherlands and Austria, are now pushing for an "orderly default" by Greece. That would entail losses for investors that go beyond the 21 percent cut in the face value of government bonds foreseen under the voluntary contribution. The officials spoke on condition of anonymity because of the sensitivity of the issue.
The comments underline how confidence is eroding among core eurozone countries over whether they can actually save Greece. The Greek debt is close to 160 percent of its gross domestic product and its economy looks set for a fourth straight year of recession.
Stock markets in Europe and the U.S. recouped some of their previous day's hefty losses Friday, but investors remained skeptical about whether the world's leading economies can keep the global economy from going over the cliff.
Despite the modest gains Friday, the worries are piling up for investors. The Federal Reserve warned this week that the American economy is in significant difficulty, while there were several downbeat European and Asian economic indicators.
Sung Won Sohn, an economics professor at California State University's Martin Smith School of Business said the great concern is that if Greece doesn't make further painful cuts in government spending and ends up defaulting on its debt, the shock waves will rock big banks in Europe.
He said this would cause fearful investors to sell bonds of other heavily indebted countries such as Italy and Spain, countries with much bigger economies.
"The fear in markets is that the problem will spread to bigger economies such as Spain and Italy. Europe would not have the resources to handle a crisis of that magnitude," Sohn said.
The finance officials at the Washington meeting said they believed that the 17 nations that use the common euro currency were getting the message they needed to move more quickly to reform their surveillance procedures and increase economic support.
Associated Press writers Martin Crutsinger and Luis Alonso Lugo in Washington and Sarah DiLorenzo in Paris contributed to this report.