Christine Lagarde, the managing director of the International Monetary Fund (IMF), has called on European leaders to pour more money into their bailout funds, the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM).
In a speech to the German Council of Foreign Relations in Berlin, Lagarde asked other world economies to help boost the IMF's firepower in order to help it prevent a lapse back into recession.
“The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it,” Lagarde said.
The IMF has already backed bailouts in Greece, Portugal and Ireland, but with continuing fears over Italy's ability to remain solvent in the face of slow growth and a rising cost of borrowing, the fund has asked its shareholders for an additional $500m, on top of its current estimated lending capacity of around $380bn.
Eurozone members have agreed to pump €150bn into the fund, but other major economies, including the US and China, remain reticent in the absence of a credible plan to ensure the long term future of the single currency.
“I am convinced that we must step up the Fund’s lending capacity,” Lagarde said. "The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of other countries, anywhere in the world, affected by the repercussions of the crisis."
Eurozone finance ministers met on Monday to discuss, among other issues, the long running attempt to restructure Greece's debt.
Markets had expected a deal over the weekend after positive noises had emerged from talks between the Greek government and the Institute for International Finance (IIF), which is representing private sector creditors. However, no agreement emerged.
Greece needs to agree a restructuring and reduction - or "haircut" - on its private sector debt before a second IMF-EU bailout is released. The country has around €14.5bn of bonds maturing before the end of March, and will be unable to service them without official money.
If - as appears likely - a deal cannot be agreed in time for the eurogroup meeting on Monday, the bailout will not be signed off, leaving the possibility of a default before the end of the quarter very much on the table.
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