Euro-zone officials are working to magnify the firepower of the region's rescue fund, European Central Bank policymakers said on Monday, while President Barack Obama piled on pressure for Europe to staunch a sovereign debt crisis that threatens the world economy.

Obama, saying the crisis is scaring the world, urged leaders of the 17-nation euro zone to act quickly to help a region where banks have not fully recovered from the 2008 financial crisis and which is now suffering from the Greek government's debt crisis.

They are trying to take responsible actions but those actions haven't been quite as quick as they need to be, Obama told a citizens' meeting in Mountain View, California.

After meeting at the IMF/World Bank and G20 meetings in Washington D.C. last week, European policymakers said on Monday they are working on ways to shore up the euro zone financial system and prevent the region's government debt crisis from spreading, but their mixed messages on the size of a rescue fund and the role of the ECB underscored the difficulties for 17 euro-zone nations in reaching consensus.

ECB Executive Board member Lorenzo Bini Smaghi, speaking in New York, said that the 440 billion euros in the bailout fund, known as the European Financial Stability Facility (ESFS), could be used as collateral to borrow from the European Central Bank making more money available for crisis fighting, but it was up to European Union governments to decide how to do this.

I know that people are thinking about these things. They may not be willing to admit it in the public, but they are thinking about these things, he said, citing the example of two U.S. programs used to recapitalize banks in the 2008-09 financial crisis.

Officials are examining how to leverage the money out of the EFSF in a more innovative and efficient way, he told a conference organized by Medley Advisors.

But Germany's central banker Jens Weidmann poured scorn on a beefed-up bailout fund. Leveraging the assets could discourage politicians from taking the tough political decisions to cut budget deficits and would weaken faith in the euro, Weidmann said in Washington.

A bazooka! I don't think it is a recipe that works in Europe, he told the American Council on Germany.

Markets are not concerned about the size of the rescue fund, rather about the political capacity to deliver, he said

This is a very dangerous thing. It means you completely blur the responsibility between fiscal and monetary policy.

Germany's Finance Minister Wolfgang Schaeuble speaking in Berlin also ruled out increasing the size of the fund although he had said in Washington over the weekend that leverage without tapping the ECB was possible.

A senior European official told Reuters on Saturday that the aim was for a five-fold leverage to give the fund the firepower to help bigger economies such as Italy and Spain if necessary. Analysts have estimated that 1-2 trillion euros is needed to achieve that goal and win market confidence.

ECB Governing Council member Ewald Nowotny from Austria said at a Harvard University forum in Massachussetts on Monday that an increase in the fund was likely, but it might not be a trillion (euros).

Investors are anxious to see a plan big enough to backstop European banks and help debt laden euro zone governments. U.S. stocks jumped when CNBC television reported that a detailed plan was in the works to leverage the fund up to eight-fold and to use the European Investment Bank to issue bonds and buy up sovereign debt of troubled countries via the ECB.

An EU official in Brussels involved in crisis resolution dismissed the CNBC report as just bizarre. The official said talks are in the early stages and those with the EIB involve infrastructure projects.

PRESSURE

In Germany, Chancellor Angela Merkel pressed for the European Union to strengthen its power to discipline member states that break fiscal rules. Budget deficits are the primary source of Europe's debt crisis and Germany's key concern.

There should be the right to declare such budgets null and void...otherwise we will not get out of the situation, she said in her strongest language yet on common EU fiscal powers.

Germany's legislature is due to vote this week on expanded EFSF powers and leaders are seeking to quell concerns the new bailout fund would discourage countries from cutting deficits.

Europe came under fierce pressure from the United States and other major economies at weekend talks in Washington to take swift action to stop Greece's debt woes from engulfing bigger euro zone states and harming the world economy.

But officials said reports that planning was already in place for a 50 percent write-down in Greek debt and a vast increase in the euro zone rescue fund were highly premature.

There is no change to the framework we are working on, said a euro zone official who is involved in decision-making on financial assistance to Greece, Ireland and Portugal.

All this talk of a specific haircut for Greece or an enlargement of the EFSF, it is all just speculation. We are not working along those lines, said the official.

Merkel, struggling to convince her fractious center-right coalition to back a strengthening of the EFSF in a crucial vote on Thursday, warned that letting Greece default would destroy investor confidence in the euro zone.

Diplomats said any talk of a fallback plan for Greece that would raise the cost to German taxpayers could only make her task more difficult in parliament this week.

DEFAULT WITHIN MONTHS?

Private economists and Brussels think-tanks expect a Greek debt default within months, coupled with a capital injection for European banks and a leveraging up of the EFSF.

Euro zone officials acknowledge that such policy ideas are circulating, but insist planning continues on the basis that Greece's debt burden, which is close to 160 percent of GDP, can be sustained as long as its government cuts its fiscal deficit as demanded by the European Commission, the European Central Bank and the International Monetary Fund, the so-called troika.

Treasury Secretary Timothy Geithner warned this weekend that inadequate European crisis management heightens the threat of cascading default, bank runs and catastrophic risk that must be taken off the table. IMF chief Christine Lagarde, also made clear the euro zone needs to act more decisively, notably to recapitalise banks on a large recapitalizescale.

Quietly, euro zone policy makers accept that a combination of a much deeper Greek debt restructuring allied to coordinated bank recapitalizations and a bolstered rescue fund would make sense, but such a plan would require support from all 17 euro zone countries which can take time in the EU.

The ideas are all there, but it's not as straightforward as just sitting down and deciding it, said another euro zone financial official involved in handling the crisis.

Many of us can agree privately that anything less than a 50 percent haircut for Greece would just be cosmetic, but getting that decided by all and implementing it is not so easy.

(Additional reporting by Alister Bull in California, Lesley Wroughton in Washington, Marc Jones in Washingotn, Ros Krasny in Boston and John O'Donnell in Brussels; Writing by Stella Dawson, Paul Taylor; Editing by Catherine Evans and Leslie Adler)