Merkel said she sees no 'better alternative' to the efforts being made to protect the euro and added: 'If the euro fails, Europe fails.'

Speaking of the magnitude of the debt problems facing Europe, she said: 'The world is looking at Germany, whether we are strong enough to accept responsibility for the biggest crisis since World War Two.'

Speaking shortly before a vote on boosting the firepower of the euro zone rescue fund that is set to strengthen Merkel's negotiating hand at the euro zone talks, the chancellor vowed to push for workable, long-term solutions. 'I will work towards reaching sustainable decisions this evening,' she said, warning that Greece would need the support of the European Union for some time to come and that no overnight fixes were in sight.

'We will do all we can to get Greece back on its feet as soon as possible,' she said, adding: 'A debt write down alone will not solve Greece's problems... structural reforms must still be implemented. The goal of the meeting tonight must be to get a result under which Greece will by 2020 have a debt to gross domestic product ratio of 120 per cent,' said Merkel.

WHAT HAPPENS IF LEADERS FAIL TO AGREE A DEAL?

If a deal is not reached over the future of Greece, the International Monetary Fund may be forced to act. British and American taxpayers could be hit indirectly, as eurozone officials indicated that the IMF could host a new fund to extend loans to governments at risk. Britain will have to pay 4.5 per cent of any IMF contribution.

The obstacles are horrendous, but they're simple (we have to get past that yeti, etc). The tension builds as the final battle approaches, and then it arrives, easy to understand. And everyone knows when the battle is won: the enemy is defeated and the heroes share a laugh.

With the European financial crisis, it's the opposite: with every day that passes, it gets messier, more complicated, and, frankly, more boring. Instead of coming together to a logical conclusion, new subplots break out daily. Previously, it was relatively easy to explain: Greece is bankrupt and we don't know what to do about it. But then we bailed Greece out and it's still not over. Now it's something along the lines of: Greece is bankrupt, but then French and German banks own Greek debt, so they might be bankrupt too. Then Italy has lots of its own debt, which Germany would like it to pay off, just in case the markets start worrying that Italy is bankrupt too.

And that's before we even get into the proposed solution (mostly it seems to be that Germany should throw money at everything, which the Germans understandably aren't too keen on). How big does the bailout fund need to be? Who pays for it? Who do we (well, the Germans) bail out: the Greeks, or the banks? Should the European Central Bank be allowed to buy government bonds? No one is sure of any of this. Not even the people whose job it is to understand it. Is it any surprise that one JP Morgan analyst got so frustrated he tried to explain it all with Lego?

The problem is that this applies to our politicians too. This afternoon, the leaders of 27 European countries will get together in a big room in Brussels, and they are expected to agree on a solution to a crisis so complicated that we don't even know who we can't agree to bail out any more. The coffee will taste bitter and they won't have slept much. Each has a different electorate, different newspaper headlines to wake up to and different political allies at home to appease. Few are economics specialists, or have the time to research this properly: they are all dependent on advisers, each of whom will say different, confusing things.

Unfortunately, we cannot expect successful solutions from a meeting like that. We will have a day of frantic speculation, reporting and comment today, and in all likelihood, tomorrow, everyone will emerge even more exhausted and no closer to agreeing on anything. The best we can hope for is enough to delay armageddon for a few more months. That will at least give us time to build more fall-out shelters.

Amateur video shows a violent torrent of water pouring through the centre of Monterosso, in Liguria. The water appears to reach the top of shop front windows. Diggers can be seen clearing roads blocked by fallen trees as cars struggled through water and debris. "Everything is missing here - supplies, water, electricity," said Angelo Betta, mayor of Monterosso. "People are getting into their houses through the terraces, everything is flooded. Monterosso doesn't exist anymore," he added.

It has been reported that several bridges and houses have been destroyed by the flooding. Rescue teams said they were having difficulty reaching some of the flooded areas and people were being evacuated by sea from some towns along the spectacular coast. The Italian army has been put on standby to help in rescue efforts.

