Amid mounting fears of a global financial market meltdown in the wake of Friday’s downgrade of the United States’ credit rating and deepening euro zone debt crisis, the European Central Bank (ECB) has sought to calm down the financial markets by announcing that it will buy more government bonds of debt-laden member nations.

The ECB announcement came at the end of hectic diplomatic efforts by government leaders and central bank governors of G-20 nations, including India, as well as G-7 nations, to work out a joint strategy to avert a second global financial crisis in three years.

They held a series of telephone conferences as governments and economies around the world watched with great concern how the markets would react to the first downgrade of US’ credit rating by Standard & Poor’s from its top AAA level to AA+ and to the threat of Italy being sucked into the euro zone debt crisis.

A statement issued by the ECB last evening after a video conference of euro zone central bank governors said it would “actively implement” its programme of buying euro zone government bonds.

The statement, which came just hours before trading opened in Tokyo, did not indicate which nations would be involved in the ECB buy-out of debts, but indicated that it would extend its debt buy-out programme to Italy.

In a repeat of the events preceding the euro zone financial bail out Greece and Ireland last year and Portugal early this year, Italy’s borrowing costs rose to a record level of more than six per cent last week as speculators began targeting euro zone’s third largest economy as the next candidate for a bail out.

Spain too has been experiencing a sharp increase in the costs of refinancing its debts.

With its debt buy-back programme, the ECB kept Greece, Ireland and Portugal insolvent until they received multi-billion euro financial rescue packages from the EU and the International Monetary Fund.

The ECB is expected to make an announcement on Monday about its plans to buy Italian government bonds, media reports said.

By taking this step, it will be in a position to bring down the interest rates on Italian bonds to a lower level.

The ECB’s statement on Sunday came shortly after Germany and France urged the euro zone’s central bank to buy sovereign bonds of Italy and other cash-strapped member nations to restore stability in the financial markets, which became turbulent last week over investors’ concern about the state of the US economy in the wake of the debt deal a week ago to raise the country’s debt limit and worsening euro zone debt crisis.

German Chancellor Angela Merkel and French President Nicolas Sarkozy, in a joint communiqué, reaffirmed their determination to implement speedily all decisions taken by the EU leaders at their summit on July 21 in Brussels.

At that meeting, the heads of state and government of the EU had agreed on a second financial rescue package for Greece, to make the group’s financial safety net for cash-strapped nations more flexible and to ease the terms and conditions for its assistance.

The EU leaders had also agreed to involve private creditors in future bail out of euro zone nations.

Ms. Merkel and Mr. Sarkozy welcomed recent measures announced by the Italian and Spanish governments to consolidate their budgets and to stimulate economic growth.

A “speedy and full implementation” of the proposed measures is essential to restore confidence of the financial markets, the statement said.