A senior EU source has dismissed a report in the Guardian newspaper that France and Germany have reached agreement on giving the European bailout fund extra fire power of €2 trillion.
The source told RTÉ News that no agreement had been reached, and that any options on leveraging the European Financial Stability Facility would not be agreed upon until at least Friday, when eurozone finance ministers meet in advance of Sunday's summit of EU and eurozone heads of government.
It is understood the most favoured option for giving the EFSF sufficient firepower to prevent contagion from the Greek debt crisis from engulfing Italy and Spain is the use of the fund to insure the issuance of sovereign bonds.
The source told RTÉ News that the option could involve the EFSF guaranteeing between 20% and 30% of a bond issuance from a country experiencing high borrowing costs.
Recent reports have suggested that such a deal could theoretically "leverage" the EFSF five-fold.
The EU source, however, said that calculating the leveraging effect was "not so simple" and dismissed the figure of €2 trillion as an outcome of the insurance option.
Meanwhile, Moody's became the latest agency to downgrade Spain's debt rating tonight, warning that no "credible" resolution to the country's economic crisis had yet emerged.
Moody's cut Spain's rating by two notches from A1 from Aa2, with a negative outlook, just days after a similar move from Standard & Poor's.
Most European stock markets fell back today as hopes that the weekend summit would draw a line under the debt crisis faded.
Late last night, credit ratings agency Moody's warned of possible pressure on France's top AAA credit rating.
This evening, another agency, Standard & Poor's downgraded its ratings of 24 Italian banks, blaming the deteriorating economic condition in the country.
French bank shares were among the biggest fallers on European markets, while the uncertainty also pushed up the interest rate on Irish 10-year bonds to almost 8.5%.
Meanwhile, Greek Prime Minister George Papandreou has made a final appeal for support ahead of a vote in parliament later this week on unpopular new austerity measures.
The vote takes place against the backdrop of one of the biggest strikes Greece has seen in years.
Mr Papandreou also rejected any suggestion that Greece would be forced out of the euro as a result of its debt crisis.
Parliament is due to vote by Thursday on measures that include tax hikes, wage cuts, public sector lay-offs and changes to collective bargaining rules.
Yesterday, German Finance Minister Wolfgang Schaeuble said that even though European governments would adopt a five-point platform to address the crisis, a definitive solution would not be reached at the European Union summit on 23 October.
