Europe's leaders are faced with a stark deadline of 10 days to save the euro or face the disintegration of the European Union itself.

The warning from Olli Rehn, EU economic and monetary affairs commissioner, came after central banks intervened to prevent a complete freezing-over of the west's financial sector because of the politicians' continued failure to resolve the sovereign debt crisis.

EU finance ministers were told bluntly that, with eurozone unemployment at 16.3m or 10.3% – the highest level since the single currency was introduced – an unchecked debt and banking crisis would push Europe into a deep slump and drag the rest of the world with it.

Herman Van Rompuy, the European Council president, charged with preparing yet another make-or-break EU summit next week, said: "The trouble has become systemic. We are witnessing a fully blown confidence crisis."

The eurozone's three most prominent leaders – Nicolas Sarkozy, Angela Merkel and Mario Monti – are due to set out over the next five days how they envisage Europe's political class regaining supremacy over volatile but dominant financial markets – and restoring confidence among panicky investors.

On Thursday night the French president will set out his case for a tight fiscal union in a speech in Toulon and the German chancellor will follow suit a day later with her basic plans for a "stability union".

On Monday Monti, Italy's new technocrat premier, will spell out €25bn of budget savings, including a freeze on index-linked rises in pensions and cuts in deputies' allowances, next year.

After day-long talks among the EU's 27 finance ministers, Jacek Rostowski, Polish finance minister and current chairman of Ecofin, the economic and finance ministers' group, said the 8-9 December summit would have to be rapidly followed by "extremely forceful" action to stabilise markets.

Anders Borg, the Swedish finance minister, said much depended on Rome. "I think the market will not provide for honeymoons. They need to bring out all the skeletons so we can see a step forward when it comes to credibility in their debt market."

Before the summit the European Central Bank (ECB) is widely expected to deliver a further cut in interest rates to 1% and/or more "non-standard" measures to extend loans to banks to last up to three years. "The rise in unemployment confirms that the financial crisis is reaching the real economy," said Jacques Cailloux, chief European economist at Royal Bank of Scotland.

The Organisation for Economic Co-operation and Development on Monday slashed its eurozone growth forecast from 2% to 0.2% next year; other analysts say the area is already in recession.

The ECB – and the International Monetary Fund (IMF) – are central to the deliberations of EU leaders, including finance ministers. The aim is to reach a consensus by next week that the lending resources of the IMF will be extended so it can help boost the financial firewall against contagion to Italy and Spain of the main bailout fund, the EFSF.

It is by no means clear how this will be done and, critically, what role the ECB should play in this process – but yesterday Wolfgang Schäuble, the German finance minister, lifted a Berlin veto on an extended IMF role – provided the Bundesbank agrees. He said: "We are prepared to increase the resources of the IMF through bilateral loans. If the IMF wants to widen its freedom to take action by increasing the special drawing rights [SDRs] then we are prepared to talk about that."

That would avoid direct ECB intervention but other finance ministers such as Belgium's Didier Reynders are openly talking about a strong link between IMF and ECB action to tackle the crisis.

Elena Salgado, the outgoing Spanish economy minister, said: "Given the IMF's role to date in Europe, it wouldn't be unreasonable to involve it more."

Sarkozy and Merkel are both expected to insist that this can only happen with strict agreement to enforce budgetary discipline – enshrined in national constitutions – and impose sanctions on recalcitrant sinners. Merkel wants six months at most in which to agree limited treaty changes.

Rehn took time out from the talks to tell MEPs: "The EMU [economic and monetary union] will either have to be completed through much deeper integration or we will have to accept a gradual disintegration of over half a century of European integration."

Growing alarm that the European debt crisis is dragging down prospects for the world economy was underlined as the Chinese Central Bank eased lending requirements, in the clearest signal that policy makers have switched course from curbing inflation to shoring up growth.

The surprise announcement of a cut in the reserve ratio requirement – the amount that banks must hold relative to the amount they lend – came shortly before other central banks around the world took co-ordinated global action to avert a fresh credit crunch.

In China businesses are already complaining they have been squeezed by declining exports and a shortage of credit. The economy is now growing at its weakest rate since 2009. Analysts had anticipated the decision, but did not expect it to come so soon. The 50-basis-point cut, from a record high of 21.5% to 21%, is the first after almost three years of increases, although China used other measures to stimulate credit when the global economic crisis hit in 2008. It will come into force on 5 December.

"The public nature of this move … is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation," wrote Stephen Green, Standard Chartered's China macroeconomist, in a note. "This is a big move."

He added that the decision probably signalled that figures to be released on Thursday would show manufacturing was contracting. The purchasing managers' index (PMI) fell unexpectedly last month from 51.2 to 50.4, 50 being the threshold that indicates whether the sector is likely to be growing or shrinking compared with the previous month.

Growth slowed to 9.1% in the third quarter, from 9.7% in the first quarter; the lowest rate since the second quarter of 2009. Inflation, previously the core concern for Beijing, has fallen back from a three-year high of 6.5% in July to 5.5% last month. Analysts suggested that Europe's woes had accelerated the cut. "Beijing has been more than a little surprised by the speed with which things in Europe have been deteriorating," said Michael Pettis, a professor at Peking University's Guanghua school of management.

The growth rate in India has also slowed sharply, according to new data released yesterday. The rate of expansion dipped below 7% in the past three months – a level last seen in 2009 when India felt the impact of the global financial crisis. Asia's third-largest economy had been targeting a growth rate of more than 10%.