The leaders of France and Germany have vowed to speed up various measures to ease the eurozone crisis, as the euro flirted with new lows on the market amid signs of heightened banking tensions.
French President Nicolas Sarkozy said after talks with Chancellor Angela Merkel yesterday that an agreement on stricter budgetary rules tying in all EU members except Britain should be signed by March 1.
Merkel said that negotiations on a text were progressing well and announced that Paris and Berlin could accelerate payments into a permanent fund for future possible bailouts due to come into force later this year.
"Germany and France are ready to review ... to what extent our payments can be accelerated in a certain way and thus once again make our trust in and support for the eurozone clearly visible," she said.
EU leaders are looking into ways of arming the fund, the European Stability Mechanism, with its resources in one go, rather than putting in smaller tranches under the current plan.
The meeting between the two, at the forefront of efforts to combat the eurozone debt turmoil, came as the euro tested near 16-month lows against the dollar, amid new fears over the future of the bloc.
"The situation is tense, very tense," said Sarkozy. "I don't think that in the history of Europe, leaders have had to deal with such a situation."
A recent slew of disappointing economic data, combined with renewed fears over the banking sector, have revived concerns that the eurozone is heading for a deep recession.
Fuelling these fears, data yesterday showed banks parked a record sum of cash at the European Central Bank, suggesting they are wary of lending to each other in the interbank market.
And for the first time, Germany sold five-year bonds with a negative yield, implying investors are rushing for the relative safety of debt issued by Europe's top economy that has thus far proved resilient to the crisis.
However, there were also doubts over even this safe-haven status, as German industrial production dived by a worse-than-expected 0.6 per cent month-on-month in November.
Meanwhile, the crisis also appeared to be returning with a vengeance to Athens, where it began, with the International Monetary Fund reportedly expressing growing doubts about Greece's ability to reduce its debts.
A team of international auditors was due to return to Greece next week to assess its economy after Prime Minister Lucas Papademos warned of an "uncontrolled default" in March if no further aid was forthcoming.
Merkel called for the rapid implementation of reform measures in Greece, warning that new bailout funds could not be paid out otherwise.
Traders appeared to shrug off the Berlin meeting, with little movement in European stock or bond markets.
The gathering kicked off a flurry of diplomatic activity.
Merkel and Finance Minister Wolfgang Schaeuble were to host IMF chief Christine Lagarde for closed-door informal talks in Berlin overnight with the focus on Greece.
On January 20, Italian Prime Minister Mario Monti will host Merkel and Sarkozy in Rome ahead of a meeting of eurozone finance ministers in Brussels three days later. An EU summit is due on January 30.