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Banks and ratings companies are sounding their loudest warnings yet that the euro area risks unraveling unless its guardians intensify efforts to beat the two-year-old sovereign debt crisis.

Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,” said the single currency will survive for now, even as he bets Greece quits within a year.

“With the exception of Greece leaving, I don’t think the whole thing is going to fall apart anytime soon,” Feldstein said in a Nov. 14 telephone interview. “The Greek situation is impossible.”

German Chancellor Angela Merkel said on Monday that Europe could be living through its toughest hour since World War Two as new leaders in Italy and Greece rushed to form governments and limit the damage from the euro zone debt crisis.

Financial markets on Monday took heart on relief that a key Italian bond auction drew decent demand from investors and hopes that new leaders in Greece and Italy would take decisive action to breathe new life into their sick economies.

The European Union next week unveils its third broadside against credit rating agencies since the financial crisis began, and this time the Big Three face a direct hit where it hurts.

Thursday's mistaken downgrade by Standard & Poor's of France's sovereign debt won't help a sector seen by policymakers as an "oligopoly" that fomented and exacerbated market turmoil globally and more recently in the euro zone.

European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.

Italian borrowing costs reached breaking point on Wednesday after Prime Minister Silvio Berlusconi's promise to resign failed to raise optimism about the country's ability to deliver on long-promised economic reforms.

Italian 10-year bond yields shot above the 7 percent level that is widely deemed unsustainable, reflecting investors' concerns that they may not get their money back, a fear that also showed up in a jump in the cost of insuring against Italian debt default.

BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis.

BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year.

The global economy is showing signs of withstanding a European recession triggered by the debt debacle in Greece.

FX traders are gearing up to test Jun Azumi’s resolve to keep intervening in currency markets to weaken the yen from its postwar high.

While Japan’s Finance Minister directed the central bank on Oct. 31 to sell what analysts estimate was about 8 trillion yen ($102 billion), sending it down as much as 4.7 percent against the dollar, the move failed to increase volatility. Traders avoid currencies with increasing price swings because they boost the odds of sudden losses.

The U.S. jobless rate unexpectedly fell in October while employers added the fewest workers in four months, reinforcing Federal Reserve Chairman Ben S. Bernanke’s prediction of a “frustratingly slow” recovery.

Greece's government was on the brink of collapse on Thursday, casting doubt on plans to hold a referendum on staying in the euro zone, as European leaders contemplated a Greek exit to preserve their single currency.

Prime Minister George Papandreou's shock decision to call a referendum on Greece's bailout drew veiled threats from Germany on Tuesday and hammered markets edgy over the euro zone crisis.