The leaders of the world's most powerful economies confronted a new financial crisis Thursday as they began a G20 summit with markets in plummeting and Greece facing a forced exit from the euro.
As France and Germany tried to bully Athens back into line, the Eurozone debt crisis threatened to engulf Italy, which saw the costs of its borrowing hit record highs amid fears over Europe's bail-out mechanism.
Asian and European stock markets plunged, as storm clouds gathered over the seafront at the rain swept French resort of Cannes, where the G20 leaders had gathered to implore the Eurozone to put its house in order.
Italy's long-term borrowing costs hit 6.4 percent, which observers warned was unsustainable, and markets across Europe opened down between 1.5 and 2.5 percent amid fears over the growing threat of a Greek default.
G20 host President Nicolas Sarkozy and his German counterpart Chancellor Angela Merkel had hoped to reassure their partners by forcing Greece's Prime Minister George Papandreou to quickly implement an EU bail-out deal.
He was summoned to pre-summit talks Wednesday and agreed to hasten his planned referendum on the plan, insisting Greece wanted to stay in the euro, but he flew home to find his parliamentary majority evaporating.
Merkel and Sarkozy had warned him that Greece would not receive "one more cent" of the IMF and EU's next planned eight-billion euro aid installment until he wins the referendum, which he wants to hold on December 4.
Without these funds, senior officials in Cannes said, Greece might not be able to pay government employees after this date -- and could face a messy debt default which would force it to leave the European single currency.
"We do not want to let the euro be destroyed, we do not want to let Europe be destroyed," Sarkozy warned, standing with Merkel. "The Greek people are free to choose, but we are accountable for the stability of the Eurozone."
Papandreou insisted it is the "democratic right" of the Greeks to vote on the bailout plan -- which foresees more tight austerity measures -- but added: "I believe that the Greek people want to be in the Eurozone."
But conceded that his referendum puts this at stake, "this is a question of whether we want to remain in the Eurozone. That's very clear," he said.
His brinkmanship did not appear to have strengthened his position.
Two lawmakers from Greece's ruling Socialist party have said they will abstain from a confidence vote Friday, robbing Papandreou's government of a majority, Greek state television NET reported.
And Papandreou was further weakened when two of his ministers, including Finance Minister Evangelos Venizelos, came out against the referendum, which he had announced on Monday to widespread anger and disbelief in EU capitals.
U.S. President Barack Obama greeted cheering crowds of French wellwishers as he arrived in Cannes's Palais des Festivals -- better known for hosting the town's annual film festival -- for pre-summit talks with Sarkozy.
But he was expected to have a tough message for his hosts. The White House said it wanted "unanimity of purpose" to emerge from the G20, and Beijing too has warned that its support will depend on Europe showing more solidarity.
China's President Hu Jintao dined with Sarkozy late Wednesday, after which officials said they might contribute 100 billion dollars to Europe's bail-out fund, but only if they were convinced the investment was safe.
"Beijing wants to be certain that the mechanisms work," Li Daokui of the Chinese central bank's monetary policy committee, told Le Figaro, referring to the under-funded European Financial Stability Facility.
"Nothing would be worse for China than to contribute to something that ends up failing in several months," he said.
The G20 summit was to formally begin later Thursday and last two days.
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