Euro zone leaders decided on Friday they have special measures ready before financial markets open on Monday to prevent financial turmoil in Greece spreading to other countries such as Spain and Portugal.
The leaders of the 16 countries that use the single currency said after talks with the European Central Bank and the executive European Commission they were ready to take whatever steps were needed to protect the stability of the euro area.
We will defend the euro whatever it takes. We have several instruments at our disposal and we will use them, European Commission President Jose Manuel Barroso said after a euro zone summit in Brussels.
He declined to give any details of the proposals, which will be presented to all 27 European Union finance ministers for approval on Sunday.
Financial markets have been pounding euro zone countries with high deficits or debts as well as low economic growth, threatening to force Portugal, Spain and Ireland into a position where, like Greece, they would need to seek financial aid.
Euro zone leaders, who have been accused of heightening market uncertainty with a lack of action, agreed in the face of rising market concern to accelerate budget cuts and ensure budget deficit targets are met this year.
They agreed to sharpen EU budget rules and have more effective sanctions for rule-breakers, and to pay close attention to debt levels and competitiveness.
They agreed they faces an extraordinary situation after giving their political approval to an EU-IMF deal to release 110 billion euros ($147 billion) to Greece over three years.
They said they fully supported the European Central Bank in its actions to safeguard the stability of the euro zone. The leaders' statement said all euro area institutions, including the ECB, would use the full range of means available to ensure the stability of the euro area.
Asked whether the ECB was ready to buy bonds that need financial support, Barroso said he would not tell the ECB what to do but EU President Herman Van Rompuy said all euro zone institutions agreed to use the full range of means available to ensure the stability of the euro area.
It is a time of emergency, an Italian spokesman quoted Italian Prime Minister Silvio Berlusconi as saying during the meeting in the Belgian capital.
Fears that the emergency loans might not be enough to prevent a Greek default and avert a broader economic crisis kept world stocks near a three-month low, despite strong U.S. jobs data.
Group of Seven finance ministers discussed the situation in a conference call after U.S. Federal Reserve officials expressed concern, and agreed to keep a close eye on the markets.
U.S. President Barack Obama told German Chancellor Angela Merkel by telephone that he backed efforts to rescue Greece and said regulatory agencies were investigating an unusual sudden drop on U.S. markets on Thursday.
We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community, Obama said.
Obama and Merkel spoke before the Brussels summit, at which the euro zone leaders formally approved the loan package which finance ministers backed last Sunday.
But despite broad agreement on the need to tighten budget discipline, the euro zone leaders found agreement elusive on a crisis mechanism to protect other countries.
This is a systemic problem. It's a question of the stability of the euro, one EU official quoted ECB President Jean-Claude Trichet as saying during the meeting.
Merkel, who presides over Europe's largest economy and has often been at odds with other EU leaders because of German public opposition to helping Greece, said she would not rule out reform of Union treaties to tighten budget rules.
Other EU leaders have resisted such changes and the 27-country bloc has struggled for unity during the crisis, leading to accusations that its hesitancy has increased the uncertainty on the jittery financial markets.
Hours before the meeting, the German parliament approved its share of the Greek rescue, the largest contribution by a euro zone country. The Dutch parliament also approved its part of the deal and Italy's cabinet has given initial approval.
But five German academics filed a legal challenge to the package, reflecting widespread German public opposition to the measure.
Philadelphia Federal Reserve Bank President Charles Plosser said the crisis did not pose a huge risk to the United States, but this did not mean it could not evolve into one.
The challenges that Greece poses are at the moment primarily for Europe more broadly ... that can spill over to us in the form of a weaker market for our exports, he said.
The more direct danger is of course concerns about the financial markets and how they will behave.
Pamela Cox, the World Bank's vice president for Latin America, said the region not was in danger of direct fallout from Greece and the euro zone's debt crisis. But if there is a global contagion, Latin America will be affected, she said.
Dismissing suggestions the euro zone was about to break up, European Central Bank Governing Council member Guy Quaden told a Belgian newspaper: Portugal, Spain, Ireland or Italy are not in the same situation as Greece.
Euribor bank-to-bank lending rates had earlier reached their highest level in almost four months and the euro traded close to a one-year trough.
The market volatility could prompt China to move more slowly than expected to let its yuan currency appreciate, foreign exchange strategists said.
Greece's parliament backed an austerity plan on Thursday but selling accelerated across markets after the ECB said it had not considered buying government bonds to ease Greece's debt crisis.
European investment-grade corporate credit default swaps hit their widest levels in more than a year, and there was a rise in the premium that investors demand to buy peripheral euro government bonds rather than those issued by Germany.
Greece's 30 billion euro ($40 billion) austerity bill imposes years of hard measures in return for the joint rescue by the EU and IMF, and has led to violent protests in Athens.
(Additional reporting by Justyna Pawlak, Ilona Wissenbach, Philip Blenkinsop, John O'Donnell, George Matlock, Pedro Nicolaci da Costa; writing by Andrew Roche and Timothy Heritage; editing by David Stamp)