CHANCELLOR George Osborne has warned Britain cannot be immune from financial instability on its doorstep.

Eurozone central bankers are hoping emergency action to shore up Italy and Spain will fend off further financial turmoil in the markets today.

The FTSE 100 Index opened down 1.2% today amid concerns of instability in Europe.

At the end of a weekend of frantic activity designed to prevent a repeat of last week’s market meltdown, European Central Bank president Jean-Claude Trichet announced plans to activate a bond-purchase programme to restore stability.

It is understood that the scheme - agreed in a conference call involving central bankers from all 17 euro countries last night - will see the ECB buying up Italian and Spanish bonds in the hope of driving down the interest yields which threaten their shaky budgets.

Mr Osborne today urged all eurozone countries and institutions to deliver on their promises to restore financial stability, but warned that far wider “decisive, co-ordinated action” will be needed for a permanent solution.

Writing in the Daily Telegraph, Mr Osborne said it was time for eurozone countries to accept the “remorseless logic of monetary union that leads from a single currency to greater fiscal integration” - possibly including the creation of eurobonds backed by the whole 17-nation bloc rather than individual states.

Britain cannot be “immune” from the instability on its doorstep, but market confidence in the Government’s deficit reduction strategy had made it “a safe haven in the storm”, he said.

Events of the past month were a “resounding vindication” of the coalition’s decision to pay down the deficit quickly and a demonstration of the “reckless folly” of Labour calls to slow the pace of consolidation.

Mr Osborne wrote: “Individual countries need to demonstrate beyond doubt that they have credible plans to deal with excessive deficits, improve competitiveness and strengthen banking systems. In this respect, Britain’s experience contains an invaluable lesson for all developed economies: it is possible to earn credibility and get ahead of the markets through decisive action.

“But by its nature, a global crisis cannot be solved by countries acting alone. Eurozone countries must now act swiftly to deliver on what they have promised. Euro area institutions need to do whatever is necessary to ensure financial stability in the euro area, as I am sure they will.”

Finance ministers of the G7 group held an emergency conference call overnight in a last-minute discussion on how to calm market nerves.

In a joint statement, they pledged increased co-operation to attack economic problems and said they were committed to taking all necessary measures to support financial stability and growth.

World markets slumped last week as traders panicked that the global economy would slide back into recession and the US and the eurozone would be crippled by their debts.

The London market fell by nearly 10% in the week as fearful traders headed for the exit, slashing �150 billion from the UK’s top 100 companies. Markets across the world suffered similar pain.

There are fears that the rout will continue this week as markets lack confidence that leaders on both sides of the Atlantic can get to grips with the crisis.