Following a conference call with the Greek Prime Minister George Papandreou, Paris and Berlin put out a joint statement outlining their determination to keep Greece in the euro zone.
"Putting into place commitments of the (bailout) program is essential for the Greek economy to return to a path of lasting and balanced growth,” the two leaders said in a statement.
That news helped push Wall Street higher and boosted stocks in Asia overnight as the euro rebounded on hopes that Greece would not be allowed to default and would receive more money from the IMF and EU.
“Lessons have, hopefully, been learned from the Lehman collapse and at the end of the day everyone will work together to prevent the nasty consequences that everyone knows," Philippe Gijsels, the head of research at BNP Paribas Fortis Capital Markets told CNBC.com after the joint statement from Merkel and Sarkozy.
"This being said, no one can predict how long this will go on before the 'solidarity mechanism' kicks in and unpopular measures can be sold to the voters. However, after today’s comments one can certainly be hopeful," Gijsels added.
His point is that the main risk to the bears who have pushed the market lower in recent weeks is the politicians getting their act together and coming up with a plan to supports risky assets.
That is exactly what US Treasury Secretary Tim Geithner is demanding of Europe before he flies to Poland to meet euro zone finance ministers on Friday. The US Treasury Secretary told CNBC on Wednesday that EU leaders need to get ahead of the crisis.
"They recognize that they have been behind the curve. They recognize that it will take more force behind their commitments," Geithner told CNBC. "There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market. There is not a chance.”
The CFO of the European Financial Stability Fund Christophe Frankel echoed Geithner’s sentiment in an interview with Dow Jones on Thursday, saying that Greece will not default and that the EFSF does not need more funds to ensure such an outcome does not occur.
Billionaire investor George Soros warned that Europe risks triggering another Great Depression unless euro zone leaders take radical steps to end the debt crisis, including creating a common Treasury.
The scale of the problem facing the euro will be made clear to EU finance ministers and Tim Geithner on Friday in a document warning that Europe faces another credit crunch. According to Reuters who have obtained a copy of a report put together by EU officials, finance ministers will be warned that the risks are very high.
"While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic,” said the document seen by Reuters.
"A further reinforcement of bank resources is advisable.”
Overnight the Italian lower parliament approved Silvio Berlusconi’s 54 billion euros ($74 billion) austerity package while Spain will aim to raise 3-4 billion euros via the sale of 5-year bonds later this morning.
CNBC’s ECB Correspondent Silvia Wadhwa is in Poland and will bring you all the latest ahead of that meeting of finance ministers.
Geoff Cutmore is reporting from the summer World Economic Forum meeting in Dalian China and will be joined by the boss of UK insurer Prudential and the IMF’s Zhu Min on Squawk Box.