Germany and France 'hold talks on eurozone break-up'

Germany and France have begun preliminary talks about a possible break-up of the eurozone, according to reports, amid fresh fears about the future of Italy after the nation's cost of borrowing hit a new record.

Although the disintegration of the single currency nations is still considered highly unlikely, the reports were last night deemed serious enough to prompt European Commission (EC) President Jose Manuel Barroso to issue a stark warning about the dangers of such a move.

A collapse of investor confidence in the eurozone's third-biggest economy sent interest rates in Italy above the critical 7% mark on Wednesday - the highest it has been in the country since the launch of the euro in 1999 and the level that triggered bailouts in Portugal, Greece and Ireland.

The European Central Bank (ECB), which had already been buying up Italian bonds in large amounts, may now be required to step up its purchasing action.

EU officials told more than one news agency that policymakers in Paris, Berlin and Brussels had discussed the possibility of one or more countries leaving the eurozone, with the more stable nations remaining united.

"France and Germany have had intense consultations on this issue over the last months, at all levels," a source in Brussels told Reuters.

EC President Barroso issued a fresh call for the EU to "unite or face irrelevance" in the face of the mounting economic crisis in Italy.

"We are witnessing fundamental changes to the economic and geopolitical order that have convinced me that Europe needs to advance now together or risk fragmentation," he said.

"Europe must either transform itself or it will decline. We are in a defining moment where we either unite or face irrelevance," he said.