Europe tackles 'disastrous' debt divisions

European finance ministers sat down to address "disastrous" divisions on Friday in a debt crisis that began in Greece and is now sucking in Italy, ramping up urgent fears of worldwide recession. Eurozone governments began laying the groundwork for crunch back-to-back summits after emergency overnight talks between US President Barack Obama, British Prime Minister David Cameron and the key duo of German Chancellor Angela Merkel and French President Nicolas Sarkozy. Optimistic they would release billions in loans for Greece, the ministers now have to keep immediate fallout from Athens from bringing down the eurozone as whole in a debt crisis that German Finance Minister Wolfgang Schaeuble admits has morphed into "serious" wider concerns. On arrival for talks that started just after 2:00 pm (1200 GMT), IMF chief Christine Lagarde said the Washington-based world lender of last resort "will do all it can" to help Europe find a lasting solution. EU Economic and Monetary Affairs Commissioner Olli Rehn said any solution would need to handle Greece, include a big boost to existing rescue funding and a recapitalisation of banks caught in the eye of the storm. A series of tense ministerial talks will culminate in back-to-back summits of EU leaders Sunday and Wednesday. Eurozone chief Jean-Claude Juncker warned as he arrived to chair the first round of discussions that persistent disputes were sending out all the wrong signals. "The external impact is disastrous" for Europe, the Luxembourg prime minister said. "We are not really showing a properly functioning leadership." "The situation is serious," Schaeuble admitted. "We have a great responsibility, we all know it," he said, "to Europe, to the eurozone but naturally also to the world economy." Despite rifts between France and Germany dampening hopes of a quick fix, the White House said Merkel and Sarkozy "fully understand the urgency of the issues in the eurozone", and are "working diligently" towards a "politically sustainable" solution. Washington said Britain, France, Germany and the United States would continue to consult closely ahead of a G20 summit in Cannes, France, early next month. However, European Union partners also on Friday ramped up fresh pressure on Italy to spell out new budget cuts and economic reforms, precisely to cover the risk of fall-out from Athens spilling over to Rome. Rehn's spokesman Amadeu Altafaj said EU partners are demanding Italy present a new raft of cuts and reforms "as a matter of urgency", to "further reinforce confidence in the capacity of the Italian economy to overcome the present challenges". A lasting game-plan to address the multi-pronged crisis had been expected at a Sunday summit but suddenly a "decisive" fresh summit has been called for Wednesday. A go-ahead for the latest Greek loan tranche would mark the first concrete outcome from the marathon series of meetings. "We will agree... at least I hope we will, on the sixth aid tranche for Greece, based on the report" of the auditors, Juncker said. The 8.0 billion euros ($11 billion) in loans have been frozen for months as European Union and International Monetary Fund auditors tried to agree on Greece's debt sustainability and on how much of its 350-billion-plus debt mountain can be written off without causing havoc. Increased German parliamentary scrutiny -- a condition of ratifying a boost of Europe's rescue fund, the 440-billion European Financial Stability Facility -- is also holding up the negotiations. Rehn said the EU has to find: a "sustainable solution for Greece", sufficiently "reinforce financial firewalls... to contain contagion" and implement a "coordinated approach to bank recapitalisation". All three working in harmony are "essential" to pull off the trick, he added. A senior EU official confirmed governments were still working on the premise that banks will accept a "50-percent" write-down of Greek debts. Earlier, though, the head of Germany's second-biggest bank warned that eurozone leaders' hopes of a "voluntary" write-down by private creditors may be exaggerated. Asked whether banks would voluntarily contribute to resolving the crisis, Commmerzbank chief Martin Blessing replied: "As I see it that won't happen voluntarily, but only if Greece declares itself insolvent."