World financial leaders said Saturday there were significant downside risks to the global economy that "need to be addressed decisively to restore confidence, financial stability and growth," as they called on European leaders to deliver a comprehensive plan to address the Continent's deepening sovereign-debt crisis.
Finance ministers and central bankers from the Group of 20 leading industrialized nations said they expect euro-zone countries to agree to a decisive plan on how to address the region's many interconnected problems at a meeting of European leaders on Oct. 23 in Brussels.
"We remain committed to take all necessary actions to preserve the stability of banking systems and financial markets," the G-20 said in a final communiqué after meeting in the French capital. "We will ensure that banks are adequately capitalized and have sufficient access to funding to deal with current risks.
"Central banks have recently taken decisive actions to this end and will continue to stand ready to provide liquidity to banks as required," the G-20 said. "Monetary policies will maintain price stability and continue to support economic recovery."
The European debt crisis threatens to halt an anemic global economic recovery, and efforts to deliver a plan to address the crisis dominated discussion at the Paris talks. Although emerging-market nations have helped pull advanced countries through the last several years with strong expansions, their economies are at risk from major investment reversals and plunging demand from trading partners.
G-20 officials from countries outside the euro zone had come into the two-day meeting urging the currency area's policy makers to come up with a decisive and comprehensive plan to resolve the crisis, which threatens to spill over into other parts of the world.
But with German and French officials able to report some progress on a number of elements in that plan, other G-20 members appeared encouraged that euro-zone leaders will deliver what's needed when they meet next week in Brussels.
"We hear encouraging things from our European colleagues in Paris about a new comprehensive plan to deal with the crisis on the continent," U.S. Treasury Secretary Timothy Geithner said.
Brazilian Finance Minister Guido Mantega echoed those sentiments, saying that meetings here had produced "important signs of progress" and that euro-zone leaders have "a sense of urgency."
"Even though the situation is more complicated, we have a light at the end of the tunnel," he said.
The plan taking shape among euro-zone countries to address the crisis is built on three central elements: a new bailout for Greece, an effort to shore up banks affected by Greek losses—and potential future losses from other troubled euro-zone countries—and bolstering the resources of the European Financial Stability Facility, the bloc's bailout fund, to provide a backstop.
"We look forward to further work to maximize the impact of the EFSF in order to avoid contagion and to the outcome of the European Council on October 23 to decisively address the current challenges through a comprehensive plan," the G-20 said.
A likely way to leverage the bailout fund, officials say, is an insurance plan under which the EFSF offers investors in European debt some protection against losses in the hopes of drawing more buyers.
Mr. Geithner said he would wait to give his final assessment until more details of the plan are ironed out. "It depends how it's designed, but it's absolutely possible to design a financial backstop or a firewall that would have the desired effect," he said. "But it's all in the details."
Officials are still discussing how to address the central euro-zone problem: Greece, which needs another bailout in addition to the €110 billion ($152 billion) program granted in May 2010.
A new bailout will come with losses for the banks and other private-sector investors who lent to Greece. There is broad concern that if creditors of Italy and Spain fear the same fate awaits them, there will be flight out of those countries' bonds that Europe's bailout fund will be powerless to stop.
People close to the talks say officials here discussed steeper losses for Greece's private-sector creditors than had been contemplated in a July 21 agreement. French Finance Minister François Baroin said French President Nicolas Sarkozy and German Chancellor Angela Merkel would announce the magnitude of that greater write-down for the private sector at the EU summit in Brussels next weekend.
The euro-zone crisis overshadowed discussion of other issues for the global economy at the meeting. But the group, using language that was largely similar to that issued after a meeting in Washington in September, reaffirmed its support for "market-determined exchange-rate systems and achieve greater exchange-rate flexibility to reflect economic fundamentals."
Nonetheless, the communiqué avoided tougher language calling out China's currency policy. The U.S. said prior to the meeting it would press Beijing to speed up appreciation of the yuan, which wouldn't only help spur demand in China, but help other trading partners grow.
In a nod to problems Japan, Switzerland and other countries are facing with fast-changing tides of international capital flows, the G-20 reiterated "excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability."
G-20 officials also agreed that developing economies with large trade surplus should continue their efforts to make their exchange rates more flexible.
This largely reflects frustration by other countries, notably the U.S., about China's control over the yuan's exchange rate, which has been criticized as being undervalued, benefiting Chinese exporters at the expense of U.S. workers and firms.
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