The head of the International Monetary Fund (IMF) has piled pressure on Germany by recommending a series of crisis-fighting measures that chancellor Angela Merkel has resisted, The Guardian reports.
Christine Lagarde warned that the euro is under "acute stress" and urged eurozone leaders to channel aid directly to struggling banks rather than via governments. She also called on the European Central Bank to cut interest rates.
The comments came as Italy's Prime Minister Mario Monti, warned of the apocalyptic consequences if next week's summit of EU leaders were to fail.
The stark message from Lagarde, delivered to eurozone finance ministers who met in Luxembourg, will increase pressure to come up with a unified approach to tackle problems including Spain's struggling banks. She urged the 17 eurozone countries to consider jointly issuing debt, helping troubled banks directly, and suggested relaxing the strict austerity conditions imposed on countries that have received bailouts.
"We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area," Lagarde said after the meeting in Luxembourg.
"A determined and forceful move towards complete European monetary union should be reaffirmed in order to restore faith," she said. "At the moment, the viability of the European monetary system is questioned."
Asked what Germany would think of her suggestions, she smiled and said: "We hope wisdom will prevail."
At lunchtime, Merkel will meet Monti and the leaders of France and Spain in Rome in an effort to forge a common strategy to save the euro that some, Merkel included, consider essential to preserving the European Union itself.
At the start of next week, officials from the IMF, the European Union and the European Central Bank will arrive in Athens to begin a review of Greece's progress in reforming its budget. Some European officials have indicated that the harsh austerity measures that have sent Greece's economy into a rapid downward spiral could be loosened.
One of Lagarde's recommendations for Europe was that eurozone leaders should consider issuing bonds or debt "in some form" backed by the governments of all member countries. This is an idea opposed by Berlin because it would put German taxpayers on the hook for foreign debts and increase Germany's cost of borrowing.
In addition, Lagarde said it was necessary to break "the negative feedback loop" that occurs when governments take on more debt to bail out their banks, and she called on Europe's two emergency bailout funds to shore up shaky banks directly.
