* EU officials warn ministers of systemic crisis risk
* Moody's cuts Socgen, Credit Agricole one notch
* Barroso talk of euro bond proposals lift markets
* Geithner urges EU to do more to solve crisis
* German, French leaders tell Greece to stick to plan
(Adds statement on Franco-German-Greek talks)
By John O'Donnell and Lionel Laurent
WROCLAW,Poland/PARIS, Sept 14 European finance
ministers have been warned confidentially of the danger of a
renewed credit crunch as a "systemic" crisis in euro zone
sovereign debt spills over to banks, according to documents
obtained by Reuters on Wednesday.
In a report prepared for ministers meeting in Poland on
Friday and Saturday, senior EU officials said the 17-nation
currency area faces a "risk of a vicious circle between
sovereign debt, bank funding and negative growth".
"While tensions in sovereign debt markets have intensified
and bank funding risks have increased over the summer, contagion
has spread across markets and countries and the crisis has
become systemic," the influential Economic and Financial
"A further reinforcement of bank resources is advisable,"
ministers were told in language that echoed an International
Monetary Fund call for urgent action to recapitalise European
The report highlighted European policymakers' challenge to
restore confidence as the leaders of Germany, France and Greece
held a crucial conference call on efforts to avert a Greek
default that could cause a global financial shock.
Moody's Investors Service downgraded two of France's top
banks, Societe Generale and Credit Agricole ,
saying its concerns about their funding and liquidity profiles
had increased in the light of worsening refinancing conditions.
The ratings agency left France's largest bank, BNP Paribas
, on review, saying its profitability and capital base
gave it an adequate cushion to support its Greek, Portuguese and
The euro and European stocks were earlier boosted by
an announcement by the head of the European Commission that the
EU executive would soon present options for issuing a common
euro zone bond, despite fierce resistance in Germany.
Many investors see joint debt issuance as the best way out
since it would reassure markets that Europe's strongest
economies were taking responsibility for weaker states.
But there is strong political opposition in northern Europe
to underwriting the debts of what are seen as profligate
southern states, making euro bonds a distant prospect.
European Commission President Jose Manuel Barroso told the
European Parliament that closer union, particularly in the euro
area, was the only way to reverse the negative cycle in
"Today I want to confirm that the Commission will soon
present options for the introduction of eurobonds. Some of these
could be implemented within the terms of the current treaty, and
others would require treaty change," he said.
But he warned that such bonds were no silver bullet to end
the crisis, and could only be part of a comprehensive plan.
China added its voice to U.S. concerns over Europe's
apparent inability to stop debt contagion spreading, while
Indian and Brazilian officials said major emerging economies
were discussing increasing their euro sovereign holdings.
U.S. Treasury Secretary Tim Geithner urged European leaders
to act more forcefully to solve the escalating crisis, saying
they have the economic and financial capacity to do so.
With senior EU and IMF inspectors due in Athens on Monday to
check Greece's faltering compliance with its bailout plan,
Chancellor Angela Merkel and President Nicolas Sarkozy urged
Prime Minister George Papandreou to implement austerity measures
to meet fiscal targets, a French statement said.
"Despite recent rumours, all parties stressed Greece will
remain in the euro zone," Greek government spokesman Ilias
Mossialos said after the 25-minute telephone call.
A Greek official said after the call that Athens now
expected the EU/IMF "troika" to report that Greece was on track
to meet its 2011-12 targets after the latest additional
austerity measures announced last weekend.
EU Economic Affairs Commissioner Olli Rehn said issuing
common euro zone bonds would require much more intrusive
surveillance of member states' fiscal and economic policies,
which would have to be fully debated in each country.
A German Finance Ministry spokesman reaffirmed Berlin's
opposition to the idea but said it awaited the proposals.
STOP CRISIS SPREADING
China and the United States both voiced concern that euro
zone governments may be losing control of the debt crisis.
Chinese Premier Wen Jiabao said Beijing was willing to help
its biggest trading partner, but added that Europe must stop the
crisis -- which now threatens Italy -- from growing.
"What we have to take note of now is to prevent the
sovereign debt crises from spreading and expanding further," Wen
said on Wednesday in an apparent response to pleas to buy more
euro zone government bonds.
Chinese state media said the EU should recognise Beijing's
help with the debt crisis by giving China market economy status,
which would give better protection against European anti-dumping
penalties -- a major irritant.
A senior Indian official said finance ministers of Brazil,
Russia, India, China and South Africa would discuss a Brazilian
proposal to increase their holdings of euro zone bonds when they
meet in Washington on Sept. 22.
But Greece's deputy finance minister injected a note of
scepticism, saying those countries had shown little or no
interest in buying short-term Greek debt despite invitations to
Credit markets are factoring in a 90 percent chance Greece
will default on its debts and they demanded the highest risk
premium on Italian five-year bonds at auction on Tuesday since
the country joined the euro.
Italian Prime Minister Silvio Berlusconi's government won a
parliamentary confidence vote on a 54-billion-euro austerity
package, which lawmakers were to finalise later in the day. The
moves have done little so far to stem doubts about whether the
euro area's third-biggest economy can manage its debts.
Greece, Ireland and Portugal have all received EU/IMF rescue
packages, but many see Italy as too big to bail out.
BNP Paribas announced a plan to sell 70 billion euros in
assets to help ease investor fears about leverage and funding
that hit its two main rivals.
Bank of France Governor Christian Noyer said the Moody's
action on French banks was relatively good news, noting it put
them on a par with other major European lenders regarded as
healthy such as HSBC, Barclays and Deutsche Bank.
"It's a very small downgrade and 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," Noyer said.
Some analysts and industrialists say a combination of a
Greek default and a financial meltdown in Italy could engender a
banking crisis akin to the 2007-8 global credit crunch and risk
tearing the euro zone apart.
Greece has said it will run out of cash within weeks unless
it gets the next 8 billion euro aid tranche in October to pay
wages and pensions.
In a measure of Washington's concern, Geithner will attend
the meeting of EU finance ministers in Poland on Friday -- his
second trip to Europe in a week.
Geithner tried to shore up confidence in Europe's ability to
solve the crisis, telling CNBC television the strongest euro
zone states have the financial capacity to hold the currency
"There is no chance that the major countries of Europe will
let their institutions be at risk in the eyes of the market," he
said, adding the United States had an interest in seeing the
crisis resolved because it was