The leaders of Greece, France and Germany ended a teleconference call Wednesday saying Greece remains an integral part of the eurozone.

The discussions among German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou were closely watched by financial markets for clues as to whether Greece will default and how soon.

The statement released after the talks also said that additional austerity measures Athens announced recently will ensure the country achieves its fiscal targets.

The announcement by the three leaders appeared to suggest Greece would not fail to meet its debt obligations any time soon.

It came the same day a leading rating agency downgraded two large French banks and Greek borrowing costs soared Wednesday ahead of a closely watched teleconference among the Greek prime minister and the leaders of his two biggest creditor countries.

Moody's downgraded the credit ratings of Société Générale and Credit Agricole on concerns about their exposure to Greek’s massive debt burden.

Shares of Société Générale closed down 2.88 per cent but Credit Agricole gained 1.22 higher on the Paris exchange. Some sort of move by Moody's had been widely expected this week since the agency had put the two banks and rival BNP Paribas on review for downgrade in mid-June.

European markets finished higher. The CAC-40 in France gained one per cent, Germany's DAX was 3.4 per cent higher and Britain's FTSE 100 index rose 1.9 per cent.

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Moody's downgraded two French banks Wednesday, including Societe Generale. (Charles Platiau/Reuters)

While cutting its rating on Société Générale's debt and deposit rating by one notch to Aa3 and Credit Agricole's by the same amount to Aa1, Moody's warned that both could have their ratings downgraded a further notch as it assesses "the implications of the persistent fragility in the bank financing markets, given the banks' continued reliance on wholesale funding."

Though it maintained its Aa2 rating for BNP Paribas because its profits and capital base "provide an adequate cushion to support its Greek, Portuguese and Irish exposure," Moody's said the bank could also suffer a one-notch downgrade after the assessment.

Fears in recent days that Greece was heading rapidly toward a chaotic default have sent interest rates on 10-year Greek government bonds to a record high of 25.3 per cent, more than 23 points higher than the German equivalent.

A spread that wide suggests investors have become convinced Greece will default.

The finance ministers from the wider 17-nation eurozone will meet to discuss the debt crisis on Friday in Poland.

They will be joined by U.S. Treasury Secretary Timothy Geithner, who insisted Wednesday that European leaders are ready to do more to support the euro from the debt crisis that is crippling Greece and shaking global markets.

Eurozone developments

  • European Commission President Jose Manuel Barroso said it will introduce options soon for the introduction of euro areas bonds, but warned that the scheme would not end to the crisis. Germany has opposed to the plan, aimed at spreading the default risk among stronger European economies.
  • Chinese premier Wen Jiabao said his government remains committed to investing in Europe.
  • The European Central Bank said two banks it didn’t identify borrowed American dollars from it. It was  the second time in a month the ECB had lent to banks and another sign that financial institutions in the eurozone are finding it difficult to raise funding at affordable rates.

Geithner sought to convince markets that European governments understood the severity of the crisis and that more would need to be done.

He said European governments have to make it clear they "stand behind" the financial system so that it can fund and finance the economic recovery.

He said Europe's leaders, including Merkel, know they've "been behind the curve" and have the financial capacity "to do what it takes to hold this thing together."

As treasury chief and previously in his role as head of the New York Federal Reserve, Geithner has been central in the U.S. response to the financial crisis that flared up after the collapse of Lehman Brothers investment bank in 2008.

Geithner dismissed suggestions Europe was about to have its own Lehman moment.

"Europe has a tradition of much more indulgence, support for their institutions.…there is no chance that the major countries of Europe will let their institutions be at risk," Geithner said.

Merkel sought to calm fears this week and distanced herself from comments by her vice-chancellor and others who suggested a Greek bankruptcy was possible.

Greece relies on funds from last year's €110 billion ($152 billion) international bailout to continue servicing its debt and pay salaries and pensions.

But the lifeline could be cut if the country continues to miss strict fiscal and reform targets set as a condition of receiving the rescue loans.

The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries, potentially causing defaults in Portugal, Ireland, Spain or Italy.

It would also have a knock-on effect on banks, many of which are large holders of Greek government bonds.

With files from The Associated Press