Fears that Greece was heading rapidly towards a chaotic default have roiled markets for days, both across the 17-nation eurozone and globally.
Many investors are convinced Greece will not be able to fix its public finances under its current economic plans. Interest rates on the country's 10-year government bonds soared to new record highs hitting the alarming level of 25.3 per cent today, more than 23 points higher than the German equivalent.
German Chancellor Angela Merkel spoke out this week to calm the market jitters and to distance herself from her vice chancellor, Philipp Roesler, and others who suggested a Greek bankruptcy was possible.
Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou were discussing the situation this evening, after a government meeting Papandreou called to address urgent fiscal reforms. The finance ministers from the wider 17-nation eurozone meet this Friday in Poland.
It was unclear whether there would be statements after today's teleconference from any of the three countries involved. Indications as to how the talks went would likely affect markets.
Hours before the talks, Sarkozy and his prime minister "with a single voice reaffirmed France's determination to put everything in place to save Greece," French government spokeswoman Valerie Pecresse said of a Cabinet meeting in Paris.
Sarkozy wants the call to focus on "the need for efforts in return and commitment from Greece," she said.
The main fear of a Greek bankruptcy is that it could destabilise other financially troubled European countries such as Portugal, Ireland, Spain or Italy. It would also have a knock-on effect on banks, many of which are large holders of Greek government bonds. Moody's today downgraded the credit ratings of two French banks, Societe Generale and Credit Agricole.
"We are confronted with the most serious challenge of a generation. This is a fight for the jobs and prosperity of families in all our member states," European Union Commission President Jose Manuel Barroso told the European Parliament in Strasbourg. "This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself."
The International Monetary Fund, which is providing Greece with funds in a 110 billion euro bailout along with eurozone countries, also held an informal board meeting on the situation today. The meeting was not a "decision-making" one, the IMF said in a statement, but was held to update board members of the latest developments.
Separately, World Bank head Robert Zoellick criticised the 17 eurozone countries for not taking tough enough actions to prevent the crisis.
"The global economy has entered a new danger zone with little running room as European countries resist difficult truths about the common responsibilities of a common currency," Zoellick said.
Geithner, who joins eurozone finance ministers this weekend in a meeting in Poland, stressed European governments must show they "stand behind" the financial system so it can fund and finance the economic recovery.
"I think they recognise that they're going to have to do more to earn the confidence of the world," Geithner said on American news channel CNBC.
Europe's big trading partners, like the US and China, made clear that they want the crisis contained.
China's Premier Wen Jiabao said European countries needed to tackle their debt problems and make changes to help restore global financial stability and steady economic growth. Beijing has shown interest in helping financially troubled European countries by investing or buying their bonds.
"Countries must first put their own house in order," Wen said.
Roesler said Germany would deliver a "clear signal to the Greek government" that it must push ahead with reforms, including an ambitious privatisation program that has lagged behind targets.
Speaking during a visit to Rome, Roesler said it was "fundamentally important to re-establish the strength of the Greek state."
Greece relies on funds from last year's 110 billion euro international bailout. But the lifeline could be cut if the country continues to miss fiscal and reform targets.
The quarterly payout depends on reviews by Greece's international debt inspectors — the European Commission, European Central Bank and IMF, known as the troika.
The next batch, worth 8 billion euro, is due in late September, but there were fears the troika would not approve its disbursement after the debt inspectors suspended their review earlier this month. They are due to return to Athens in coming days. Without the next installment, the country has enough cash to keep it going only until mid-October.
Greece's government spokesman, Elias Mossialos, said on Monday he believed the country would receive the funds.
In July, Greece was granted a second, 109 billion euro rescue package, but the terms of that deal have yet to be finalized, with Finland asking for extra collateral guarantees.
AP
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