LOS CABOS, Mexico (Reuters) - World leaders were set to pile pressure on Europe at a G20 summit on Monday to outline a lasting strategy to save the euro currency after a victory for pro-bailout parties in a Greek election failed to calm financial markets.
U.S. President Barack Obama spoke with European leaders after the Greek vote and requested a meeting with them on Monday evening, underscoring the extent of concern in Washington that the euro crisis could deepen, infecting the fragile U.S. economy only months before an election.
He will also hold separate talks with German Chancellor Angela Merkel, who as the leader of Europe's biggest economy, faces enormous pressure to take bold new steps to resolve a crisis that has been raging for more than two years.
Protected by Mexican navy vessels and troops on the beaches and highways, Group of 20 leaders from major industrialized and developing economies, representing more than 80 percent of world output, began a two-day meeting in this Pacific resort to prioritize growth and job creation against the backdrop of a weakening global economy.
Escalating violence in Syria and the near-collapse of a United Nations-brokered peace plan also will be in focus when Obama meets with Russian President Vladimir Putin on the sidelines of the summit on Monday. The two super powers are clashing over arming Syria and U.N. sanctions.
But Europe's progress toward lasting solutions for its debt crisis will be the focal point when G20 leaders hold their opening session on the global economy.
A narrow victory for the conservative New Democracy party in the Greek election on Sunday eased concerns the heavily-indebted country could exit the euro zone soon but did little to calm financial markets.
The euro fell from a one-month high against the dollar and Spanish bond yields shot above 7 percent to their highest level since the creation of the single currency in 1999.
British Prime Minister David Cameron, who runs the biggest European economy outside the euro zone, was poised to warn leaders from the currency area that they faced "perpetual stagnation" without bold new measures and to call on central banks to protect the global economy.
"We cannot afford for central banks around the world to stand on the sidelines if we are to deliver the growth we need," Cameron was to say, according to extracts of a speech.
"It is becoming increasingly clear in the euro zone that the core, including the ECB (European Central Bank), must do more to support demand and share the burden of adjustment."
MERKEL IN FIRING LINE
Merkel, who touched down in Los Cabos in the early morning hours Monday, faces intense pressure to take stronger action but has rejected calls for joint euro zone bonds and the creation of a "banking union" in Europe with cross-border deposit guarantees.
Germany has sent signals it could be open to giving Greece a bit more time to get its deficit under control, but it is not budging on the substance of strict budget cuts and structural reforms that Athens has pledged to implement in exchange for two successive EU/IMF bailouts worth a combined 240 billion euros.
That could put Merkel on a collision course with the winner of the Greek vote, Antonis Samaras, who campaigned pledging to renegotiate elements of the rescue and reiterated that stance on Monday.
"We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships," he said.
David Mackie, an economist at JP Morgan, said he expected European governments to ultimately be forced to agree to an "aggressive restructuring" of the loans they have already provided to Greece to return the country to a sustainable path.
Merkel has said repeatedly that there are no quick fixes to the crisis and is instead pushing fellow European leaders to agree a road map toward closer fiscal integration that would involve ceding sovereignty over budgets to Brussels and giving more power to the European Parliament.
But her counterparts, notably new French President Francois Hollande, have doubts about transferring powers over fiscal policy, and it appears unlikely that Europe will deliver a "grand bargain" that reassures markets at a separate summit of EU leaders on June 28-29.
World Bank President Robert Zoellick called it "an absolutely critical time" and warned Europe not to squander this opportunity for decisive action.
"We are waiting for Europe to tell us what it is going to do," Zoellick said on Sunday at a business meeting on the sidelines of the G20 summit.
"The danger we're creating is the danger of policymaking that is increasing uncertainty and making markets more nervous, which has a negative feedback loop."
Europe's debt crisis has underscored the need for a bigger war chest at the International Monetary Fund. Leaders are set to confirm they will double the IMF's firepower with an extra $430 billion in loans even though some emerging nations are frustrated with the slow pace of winning more power at the global lender.
The G20 leaders are also expected to adopt a Los Cabos Action Plan, pledging to promote economic growth and jobs, investing in infrastructure and promoting trade, while sticking to its pledges to bring down budget deficits. (Additional reporting Lesley Wroughton and Tetsushi Kajimoto; Jan Strupczewski in Brussels; Jason Lange in Washington and Benjamin Kang in Beijing; Writing by Noah Barkin and Stella Dawson; Editing by William Schomberg and Padraic Cassidy)