Herman Van Rompuy, the president of the European Council, has warned the EU is fighting for survival.
As the euro zone debt crisis deepened yesterday, Mr Van Rompuy called for the trading bloc to "work together" to get through the turmoil sparked by fears about Ireland's economy.
"We are in a survival crisis," he said, just hours before European finance ministers gathered in Brussels for a tense summit to discuss Irish debt problems. "We all have to work together to survive with the euro zone, because if we don't survive with the euro zone we will not survive with the European Union."
Mr Van Rompuy's comments came as world stocks fell for the seventh straight session yesterday on persistent worries about euro zone debt. In afternoon trading, the FTSE 100 was down 1.3 per cent, while the German DAX fell 0.7 per cent and the French CAC 40 dropped 1.3 per cent.
"We're waiting for news," a trader based in London said. "I think the market has whipped itself into a frenzy and I'm not convinced we're going to get anything substantial."
World equities measured by the MSCI All Country World Index fell 0.5 per cent, hitting a two-week low, while investors in the US played safe and waited for the outcome of the Brussels meeting. In morning trading, the Dow Jones and the NASDAQ had hardly moved.
"There's a global concern that if Ireland needs aid, it could become a domino effect with other countries," said Cort Gwon, the director of trading strategies and research at FBN Securities in New York.
"Especially at such a sensitive time in the economy, to have a setback in Europe could mean a setback for the rest of the world, too."
Despite concerns over euro zone debt, Credit Suisse said any sell-off in equities provided a buying opportunity in stocks of European manufacturers with a strong export record.
"One silver lining in the previous bouts of euro zone specific volatility earlier this year was the strong performance of euro zone exporters in the context of a weaker euro," Credit Suisse said. "In this respect, we believe that any euro zone indebtedness-related sell-off in broad equity markets should provide a good buying opportunity for euro zone export-related stocks."
While investors waited for news from Brussels, the Irish government was resisting calls to seek a state bailout by contending that only its banks may need help.
Ireland has been under pressure from the European Central Bank (ECB) and some euro zone partners to make a quick decision on applying for aid amid signs that market contagion is spreading to the struggling Portugal and could infect bigger states.
But Dublin has so far remained defiant to bailout calls.
"There is no reason why we should trigger an IMF or an EU-type bailout," said Dick Roche, the Irish European affairs minister.
Even so, EU officials said Ireland was ready to accept a financial package to shore up the country's banking industry.
The two-part funding plan, put together by the EU and IMF, would mean the euro zone member would not have to tap into the bond market for a long time as it tried to cut the budget deficit, said one European official who spoke on condition of anonymity.
Olli Rehn, the EU economic and monetary affairs commissioner, said the European Commission had been working with the Irish government to resolve serious problems in the country's banking sector. "The European Commission, ECB and IMF are working with Irish authorities to resolve the serious problems of the Irish banking sector and I expect the euro group to support that joint effort," Mr Rehn said last night.
"We have a very strong focus on the banking sector. It might feel a small consolation at times like these but I have no doubt Ireland, too, will overcome this crisis."
The Irish debt turmoil comes only seven months after Greece was forced to accept a €110 billion (Dh548.67bn) rescue package from the EU and IMF to stave off bankruptcy. "The important thing is that Ireland makes a decision as soon as possible," Carlos Ocana, the secretary of the Spanish treasury, said yesterday.
* with Reuters and Bloomberg