German chancellor Angela Merkel and French president Nicolas Sarkozy have started talks in Berlin over a possible solution to the Greek debt crisis ahead of a euro zone summit tomorrow where the problem will be discussed by EU leaders.
"We are very confident that there will be a good and sensible solution," Ms Merkel's spokesman said, stressing private sector participation remained a key German priority.
Tonight the head of the European Commission Jose Manuel Barroso warned that the global economy will suffer if a convincing solution is not found.
"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," Mr Barroso said.
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.
Mr 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".
Minister for Finance Michael Noonan aid today he was hopeful further progress can be made on securing agreement on reduced interest rates for bailout funds to Ireland at tomorrow's emergency meeting.
Mr Noonan said while the main focus of the Brussels summit was a potential second bailout for Greece, he believed Ireland would also be on the agenda.
The Minister said many issues the Government had been seeking to address; such as longer loans and dedicated credit lines, had been incorporated in a policy document prepared for the summit.
Mr Noonan said enthusiasm for the demand from Germany that banks share the burden of bailing out Greece had waned and that alternatives were now being put on the table.
"There are a lot of ideas being debated," he said. "The principle which is on the table is that if the banking industry doesn't contribute directly to the Greek bailout . . . the alternative would be the imposition of a tax so that they could contribute indirectly."
Speaking earlier in the Dáil Mr Noonan said the threat to the euro "can only survive if its Member States can continue to see that the alternative is much worse and if investors have faith in it".
Taoiseach Enda Kenny said he was hopeful Ireland will be on the agenda at the meeting, but added he did not believe the meeting would solve all the euro zone's problems.
"The crisis in the euro area will not be resolved overnight. There is no one magic solution or silver bullet. At our meeting tomorrow we will consider important proposals, but there will be further meetings and further steps to be take before we are out of the woods."
Christine Lagarde will attend the summit on behalf of the International Monetary Fund, which has told euro zone leaders that they should put more money into the EFSF bailout fund and allow it to buy government bonds on the secondary market.
They would also run counter to a treaty signed just three weeks ago creating a permanent crisis-resolution mechanism from 2013, the ESM, which would not have such powers.
Major European banks and insurers were to send euro zone governments a complex proposal later on Wednesday for helping in a planned €115 billion second Greek bailout, industry sources said.
One banking source said the banks were offering a mixture of debt rollovers, maturity extensions and other measures worth roughly €40 billion over three years, but details have yet to be finalised.
Another source said negotiations were still fluid but key elements would be a large rollover of expiring bonds for up to 30 years on credit-enhanced terms, and probably a much smaller buyback by the Greek government of its own bonds on the secondary market with money lent by the EFSF.
Additional reporting: Reuters
