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Europe Scrambles to Contain Debt Problems


French finance minister Francois Baroin, right, listens to U.S. treasury secretary Timothy Geithner, left, during talks in Marseille. Finance Ministers from the Group of Seven leading economies gathered in France amid jitters about Europe's debt crisis a

French finance minister Francois Baroin, right, listens to U.S. treasury secretary Timothy Geithner, left, during talks in Marseille. Finance Ministers from the Group of Seven leading economies gathered in France amid jitters about Europe's debt crisis a

French, German and Greek leaders are scheduled to hold a conference call Wednesday on how to contain Europe's deepening financial crisis that also is triggering alarm in other continents.

The call by leaders of Europe's two largest economies - France and Germany - to its weakest, Greece, underscores deepening worries about the region's financial troubles.

It comes ahead of a Friday meeting by finance ministers from the 17 nations sharing the euro currency to address a debt crisis that began with Greece, Portugal and Ireland, and now risks dragging in Italy and Spain.

U.S. Treasury Secretary Timothy Geithner is attending the talks for the first time, amid signs the crisis might also spread overseas.

In remarks to American news station CNBC, Geithner said European leaders are aware they need to do more to earn international confidence.

Fabian Zuleeg, chief economist at the Brussels-based European Policy Center, says the United States is right to be concerned. "The intervention from the U.S. has also shown, at least a risk that the stability of the financial system as a whole - the global financial system - might be under threat again," he said. "That we might have a financial situation where a possible default of Greece might have knock-on effects around the world as well."

On Wednesday, Italy's lower house approved a new austerity plan that would cut the country's deficit by more than $70 billion over three years. But underscoring market fears, Rome was forced this week to sell bonds at record interest rates.

In another signal of market jitters, the Moody's rating agency downgraded two major French banks that are large holders of Greek government bonds.

Greece is under pressure to make good its austerity promises in return for getting more rescue funds. But analysts believe European governments sharing the euro currency also must agree to closer economic unity if the eurozone is to remain viable.

In remarks before the European Parliament Wednesday, European Commission President Jose Manuel Barroso said the commission will propose creating "eurobonds" as a way for eurozone governments to jointly guarantee their debts.

"I am convinced we need a deeper and more results-driven integration. And let me be clear, this has to be within the community system. A system based purely on intergovernmental cooperation has not worked in the past and will not work in the future," Barroso stated.

Chances that the eurozone might fall apart were once dismissed as unlikely.

Now, analysts like Zuleeg say it's a real possibility. "I don't think a very orderly exit of a single country is a very likely scenario. I think it is much more likely that we either have the eurozone holding together or we get a chaotic process where other countries come under pressure as soon as one of the countries, such as Greece, says they can no longer pay their debt," he said.

Experts say economic growth also is needed for Greece and other debt-strapped nations to rebound.

But last week, the Paris-based Organization for Economic Cooperation and Development downgraded its growth estimates for the euro area and the Greek economy has shrunk this year.

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