US debt anxious moment for world economy: Blair

Speaking after US President Barack Obama appealed to Americans to press Republicans to compromise, warning that a default would risk "a deep economic crisis", Blair said he was hopeful a deal would be struck.

"Everyone hopes and believes that shortly before midnight the deal will be done that allows the situation to stabilise -- because obviously it is dramatically important for everyone that it does," Blair said in Melbourne.

"This is a troubling and anxious moment for the world economy, for sure."

Obama and the US Treasury have said Congress must raise the government's US$14.29 trillion debt ceiling by August 2 to prevent a default, but Democrats and Republicans are bitterly divided over tax increases and spending cuts.

Blair, who met with Australian Prime Minister Julia Gillard to discuss climate change, the financial situation in Europe and developments in the Middle East, said the problem had been building for years.

"What President Obama is trying to do though is correct in saying he wants a big deal that actually sorts the problem out, not one that kicks the can down the road, actually not very far down the road either, because that's not going to help anyone," he told reporters.

Blair, who was the British leader from 1997 to 2007, said Europe was also dealing with problems thrown up by the global financial crisis.

"The financial crisis may have accelerated the need for change, made it more urgent, but the need for change is there and has happened really as a result of things that have been building up over a long period of time," he said.

The prospect of the world's richest country running out of cash to pay its bills come August 2 has prompted the IMF to warn of a "severe shock" to the world economy if a breakthrough is not forthcoming.

Copyright AFP (Agence France-Presse), 2011