Current size of a bailout fund may not be enough to fund Italy and Spain

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Mr Osborne the Chancellor issued a warning to ministers insisting that decisive action was needed to address the crisis in the Eurozone and prevent market uncertainty doing real damage to the world economy.

Mr Osborne earlier this week met with other finance ministers in Brussels to discuss a second Greek aid package, but the Greek talks were overshadowed by Italy where the government is struggling to agree on austerity measures.The pot is fixed at about £440 billion so if Spain needs help then the current size of a bailout fund may not be enough.

Germany Exploiting the situation

Euro zone plans for a leaders' summit on a second Greek rescue were thrown into doubt by Germany raising fears markets may exploit a policy vacuum with a new onslaught on the bloc's high debtors.

Berlin stuck to its line that Greece was funded until September so there was no rush to finalise the details of a second package. "There are no concrete plans for a special summit," a German government spokeswoman said.

Others were less sanguine. Italian central bank chief Mario Draghi, soon to take the helm of the European Central Bank, and Ireland's premier both said a definitive plan was needed and quickly -- echoing a strongly-worded attack from Greece's prime minister earlier in the week.

Ratings agency Moody's downgraded Ireland's credit to junk status on Tuesday and said that, like Greece, it would need a second bailout. Minds have been focused even more sharply by a market attack on Italy which, if it required assistance, would overwhelm the euro zone's existing rescue funds.

"Moody's problem is not with Ireland, Ireland's problem is with Europe," Prime Minister Enda Kenny told parliament. "There is no point in having a meeting that won't bring about a conclusion in a comprehensive sense to something that is not going to go away unless it is dealt with."

The European Commission, sharply critical of the role ratings agencies are playing, described Moody's decision as "incomprehensible". The cost of insuring Irish debt against default rose and 10-year bond yields hit 14.19 percent.

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