"It's necessary for the Greek government to stay the course," Flaherty told reporters in Marseille, France, where he is attending a meeting of Group of Seven officials. "The alternative is probably that they leave the euro. I expect the Greek government would want to continue their fiscal consolidation."

G-7 central bankers and finance ministers convene today for their first face-to-face talks since they promised "coordinated action" on Aug. 8 to calm financial markets. Flaherty said investors remain to be convinced that governments can tackle their balance sheets.

There seems to be some hesitancy among leaders to press ahead with commitments to reduce deficits, Flaherty said.

"This comes down to political choices that have political consequences, choices that affect their opportunities for re- election," he said. "There aren't easy, comfortable answers here and I certainly worry if any of my colleagues are starting to think that we can have a comfortable answer by delaying fiscal consolidation."

David Fuller's view There is a widespread and understandable perception that Euroland's politicians are in denial over the sovereign debt crisis. Monetary officials in other countries are becoming increasingly concerned because the fallout from Europe is affecting their markets and GDP growth prospects.

Clearly, there is a problem of inertia with European officials, not least because there is no formal mechanism for addressing the crisis, at least not yet. Everyone now knows that fiscal union is required for the euro to survive and ideally post-haste. Unfortunately, too many European politicians have been fiddling while Greek yields heat up and regional bank shares slump, and now the euro is sliding.

I expect another flurry of meetings over the weekend.