EU LEADERS are under pressure to intensify the battle against the sovereign debt emergency after a warning from Brussels that the recovery of the European economy will grind to a “virtual standstill” by the end of the year.

The slowdown in growth, which will make it more difficult to surmount the expanding crisis, comes as conditions worsen in financial markets.

As finance ministers and central bank governors gathered last night in Poland for two days of talks, the European Central Bank urged swifter action to tackle the turmoil and the International Monetary Fund said the global crisis was spurring a rise in social tensions.

In a sign of increased global anxiety about the crisis in the euro zone, US treasury secretary Timothy Geithner is making the journey from Washington to attend the talks.

The meeting, in the southwestern city of Wroclaw, comes at the end of a week in which mounting fear of a Greek default spooked markets and led to concern about a new banking crisis.

Soothing words from German chancellor Angela Merkel and French president Nicolas Sarkozy have eased worries about an immediate default risk in Greece.

However, the EU Commission sent a blunt message to euro zone leaders yesterday by saying steps they took in July to escalate their response to the crisis “only temporarily” calmed markets.

“Hopes that the sovereign debt crisis would gradually fade were disappointed,” the commission said. “Financial market conditions deteriorated sharply over the summer on the back of sovereign debt concerns in the euro area and anxiety about the outlook for growth fiscal sustainability in the US.”

The commission insists the slowdown in growth will not lead to a double-dip recession.

However, its forecast of a weaker-than-expected expansion of the European economy suggests the challenge facing leaders is multiplying.

The EU’s executive branch went on to say renewed tensions in the banking sector pose a “downside risk” for the real economy and said current data suggests that banks are hoarding money rather than lending it to each other.

In an effort to damp down new concern about the liquidity position of euro zone banks, the ECB declared co-ordinated action with the US Federal Reserve and other central banks to lend dollars to lenders in the single currency area. The euro rose against the dollar as a result.

In Wroclaw last night, ECB chief Jean-Claude Trichet implored euro zone governments to swiftly execute moves to reinforce their bailout fund.

While leaders resolved in July to give the fund powers to buy sovereign bonds from market investors, parliamentary approval for such measures is awaited in several countries.

“We call all authorities to implement swiftly all decisions and to be constantly ahead of the curve,” Mr Trichet told a conference.

“As the continuous challenges demonstrate clearly, we are not back to ‘business as usual’ as some thought some months ago. We need resolve and fortitude of the public authorities and lucidity on the part of the private sector.”

Minister for Finance Michael Noonan will meet Mr Trichet today or tomorrow for private talks.

Mr Noonan wanted to discuss his attempt not to repay a $1 billion (€720 million) debt owed by Anglo Irish Bank but Mr Trichet has already ruled out any move to impose losses on the bank’s senior unsecured unguaranteed bondholders.

“He intends to take the opportunity at the meeting to explore options with the ECB president on how the cost to taxpayers can be minimised,” said a spokeswoman for the Minister.

The Minister will raise the possibility of extending the Government’s payment of promissory notes used to fund Anglo’s recapitalisation, as he suggested in a recent Oireachtas committee meeting. The Government is scheduled to pay €3 billion per year for 10 years.

In Washington, International Monetary Fund chief Christine Lagarde said advanced economies faced an anaemic and bumpy recovery and she expressed concerns about social tensions “bubbling below the surface” as a result of the turmoil. “I see a number of interweaving strands here – entrenched high unemployment, especially among the younger generation; fiscal austerity that chips away at social protections; perceptions of unfairness in ‘Wall Street’ being given priority over ‘Main Street’; and legacies of growth in many countries that predominantly benefited the top echelons of society.”