G20 leaders in a debt sweat

Global policy-makers have met in emergency conference to discuss the twin debt crises in Europe and the US that are causing market turmoil and stoking fears of the developed world sliding back into recession.

After a week in which $2.5-trillion was wiped off global stock markets, political leaders are under mounting pressure to reassure investors that Western governments have both the will and the ability to reduce their huge and growing public debt loads.

South Korea said finance deputies from the group of 20 major economies discussed the European debt crisis and US sovereign rating downgrade yesterday morning.

A Japanese government source said finance leaders from the Group of Seven developed economies would also discuss the crises and might issue a statement afterwards. The timing of such talks is unclear.

Investors want the European Central Bank to start buying Italian and Spanish debt today to stabilise prices, a proposal that has split the bank' s governing council.

French President Nicolas Sarkozy, who chairs the G7-G20 group of leading economies, conferred with British Prime Minister David Cameron on Saturday.

"They discussed the euro area and the US debt downgrade. They agreed on the importance of working together, monitoring the situation closely and keeping in contact over the coming days," a spokesman for Cameron said.

A White House economics adviser castigated ratings agency Standard & Poor's for downgrading the US's credit rating to AA+ from AAA, a move that could ripple through the markets by pushing up borrowing costs and making it more difficult to secure a lasting recovery.

Washington's Asian allies rallied around the battered superpower, with Japan and South Korea both saying their trust in US treasury securities was unshaken.

The most immediate concern for financial markets was the debt crisis in the eurozone, where yields on Italian and Spanish debt have soared to 14-year highs because of political wrangling and doubts about the vigour of budget cuts.

Investors saw the European Central Bank's failure to include Italy and Spain in a relaunching of its bond purchases late last week as a sign of deep political divisions about the role of the euro.

German officials want stiffer austerity programmes in place before the bank takes on more Italian and Spanish debt.