Leaders of the 17-nation euro zone have 'not excluded' holding an emergency summit on the spiralling debt crisis, although no decision has been made, EU president Herman Van Rompuy has said.
'No decision has been taken on a summit of the euro zone but it has not been excluded,' he told a news conference in Madrid following talks with Spanish Prime Minister Jose Luis Rodriguez Zapatero.
The wider euro zone is still gripped by fears of contagion spreading to Italy and Spain, and by open divisions over whether or not Greece will default on its debts.
The benchmark FTSE Mib index in Milan closed 1.18% higher in a rebound following plunges of more than 3% on Friday and yesterday.
The IBEX-35 index in Madrid also recovered but still ended the day down 0.7%, while the market for Spanish bonds suffered a sharp downturn.
Italy wants to reduce the budget deficit to 0.2% of output by 2014 from 4.6% last year but is struggling with one of the highest debt levels in the world and one of the lowest growth rates in Europe.
Van Rompuy said that the euro is a 'stable and sound currency'.
'In the difficult times we are facing we tend to forget that the euro is a stable and sound currency with strong fundamentals compared to other currencies,' he said.
EU Economic Affairs Commissioner Olli Rehn refused comment on reports of a meeting as soon as Friday.
Zapatero, meanwhile, dismissed investor jitters, saying Spain's ability to repay debts 'has every guarantee.'
Zapatero said that Spain's borrowing costs had risen but said there should be 'absolute calm' about the financing of the state.
Italian prime minister Silvio Berlusconi urged parliament to adopt sweeping budget cuts quickly.
'We are on the frontlines in this battle,' Berlusconi said in a statement, calling for austerity measures to be approved in 'a very short time frame.'
'We have to be united and cohesive in the common interest.'
Diplomats in Brussels earlier told AFP the euro zone is considering holding an emergency summit on Friday.
'A meeting of euro zone leaders is under consideration,' one diplomat said, also adding that no final decision has been taken.
The summit plans highlight mounting concerns in Europe that the debt crisis will force Greece to declare default and contaminate Italy and Spain, the euro zone's third and fourth largest economies.
European Union governments will provide help to any banks that fail a new round of stress tests on their ability to sustain ne financial shocks, EU finance ministers said yesterday following ecofin talks.
The ministers, in a statement, 'confirmed that necessary remedial actions following results of test will be taken.'
The statement said: 'These measures privilege private sector solutions but also include a solid framework for the provision of government support in case of need, in line with state aid rules.'
Last night's statement from ministers was focused on the Greek debt crisis and its potential to draw much bigger euro zone economies, like Italy, into the turmoil.
With growing speculation that euro zone countries needed another rethink over how to draw a line under the 18-month old crisis, there were expectations that a more flexible approach might be agreed.
The statement issued indicates that flexibility will be applied to the European Financial Stability Facility. It is worth about €440 billion and was created last year as one of the main backstops to prevent another Greek crisis.
Ireland was the first beneficiary of the EFSF and the plan to make it more flexible still could, according to Irish officials, lead to further reductions in Ireland's debt level.
By making the EFSF more flexible it could be used to buy Irish bonds in the secondary market.
As those bonds are sold at a cheaper rate than the original value, that would mean a debt saving for Ireland.
At the news conference after the meeting, the chairman of the Eurogroup Jean-Claude Juncker also confirmed that a lower interest rate would be agreed for all bail-out countries, although he didn't specify by how much.
The move could also mean longer debt maturities, special guarantees and credit lines - but key questions remain, including whether these changes will have to be passed by all 17 euro zone parliaments.
There are also questions about whether the delicate process be thrown into doubt if Greece defaults as a result of private creditors being forced to share in the burden of its second bail-out.
A deep split emerged today over the urgent key issue of private involvement in a new rescue for Greece, only hours after a reassuring statement overnight from euro zone ministers.
The row centres on the risk private involvement in the costs of a rescue might trigger a default rating, and on a warning from the European Central Bank it might then cut off Greek banks.
Greek Finance Minister Evangelos Venizelos flatly rejected any rescue terms which involved any form of default.
'We want total coverage of our borrowing requirements and for the stability of the Greek financial system,' he said in Athens.
The International Monetary Fund called on euro zone leaders to move swiftly to implement agreed measures to battle a spreading debt crisis.
'The IMF welcomes the statement by the Eurogroup reaffirming their commitment to safeguard financial stability in the euro area.
'We look forward to the prompt implementation of the important measures outlined in their statement,' IMF managing director Christine Lagarde said in a statement.
