Greece's teetering government backed away from a proposed referendum on staying in the euro today, while European leaders talked for the first time of a possible Greek exit to preserve the single currency.
Fast-moving events in Athens overshadowed the first day of a summit of the Group of 20 major economies on the French Riviera, with world leaders anxiously urging Europe to take decisive action to halt its sovereign debt crisis.
Beleaguered Prime Minister George Papandreou said after an emergency meeting of his Socialist cabinet that his call this week for a referendum, which sparked panic on global financial markets, "was never a purpose in itself", and he would be happy if the vote were not held.
Papandreou said he had agreed to talks with the centre-right opposition on a transitional government to implement a new EU/IMF bailout programme. Early elections would follow.
At a torrid meeting in Cannes last night, French President Nicolas Sarkozy and German Chancellor Angela Merkel warned Papandreou that Athens would not receive a penny more in aid until it met its commitments to the eurozone.
Greece was due to get a vital 8 billion euros instalment this month and says it will run out of money in mid-December if it does not get the loan.
Political turmoil in Greece and uncertainty over the eurozone sent stocks and commodity prices tumbling in Asia, and fuelled a rush into safe-haven German bonds. But markets rallied in feverish trading as the likelihood grew that Greece would not hold the highly risky referendum.
The European Central Bank also provided a surprise boost by cutting interest rates by 25 points to 1.25 per cent and saying its policy of buying eurozone government bonds would continue for now in a limited scope to support its monetary policy.
The leaders of China, Russia and the United States pressed the Europeans to move swiftly to contain the debt crisis, with the United States urging Germany to relent and let the ECB play a greater role in financial firefighting, G20 sources said.
"Europe should aid itself. The European Union has everything for that today - the political authority, the financial resources and the backing of many countries," Russian President Dmitry Medvedev said.
A senior G20 official said the group was assessing the cost of a possible Greek default and looking at the implications if Athens were to leave the currency bloc.
Earlier, Finance Minister Evangelos Venizelos broke ranks with Papandreou, saying Greece's euro membership was a historic achievement and "cannot depend on a referendum".
Dissident politicians in the ruling PASOK party spoke out against a referendum and called for a national unity government or early elections, casting doubt on whether Papandreou would survive the week in office. Some suggested former ECB vice-president Lucas Papademos should head such an administration.
Signalling a will to compromise, opposition leader Antonis Samaras called for a transitional government to lead Greece to early elections and said parliament should first ratify last week's 130 billion euro bailout deal.
European Union leaders have long called for national unity in Greece in support of painful austerity measures needed to cut the country's crippling debt, expected to reach 160 per cent of gross domestic product this year.
"We hope now that we may get the political consensus in Greece that has been lacking all along," an EU official said.
A cabinet minister said Papandreou would not resign for now but would await the result of talks with the main opposition New Democracy party.
Euro area leaders talked openly of a possible Greek exit from the 17-nation currency area, seeking to maximise pressure on Athens and preserve the euro in case of a "no" vote.
Merkel said last night that while she would prefer to stabilise the euro with Greece as a member, the top priority was saving the euro, not rescuing the Greeks.
The chairman of eurozone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said politicians were working on possible scenarios for a Greek exit.
France's Europe minister, Jean Leonetti, said bluntly the euro could survive without Greece.
"Greece is something we can get over, something we can live without," he told RTL radio in an interview.
The spectre of a possible hard Greek default and euro exit hung over the G20 summit, highlighting Europe's frailty and divisions just when Sarkozy had hoped to showcase his leadership of the world's major economies.
The summit had been meant to focus on reforms of the global monetary system and steps to rein in speculative capital flows and regulate commodities markets, but the shockwaves from Greece upended the talks.
US president Barack Obama said after meeting Sarkozy that Europe had made some important steps towards a comprehensive solution to its debt crisis but now needed to flesh out and implement the plan quickly.
A disorderly Greek default would reverberate across the eurozone, engulfing big economies like Italy and Spain, and potentially plunging the global economy into a recession.