In a radio interview today, Merkel said Europe was doing everything it could to prevent a Greek default and that an "uncontrolled insolvency" would further unsettle markets.
While speculation surged that Merkel and French President Nicolas Sarkozy were poised to announce some new measures to contain the crisis, the rumours proved false.
The level of concern about the future of the euro zone is high. The premium for options granting the right to sell the euro over those that allow for purchases reached the most yesterday since at least October 2003, when Bloomberg began tracking the data.
"I think there is a possibility, if the wrong steps are taken, that the system goes off the rails," Sergio Marchionne, the CEO of Italian carmaker Fiat, told reporters in Frankfurt when asked if the euro's survival was at risk, according to Reuters.
Meanwhile, US President Barack Obama encouraged action, as he told Spanish journalists in a group interview published on Tuesday that euro zone leaders needed to show markets they were taking responsibility for the debt crisis, Reuters reported. Weakness in the global economy would persist as long as it was not resolved, he said.
Despite the increasing alarm about Europe, equity markets advanced as investors considered some stocks decent value after recent losses.
In late afternoon trading, the Dow Jones industrial average rose 0.68 per cent, the Standard & Poor's 500 Index gained 1.15 per cent and the Nasdaq Composite Index climbed 1.58 per cent. In Europe, the Stoxx 600 index ended the day 0.9 per cent stronger.
Investors may have priced in a "worst-case scenario," including a Greek debt default, Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois told Reuters.
They're now "evaluating whether or not the recent decline has created some opportunity," said Evans, adding he saw technology as a good bet.
