Fears Euro Debt Crisis May Spread To France

Fears of eurozone debt contagion have hit France - as Italy and Greece moved to change their governments in a bid to stabilise their battered economies.

Leading economists have warned the £261bn worth of Italian debt that French banks hold leaves them dangerously exposed to the spreading financial woes.

That figure represents more than half of all European bank lending to Italy.

British banks, on the other hand, could also be affected by a French crisis due to the amount of French debt the UK holds.

The French fears come after ratings agency Standard & Poor's accidentally sent out a message saying it was downgrading the country's prized "AAA" credit rating.

The error stood for an hour and a half before it was retracted by the agency - but fears spread across financial markets that it could be a sign of things to come.

Meanwhile, the Italian senate voted through austerity measures in a bid to contain the eurozone debt crisis, paving the way for the end of the Berlusconi era.

The measures include an increase in the retirement age to 67 and widespread job cuts.

Having received approval in the upper house, the bill is expected to be passed through parliament when it is voted on in the lower house on Saturday.

PM Silvio Berlusconi has indicated he would stand down as soon as the reforms are fully approved, which could come as early as this weekend.

Sky's Nick Pisa, in Rome, says respected economist Mario Monti, 68, is being lined up as the potential leader of a broader all-party technical government which is expected to be up and running by Monday at the latest after Mr Berlusconi resigns.

"Mr Monti was greeted with a warm round of applause when he took his seat in the Senate as the debate got under way," he said.

Italy is the third largest economy in the eurozone but it has a public debt of 1.9trn euros.

Earlier in the week its borrowing costs reached record highs prompting concerns that it could default on the debt.

European stock markets received a boost as Italian policymakers approved the financial reforms, and the country's borrowing costs continued to fall.

Greece has sworn in its new prime minister Lucas Papademos, as well as his cabinet.

Finance minister Evangelos Venizelos is to remain in his current post.

US President Barack Obama has urged European leaders to take dramatic action to stem the crisis, echoing calls by his treasury secretary Timothy Geithner.

Mr Geithner said Europe must act quickly to quell its debt crisis and said economies on the Pacific Rim should boost demand to strengthen their defences against a fallout.