Euro leaders face calls to bite bullet

As the debt crisis blazed a trail of market damage worldwide, sapping confidence in the euro, finance ministers from the 17-nation euro zone had a sharp wake-up call from a former colleague, Christine Lagarde, new head of the International Monetary Fund.

She welcomed their vows of the previous day to shore up euro-zone stability.

But she added: "We look forward to the prompt implementation of the important measures outlined."

Ministers pledged after eight-hour talks late on Monday to strengthen the size and scope of a multibillion-euro fund set up after Greece's rescue last year.

The fund could help buy back Greece's mountain of debt, enabling the country to borrow at better rates on the markets, EU officials said. It could also buy debt on the secondary market, relieving Greece's debt mountain.

But a pledge to speed up efforts to put together a bailout for Athens, expected to be almost as big as a ?110 billion ($A145.8 billion) rescue last year, failed to hold the line on financial markets.

Stocks and the euro began tumbling and borrowing costs for Italy and Spain rose to euro-era peaks.

In Brussels, diplomats said a meeting of euro-zone leaders was "under consideration", while the European Council president Herman Van Rompuy said in Madrid that a summit "has not been excluded". Meanwhile, deep divisions remained over the crucial issue of private investors shouldering part of the cost of a second rescue, which the European Central Bank says would lead it to cut off Greek banks.

"We want total coverage of our borrowing requirements and for the stability of the Greek financial system," said Greece's Finance Minister, Evangelos Venizelos.

There is concern too about declaring Greece to be in "selective default", with the European Commission saying it would support any EU banks failing stress tests.

As market turmoil continued for a second day, Mr Van Rompuy told a news conference: "Let me be very clear that there is a very strong commitment at the highest level to do whatever is necessary to safeguard the financial stability of the euro area."

The argument over bringing banks and other private creditors to bear a share in a Greek bailout to ease the European taxpayer's burden has rumbled for weeks.

This approach, opposed by the ECB, is favoured by the governments of Germany, the Netherlands and Finland.

Europe's member states must start speaking "with one voice", said an analyst, Sony Kapoor, managing director of the think tank Re-Define.

"Every new crisis headline fuels a further deterioration of the crisis and triggers more contagion," he said.

"What we are witnessing, and will soon be suffering from, are the inept attempts by politicians and central bankers to duck the consequences of the financial crisis," said another analyst, David Morrison, of the trading firm GFT.

"Now the crisis in Europe has escalated sharply and the rescue facilities currently in place are not robust enough to help.

"On top of that, the US recovery has fallen flat on its face."