The leaders of the 27 countries that make up the European Union are to meet in Brussels to try and find a way to keep the debt crisis in Europe from spiralling out of control and promote jobs and growth.
Prime Minister Mariano Rajoy of Spain, where the economy and banking system are at the frontline of the crisis, will meet newly elected French President Francois Hollande in Paris ahead of the evening summit to discuss policy positions - a marked shift away from the traditional Franco-German axis.
At nearly all previous summits over the past two years, Hollande's predecessor Nicolas Sarkozy met German Chancellor Angela Merkel beforehand to fix a strategy, prompting criticism from other leaders.
In that respect, Hollande's victory has significantly changed the terms of the debate, with his call for greater emphasis on growth now a rallying cry for other leaders.
That has set up a showdown with Merkel, who supports growth but whose primary objective is budget austerity and structural reform.
Hollande said on Wednesday he would do everything to keep debt-hit Greece in the eurozone after talks with Spanish Prime Minister Mariano Rajoy.
"I will do everything I can in my position to convince the Greeks to choose to stay in the zone and everything to convince Europeans who might doubt of the necessity of keeping Greece in the eurozone," Hollande told journalists.
In his first EU summit, Hollande has also chosen to make a stand on euro bonds - the idea of mutualising eurozone debt - despite strong German opposition to an idea that has been hotly debated for more than two years.
He will have support from Italian Prime Minister Mario Monti and European Commission President Jose Manuel Barroso, among other leaders.
Eurozone officials have told members of the currency area to prepare contingency plans in case Greece decides to quit the bloc, an eventuality which Germany's central bank said would be "manageable".
Three officials told Reuters news agency that the instruction was agreed on Monday by a teleconference of the Eurogroup Working Group (EWG) - experts who work on behalf of the bloc's finance ministers.
"The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro," said one euro zone official familiar with what was discussed.
The news comes at a highly sensitive time, just hours before the EU leaders gather to try to breathe life into their struggling economies at the summit over dinner on Wednesday.
Although minds will be focused by the prospect of Greece exiting the currency area, which has earned the monicker "Grexit" and is something policymakers say they want to avoid, disagreements over a plan for mutual bond issuance and other measures to alleviate two years of debt turmoil have already been laid bare.
Pier Carlo Padoan, the OECD chief economist, said "the crisis in the euro area has become more serious recently, and it remains the most important source of risk to the global economy".
Padoan said: "There is a risk of serious recession which could be sparked off by events like Greece, if that happens it could affect the global economy".
Recession, "rising unemployment and social pain may spark political contagion and adverse market reaction" with countries outside the eurozone also at risk of being hit, he said.
While the eurozone gained some breathing space at the beginning of the year from the European Central Bank pumping over a trillion euros into banks, tensions have soared in recent weeks after inconclusive elections raised the spectre of a Greek exit from the euro.
"The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth," OECD's Padoan said.
Padoan also noted the backlash against austerity measures across Europe, which has seen street protests and led to the election of Francois Hollande.
In elections earlier this month, the majority of Greeks voted against those parties backing the drastic austerity measures that had been agreed with the EU.
"Elections in a number of euro-area countries have signalled that reform fatigue is increasing and tolerance for fiscal adjustment may be reaching a limit," he said.
The OECD is an organisation that consists of 34 countries, including the US and Western European nations.
But emerging economies such as China and Brazil are set for a cyclical upswing, the OECD said in its latest twice-yearly Economic Outlook report.
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|Liaquat Ali Khan|