An influential group of international banks and insurers has attacked political leaders in Europe over their handling of the Greek crisis, arguing that the singleminded pursuit of austerity has made the situation worse.

The Institute of International Finance, which last year brokered a deal between Greece and international bond investors to halve Greece's private debts, said politicians were playing a dangerous game by putting their desire for debt reduction ahead of co-ordinated efforts to spur growth.

Charles Dallara, the institute's chairman, said the world's major economies needed to co-ordinate their efforts or risk persistent instability and low growth.

He said: "The international financial community has a collective interest in reducing the uncertainty that currently surrounds the global economic outlook. If we want to lay the basis for a durable global economic expansion, then we need to see more concerted action by the world's policymakers."

European policymakers are expected to come under fire at the IMF for their failure to bring an end to the crisis, which has triggered riots in Portugal, Spain and Greece. Spain is poised to apply for a bailout from the EU and IMF that could amount to €400bn (£320bn). Cyprus is expected to ask for an ¤11bn bailout within days.

The uncertainty surrounding the finances of major European nations has added to the instability, Dallara said.

Central banks have flooded the world's financial systems with cheap funds to foster lending to businesses and households while banks rebuild their finances, but a disjointed and often contradictory response to financial regulation meant much of the money was not reaching its destination.

"The world economy appears to be stuck at the crossroads, being pushed in one direction by easier monetary policy, and pulled in another by fiscal austerity," he said. The situation in Greece, where unemployment and poverty have rocketed, was of particular concern, he said.

The institute said the interest rate demanded by Brussels as the price of the Greek rescue package should be cut to allow the country to recover. "It is urgent to complete the ongoing review of Greece's programme, with an extension of the time schedule of budget deficit targets," said Dallara. "The latter can and could be accommodated without additional new financing by lowering interest charges on official credits in line with markedly reduced funding costs."

Portugal's political consensus is also crumbling under the weight of austerity measures that have pushed the economy into a long depression. Portuguese unions have called for a general strike on 14 November after the government announced new tax rises and spending cuts, having withdrawn the previous batch following violent protests.

The European Central Bank said a rescue package for Spain would not include "punitive" costs, as it kept base rates at 0.75%. The ECB president, Mario Draghi, hinted that he preferred to keep some of his armoury in reserve in case the economic situation in the 17-member eurozone deteriorated further.

As Spain's prime minister Mariano Rajoy weighed up when to seek a bailout, his central bank chief yesterday undermined the government's proposed 2013 budget, saying it was based on over-rosy forecasts for growth and tax revenue.

Speaking to a parliamentary budget committee, newly-appointed central bank governor Luis Maria Linde said: "This outlook ... is certainly optimistic in comparison with the outlook shared by the majority of international organisations and analysts."

Linde said the government, which has already raised taxes and cut tens of billions of euros in costs, should consider further steps this year to meet next year's deficit target of 4.5% of GDP agreed with the European Union.

Linde said most independent forecasters expect a 1.5% contraction in Spain next year, rather than the 0.5% fall on which the government based its calculations.

Fitch ratings agency also flagged the budget as unrealistic but said it would not downgrade Spanish bonds to junk status if the country sought a bailout and unlocked ECB bond-buying.

Draghi said he stood ready to launch the ECB's latest sovereign bond buying scheme, which offers individual countries the opportunity to sell their bonds at low interest rates to remain solvent, but he had yet to receive any applications.

But as if to exemplify the splits inside the eurozone, the German finance minister, Wolfgang Schäuble, insisted that austerity measures be in place before the release of bailout funds. Schäuble, who has a reputation as a fiscal hardliner, has previously blocked attempts to ease controls and cut interest rates for countries struggling with their debts.

Dallara said a small group of key G20 nations, including the US and Japan should co-ordinate their efforts to tackle fundamental problems to spur growth.

"We call on the global policymaking leadership to act cohesively and give a clear direction. The international private financial community stands ready to do its part and cooperate, with its usual responsibility, with the official sector," he said.