Chancellor George Osborne is meeting his fellow G7 finance ministers in France today as they seek a solution to revive economic growth and calm the biggest confidence crisis in financial markets since the global credit crunch.
The seven ministers are under pressure to offer a coordinated response to market fears as anxiety mounts over Europe’s sovereign debt levels and the fragility of its banks.
The new head of the International Monetary Fund Christine Lagarde echoed the concerns, urging developed-country policymakers this morning to act boldly and use all available tools to boost growth and weather a "dangerous new phase" of recovery.
Lagarde also cautioned against too much fiscal consolidation in a climate of sputtering growth, as efforts to rein in gaping budget deficits risk sending
Differences between the economic problems facing the UK, eurozone and the US are complicating the task, however.
But a G7 source told Reuters a unanimous agreement at the Marseille talks on coordinated monetary easing was unlikely.
A source in Brussels said the G7 would likely agree to keep monetary policy accommodative, slow fiscal consolidation in states where that is possible, and implement structural reforms.
In an indication of the conflicting positions on policy, Canadian Finance Minister Jim Flaherty told Reuters TV decisive moves were needed to restore market confidence and said slowing fiscal consolidation too much would be foolish.
"I hope we would all agree we have to stay the course, that we have to go through the pain of fiscal consolidation. It's not easy, it creates stresses in some countries, but it's necessary, we have to get through this rough patch," Flaherty said.