Eurozone ministers on Monday debate whether to unlock vital aid for Greece and sharply increase the firepower of their rescue chest as markets tumbled on news Athens will miss budget deficit targets.
Greek police stand guard during a student demonstration opposing educational reform and the austerity measures in central Athens in September 2011. The Athens government did nothing to improve the mood of investors when it announced Sunday that the budget deficit should drop to 8.5 percent of GDP in 2011 from 10.5 percent last year, short of an earlier target.The 17 countries sharing the single currency gather from 1500 GMT to reach an understanding on whether Greece should get an eight-billion-euro loan, needed to pay next month's bills but blocked by the IMF for the past month.
They will also look at ways of boosting the euro's rescue fund, the EFSF, to help immunize Europe and the global economy from financial contagion.
British finance minister George Osborne urged the eurozone to strengthen its banks, take clear decisions on Greece "and stick to it".
"The eurozone's financial fund needs maximum firepower, the eurozone needs to strengthen its banks, and the eurozone needs to end all the speculation (and) decide what they are going to do with Greece and stick to it," he said.
Arriving in Luxembourg for the two-day talks, the EU's economic commissioner Olli Rehn said the ministers will review "the options to optimising the use of the EFSF in order to get more out of it amd make it more effective as a financial firewall."
In Athens, international auditors spent the weekend assessing Greek finances and forecasts following continuing protests over austerity cuts.
The mood darkened after Athens announced Sunday that its public deficit will come in at 8.5 percent of gross domestic product (GDP) this year, higher than the 7.4 percent agreed in June, as its economy is battered by recession.
The figure is still better than the 10.5 percent public deficit Greece recorded last year.
For next year the Greek government now forecasts it will be able to squeeze the public deficit down to 6.8 percent of GDP instead of 6.5 percent.
The bad news from Athens sent Asian markets into a tailspin amid concerns over eurozone policymakers' ability to surmount the debt crisis.
"It is far from a given that policymakers will succeed in turning the tide in markets in the final quarter of the year," Sharon Zollner, senior economist at ANZ Bank in Wellington, told Dow Jones Newswires.
Japanese stocks fell 1.78 percent, Hong Kong shares shed 4.38 percent, while Sydney was off 2.78 percent at the close.
In Europe, the increased expectations of a Greek default sent the euro tumbling to $1.3314, its lowest point since January, and stock markets slumped.
In afternoon trade, Frankfurt's DAX 30 was down 2.33 percent, the Paris CAC 40 dropped 2.03 percent and in London the FTSE 100 slid 1.55 percent to 5,048.80.
In Luxembourg, Rehn will give the eurozone finance ministers the inside track on what the Washington-based IMF wants to do.
Athens is labouring under a crushing 350 billion euros of debt, with its economy contracting under the austerity measures imposed by the EU and IMF.
The United States and other major economies are increasingly concerned Europe is too divided to solve the Greek crisis or deal with problems in the much bigger Italian economy, notably by adequately re-capitalising banks that would lose heavily in the event of default, especially in France.
Many are clamouring for a major boost in the 440-billion-euro ($590 billion) European Financial Stability Facility (EFSF).
One way would be to change the fund's rules, enabling it to morph into a bank able to leverage funds from the European Central Bank (ECB) in the event of a crisis.
Another possibility is to insure bondholders up to 20 to 25 percent of losses should a nation default.
Global pressure is on to resolve the problems before G20 leaders meet in Cannes on November 3-4.
US Treasury Secretary Timothy Geithner has already urged German Finance Minister Wolfgang Schaeuble to put more of Berlin's financial heft at the eurozone's disposal if things worsen.
But Schaeuble said at the weekend that the 211-billion-euro limit set for its exposure will not rise.
An immediate obstacle to overcome is final ratification of an agreement reached by eurozone leaders in July giving the EFSF the scope to intervene when sovereign governments get into cashflow difficulties.
As of Friday, 14 of the 17 eurozone countries had passed legislation the EU wants to be able to trumpet at a G20 finance ministers meeting in Paris on October 14-15.
The EU-IMF auditors returned to Athens on Thursday, four weeks after they abruptly left disappointed at Greece's lack of progress in implementing promised structural reform measures.
Athens unveiled late on Sunday a plan to shrink its bulging civil service by 30,000 people by the end of the year.
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