Merkel, Sarkozy: ‘Future of Greece is in euro’

The declaration followed a teleconference with the Greek leader in which he restated his commitment to putting in place the agreed cuts, privatisation and structural reforms ordered by international lenders.

“The Greek prime minister confirmed his government's absolute determination to take all necessary measures to implement all commitments,” the statement continued.

“The implementation of the commitments of the programme is essential for the Greek economy can regain the path of a sustainable and balanced growth. The success of the recovery plan of Greece will strengthen the stability of the euro area.”

The joint statement was an effort to draw a line under what European Commission President Jose Manuel Barroso on Wednesday called a “cacaphony” of often contradictory messages from various European ministerial sources, including Merkel’s own economy minister and his Dutch counterpart, that suggested Berlin and the Hague were preparing for a Greek default.

The conference call appeared to at least temporarily soothe the market beasts, with the euro rising and Asian stocks also on an upward tick after the conversation between the three leaders.

US treasury secretary Timothy Geithner, who in an unprecedented move is set to attend a meeting of EU finance ministers this week, also offered markets a reassuring message of confidence in European leaders while also calling on the EU do act “more forcefully”.

"They recognise that they have been behind the curve. They recognize that it will take more force behind their commitments," he said in a CNBC television interview.

"There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market. There is not a chance," he continued.

"They are absolutely committed and they have the financial capacity, the economic capacity to do what it takes to hold this thing together," he said.

The transatlantic efforts at pacifying markets came after Moody’s Investors Service downgraded two of France’s biggest banks, Societe Generale and Credit Agricole, a notch on the back of fears of exposure to Greek government debt and whether they would be able to borrow enough themselves to keep their doors open.

French officials were quick to insist that there was no question of their banks requiring an infusion of public cash, a move that could threaten the country’s own, Triple-A, credit rating and hike its borrowing costs.

"That is something which makes no sense. It is totally surreal. French banks do not need any outside capital to face up to risks," Bank of France governor Christian Noyer told RTL in response to the downgrades.

However, the issue is likely to a hot topic as European finance ministers meet in Poland on Friday.

IMF chief Christine Lagarde last week issued a call for European banks to received a rapid and substantial cash injection.