Europes financial turmoil deepened, dominating a Group of 20 summits, as Greeces government veered toward collapse and Italy came under renewed pressure to prove its credit-worthiness.Greek Prime Minister, Mr. George Papandreou clung to power after abandoning a referendum on bailout terms that had triggered a suspension of European aid.Italian Prime Minister, Mr. Silvio Berlusconi was pushed by German Chancellor, Ms. Angela Merkel to accelerate an austerity drive as his countrys bond yields jumped to a euro-era record.The hardball tactics toward Europes crisis-ridden countries underscored the urgency for world leaders meeting in the French resort of Cannes to solve the two-year-old debt woes weighing on the global economy.The European Central Bank offered relief with an unexpected interest-rate cut as its new president, Mario Draghi, said the euro area was facing a recession.The most important aspect of our task over the next two days is to resolve the financial crisis here in Europe, United States President, Mr. Barack Obama said between one-on-one meetings with Sarkozy and Merkel. Europe needs to flesh out more of the details of its week-old bailout blueprint, he said.On a day of political sparring in Europes most indebted state, Papandreou squared off with rebels in his own party over the referendum that European officials insisted would determine whether Greece stays in the euro.The uproar in Athens broke out early with Finance Minister, Evangelos Venizelos splitting with his boss over whether the early December ballot might lead to a euro exit. Lawmakers debated whether to support his administration in a confidence vote tomorrow.The Greek leaders call for a poll on the terms of the rescue package failed to inspire confidence. Greek two-year bond yields climbed above 100 per cent for the first time on Thursday.By late afternoon, Papandreou pulled the plebiscite and floated the prospect of a unity government with opposition leader, Antonis Samaras, who had sought to capitalise on voter discontent with two years of austerity and a deepening recession.Europe and the International Monetary Fund made cross-party support for budget cuts a condition for paying the next 8 billion euros ($11bn) of Greek aid, the sixth instalment in the 110 billion-euro package awarded at the outbreak of the crisis in May 2010.Breaking with the doctrine that there was no way out of the euro, Merkel and Sarkozy cornered the Greek leader last night in Cannes and transformed the planned vote into an up-or-down decision on whether Greece would stay in the currency union.We would like Greece to remain a member but we are not saying Greece has to stay a member at all costs, Luxembourg Prime Minister, Mr. Jean-Claude Juncker, who chaired meetings of euro finance ministers, said on ZDF German television.As they huddled again, Europes chiefs pledged to speed up a plan to boost the power of their 440 billion-euro rescue fund to stop Greeces travails from spreading to other cash-strapped economies such as Italy.Leaders agreed a week ago to use leverage to beef the funds clout up to 1 trillion euros and told banks to raise 106 billion euros by the end of June to fortify their capital.Italy was also in the spotlight with an increase in its 10- year bond yield to 6.3 per cent, more than triple Germanys. The euro areas third-biggest economy had its second-largest debt burden after Greece and had grown more slowly than the region average in each of the last 10 years.Arriving in Cannes, Berlusconi and Finance Minister, Giulio Tremonti was told by Merkel to press ahead with budget- balancing measures and not drag their feet, a German official said.While his Cabinet agreed last night to include emergency measures in a bill set for passage by November 15, investors want Berlusconi to go further than the steps proposed so far, including raising the retirement age and selling more state assets. The Italian would call a confidence vote on them next week, an official said in Cannes.As politicians clashed, Europes economy and markets received a surprise boost from the ECB as Draghi marked his first week as its president by overseeing a rate cut. The banks Governing Council voted unanimously to reduce their benchmark by 25 basis points to 1.25 per cent in a shift forecast by four of 55 economists surveyed by Bloomberg News.What were observing now is slow growth heading toward a mild recession, Draghi said.The former Bank of Italy governor signalled central bankers have no intention of bailing out profligate nations. While its not illegitimate to question Greeces place in the euro area, the blocs founding treaty doesnt allow for a country leaving and it would be hard to imagine it happening, he said.Europes travails overshadowed the G-20 talks as leaders urged its authorities to get a grip on them for the good of global growth. United Kingdom officials said throughout the meetings, government heads monitored their Blackberry devices to keep up to speed with fast-changing events in Greece.Our partners should be acting significantly more actively and decisively to resolve these problems, Russian President Dmitry Medvedev said. If this doesnt happen, we will be hostage to this situation for a long time to come.The leaders discussed a bigger role for the IMF with the UK joining Brazil and Russia in supporting an increase in the lenders $391bn war chest. In a draft of a statement to be released tomorrow, they also urged the IMF to expedite a new liquidity line for countries with strong policies and fundamentals facing exogenous, including system, shocks.When the world is in crisis, its right that you consider boosting the IMF, UK Prime Minister David Cameron told reporters.www.businessweek.com
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