The European Commission has warned that economic growth in the eurozone will come to a near standstill by the end of the year due to the European debt crisis and the turmoil in financial markets.
In its latest economic forecast, the Commission said the soft patch is likely to persist until spring next year, but that a double dip recession would not result.
US Treasury Secretary Timothy Geithner is to discuss with European finance ministers tomorrow the possibility of leveraging the euro zone's bailout fund to make it more effective in fighting the region's debt crisis.
The European Central Bank has said that it was joining with other major central banks in a joint action coordinated with the US Federal Reserve to ease dollar funding for stricken European banks to tackle an emerging credit crunch due to the sovereign debt crisis.
Geithner will hold talks with EU ministers in Poland and will propose that the European Financial Stability Fund, the €440bn fund set up in May 2010, be used in a similar way to an emergency loan fund created by the US Treasury and the Fed in 2008 to thaw frozen credit markets.
The Commission forecasts economic growth in the eurozone will be only 0.1% in the fourth quarter, down from 0.2% in the third.
It added that the outlook is uncertain and the balance of risks to the forecasts are to the downside.
EU Economic and Monetary Affairs Commissioner Olli Rehn said the "outlook for the European economy has deteriorated".
"To get the recovery back on track, it is crucial to safeguard financial stability and put budgets on a path that is sustainable beyond doubt.
"This requires steadfast continuation of the strategy of differentiated, growth-friendly fiscal consolidation and the implementation of the decisions to support financial stability.
"At the same time, structural reforms remain more important than ever to build tomorrow's growth potential."
Mr Rehn also said that the reduction in Ireland's bailout interest rate will significantly contribute to the sustainability of the country.
He said the Irish economy is turning around but declined to specify what additional measures the Commission would like the Government to take, such as the sale of State assets or expenditure cuts.
The Commission also said that inflation in the 17-nation eurozone will ease gradually to 2.5% in 2011.
Strong political will needed
In Washington, the head of the International Monetary Fund, Christine Lagarde, warned "strong political will" across the world was needed to deal with the current world economic uncertainty.
In a speech in Washington, she said global growth was continuing, but was slowing down.
Ms Lagarde said weak growth and worries about high levels of debt were fuelling a crisis of confidence, holding back spending, investment and job creation.
Elsewhere, EU finance ministers are preparing for an informal two-day meeting, beginning in Poland tomorrow, which will be dominated by the eurozone crisis.
US Treasury Secretary Timothy Geithner will also attend the talks in Wroclaw, along with the outgoing head of the European Central Bank Jean Claude Trichet.
Mr Trichet is due to address ministers on their arrival tonight.
Mr Geithner's attendance is perceived as applying pressure on the EU to find a robust solution.
A document prepared for the ministers warns a systemic crisis in the eurozone could spill over into the banks and cause another credit crunch.
Leading central banks to offer dollar loans
Leading central banks around the world are to co-operate to offer three-month US dollar loans to banks in order to prevent money markets from freezing up because of Europe's debt crisis.
Some European banks have run into serious problems in borrowing dollars for their activities because US funds which usually lend to them have withdrawn due to concerns about the euro zone debt crisis.
The European Central Bank said that, in three operations between October and December, it would offer banks as many dollars as they needed, in order to ease any funding crunch.
The announcement sharply boosted European bank shares and the euro.
