Liquidity of banks key to solving euro zone crisis: Manmohan

Indian Prime Minister Manmohan Singh today called on European governments to provide much-needed liquidity to European banks, but without ignoring the need for solvency.

Addressing the plenary session of G-20 summit in Los Cabos, Mexico today, the prime minister said the global economic recovery is faltering because of uncertainties in the euro zone and even the fast growing emerging markets are slowing down.

The sovereign debt crisis and the banking crisis now on the horizon have grave implications for the health of the entire global economy, he said.

''A crisis in the European banking system can choke trade finance quite quickly, and end up choking economic growth not just in the euro zone but in the world in general,'' he said.

The G20, he told the gathered leaders whose countries account for 80 per cent of global GDP, should send ''a strong signal to the markets that the euro zone countries will make every effort to protect the banking system and the global community will back a credible euro zone effort and response.''

''Liquidity must be provided in parallel with effective adjustment programmes that ensure an early return to debt sustainability,'' he said.