Obama attacks European leaders over crisis

President Barack Obama has criticised European leaders for failing to tackle the debt crisis and has demanded "more effective co-ordinated" fiscal policy.

Reflecting the anger of Americans who are blaming Europe for the turmoil, the president called for eurozone leaders to show global markets they are taking responsibility for the crisis.

Mr Obama told Spanish journalists on Monday: "The leaders in Europe must meet and take a decision on how to co-ordinate monetary integration with more effective co-ordinated fiscal policy."

Tim Geithner, the US Treasury Secretary, is set to take the unusual step of attending an European Finance Ministers meeting on Friday.

Analysts at JP Morgan said there was "a growing sense that the crisis is reaching a climax", arguing that the "endgame on EMU [European Monetary Union] is approaching fast".

Jim O'Neill, chairman of Goldman Sachs Asset Management, added: along with Greece, "something 'big' needs to happen for European bank capital, the clarity and determination of ECB policy making and, most importantly, where Germany wants to lead EMU".

Market confidence in the 17-state eurozone was knocked again on Tuesday when Italy was forced to pay a record 5.6pc yield to sell euros 3.9bn (pounds 3.4bn) of 5-year bonds. Officials said that Giulio Tremonti, the finance minister, had met investors from China but there was not yet an agreement to buy government bonds.

Markets across Europe had a volatile day amid fears of Greek and Italian default, and a French banking crisis. After sharp swings, leading markets in London, Paris and Frankfurt clambered up by the close.

Traders, who had been expecting a statement from France and Germany on Greece, were rattled when none materialised. Angela Merkel insisted that calls for Greece to quit the euro were wrong, arguing that the move would trigger a "domino effect very quickly".

The German chancellor said she and Nicolas Sarkozy had a scheduled call with the Greek prime minister on Wednesday. Fears of default have already gripped European banks. Experts warned that French banks, whose shares have plunged in recent weeks, might be forced to tap the markets for euros 20 billion within the next few days.

Funding through interbank markets remained expensive for European banks. One money market trader told Reuters: "Essentially, if Italy defaults, it will take down the French banking system." BNP Paribas was forced to "categorically" deny it had funding problems.

Traders had dumped the stock after the Wall Street Journal reported unnamed BNP Paribas executive saying that the bank had lost access to dollar funding. After diving in early trading, the bank's shares recovered and closed up 7.2% at euros 28. Investors, who joined an analysts call to discuss the crisis, were told European banks were likely to have seek extra capital from the International Monetary Fund's euros 200 billion reserve.

The cost of insuring French banks soared to fresh highs. Societe Generale continues to be regarded as the country's riskiest bank based on credit default swaps, which were trading at 434.935 basis points, meaning the annual cost of insuring euros 10m of the banks debt is euros 434,935.