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EU under US pressure over Greece at crunch euro summit

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EU under US pressure over Greece at crunch euro summit

Photo © Boguslaw Mazur - Fotolia

(BRUSSELS) - EU leaders step into a pivotal summit Thursday with their backs to the wall as the US steps up global demands for a breakthrough on Greece to stem fears the debt crisis will spread across Europe and wider.

The summit could prove a defining moment for the EU as the possibility of Greece exiting the eurozone or even the entire bloc disintegrating are no longer taboo.

Already under intense pressure from the International Monetary Fund and markets, the 27 European Union heads of state and government meet from 1730 GMT seeking to reassure allies over two critical days of talks.

"The spectacle the Europeans have made of themselves in the face of the Greek crisis is an absolute disaster" for the cause of post-WWII integration, warned respected analyst Jean-Dominique Giuliani of the Robert Schuman Foundation.

Originally intended to draw a line under the sovereign debt crisis, the summit is under mounting pressure after Europe's finance ministers this week balked at throwing a lifeline to Greece unless it cleaned up its financial house.

Warning that Europe must act, US Federal Reserve chief Ben Bernanke said on the eve of the talks: "If there were a failure to resolve that situation, it would pose threats to the European financial systems, the global financial system and to European political unity.

"I think the Europeans appreciate the incredible importance of resolving the Greek situation," he said.

The meeting has other big issues to ponder: shoring up another creaking symbol of mainland European unity -- its passport-free Schengen travel area -- as well as adjusting sights on Libya, slapping sanctions on Syria and looking at the path towards Palestinian statehood.

But it will be what the big states say and do for their shared currency area that determines whether the next meeting of euro finance ministers set for July 3 can deliver both emergency and new long-term re-financing for Greece in an atmosphere of relative market calm.

Greek Prime Minister George Papandreou narrowly won a confidence vote to give the summit a platform on which to build, although Athens still has to push through legislation for five years of cuts worth 28 billion euros ($40 billion) and 50 billion euros of state sell-offs, on June 28.

At stake is a 12-billion-euro loan from last year's 110-billion-euro international bailout, and a second rescue package almost as big -- although even there, some believe the best Europe can do is paper over the cracks.

"Some just see this as delaying the inevitable fact that the eurozone is broken beyond repair," said ING Markets analyst Cameron Peacock after the IMF warned of the risk of "large global spillovers" given inadequate cross-border economic governance.

Italy's Foreign Minister Franco Frattini, with his country seen by ratings giant Moody's as next to be squeezed on money markets, warned on Wednesday that all Europe would feel the heat from a "credibility crisis" if leaders did not act "as soon as possible" to shield Greece.

One signal of intent they may back is a suggestion by European Commission chief Jose Manuel Barroso that a billion euros of routine EU funding could be brought forward.

Current European Central Bank president Jean-Claude Trichet will take part in the talks on the day reports suggest France may hold off from backing Italy's Mario Draghi as his successor, as the leaders try to bury a damaging public row pitting Germany against France, the ECB and others, over how to persuade banks to delay calling in their Greek debts.

A row that already drew a sharp rebuke from US Treasury Secretary Timothy Geithner, who warned this week that "it's very hard for people who invest in Europe to understand what the strategy is when you have so many voices."

European Council

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