Rarely have the world's most powerful people looked so impotent. The leaders of France, Germany, Italy, Japan, Russia, Canada and our own Prime Minister were received by the American President at Camp David last night at a gathering intended to hammer out a comprehensive solution to a eurozone emergency that threatens to plunge the world into a new financial crisis.
In an acknowledgement of the increasing possibility of such an outcome, a European commissioner confirmed for the first time yesterday that Europe's institutions are preparing plans to cope with a Greek departure.
"There are in the European Central Bank, as well as in the Commission, services working on emergency scenarios if Greece shouldn't make it," said the EU Trade Commissioner, Karel de Gucht, to a Belgian newspaper.
The stakes were increased last night, when it was claimed in Athens that Angela Merkel had suggested on the phone to President Karolos Papoulias that Greece should consider holding a referendum on euro membership alongside new elections next month.
Berlin later denied this had occurred when it became clear the idea was seen as unwarranted foreign intervention in some Greek quarters. A German government spokeswoman said the conversation between Ms Merkel and Mr Papoulias was confidential but that the reports were "inaccurate".
The G8 meeting in Maryland began in the wake of a week of market turmoil. Investors have been panicked not only by the potentially traumatic impact of a Greek default, but the precarious state of the Spanish banking sector. The central bank in Madrid revealed that the proportion of bad loans at Spanish banks reached a record of 8.37 per cent in March.
The Madrid government is to ask the Wall Street bank Goldman Sachs to audit the books of the struggling lender, Bankia. Sixteen other Spanish banks were downgraded by the credit agency Moody's on Thursday. Speculation is rising the Spanish government will be forced to apply for help from the bailout fund, the European Financial Stability Facility, to recapitalise its banks.
An aide to President Barack Obama said yesterday the focus of the G8 meeting this weekend would be the eurozone. "The President looks forward to leading a discussion about a comprehensive approach towards recovery in Europe," said the National Security adviser, Tom Donilon. Mr Obama and the French President, François Hollande, are expected to combine forces to exert pressure on Ms Merkel to shift the focus of policy in the eurozone from austerity to growth.
They are likely to find support in this effort from the Italian Prime Minister Mario Monti, the Canadian Prime Minister, Stephen Harper and David Cameron, who have all said Europe needs to do more to help its weakest members.
The governments of Spain and Italy are pushing through deep cuts in public spending under pressure from Germany at a time when their economies are in recession and suffering from high unemployment – something an increasing number of analysts warn is likely to prove counterproductive.
As G8 leaders gathered in the US, Robert Chote, the chairman of the Office for Budget Responsibility, was repeating his warnings that the UK could suffer irreparable damage if it suffers a repeat of 2008-9 when output slumped by 7 per cent.
It was another disappointing day for stock markets yesterday as investors digested the latest news about Spanish banks. The FTSE 100 index fell by 1.31 per cent and the German Dax lost 0.46 per cent. Spanish and Italian borrowing costs remained at unsustainable levels. Spanish 10-year bond yields finished the week on 6.26 per cent, while Italian sovereign debt ended on 5.96 per cent. The price of a barrel of Brent crude oil fell to $106.98, its lowest price since December.
No formal statement is expected to be released by the leaders of the G8 this weekend.
G8 Summit: The leaders and what they want
Leader: Prime Minister David Cameron.
Economy at home: Double-dip recession. Economy shrank by 0.2 per cent in the first quarter of 2012.
Prescription for eurozone: Advocate of austerity at home, but wants a growth plan for Europe. Mr Cameron says Germany should spend more to help the rest of the eurozone.
Popularity: Troubled. Conservatives did badly in local elections this month and Labour has a large lead in the opinion polls.
Leader: President François Hollande.
Economy at home: Flat. The French economy produced no growth in the first three months of the year.
Prescription for eurozone: Wants to changed course in Europe, focusing on growth rather than austerity.
Popularity: Won this month's election by narrow margin to become first Socialist leader since 1995.
Leader: President Barack Obama.
Economy at home: Ticking along well, but risk of derailment by euro crisis.
Prescription for eurozone: A believer in stimulus. Will pressure Germany to loosen her purse strings.
Popularity: Mr Obama presently enjoys a lead in the polls ahead of presidential elections in November.
Leader: Prime Minister Yoshihiko Noda.
Economy at home: Still weak. Recent growth figures strong, but flattered by construction boost in aftermath of last year's tsunami.
Prescription for eurozone: Whatever works – just keep buying Japan's exports.
Popularity: Difficult. Will try to win unprecedented second victory for Democratic Party over Liberal Democrats in next year's election.
Leader: Chancellor Angela Merkel.
Economy at home: Powering ahead. Low unemployment and GDP growth of 0.5 per cent in the first quarter.
Prescription for eurozone: Fiscal discipline and austerity for all.
Popularity: Faces national elections next year. Nervous after Christian Democrats lost key state of North-Rhine Westphalia this month.
Leader: Prime Minister Stephen Harper.
Economy at home: Sluggish – it shrank 0.2 per cent in February, hit by lower demand for energy exports.
Prescription for eurozone: Friendly to austerity, but frustrated at Germany for dithering.
Popularity: Steep slide since surprise win for Conservatives in last year's federal elections, but next national elections are not due until 2015.
Leader: Prime Minister Mario Monti.
Economy at home: In double-dip recession. GDP fell by 0.8 per cent in first quarter of 2012.
Prescription for eurozone: Plans to enact domestic labour reforms, but wants more time and support from Germany for deficit reduction.
Popularity: Unelected technocrat. Local elections this month punished parties that backed economic reform.
Leader: Prime Minister Dmitry Medvedev.
Economy at home: Growing well but at risk from global slowdown.
Prescription for eurozone: Sort it out. Keep importing Russian gas and oil.
Popularity: Swapped jobs with President Vladimir Putin in March.