US president Barack Obama said today the debt crisis in Europe was "scaring the world" and that leaders in the euro zone were not dealing with the issue quickly enough.

The recovery of the US economy suffered setbacks this year due to problems around the world, Mr Obama said, including the Arab Spring uprisings that drove up energy prices and worries about the financial health of European nations.

"They have not fully healed from the crisis back in 2007 and never fully dealt with all the challenges that their banking system faced. It is now being compounded with what is happening in Greece," Mr Obama said at a "town hall" public meeting in Mountain View, California.

"So they are going through a financial crisis that is scaring the world and they are trying to take responsible actions but those actions haven't been quite as quick as they need to be."

The Democratic president, who pushed through an $800 billion economic stimulus plan in 2009, has set out a new $447 billion plan to create jobs and cut taxes for small businesses but has faced fresh opposition from Republicans.

Meanwhile Euro zone officials were tonight working on ways to magnify the financial firepower of the euro zone's rescue fund to fight a sovereign debt crisis more effectively, a senior European Central Bank board member said.

ECB executive board member Lorenzo Bini Smaghi said in New York that European policymakers had already begun discussing the next steps to quell a crisis that threatens to derail a fragile world economic recovery.

The €440 billion euro rescue fund's assets could be used as collateral to borrow from the ECB, making more money available to stop the crisis spreading, but it was up to European Union governments to decide how to do this, Mr Bini Smaghi said.

"I know that people are thinking about these things. They may not be willing to admit it in the public, but they are thinking about these things," he said, citing US programmes used to rescue banks in the 2008-9 financial crisis.

In Brussels, euro zone officials played down media reports of emerging plans to halve Greece's debts and recapitalise European banks to cope with the fallout, stressing that no such scheme is yet on the table.

Europe came under fierce pressure from the United States and other major economies at weekend talks in Washington to take swift, decisive action to stop Greece's debt woes engulfing bigger euro zone states and wreaking wider damage.

But officials said reports that planning was already in place for a 50 per cent writedown in Greek debt and a vast increase in the euro zone rescue fund - the EFSF - were highly premature.

"There is no change to the framework we are working on," said a euro zone official who is involved in decision-making on financial assistance to Greece, Ireland and Portugal. "All this talk of a specific haircut for Greece or an enlargement of the EFSF, it is all just speculation. We are not working along those lines," said the official.

German chancellor Angela Merkel, struggling to convince her fractious centre-right coalition to back a strengthening of the EFSF in a crucial vote on Thursday, said yesterday that letting Greece default would destroy investor confidence in the euro zone.

Economists and Brussels think-tanks are forecasting a Greek debt default within months or sooner, coupled with a capital injection for European banks and a 'leveraging up' of the EFSF so that it can handle fallout in Italy and Spain.

Euro zone officials acknowledge that such policy ideas are circulating and some could constitute a longer-term response to the 20-month debt crisis. But they insist no specific plans are yet in the works.

Instead, planning continues on the basis that Greece's debt burden, which is close to 160 per cent of GDP, can be sustained as long as the government fully implements austerity measures demanded by the European Commission, the European Central Bank and the IMF.

EU competition commissioner Joaquin Almunia today said European leaders will eventually take the right decisions on the sovereign debt crisis. "In the end Mrs Merkel, Mr Sarkozy will take the decisions, knowing what is at stake," he said in an interview. "I'm sure of it, the problem is that they shouldn't wait too long."

US treasury secretary Timothy Geithner highlighted global concerns about deficient European crisis management, saying on Saturday: "The threat of cascading default, bank runs and catastrophic risk must be taken off the table."

IMF chief Christine Lagarde, the former French finance minister who until four months ago was tackling the crisis from the European side, also made it the euro zone needs to act more decisively, notably to recapitalise banks on a large scale.

Quietly, euro zone policymakers accept that a combination of a much deeper Greek debt restructuring allied to coordinated bank recapitalisations and a bolstered rescue fund would make sense and might help the euro zone get on top of the crisis.

But such a plan would require support from all 17 euro zone countries, and it takes time in the EU's decision-making structures to bring so many moving parts together at once.

The next step is expected to be a decision by the EU, ECB and IMF to sign off on the next tranche of support for Greece - the sixth payment from the original €110 billion emergency package agreed in May last year.

The timing will depend on when the troika completes a review of Athens' progress on implementing deeper budget cuts and tax-raising measures. Without that €8 billion, Greece will run out of money to pay next month’s public wages and pensions.

EU economic and monetary affairs commissioner Olli Rehn has said he hopes a decision can be taken by mid-October.

Euro zone officials acknowledge that the EFSF, which will soon have an effective capacity of €440 billion is not big enough to handle a potential bailout of Italy or Spain, the region's third and fourth largest economies. But there is no clarity on how the fund could be raised without more guarantees.

One idea is for the fund to act as an insurer, guaranteeing the first portion of losses on Italian or Spanish debt. That could "leverage" its capacity four or five times, but the legality of such a scheme remains to be established and nothing has been put to euro zone finance ministers.

Another proposal would be to turn the EFSF into a bank, which would allow it to access ECB funds, meaning that it would effectively have unlimited capacity. But the ECB has raised concerns about such a step, which would politicise ECB operations and put it on the line for massive liabilities.