Two French banks have been downgraded by credit rating agency Moody's because of their exposure to Greek debt, amid fears the debt crisis gripping the eurozone is reaching a "climax".
Credit Agricole SA and Societe Generale were both cut one notch from Aa1 to Aa2 and Aa2 to Aa3 respectively.
The agency said it would also review BNP Paribas for a possible downgrade but for the moment believed the bank's profitability and capital base could support its exposure to Greek, Portuguese and Irish debt.
Christian Noyer, Governor of the Bank of France, was not put off by the downgrade, saying: "Moody's had a higher rating than the other agencies so it's just put them on the same level or slightly better than the others".
However China and the US have urged eurozone leaders to stop debt contagion in the region.
The news came as Nick Clegg warned Britain faced a "stark reality" in light of recent economic developments, and that stability in Europe mattered "massively" to the UK.
"The single-most important question, the urgent question is what role can we play in helping the eurozone avoid further turmoil, creating the stability needed for prosperity and jobs – in the eurozone and in the UK too," he said in a speech on Wednesday morning.
British top shares recovered on Wednesday morning after European Commission President Jose Manuel Barroso said the EU's executive arm could present options for euro bonds, a controversial idea for helping to stabilise the region.
Leaders in the eurozone are coming under increasing pressure to stop debt in the region from spreading.
Earlier, US president Barack Obama said a "more effective co-ordinated fiscal policy" was needed while Chinese Premier Wen Jiabao said Europe must stop the crisis from growing, Reuters reported.
Speaking at the World Economic Forum on Wednesday Wen said: "Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”
Analysts at JP Morgan said there was "a growing sense that the crisis is reaching a climax" on Tuesday, saying that the "endgame on EMU [European Monetary Union] is approaching fast", the Daily Telegraph reported.
Bank shares fell on the news, with Société Générale losing 4.2 per cent early Wednesday morning and Crédit Agricole down by 3.2 per cent. BNP Paribas has been the hardest hit so far, with shares falling 5.1 per cent.
The development comes as French president Nicolas Sarkozy and German Chancellor Angela Merkel prepare to hold talks with the Greek prime minister over the crisis.
There are fears of an imminent debt default in Athens after Greece said it would run out of cash within weeks and needs another loan to pay wages and pensions.
German politicians have suggested that Greece may have to leave the eurozone, but analysts have warned against the move.
But a Greek newspaper reported that George Papandreou, the Greek prime minister, would ask Merkel and Sarkozy to increase pressure on their banks to participate in a debt swap.