• IMF 'wants investors to take 70-75 per cent losses on Greek debt'

• Germany says no new money for euro bail-out fund

• Draft agreement: banks to raise money in markets, not bail-outs

• Berlusconi reportedly agrees to resign to push through reforms

• Markets trade flat as investors wait for eurozone rescue plan

• EU leaders meet in late afternoon to thrash out agreement

Latest

14.15 Meanwhile, somewhere else in Brussels, the European Parliament has just voted through a nice budget increase for itself.

According to Open Europe, MEPs votes for a 5.2 per cent increase in the 2012 EU budget. Some 431 were in favour, 120 against, and with 124 abstentions. And setting a great example for Greece & Italy to follow when it comes to austerity!

13:35 Tensions over the tough economic reform programme have proved a little too much for a pair of Italian deputies, who just started a brawl in parliament. Two deputies from the Northern League, a member of the ruling centre-right coalition, fought with members from the opposition FLI party speaker Gianfranco Fini, grabbing each other by the throat as other parliamentarians rushed to separate them.

The sitting was suspended for a while after the fight, which broke out because of sarcastic remarks on television by Fini alleging that the wife of League leader Umberto Bossi had retired at 39. It was only last year tempers flared in the lower house of parliament in Rome with one MP calling an opponent "a piece of ****" before several ended up wih black eyes.

Follow the crisis as it happens - live:

http://www.telegraph.co.uk/finance/financialcrisis/8846201/Debt-crisis-live.html

Silvio Berlusconi's government is in trouble. Not only has the Italian prime minister apparently lost the respect of his counterparts in Germany and France, but his coalition is facing fracture over possible austerity measures and social system reform. Indeed, after coalition partner Umberto Bossi of the Northern League ruled out a proposed increase to the retirement age from 65 to 67, Italian dailies reported on Wednesday that Berlusconi may be planning to resign at the end of the year. Both La Repubblica and La Stampa write that Berlusconi and Bossi reached a secret agreement which foresees new elections to be held next March rather than in spring of 2013 as originally planned.

Berlusconi finds himself in a tight spot after German Chancellor Angela Merkel and French President Nicolas Sarkozy asked him to present a plan in Brussels on Wednesday for paying down Italy's vast mountain of debt. Concerns are mounting that Italy, with sovereign debt worth close to 120 percent of its annual economic output, could become the euro zone's next Achilles heel. Indeed, interest rates on the country's sovereign bonds have once again begun climbing to worrisome levels, reminiscent of developments in August when the European Central Bank stepped in to buy significant quantities of Italian bonds to keep down interest rates.

Conservative daily Die Welt writes:

"For Berlusconi, it's all or nothing. His coalition with the Northern League, a party... which is opposed to raising the retirement age, is in danger. As a result, so too is Berlusconi's power base and his entire political future - including protection against various criminal proceedings. Instead of being a part of the solution, Berlusconi has long since become part of the problem. But Italy is much too big to be propped up by the euro backstop fund. The debt crisis has long since become a crisis of faith in the euro zone. For Italy, it could also become a state crisis."

Now, seven months later, that floating debris is on a direct collision course with the Pacific Coast of the United States - and it might be coming sooner than expected. "Across the wide Pacific, the drift rate is about five to 10 miles per day," oceanographer Curt Ebbesmeyer told ABC News.

Early computer models predicted that the debris would not hit the United States for two to three years. But a Russian training ship, the STS Pallada, following a map of the computer models, hit an extended field of debris in mid-Pacific, close to Midway Island, a US territory about 1,700 miles from Hawaii.

The ship's encounter with the 1,000-mile-long mass of tsunami debris came in September - 300 miles ahead of schedule, and nearly 2,000 miles from the site of the tsunami in Japan. The ship's crew found a battered, 20-foot fishing boat marked "Fukushima," the same spot in Japan that was ground zero for the tsunami. The Pallada's crew sailed through the debris, surrounded by everything from appliances and televisions to furniture, all of it now headed straight for Hawaii.

