The German Chancellor told her party conference that Europe faced its toughest hour since the Second World War

The German Chancellor told her party conference that Europe faced its "toughest hour since the Second World War" - but that Germany would not support launching 'eurobonds' to solve the crisis.

Instead Ms Merkel said she would push for changes to European treaties to introduce sanctions for financially lax countries and the adoption of a financial transaction tax - with or without Britain.

David Cameron warned that the European Union would be "in peril" unless politicians agreed radical reforms. Speaking at the Lord Mayor's banquet last night, he said markets were "understandably tense" since the eurozone was not "a place to admire and emulate... but a source of alarm and crisis".

Traders sold equities and bonds amid doubts that politicians will act in time to prevent a recession. Eurostat said industrial production in the eurozone fell 2pc between August and September, the biggest monthly fall for two years. The Organisation for Economic Cooperation and Development (OECD) added that the slow-down is likely to continue in all developed economies. France's CAC index fell 1.3pc and Germany's Dax, 1.2pc.

In the bondmarkets, Italy was forced to pay 6.29pc to raise €3bn (£2.6bn) of five-year bonds - a eurozone debt auction record, despite the promise of a new government under Mario Monti. Italy, which still lacks a cabinet, needs to raise a further €46bn in debt before the end of the year.