Obama warns market turmoil to continue over Europe

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U.S. President Barack Obama on Wednesday said he was deeply concerned about the euro zone crisis and market turmoil would continue until Europe has a concrete plan to deal with its sovereign debt woes.

Obama's comments added to a chorus of non-European policymakers urging greater action to deal with the two-year-old crisis, and came as equity markets fell in response to a sell-off in euro zone bond markets.

"Until we put in place a concrete plan and structure that sends a clear signal to the markets that Europe is standing behind the euro and will do what it takes, we are going to continue to see the kinds of market turmoil we saw," Obama told a news conference in the Australian capital of Canberra.

Asian shares and the euro fell on Wednesday, and less than an hour after Obama spoke European stock markets opened in the red.

Investors have been spooked by signs the crisis is spreading from heavily indebted Greece and Italy to the region's core nations, with yield spreads on Austrian, Belgian and French 10-year bonds over Germany Bunds hitting euro-era highs on Tuesday.

Obama said that whilst there had been progress in putting together unity governments in Italy and Greece, Europe still faced a 'problem of political will' rather than a technical problem.

"We're going to continue to advise European leaders on what options we think would meet the threshold where markets would settle down. It is going to require some tough decisions on their part," he said.

"Ultimately, what they are going to need is a firewall that sends a clear signal -- we stand behind the European project, we stand behind the euro."

Canada's Finance Minister Jim Flaherty, speaking earlier on Wednesday in Japan, urged European leaders to put 'meat on the bones' of plans to stem the contagion.

"Until European countries build firewalls for their financial system, I think we will continue to see market volatility," he said. "Some of us are frustrated by the failure of clear and decisive action in Europe."

China's central bank also voiced its concern, saying in its quarterly report posted on its website that it saw no quick end to the European debt crisis.

Bank of Japan Governor Masaaki Shirakawa told a news conference there were signs the European crisis was starting to affect emerging economies through trade and other channels.

"Dollar funding at European banks has also worsened and there are signs of dollar assets being squeezed, or so-called deleveraging," he said.