The first of it is expected to hit Midway Atoll this winter, then Hawaii in early 2013, and the US West Coast - mainly Washington and Oregon - in early 2014. Experts now estimate that lighter objects will wash ashore Midway's beaches this winter.

"We are living in crucial times. If the summit is a failure, this could tip the European continent into unknown territory," the sources from the ruling UMP party quoted the prime minister as saying during the meeting. "Pressure does not stop growing on the eurozone and the whole of the global economy," the sources quoted him as saying. "It is undeniable that the forecasts for global economic growth are undergoing brutal falls."

"If the results of the European summit are positive, the pessimism (on growth rates) will abate," he said. "An agreement must be found with Germany," he said. He also denounced press reports that Paris was following Berlin's lead in dealing with the eurozone crisis, saying: "I remind you that the initiatives (to deal with the crisis) are French."

The demand came as European officials attempted to reach a final agreement on giving the eurozone's 440 billion euros rescue fund more firepower so that it can assist Italy by purchasing Italian bonds, lowering Rome's borrowing rates, which are near 6 per cent. While such EU assistance falls well short of a full-scale Italian bail-out, senior European officials said it would come with tough new conditions, and that the demands on Silvio Berlusconi were the beginning of a more intrusive effort by Italy's eurozone partners to ensure Rome convinces the financial markets it is sincere about fiscal reforms.

Talks early on Tuesday between Mr Berlusconi and his Northern League coalition partners failed to resolve the deadlock - centred on proposed pension reforms - after inconclusive negotiations the night before. Talks between the coalition parties continued into the night, indicating no substantial agreement on reforms had been reached.

"At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn't," Greenspan said. "Instead, northern Europe fell into subsidizing southern Europe's excess consumption, that is, its current account deficits."

Greenspan predicts that as the south's fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe's standard of living will go down. "The effect of the divergent cultures in the eurozone has been grossly underestimated," he added. "The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren't, it simply can't continue to work."

Greenspan feels that, to a very large extent, what's driving the United States at the moment is Europe. "Today, there is one single integrated global stock market," he said. He also expects the European crisis, coupled with a failure to address the US budget deficit, may be severe enough to cause a bond market crisis if the market suddenly decides the US is more like Greece than not.

Cameron's government, which is against holding a referendum, in the end won the House of Commons vote 483-111 due to support from the Liberal Democrats - the Conservatives' euro-friendly junior coalition partners - and the main opposition Labour Party. But the eurosceptic wing of the Conservative Party delivered Cameron a blow by ignoring whip pressure to vote in favour of a referendum in the biggest show of internal party dissent since he took office in May 2010.

After the vote, a spokesman from Cameron's Downing Street office said the government respected the fact that members "felt very strongly" about the issue, but that it had to do with "what is in the national interest." Cameron's strong stance was necessary to preserve the benefits which Britain enjoys from being an EU member but the leader is determined to bring about "fundamental reform" in the 27-nation bloc, added the spokesman in Monday's statement.

Although the vote was never to be legally binding, the rebellion is politically significant, particularly as polls suggest it has public support. A YouGov survey for The Sunday Times this weekend found 66 percent of Britons back a referendum on European Union membership.

After 12 hours of at times ill-tempered talks that once again highlighted gaping divisions on how to rescue the currency, the leaders got closer to agreement on bank recapitalization and on how to leverage their rescue fund to try to avoid bond market turmoil following a Greek debt cut. Final decisions were put off until Wednesday's summit and it remains unclear how much of a hit banks will have to take on a Greek haircut - 40, 50 or 60 percent.

