EU leaders must find a convincing solution to Greece's debt crisis at a summit on Thursday or the global economy will pay the price, the head of the European Commission said in an unusually sombre warning.
Jose Manuel Barroso delivered the message as officials of the 17-nation currency area and bankers struggled to pin down a package of measures to persuade markets Greece can be saved from default and the rest of the eurozone from contagion.
"Nobody should be under any illusion: the situation is very serious. It requires a response, otherwise the negative consequences will be felt in all corners of Europe and beyond," Barroso told a news conference.
He said the elements of a solution must include: measures to ensure the sustainability of Greek public finances, private sector involvement in funding for Athens, more flexible use of the eurozone's EFSF bailout fund, repair of the region's banking system and liquidity to keep the economy going.
In what sounded like veiled criticism of German Chancellor Angela Merkel, Europe's reluctant paymaster, Barroso said it was time for leaders to say "what they can do and what they want to do. Not what they can't do and won't do".
Merkel lowered expectations on Tuesday, saying the summit would not bring a spectacular one-shot solution to the Greek crisis but only the latest in a series of incremental steps to tackle the roots of Athens' debt and competitiveness problems.
The euro and peripheral euro zone bonds rose on hopes that policymakers would heed the IMF's advice on bond purchases and provide precautionary credit lines to countries in difficulty.
Both would require changes in the EFSF's rules that would have to be ratified by national parliaments, and could fall foul of sceptics in Germany, the Netherlands and Finland.
Major European banks and insurers were to send eurozone governments a complex proposal later on Wednesday for helping in a planned 115 billion euro second Greek bailout, industry sources said.