Europe's leaders scrambled on Tuesday to convince banks to take massive losses on Greece's debt, and shield Italy from falling victim to the crisis, on the eve of a decisive summit for the world economy.
Little more than 24 hours before EU leaders gather for their second summit in three days, calls came from afar in Japan and Australia for Europe to seal a lasting defence against its debt crisis as markets slid in cautious trade ahead of the crunch talks.
In Rome, Italy's Prime Minister Silvio Berlusconi pursued a bid to wrench a deal on pension reforms with reluctant Northern League ally, Umberto Bossi, after coming under humiliating public pressure from his European Union partners Sunday to slash the country's debt.
Saddled with a 1.9 trillion euro debt mountain, 120 percent its GDP, EU leaders demanded action from Berlusconi before the Wednesday 1600 GMT summit. But an emergency cabinet meeting Monday evening wound up without result.
Rome must deliver "measures to show there is no risk of Italy becoming another Greece one day," said a senior EU official on condition of anonymity.
Snapping back, Berlusconi said "no-one is in a position to teach lessons to their partners ... and speak in the name of elected governments."
"No one has anything to fear" over Italy's debt, he added.
But with Italy forced to pay rates of around six percent to borrow on markets, almost triple what Germany pays, EU officials said in private that it might be "time to put the plan to Italy" -- to trigger a rescue for Rome.
This would mean using the European Financial Stability Facility, the rescue fund set up after the May 2010 first Greek debt bailout, to buy Italian bonds.
How to beef up the fund is at the centre of a battle-plan to be finalised at Wednesday's talks, starting with a gathering of the EU's 27 finance ministers before a two-step summit of the entire bloc and then the 17-nation eurozone that is likely to end in the wee hours.
British Prime Minister David Cameron, who Monday suffered his largest parliamentary rebellion over whether to hold a referendum on EU membership, insisted at the weekend that the entire bloc be associated with decisions by the eurozone.
Amid increasing concern of a two-speed Europe, Cameron said: "There is a risk those countries outside the euro... might see the eurozone members starting to take decisions that affect the single market."
Wednesday's summit is the self-appointed deadline for Europe to agree a strategy for fighting contagion on financial markets amid mounting signs the bloc is falling back into recessionary times.
Its leaders also have to face critics, led by US President Barack Obama, at a G20 summit in Cannes, France, on November 3 and 4, and Italy -- the eurozone's third biggest economy -- lies at the core of global concern.
"Our deepest uncertainty comes from Europe," said Australia's premier Julia Gillard at a Commonwealth summit.
"We acknowledge the steps Europe has taken and how painful they have been. But much more needs to be done, and needs to be done fast," she said.
The biggest sticking-point to resolve is how to ramp up the EFSF's 440-billion-euro firepower through fancy financial footwork, without increasing the commitments provided by governments, nearly half supplied by Germany.
One plan would allow the EFSF to insure future potential losses on the bonds of troubled countries, in a bid to convince nervous traders to keep buying the debt of shaky economies such as Italy's.
Leaders also want to entice the likes of China, as well as private investors the world over, to contribute top-up funding to the EFSF.
Meanwhile European negotiators were "relatively close" to a deal to write-off around half of all privately-held Greek debt, the EU said.
But the bank lobby, the Institute of International Finance, said there were limits to what could be considered a voluntary write-off.
Greece's total debts are around 350 billion euros, not all of which would be covered by the so-called debt 'haircut' -- of 60-percent if Europe has its way, while banks are holding to a 40-percent offer.
Sources said the EU is optimistic of a deal "somewhere in the middle."
Leaders too will have to endorse finance ministers' conclusions that banks will need a near-110-billion-euro recapitalisation to enable them to cope with the fallout from any Greek debt restructuring.
"They really ought to get their act together before the grand unveiling tomorrow evening or it could all go for a ball of chalk," said analysts at Moneycorp.