German Chancellor Angela Merkel and French President Nicolas Sarkozy have reaffirmed their commitment to keep Greece in the eurozone following an emergency conference call with George Papandreou, the Greek Prime Minister.

The German and French leaders have also reiterated their desire for eurozone members to sign off on the proposed second £96 billion Greek bailout agreed in July.

This follows the initial £96 billion package sanctioned by the European Union and the International Monetary Fund (IMF) in May last year.

In return, the Greek authorities have vowed to stick to the terms of the agreement by continuing to reduce their deficit.

Merkel and Sarkozy, in a joint statement Wednesday night, said: "Putting into place commitments of the [bailout] programme is essential for the Greek economy to return to a path of lasting and balanced growth."

Markets reacted positively to the news on Thursday, with the pan-European FTSEurofirst 300 up 0.8 per cent in early trading. Earlier, the FTSE Asia-Pacfic index gained 0.9 per cent as fears over Greek debt eased.

However the fear that Greece was heading for bankruptcy caused panic in the markets on Wednesday, with Jacek Rostowski, the Prime Minister of Poland, suggesting that the entire European project was in jeopardy.

“Europe is in danger,” he told the European Parliament. “If the eurozone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine.”

Amid the chaos, European Commission President Jose Manuel Barroso demanded greater federalism within the union, saying: “This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself.”

However, scepticism remained, with UKIP leader Nigel Farage telling the European Parliament “we all know that Greece is going to default.”

Muddying the waters further, the German transport minister, Peter Ramsauer, suggested it would "not be the end of the world if Greece was forced to leave the eurozone,” while the German Vice Chancellor suggested that a Greek default was becoming inevitable.

Wednesday evening’s call may go some way to stabilising the markets short-term, however, doubt remains as to the long-term viability of Greece within the eurozone as its economic growth struggles to match its debt obligations.

On Wednesday morning, Nick Clegg warned that Britain faced a "stark economic reality" amid the turmoil in Europe.

In Italy, Silvio Berlusconi has pushed through a second package of contentious austerity cuts in the hope of calming the bond markets.