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Osborne: Eurozone Edging Towards A Resolution

(c) Sky News 2012

The eurozone is "inching towards solutions" to deal with the problems of the single currency, Chancellor George Osborne has said.

World leaders have been gathering at the G20 summit in Mexico which has been dominated by the eurozone crisis and the fall-out from Sunday's Greek elections.

Massive pressure has been placed on the EU members of the G20 in Los Cabos, particularly Germany, to take further action, after markets failed to respond to the recapitalisation of Spanish banks and the election of pro-bailout parties in Greece.

Mr Osborne cautioned against the belief that a full solution to the eurozone crisis would be reached at this week's summit.

But he indicated that he expects steps to be announced either after a meeting of eurozone leaders in Rome at the end of this week or at the full European Council in Brussels next week.

Speaking at the summit, Mr Osborne said: "I think one thing we have learnt is don't expect a single summit to solve the eurozone's problems, otherwise you are going to be disappointed.

"I am not claiming that this summit has solved those problems, but the eurozone is inching towards solutions."

Details of a scheme are yet to emerge, but it is thought eurozone countries are considering using injections of funds through the European Central Bank or the single currency bailout mechanisms to shore up weaker countries like Greece and Spain.

The resources would be designed to spread the risk of debt between the 17-nation euro bloc, and reduce the high interest rates on government bonds which have made it difficult for Athens, Madrid and Rome to service their debts.

"Basically, we do need to see the richer countries, like Germany like Holland, spend some of their resource in propping up the weaker countries of the eurozone," said Mr Osborne.

"Obviously it is difficult for them to do that, it is not a popular thing to do but it is absolutely necessary.

"I think there are signs that the eurozone are moving towards richer countries standing behind their banks and standing behind the weaker countries.

"It's a reminder of why we are not in the euro because I think British taxpayers would find these things difficult to stomach, but British taxpayers need to see the eurozone sort their act out if we are going to get sustainable growth and jobs."

He said it was clear that the additional pressure imposed by non-eurozone G20 members, who see the problems of the single currency as the key thing holding back the world economy and damaging their own prospects, was having an impact on the eurozone leaders.

"There is no doubt that the problems now are in the eurozone but what the G20 can do is put pressure on the eurozone to fix those problems, add to the pressure that was already there," he said.

"And it can take measures to prevent these problems spilling over even more than they are into the rest of the world economy, for example by resisting protectionist measures which some countries want to introduce."

He continued: "We will see what the eurozone announce over the next couple of weeks, but there is no doubt that they realise that individual measures in individual countries - like recapitalising Spanish banks and getting a Greek government that is in favour of staying in the euro and doing what is necessary to stay in the euro - are not by themselves enough.

"These are systemic problems in the eurozone which require a systemic answer and we need to see measures from the eurozone that help bring borrowing costs down, that help ensure that there are common resources transferred from richer countries to poorer countries, that the whole eurozone stands behind the banks of the eurozone," he added.

On Monday, Prime Minister David Cameron stressed a closer banking union and fiscal transfers to support weaker eurozone economies were necessary to stabalise the single currency.

Mr Cameron said the eurozone faced three alternatives, the most positive of which would involve "action to strengthen the eurozone, to make it more coherent".

Failure to take these steps would mean "dominoes start to fall, which would have very severe financial consequences across the world and would seriously affect us", he added.

Meanwhile in Greece, the conservative New Democracy, Socialist PASOK and Democratic Left parties are expected to form a coalition government by the end of Wednesday.

Germany, the biggest contributor to the rescue which is keeping Greece from bankruptcy, opposes major changes to an austerity drive that has worsened its economic depression.

With Greece just weeks away from running out of cash and a new government needed to negotiate the next instalment of funds from lenders, Greek political leaders are under immense pressure to avoid a repeat of the deadlock seen after a first and inconclusive election on May 6.