EU leaders urged to act in unison to solve debt crisis as markets panic

Political leaders from across the eurozone were urged last night to take a grip on Europe's sovereign debt crisis before the continent plunged back into recession. World stock markets suffered another roller-coaster day, with no single leader or central bank taking charge of the response to the turmoil.

Conflicting signals from political leaders and financial authorities prompted huge swings among traders. Another rout on the markets was prevented only by better-than-expected unemployment figures from the US.

Meanwhile, politicians and businesses lamented the failure of European leaders to act in concert. Romano Prodi, the former president of the European Commission and former Italian prime minister, said bluntly: "We don't know who is in charge." The former Europe minister Denis MacShane said the escalating eurozone crisis "exposes a Europe whose institutions no longer work".

The Foreign Secretary, William Hague urged Spanish and Italian politicians to act quickly to set out their own plans for public sector cuts. He is the most senior member of the Government left in Britain because David Cameron, George Osborne and Nick Clegg are on family holidays in Tuscany, the US and France respectively.

The chairman of Goldman Sachs Asset Management, Jim O'Neill, said that ending the crisis "will not be possible from the beach".

In the UK, the FTSE 100 fell another 2.7 per cent – wiping £38bn off the value of Britain's companies – taking the week's losses to almost 10 per cent.

At the end of the worst week for stock markets around the world since the crash of 2008, heads of Government from across Europe attempted to respond to calls for them to show more leadership. Many interrupted their holidays for a frantic round of telephone diplomacy.

Mr Osborne, on his family holiday in America, spoke last night spoke to the EU's Economic Affairs Commissioner, Olli Rehn, and to the French foreign minister and urged them to "get on" and implement the original debt deal to restore market confidence.

Although Britain is not directly affected by the crisis, 50 per cent of the country's trade is with eurozone countries and British banks have significant exposure to Irish debt.

The former chancellor Alistair Darling warned of a real risk that a so-called double-dip recession for Britain and the rest of Europe is "on the cards".