* G7 major powers to hold talks on markets crisis
* ECB to hold rare emergency meeting on Sunday - sources
* Sarkozy, Cameron confer on US debt downgrade, euro zone
* Obama urges lawmakers to work together on fiscal plans
* China chides United States for debt addiction
(Recasts and updates with Sarkozy-Cameron meeting)
By Paul Taylor and Stella Dawson
PARIS/WASHINGTON, Aug 6 Global leaders on
Saturday arranged a round of emergency calls to discuss the
twin debt crises in Europe and the United States that are
causing turmoil in financial markets.
After a week that saw $2.5 trillion wiped off global stock
markets, they are under pressure to show political leadership
and reassure markets that Western governments have both the
will and ability to reduce their huge and growing public debt
French President Nicolas Sarkozy, who chairs the G7/G20
group of leading economies, conferred with Britain's Prime
Minister David Cameron ahead of a call planned for this weekend
by G7 finance ministers and central bankers.
"They discussed the euro area and the U.S. debt downgrade.
Both agreed the importance of working together, monitoring the
situation closely and keeping in contact over the coming days,"
a spokesman for Cameron said.
Standard and Poor's deepened the urgency for action late on
Friday by stripping the United States of its top-tier AAA
credit rating, a move that over time could ripple through
markets worldwide by pushing up borrowing costs and making it
more difficult to secure a lasting recovery.
It cited the acrimonious debate in Washington on raising
the debt ceiling and near political paralysis over the best way
to reduce the its $14.3 trillion debt, which on the current
trajectory could climb above 100 percent of U.S. national
output this decade.
President Barack Obama called on lawmakers once again on
Saturday to set aside partisan politics and work together and
to put the nation's fiscal house in order and stimulate the
stagnant economy. [ID:nN1E77503Z]
But the most immediate concern for financial markets was
the debt crisis in the euro zone, where yields on Italian and
Spanish debt have soared to 14-year highs on political
wrangling and doubts over the vigor of budget cuts.
The European Central Bank was scheduled to hold a rare
Sunday conference call. Markets are anxiously looking for the
central bank to start buying Italian and Spanish debt on Monday
to stabilize prices, a move that has split the ECB governing
Investors saw the ECB's failure to include Italy and Spain
in a relaunch of its bond purchases late last week as a sign of
the depth of political divisions over the role of the euro zone
currency. German officials want to see stiffer austerity
programs in place before the ECB would shoulder more Italian
and Spanish debt. The danger is that further pressure on
Italian and Spanish bonds could undermine an already damaged
European banking system and lock Italy, the world's eighth
largest economy, out of the market.
Italy's Prime Minister Silvio Berlusconi, his government
weakened by infighting, ruled out early elections to stem
market panic. "This has never been an option," Berlusconi said.
Instead he has pledged to bring forward austerity measures and
balance the budget by 2013, a year ahead of schedule -- steps
the ECB will consider to gauge whether to buy its bonds.
Euro zone crisis graphics http:/r.reuters.com/hyb65p
Euro zone bond spreads http:/r.reuters.com/kus82s
Insider-Show on euro crisis http:/reut.rs/nDFTKX
BREAKINGVIEWS-Ugly political paralysis [ID:nN1E773117]
S&P's one-notch downgrade of the U.S. sovereign credit
rating to AA-plus, while not totally unexpected, adds another
level of uncertainty. Loss of gold-plated status for the
world's benchmark interest rate risks pushing up borrowing
costs on everything from car loans, mortgages and corporate
debt to government bonds worldwide.
"However justified, S&P couldn't have picked a worse time
to downgrade the U.S.," said Rabobank in a note to clients.
A senior European diplomatic source said the U.S.
downgrade, coupled with Europe's problems, raised the need for
international policy coordination. G7 finance ministers and
central bankers of the major industrialized nations were to
hold talks by telephone on either Saturday or Sunday, the
source said. Their deputies from the broader G20 were due to
hold a call on Saturday evening, a Brazilian finance ministry
A U.K. official said "senior officials" also would talk
late on Saturday. There was no indication of whether a
statement would be issued by G7 or G20 policymakers, the usual
method by which they lay out policy steps designed to soothe
markets or provide them with direction.
China, the largest foreign holder of U.S. debt, took the
world's economic superpower to task for allowing its fiscal
house to get into such disarray. It also revived its calls for
a new stable global reserve currency to replace the U.S.
dollar, gaining a sympathetic ear in the United Kingdom.
"The U.S. government has to come to terms with the painful
fact that the good old days when it could just borrow its way
out of messes of its own making are finally gone," China's
official Xinhua news agency said in a commentary.
Xinhua scorned the United States for a "debt addiction" and
"short sighted" political wrangling. China, it said, "has every
right now to demand the United States address its structural
debt problems and ensure the safety of China's dollar assets."
China and Japan have called for coordinated action to avert
a new worldwide financial crisis. India's Finance Minister
Pranab Mukherjee told reporters: "There is no need to
unnecessarily press the panic button."
Dutch Finance Minister Jan Kees de Jager said: "I am in
constant contact with colleagues in other countries and am
following the development of the financial markets closely."
Recrimination flew thick and fast among U.S. politicians
over its debt downgrade, with each side seeking to blame the
other for the impasse over how to solve the fiscal crisis.
Senator Jim Demint, a Republican, said Obama should demand
the resignation of Treasury Secretary Timothy Geithner.
In contrast, French Finance Minister Francois Baroin said
France had faith in the United States to get out of this
"difficult period." Friday's U.S. unemployment numbers were
better than expected and so things were heading in the right
direction, he said.
"One should not dramatize, one needs to remain cool-headed,
one should look at the fundamentals," he told France's iTele.
"There is no need for panic," Polish Prime Minister Donald
Tusk said. "We will see in August, and maybe more intensively
in September what the effects for the world economy will be."
(Additional reporting by Isabel Versiani and Brian Winter in
Brasilia, Laura MacInnis in Washington, and other Reuters
bureaux worldwide; Writing by Angus MacSwan and Stella Dawson;
Editing by Eric Walsh)