The meeting came amid pressure on Berlin to push for market intervention to bring down the spiralling borrowing costs of Spain and Italy.

Geithner and Schäuble “expressed confidence in Euro area member states’ efforts to reform and move towards greater integration,” a joint statement said after the pair met on the island of Sylt, where Schäuble is on holiday.

They emphasised “the need for ongoing international cooperation and coordination to achieve sustainable public finances, reduce global macroeconomic imbalances and restore growth,” said the statement.

The top economic policy makers pointed to Ireland’s recent successful bond auction as evidence that even the sharpest debt crises can be overcome.

The pair also praised Spain and Italy’s “considerable efforts” to “pursue far-reaching fiscal and structural reforms.”

“Secretary Geithner and Minister Schäuble also took note of statements from European leaders last week to take whatever steps are necessary to safeguard financial stability in the Euro area.”

Afterwards, Geithner was to meet ECB chief Mario Draghi, who touched off speculation the bank would resume its controversial bond-buying programme by pledging last week to do “whatever it takes” to preserve the euro.

A spokeswoman for Schäuble said it was “safe to assume the situation in the eurozone will be one of the topics of discussion” but that it was an “informal discussion” instigated by Washington.

European markets opened higher on Monday, following gains in Asia, as traders eyed a double intervention to help Italy and Spain – from the ECB and the European rescue fund, the European Financial Stability Facility (EFSF).

These hopes were bolstered by a media offensive on the part of Eurogroup chief Jean-Claude Juncker who told major newspapers in Germany and France that Europe was preparing to take action to quell the more than two year crisis.

“We have come to a crucial point,” he told Le Figaro.

“We will act together with the ECB,” he vowed, adding that the “pace and scope” still had to be worked out.

“There is no more time to lose,” he said, adding that a review of the markets would be decided in the coming days.

Juncker’s comments capped a flurry of verbal intervention from Draghi and top leaders in a bid to shore up confidence that Europe was not about to let the eurozone fall apart.

German Chancellor Angela Merkel, seen as the linchpin of any possible crisis response, reiterated her determination to keep the 17-nation bloc together following a weekend phone call with Italian Prime Minister Mario Monti.

The two leaders “agreed that Germany and Italy will do everything to protect the eurozone,” they said in a joint statement Sunday.

That followed a similar statement on Friday by Merkel and French President Francois Hollande, throwing their weight behind the euro project after a week in which Spain looked increasingly likely to request a full bailout.

The flurry of activity was set to continue as Monti announced he would meet his Spanish counterpart Mariano Rajoy in Madrid on Thursday.

And adding to the pressure on leaders to take action, a former heavyweight on the European political stage weighed in with a dire warning not to let the eurozone fall apart.

Former British Prime Minister Tony Blair wrote an opinion piece in Bild newspaper, saying: “To give up the euro now would be a catastrophe economically, not just politically.”

The verbal broadsides appeared to be working as Italy held a successful action of five- and 10-year debt at lower rates, building on last week’s gains.

“In the end, the ECB will live up to its duty to prevent an escalating market panic that could shatter the eurozone and the ECB itself to pieces,” predicted Holger Schmieding from Berenberg Bank.

“All eyes are now on the ECB meeting this Thursday,” he added, as the governing council of the bank prepared for a monthly meeting in Frankfurt.

Analyst Thu Lan Nguyen from Commerzbank however, sounded a note of caution, saying in a research note: “The markets seem hopeful … even though it is all but clear how these good intentions are going to be implemented.”

Data from Spain dampened the optimism, reminding policymakers that the crisis continues to have a devastating effect on the real economy.

The Spanish recession deepened in the second quarter of the year, with the economy contracting 0.4 percent after shrinking 0.3 percent in the first three months of 2012, statistics institute INE said.

And in Greece, the most badly hit of the eurozone countries, political talks were continuing to thrash out spending cuts that would allow the country to receive aid to keep the economy afloat and enable it to stay in the euro.

Following a first meeting last week, the leaders of Greece’s conservative-led, three-party coalition government were due to meet again on Monday to agree on €11.6 billion of spending cuts.

AFP/hc