The International Monetary Fund has warned developed nations that they face an 'urgent' need to rein in budget deficits or risk stymied growth.
In a high-profile report the IMF stated: 'If public debt is not lowered to pre-crisis levels, potential growth in advanced economies could decline by over half a percent annually, a very sizable effect when cumulated over several years.'
The warning came as Europe continues to be gripped by a debt crisis that has rippled out from Greece across the continent and the globe.
The Greek government is confronting widespread opposition to an austerity program needed to secure an EU and IMF bailout totaling €110bn.
Political tensions have heightened in recent days as bomb blasts at a prison and a court rocked two Greek cities in 24 hours in a warning that militants still pose a threat to the country.
Investors were rattled when police blamed far-left militants for the first bomb, which exploded overnight outside an Athens high security prison. The blast, heard across the capital, injured one woman.
The second bomb went off in a bathroom in the main court building in Thessaloniki and slightly injured a court employee.
In Spain, prime minister Jose Luis Rodriguez Zapatero also faced opposition to tough new austerity measures.
Mr Zapatero on Wednesday announced belt-tightening measures worth €15bn over two years in a new bid to shore up Spain's public finances after stocks plunged last week over fears it could follow Greece into a debt crisis.
The plan includes a five-percent pay cut for public sector workers from June, and a pay freeze from 2011. Pensions except for the poorest will also be frozen in 2011.
In a sign of how series the crisis is being seen, the Group of Seven finance ministers held a telephone conference today on the Greek debt crisis, Japan's Finance Minister Naoto Kan said.
'We heard a report on efforts in Europe to stabilise the euro,' Mr Kan told reporters at his ministry.
He said 'various' issues were discussed, but did not go into detail.
Meanwhile stock markets across Europe came under pressure.
The Spanish stock market plunged 5.21% this afternoon on continuing fears over the health of the country's economy and that of the wider eurozone.
Milan's stock market plunged in mid-afternoon trade today, falling 5.3 percent amid persistent concerns over the eurozone's economic and budgetary stability.
It comes as the euro slumped to $1.2447 this morning, hitting the lowest point for 18 months.
The currency continues to be badly affected by concerns about the eurozone financial crisis.
The euro dived to the lowest level since late November 2008 in mid-morning trade.
The euro has languished against the dollar this week on stubborn concerns at Europe's economic woes, with a €750bn rescue package from the EU and International Monetary Fund failing to calm markets.
