The G20 summit in Cannes has ended in ominous disarray, drawing nearer the threat of a world recession.
Leaders were unable to agree upon a boost to the International Monetary Fund (IMF) to help distressed countries, while debt-ridden Italy, now seen as the epicentre of the euro crisis, was forced to put its austerity programme under the fund's control.
UK hopes that the Germans would relent and allow the European Central Bank to become the lender of last resort for the euro were also dashed.
In a day of unremitting gloom, and yet more market turbulence, the Greek government also stood on the precipice of collapse, risking an uncontrolled default, as the government of George Papandreou faced a late-night confidence vote in parliament. Prime Minister Papandreou was forced to cancel plans for a referendum on the euro.
The sense of stasis led the British prime minister, David Cameron, to issue a stark warning about the impact of the crisis on the world economy: "Every day that the eurozone crisis continues and every day it is not resolved is a day that it has a chilling effect on the rest of the world economy, including the British economy. I am not going to pretend all the problems in the eurozone have been fixed. They have not. The task for the eurozone is the same as going into this summit. The world can't wait for the eurozone to through endless questions and changes about this.
"We like the rest of the world need the eurozone to sort out its problems. We need more to happen in terms of detail on the European firewall." He also hinted at worse to come, describing this as only "a stage of the global crisis".
There had been hopes that the G20 would agree to increase IMF resources by as much as $250bn (£156bn) to more than $1tn, but disagreements about the wisdom, structure and size of the boost to the fund and over who would contribute meant the decision was left to a meeting of G20 finance ministers next February. The French president, Nicolas Sarkozy, had been eager to flourish a figure both to assure the markets and to top off his chairmanship of the G20.
Cameron revealed the friction, saying: "The very worst thing would have been to try and cook up a number without being very specific about who is contributing what. If you cannot do that, it is better to say the world stands ready to increase resources to the IMF as necessary."
Barack Obama, under pressure from his own Congress, was deeply reluctant to contribute to an expansion of IMF funds without clearer signs that the eurozone was sorting out its problems. Admitting he had been given "a crash course in European politics", the US president urged Greek and Italian parliaments to take decisive action to control their deficits, and so combat what he described as some of the psychological origins of the crisis. He also urged the euro area to start putting some resources into its European Financial Stability Fund (EFSF), a rescue fund agreed at the European summit on 27 October.
But the German chancellor, Angela Merkel, said: "There are hardly any countries here which said they were ready to go along with the EFSF."
The Italian prime minister, Silvio Berlusconi, was summoned to a late-night hotel meeting with Merkel, Sarkozy, the IMF director general Christine Lagarde and Obama, where he was instructed to bring Italy under quarterly IMF surveillance to ensure he implements tough austerity measures, including changes to the labour market, pension reform and the sell-off of state assets.
Italy has debts of €1.9tn (£1.6tn), or 120% of GDP, and if it followed Greece down the path towards a financial bailout, or default, the impact on the European banking system would be huge. Italian debt yields rose again on Friday to near unsustainable levels as traders reflected fears of a default by demanding higher returns. Italy faces new tests in further auctions of its debt this month – it has to raise €30.5bn in November, and a further 22.5bn in December.
Sarkozy denied the demands on Berlusconi represented something approaching an IMF coup, saying: "We never wanted to change governments, either in Greece or in Italy. That is not our role; that is not our idea of democracy, but it's clear that there are rules in Europe and if you exonerate yourself from these rules you exclude yourself from Europe."
Berlusconi, facing defections from his own party, insisted he had invited the IMF to offer advice. He said on Friday he had rejected an offer of IMF funds. "I don't think Italy needs that," he said, claiming his country was more solid than France or the UK. "Italian restaurants and vacation spots are always full. Nobody has the sense the country is in a crisis."
British officials privately admit that fear of an economic collapse in Italy is the single biggest concern gripping world leaders. They said: "We cannot have the Italians meeting in crisis every three days. We need some action."
The UK government will now focus on urging its European partners to make progress, and will continue to support extra cash for the IMF. Cameron said he would not need UK parliamentary approval to do this since the Commons had already voted to sanction an increase that would cover the proposed UK additional contribution.
In a sign that the collapse of Italy could lead to a collapse of the single currency, the chancellor, George Osborne, said the Treasury was undertaking scenario planning on such a development.
The EFSF has €440bn available to lend, of which roughly half is expected to be consumed by bailouts of Ireland, Portugal and Greece. The European Central Bank has purchased Italian debt since August, but will not do so indefinitely. Financing could leverage the EFSF's money into something larger, which has led the EU to pursue countries outside the eurozone with surplus cash, such as China.