Darling calls for market action

Mr Darling has welcomed the international response to the crisis

Policy makers must act quickly to tackle the "enormous" problems faced by the world's financial markets, Chancellor Alistair Darling has said.

He was speaking ahead of a meeting with finance ministers from France, Germany and Italy in Paris to discuss the "rapid action" required.

European central banks have acted to prevent global credit markets freezing by injecting liquidity.

What further actions may be needed will be under discussion in Paris.

What markets want above all is to know that central banks are aware of their problems Alistair Darling

In a joint interview with several European newspapers, the chancellor said that the crisis in financial markets was "significant" and "required rapid action".

He said that the UK, along with France, Germany and Italy "share the objective of doing everything possible at government level, and separately by the central banks, to find a solution to the crisis on financial markets and prevent future crises".

Recommendations

In December, central banks including the European Central Bank and the Bank of England teamed up to make hundreds of billions of dollars available at auction to world money markets.

"This co-ordination can only be beneficial," Mr Darling said.

"What markets want above all is to know that central banks are aware of their problems."

Mr Darling is expected to use the Paris talks to discuss progress made by the Financial Stability Forum (FSF), which brings together central banks and finance ministries as well as market supervisors.

He is thought to see the FSF being able to work with the International Monetary Fund (IMF) to highlight potential threats to financial stability and to give recommendations on how such threats can be tackled.

A Treasury spokesman said that the response to the recent financial turbulence "must be international".

"Britain is leading that process with our European partners to ensure that any efforts are co-ordinated, measured and principle-based," he added.

The credit markets have jammed because banks have been unwilling to lend to each other after a downturn in the US property market.

A surge in mortgage defaults and bad debts has forced many banks to cut the value of their mortgage investments, costing them billions of dollars.

As a result, the banks fear that they might need any spare cash they have to cover their losses.

Central banks therefore boosted liquidity into the banking sector to ensure banks kept offering credit to businesses to try to keep economies growing.