BRUSSELS -- Financial officials from the Group of Seven industrialized nations will discuss how to coordinate action between their countries' central banks, a person familiar with the matter said Saturday, following several days of market panic and a downgrade of the U.S. credit rating.
The person spoke on condition of anonymity because the level and timing of the contacts had yet to be confirmed.
French Finance Minister Francois Baroin, whose country currently holds the G-7 presidency, said he had been in close contact with his G-7 counterparts "throughout the previous days and also this very morning."
"We'll be carefully watching the evolution of what might happen on Monday," Baroin told France's RTL radio, without providing details on the contacts. The G-7 members are Britain, Canada, France, Germany, Italy, Japan and the U.S.
Standard & Poor's downgrade of the U.S. credit rating Friday night added to growing fears over debt levels and economic growth in the world's biggest economy and in large European nations, like Italy and Spain.
The European Central Bank has so far been reluctant to intervene in the Italian and Spanish debt markets in an attempt to stabilize plummeting bond prices, as it has previously done for Greece, Ireland and Portugal, the three eurozone countries that have already been bailed out.
But Luc Coene, the head of Belgian's central bank and a member of the ECB's decision making board, said Friday that the ECB may be prepared to help Italy and Spain once the two countries have taken more concrete steps to get their public finances under control.
Many investors have also been calling on the U.S. Federal Reserve to start pumping money into the U.S. economy again to help underpin the slowing economic recovery, as it has done through two large-scale bond buying programs since the 2007 financial crisis.
Italian Premier Silvio Berlusconi and EU Monetary Affairs Commissioner Olli Rehn on Friday called for coordination between G-7 countries, saying the crisis has to be tackled on a global level.
Berlusconi also announced that his country burdened with a debt that stands around 120 percent of economic output amid lackluster growth would speed up cuts to balance its budget by 2013 and take other steps to boost growth.
The announcement which follow calls for more action from the EU and the ECB came after one of the worst weeks in global financial markets since the collapse of U.S. investment bank Lehman Brothers in 2008.
The downgrade of the U.S. credit rating is also bad for Europe, whose economy is closely linked to the U.S. and whose weak members need strong demand for their goods to help them grow through exports.
Stabilizing Italy and Spain is set to be the biggest test for the 17-country eurozone, since their large economies are likely too big to support with full-blown bailouts.
Because of that, eurozone leaders last month decided to give their bailout fund new pre-emptive powers, such as the ability to buy distressed government bonds on the open market, extend short-term credit lines or help re-capitalize struggling banks.
However, those new powers have not been implemented yet a process that may take until early September unless national parliaments are called back from their summer recess. Analysts also warn that at the moment, the bailout fund is too small to successfully use its new tools.
Of the euro440 billion ($623 billion) initially committed to the so-called European Financial Stability Facility, less than euro300 billion ($425 billion) will be left once the two Greek rescue packages and the bailouts for Ireland and Portugal have been paid out.
Mansoor Mohi-uddin, a managing director at UBS, warned that besides undermining investor confidence in the U.S., S&P's downgrade may herald similar action from rating agencies on other top-rated countries.
"The sovereign ratings of other AAA rated countries like the U.K. and France are likely to come under question," Mohi-uddin said in a note.