The head of the European Commission has sounded the alarm over the eurozone's debt crisis, saying it's spreading beyond the region's periphery.
The warning from Jose Manuel Barroso came in a letter to European Union leaders, where he urged "a rapid reassessment of all elements" related to the eurozone's bailout fund.
It comes amid widespread fears the debt crisis is drawing in big debt-laden economies like Italy and Spain, following bailouts for peripheral eurozone states Greece, Ireland, and Portugal.
"It is clear that we are no longer managing a crisis just in the euro-area periphery," Barroso says.
"Euro-area financial stability must be safeguarded, with all EU institutions playing their part with the full backing of euro-area member states."
Barroso's appeal comes just two weeks after EU leaders reached a deal on the currency union's crisis strategy.
The July 21 deal included a second massive bailout for Greece and far-reaching new powers for their rescue fund, the European Financial Stability Facility.
Barroso urged "a rapid reassessment of all elements related to" the fund so it can effectively use its new powers. A spokeswoman for Barroso confirmed that those elements included the fund's size.
That currently stands at 440 billion euros ($622 billion), but after the latest bailouts it is unlikely to have enough to help Italy and Spain repay their debts.
ECB Revives SMP
Meanwhile, the European Central Bank (ECB) has acted to calm markets that have been shaken over the debt crisis.
ECB President Jean-Claude Trichet signaled the bank was continuing to buy government bonds to help countries with high borrowing costs -- a program that had been inactive since March.
Speaking to journalists in Frankfurt after today's meeting of the ECB's Governing Council, Trichet suggested that investors would soon be able to see that the so-called Securities Market Program (SMP) is not a dormant program.
Trichet said the SMP was "fully transparent. So you will see what we do, and we publish what we do. I never said that the SMP had been interrupted, as you know. And again, you will see what we do."
Higher interest rates within the eurozone have put a spotlight on the European Central Bank, with investors watching today's ECB meeting for any sign that it will start buying bonds issued by countries like Italy and Spain in order to ease the pressure on them.
Barroso acknowledged the problem on August 3, saying that the pressure on Italy and Spain, although "clearly unwarranted," reflects concern "about the systemic capacity of the euro area to respond to the evolving crisis."
In July, eurozone ministers at a summit agreed on a second Greek debt rescue plan in the hope of preventing the debt contagion in Athens from dragging down Italy and Spain.
Nervousness Grows In Spain, Italy
But that plan appears to have failed to control the problem, with borrowing costs for those two countries recently rising to record highs for the euro area.
Madrid was forced to offer the record-high interest rate because investors are increasingly concerned about the risk of a possible debt default by the Spanish government.
Spain's prime minister interrupted his holiday for a crisis meeting on the market turmoil after the country's debt risk premium jumped to the record high on August 3.
Another country facing difficulties is Italy. Italian Prime Minister Silvio Berlusconi on August 3 admitted that Italy needed "an immediate plan of action" that responds to the higher interests rates now being demanded by bond investors on the open market.
In one of the latest auctions for Italian 10-year government bonds, interest rates rose to 6 percent -- a level that is widely seen as unsustainable.
Berlusconi said the markets had "incorrectly" judged Italy's debt crisis and its growth potential. But he acknowledged that Italy needed new measures to reform its labor markets and increase competition.
Last month, the Italian parliament passed a 48 billion-euro ($68 billion) austerity plan. But the program has been widely criticized for delaying the bulk of the measures until after elections due in 2013, and for doing little to revive Italy's sluggish economy.
compiled from agency reports