International alarm over Europe's debt crisis reached new heights today, with US president Barack Obama pressing the union's big countries to show leadership as talk of a Greek default escalated and markets heaped pressure on Italy.

German chancellor Angela Merkel sought to quash talk of an imminent Greek default or exit from the euro zone, but confusion over whether she would issue a joint statement on Greece with French president Nicholas Sarkozy sent markets gyrating up and then down.

Ms Merkel said today she would not let Greece go into "uncontrolled insolvency" because of the risk of contagion for other euro zone countries.

"The top priority is to avoid an uncontrolled insolvency, because that wouldn't just hit Greece and the danger that it hits everyone, or at least a number of other countries, is very big," she said in a German radio interview.

"I have made my position very clear: that everything must be done to keep the euro area together politically, because we would very quickly face a domino effect."

Ms Merkel and Mr Sarkozy conferred by telephone on the crisis at the start of the week, and senior French sources said they planned to issue a joint statement on Greece, sending the euro and Greek bank stocks higher.

Less than an hour later, a spokesman for Mr Sarkozy changed course and denied a statement was planned, sending markets into reverse. German officials said the government in Berlin had seen no need for a statement, as Ms Merkel and Mr Sarkozy are due to hold a call with Greek prime minister George Papandreou tomorrow.

The mixed signals reinforced the sense in the markets that European countries are unable to unite behind a common approach to the crisis.

Market attention for much of the morning centred on an auction of Italian five-year bonds which saw it pay the highest interest since it joined the euro, compounding fears about the euro zone’s third largest economy.

The five-year bond yield hit a euro lifetime high of 5.60 per cent despite ECB purchases in the secondary market that led to the resignation of the central bank's German chief economist, Juergen Stark, last Friday.

European shares had opened higher after a Financial Times report that Italy had asked China to buy its debt. Another media report poured cold water on those expectations.

"People are coming back and focusing on Greece and Italy. It was a relief rally, but it feels like many are looking to sell on any strength. It is very difficult for bulls to hang on there," Joe Rundle, head of trading at ETX Capital, said.

"I think there is a possibility, if the wrong steps are taken, that the system goes off the rails," Sergio Marchionne, the chief executive of Italian carmaker Fiat, told reporters in Frankfurt when asked if the euro's survival was at risk.

Ms Merkel faces intense pressure at home to resist new steps to shore up weak euro zone countries after agreeing to bailouts of Greece, Ireland and Portugal over the past 15 months.

But concern is growing abroad that Europe's piecemeal approach could backfire, with grave consequences for the global economy.

Mr Obama told Spanish journalists in a group interview published today that euro zone leaders needed to show markets they were taking responsibility for the debt crisis. Weakness in the global economy would persist so long as it is not resolved, he said.

In a measure of the alarm in Washington, treasury secretary Timothy Geithner will take the unprecedented step of attending a meeting of EU finance ministers in Poland on Friday. It will be his second trip to Europe in a week after he met his main EU counterparts at a G7 meeting last weekend.

Mr Obama said that while Greece is the immediate concern, an even bigger problem is what may happen should markets keep attacking the larger economies of Spain and Italy.

"In the end the big countries in Europe, the leaders in Europe must meet and take a decision on how to co-ordinate monetary integration with more effective co-ordinated fiscal policy," the news agency EFE quoted him as saying.

Mr Geithner is likely to urge euro zone finance ministers on Friday to speed up ratification of changes to their bailout fund and consider boosting its size, an EU source said.

Markets have already priced in the near certainty of a Greek debt default. Credit default swap prices suggest a 90 per cent probability of default in the next five years, according to CDS pricing data provider Markit.

International inspectors are due to return to Athens on Monday to review deficit-cutting steps before deciding on the next tranche of aid.

Greece has said it only has a few weeks' cash and needs the €8 billion tranche in October to pay salaries and pensions.