French President Nicolas Sarkozy backed down after German Chancellor Angela Merkel refused to accept his plan to use unlimited European Central Bank funds to fight the crisis by turning the rescue fund into a bank and letting it borrow from the ECB. Meanwhile, Italian Prime Miniser Silvio Berlusconi was told in no uncertain terms to present a more convincing plan this week to boost growth and lower its debt burden.

German newspapers on Monday make gloomy reading, with commentators saying that leaders have let the EU down with their piecemeal approach towards fighting the crisis over the last 18 months: The measures to be decided on Wedesday won't rescue the euro, they say - it will only buy time for countries to reduce their debt and reform their economies.

German Chancellor Angela Merkel has told German lawmakers that the financial strength of the euro rescue fund, the European Financial Stability Facility, is to be leveraged to 1 trillion euros ($1.39 billion), and that a Greek debt cut of up to 60 percent is planned, opposition leaders said on Monday.

The type of leveraging planned remains unclear, with a number of versions being discussed. It emerged earlier on Monday that the controversial measure to increase the firepower of the 440 billion euros rescue fund will be put to a full vote in the German parliament on Wednesday, rather than just a vote by the budget committee as initially planned. Given the intense public debate on boosting the EFSF, Merkel's center-right coalition decided to seek a broader mandate than just budget committee approval.

The search for survivors had continued through the night, with some successes, but officials acknowledged they were powerless to prevent a steep rise in the death toll after Sunday afternoon's earthquake - the biggest to rock the country in more than a decade. The prime minister's emergency agency, AFAD, said at least 279 people had been confirmed dead and a further 1,300 were injured across the region. Thousands more were left homeless amid bitter winter temperatures.

The quake damaged at least 2,262 buildings, with Van city and the Ercis district the worst affected, AFAD said. Over 3,000 rescue personnel were assisting the region's search and rescue efforts with the help of medical teams, search dogs and military aircraft to shuttle supplies to the affected regions. But widespread power outages were hampering their response. Dozens of people were still trapped in the rubble, while dozens more were placed in body bags or covered by blankets and laid down in rows so people could search for their missing relatives.

Turkey lies in one of the world's most active seismic zones and is crossed by numerous fault lines. In 1999, two earthquakes with a magnitude of more than 7 struck northwestern Turkey, killing about 18,000 people. Istanbul, the country's largest city with more than 12 million people, lies in northwestern Turkey near a major fault line, and experts say tens of thousands could be killed if a major quake struck there.

Why in the world would we be borrowing money and then turn around and giving it back to the countries that we're borrowing it from?" Republican Senator Tom Coburn of Oklahoma said. "If they have enough of a surplus to loan us money, they have enough of a surplus to take care of their own needs." Democratic Senator Jim Webb of Virginia asked the same question in a recent appearance on Fox News: "Hey, in the crisis that we're in right now, should we really be continuing to send American taxpayer dollars over to China for these purposes?"

So why'd we start giving aid in the first place? "The hope and the operating assumption is that to the extent that we engage them in a variety of ways, that we can stay influential. And we can influence them," Dan Runde of the Center for Strategic and International Studies said. But Runde notes China's record of flaunting trade rules - violating intellectual property laws, including multiple openings of fake Apple stores there recently, as well as patent infringements. He suggests the aid has had little positive impact. The whole matter leaves Coburn completely disgusted. "You know, it's stupidity. There's no other explanation for it, other than we're stupid in Washington to continue to do that."

The group, which follows state fiscal conditions and advocates for limited spending and taxes, said the deficit calculations that states make "do not offer a full picture of the states' liabilities and can rely on budget gimmicks and accounting games to hide the extent of the deficit."

The housing bust, financial crisis and economic recession caused states' tax revenue to plunge, and huge holes have emerged in their budgets over the last few years. Because all states except Vermont must end their fiscal years with balanced budgets, states have scrambled to cut spending, hike taxes, borrow and turn to the federal government for help.

Taxpayers are worried the states' poor fiscal health will persist for a long time and some Republicans in Congress have questioned whether the situation is worse than the states say.