EU's Barroso warns of economic damage if Greece summit fails

EU leaders must find a convincing solution to Greece's debt crisis at a summit tomorrow or the global economy will pay the price, the head of the European Commission said in an unusually somber 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 that Greece can be saved from default and the rest of the euro zone 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 euro zone's EFSF bailout fund, repair of the region's banking system and liquidity to keep the economy going.

In what sounded like a 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 one-shot spectacular 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 the leaders would let the EFSF buy government bonds in the secondary market and provide precautionary credit lines to countries in difficulty.