Cenbanks are ready to pump funds into banks, outgoing European Central Bank president Jean-Claude Trichet said today.
His comments came as French bank shares tumbled on fears of a downgrade by rating agency Moody’s based on their exposure to Greece which is in danger of a “structured” default.
"We stand ready to provide liquidity to banks as required, it is again a sentiment that we all expressed," he said after a meeting with fellow central bankers in Basel, Switzerland.
"In the case of the euro area, we have the capacity as a central bank to provide liquidity on an unlimited basis and at fixed rate.
The ECB has about €1.7-1.8 trillion worth of collateral on its books, while in the balance sheets of the commercial banks, there is another €4-5 trillion' worth, he added.
"All this collateral can be transformed into liquidity... at fixed rates," he said.
There is a growing fear that Gerrmany is losing patience with Athens and its budget deficit.
Numerous commentators from Europe’s biggest economy have raised the spectre of such a default and the euro is also suffering as a result.
Mr Trichet reiterated warnings to Greece to step up its reforms.
"All Europeans, including the executive branch of Germany ... are calling the Greek government to fully deliver on its commitment," Trichet said.
"The international institutions, the Commission in liaison with the ECB are calling upon on the Greek government with great firmness, because it is in the interest of the Greek economy, the people of Greece," he said.
Earlier today, the Greek finance minister said the country has enough money to pay salaries and pensions until next month.
Despite the crisis, central bankers said that Europe is not going back into recession.