Gonzi at European summit on Greece, euro

EU member states are “under notice” from the International Monetary Fund (IMF), the United States and markets to take action or face disaster for the eurozone.

The summit could prove a defining moment for the EU as notions of Greece exiting the eurozone are being touted.

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 a meeting of 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 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 and €50 billion of state sell-offs, on June 28.

At stake is a €12 billion loan from last year's €110 billion international bailout, and a second rescue package almost as big.

Italy's Foreign Minister Franco Frattini, with his country seen by ratings giant Moody's as next to be squeezed on money markets, warned yesterday 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 €1 billion euros of routine EU funding could be brought forward.

Current European Central Bank president Jean-Claude Trichet will take part in the talks which will officially appoint Italy's Mario Draghi as his successor, and EU 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.