US President Barack Obama has demanded that European leaders act “right now” as ministers in Brussels deliberate over whether to impose a bail-out on Spanish banks.
At the White House Mr Obama said: “The sooner [leaders] act, the more decisive and concrete their action, the sooner people and markets will regain some confidence.”
European austerity policies risk pushing the continent into a “downward spiral”, US President Barack Obama has said, as he called for “urgent” action to save the euro.
As Spain prepared to ask Germany and other eurozone members to bail out its struggling banks, the US president warned that cutting public spending too quickly is smothering European growth.
As well as immediate action to prop up banks and save struggling members like Spain and Greece, Mr Obama called on European leaders to set out “a vision for a stronger Eurozone” with more integrated banking and budget rules.
Mr Obama warned that the cuts in public spending being made by many European governments are actually making making it harder to address the debt crisis.
“The problem is that when an economy is still weak and a recovery is still fragile and you resort to a strategy of 'let’s cut more’,” he said.
Spending cuts mean public sector staff are laid off and investment falls.
“If you’re doing all those things at the same time as consumers are pulling back because they’re still trying to pay off credit card debt and there is generally weak demand in the economy then you get on a downward spiral where everybody is pulling back at the same time,” he said.
“That weakens demand and it further crimps the desire of companies to hire more people. And that’s the pattern that Europe is in danger of getting into.”
He added: “As some countries have discovered, it’s a lot harder to rein in deficits and debt if your economy isn’t growing.”
Mr Obama, who is running for re-election in November, said that “headwinds” from the eurozone crisis could slow the US economy, and urged European leaders to act quickly.
“The sooner they act, the more decisive and concrete their action, the sooner people and markets will regain some confidence,” he said. “Part of that is taking clear action as soon as possible to inject capital into weak banks.”
After days of speculation, Spain is soon expected to request a bank bailout from fellow members of the eurozone, a move that could move the single currency closer to a “banking union”.
Officials from eurozone finance departments were yesterday put on standby to work out the details of a bank rescue package over the weekend and make an announcement before financial markets re-open on Monday morning.
The negotiations over a bailout would focus on the conditions imposed on Madrid by its financial backers, led by Germany. Spain is said to be resisting the same level of scrutiny and monitoring imposed on Greece after it took international bailouts.
A eurozone rescue for Spanish banks could also lead to further integration between the single currency countries.
German politicians have said that in exchange for using German money to support banks and governments elsewhere in the eurozone, there should be moves towards a common system of banking regulation.
Britain, which would not take part in any Spanish bailout, has backed a banking union, but demanded safeguards for the City in exchange for its support.