Standard and Poor's has placed Germany, France and 13 other eurozone members on a negative credit watch, warning that they could be hit with downgrades.

"Today's CreditWatch placements are prompted by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole," S&P said in a statement.

The warning threatened the AAA-ratings of Germany, France, the Netherlands, Finland, Luxembourg and Austria.

S&P said it would complete a review of eurozone sovereign ratings "as soon as possible" following the European Union summit Thursday and Friday on the region's economic crisis.

Depending on the results of that summit, S&P said, "we believe ratings could be lowered by up to one notch for Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg, and by up to two notches for the other governments."

Cyprus and Greece, their ratings already cut to just above or at junk bond level, were not affected by the change.

France and Germany agree on EU reforms

France and Germany have agreed on a series of reforms to address the eurozone debt crisis that will be presented to EU President Herman Van Rompuy on Wednesday.

French President Nicolas Sarkozy said the new proposals would include a modified EU treaty, ideally for all 27 EU members.

However he said that they were also ready to draw up a treaty for the 17 eurozone members, though this would be open to others to join.

Mr Sarkozy was speaking after a meeting in Paris with German Chancellor Angela Merkel.

"We want to make sure that the imbalances which led to the situation in the euro zone today cannot happen again," Mr Sarkozy told a news conference.

"Therefore we want a new treaty, to make clear to the peoples of Europe, members of Europe and members of the euro zone, that things cannot continue as they are," he added.

This treaty would include automatic sanctions for states who fail to meet the 3% deficit rule, the so-called 'Golden Rule', as well as a budget-balancing rule across the euro zone.

The French and German leaders also ruled out eurobonds as a solution to the debt crisis.

The European Court of Justice would not be able to overturn national budgetary decisions, but it could verify whether or not national governments were in breach of their own Golden Rules on deficits, the pair said.

President Sarkozy also said that eurozone leaders should meet each month while the crisis is ongoing.

The Franco-German plan will have to be approved by all 27 member states at this week's summit.

If only eurozone countries approve the plan they may be entitled to forge ahead according to EU rules allowing so-called "enhanced cooperation."

The Paris meeting marked the beginning of a critical week for the eurozone.

The ECB has for the first time signalled that it is ready to play a bigger role and its president, Mario Draghi, has demanded a new fiscal contract to restore long-term market confidence in return.

France and Germany have been working behind the scenes on how that should be achieved.

A potential collapse in the currency has reached the stage of contingency planning by some trans-global companies.

The Irish Government has resisted treaty change, but Taoiseach Enda Kenny has acknowledged that economic governance at eurozone level is now a necessary reality.

Italy would have 'collapsed' without austerity

Italy would have collapsed without the government's tough new austerity package, Prime Minister Mario Monti said, saying his country ran the risk of a Greek-style emergency.

Mr Monti spoke to foreign journalists about the €30bn package of tax rises, pension reforms and growth-boosting incentives before presenting it to parliament later today.

Mr Monti's action, agreed by the cabinet yesterday, kicked off one of the most crucial weeks since the launch of the euro more than a decade ago.

The package, dubbed a "Save Italy" decree by Mr Monti, aims to raise more than €10bn from a property tax, impose a new levy on luxury items like yachts, raise value added tax, crack down on tax evasion and increase the pension age.

Italy has been at the centre of the eurozone crisis since mid-year, when its borrowing costs began to approach the levels that forced Ireland, Greece and Portugal to seek an international bailout.

Markets, primed ahead of a vital meeting of EU leaders in Brussels on Thursday and Friday, welcomed the measures, which analysts said should be enough to persuade the European Central Bank to continue hold down borrowing costs by buying Italian bonds on the market.