Pressure on EU leaders to solve Greek crisis

French President Francois Hollande arrives for an EU summit at the EU Council in Brussels, Wednesday, May 23, 2012. The leaders of the 27 countries that make up the European Union are to meet in Brussels Wednesday to try and find a way to keep the debt crisis in Europe from spiraling out of control and promote jobs and growth. (AP Photo/Geert Vanden Wijngaert)

French President Francois Hollande arrives for an EU summit at the EU Council in Brussels, Wednesday, May 23, 2012. The leaders of the 27 countries that make up the European Union are to meet in Brussels Wednesday to try and find a way to keep the debt crisis in Europe from spiraling out of control and promote jobs and growth. (AP Photo/Geert Vanden Wijngaert)

German Chancellor Angela Merkel arrives for an EU summit at the EU Council in Brussels, Wednesday, May 23, 2012. The leaders of the 27 countries that make up the European Union are to meet in Brussels Wednesday to try and find a way to keep the debt crisis in Europe from spiraling out of control and promote jobs and growth. (AP Photo/Geert Vanden Wijngaert)

French President Francois Hollande, left, shakes hands with Spain's Prime Minister Mariano Rajoy prior to their meeting at the Elysee Palace, Paris, Wednesday, May 23, 2012. (AP Photo/Jacques Brinon)

BRUSSELS (AP) ? Europe's leaders gather in Brussels under mounting pressure to soften their tough-love approach to the weaker economies among them. With Greece locked in political chaos, much bigger Spain warns it can't keep afloat without help, as stock markets around the world tank over fears the leaders won't have the political will to act.

The summit will have to fight multiple fires: political uncertainty in Greece that could see it renege on commitments made to secure rescue loans; rising borrowing costs in Spain and Italy that could force them to seek bailouts; and sluggish growth across the region exacerbated by budget cuts meant to reassure markets about high debt levels.

"What we need is a decisive plan for Greece, and we need decisive plans to help get the European economies moving," British Prime Minister David Cameron said as he headed into the summit of leaders of the 27 countries that make up the EU, which includes the 17-member eurozone.

"But if we're not going to keep coming back and back to meetings like this we also need to deal with some of the longer-term issues at the heart of running successful single currency, having a bank that gets behind that single currency, having coherent long-term plans to make sure that single currency is coherent," he said.

Leaders have said that everything will be on the table, including a discussion about whether the countries that use the euro should spread the risk and borrow money jointly ? issuing so-called "eurobonds." This would mean every country could borrow funds at the same rate, substantially lowering the costs for the more indebted countries.

But expectations were low for agreement on concrete measures to boost growth and stability in the eurozone. Europe's main stock indexes plunged more than 2 percent. The euro fell 0.8 percent to $1.2561, its lowest in nearly two years.

On Tuesday, the Organization for Economic Cooperation and Development became the latest body to warn that the eurozone is at risk of falling into a "severe recession" and suggest that it slow the pace of austerity, or cost-cutting measures, in some countries.

That's exactly what many in Greece are asking for. The country has undertaken massive spending cuts and tax hikes to slash its deficit and rein in its debt ? and in exchange for the bailout loans that help keep it paying the bills. But Greece is now in its fifth year of recession, and many argue the country cannot hope for a recovery if it sticks to the deal.

In a recent election, neither of Greece's two main parties, both of which support the bailout deal, fared well. Instead, minor parties that are threatening to renege on those commitments saw their popularity surge. A new round of elections is set for June 17.

It is now a question of who will blink first. If the Greeks pick an anti-bailout government and renege on the terms of the bailout, the country could be forced into a messy exit of the euro. That could irreparably fracture the common currency and rattle global financial markets.

Some European countries are already hinting that Greece should be given better terms. Both the International Monetary Fund and the OECD, which monitors economic trends in developed economies, also are pushing for the demands on some countries to be eased.

European Union leaders are nonetheless presenting a united front and leaving it up to the Greek people to decide their future in Europe.

"Greece has to make an important choice on June 17, and their choice has to be European," French President Francois Hollande said as he headed into Wednesday's meeting. "France wants that the Greeks stay in the eurozone, and the Greeks must respect their commitments. At the same time, the eurozone must show it supports Greece."

That question will no doubt be central to Wednesday's discussions, although leaders have said no decisions would be made at the meeting ? which is technically only meant to set up a summit in late June.

Slow growth and uncertainty over Greece is making things worse for other struggling eurozone countries, like Spain, whose borrowing rates are high ? and rising ? because of fears that its government finances might be overwhelmed by the costs of rescuing its ailing banking sector.

In a meeting early Wednesday in Paris with Hollande, Spanish Prime Minister Mariano Rajoy warned that his country couldn't continue much longer with its current high borrowing rates. High borrowing rates are at the heart of Europe's crisis and are what caused Greece, Ireland and Portugal to seek bailouts.

"Europe has to come up with an answer," Rajoy said. "It is a must, because we cannot go on like this for a long time, with large differences when it comes to financing ourselves."

Rajoy suggested the European Central Bank resume some of its emergency measures, such as buying the bonds of weak countries, which has the impact of lowering countries' borrowing rates. The ECB has suspended the purchases because, as an independent body, it does not want to be seen supporting governments directly. Instead, it has given European banks massive amounts of cheap loans to bolster confidence in the financial system and allow banks to buy up their country's debt.

Leaders will also be addressing ways to buoy growth, like unleashing unused EU funds, increasing the financing of the European Investment Bank, which could then give loans to companies, and issuing "project bonds," debt that would be invested in large infrastructure projects.

Hollande said at his meeting with Rajoy that he will formally propose so-called eurobonds ? debt issued jointly by eurozone countries ? at Wednesday's summit.

Such bonds would distribute the risk of debt across the whole eurozone. That would mean every country would borrow at the same rate ? giving financially weak countries a huge discount over their current rates. Eurobonds could eventually replace at least some of a country's nationally issued debt, though countries would likely continue to meet the rest of their funding needs by going individually to the bond markets, as they do now.

German Chancellor Angela Merkel is staunchly opposed to such a move because it would reduce the pressure on heavily indebted governments to heal their finances and force Germany to borrow at higher rates.

"I believe that they are not a contribution to foster growth in the eurozone because the very similar interest rates which we had over many years, have basically led to grave wrong developments," she said as she headed into Wednesday's meeting.

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Raf Casert in Brussels, Thomas Adamson and Sylvie Corbet in Paris, Geir Moulson and Juergen Baetz in Berlin and Daniel Woolls in Madrid contributed to this report.

Associated Press

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