International lenders told Greece today it must shrink its public sector and improve tax collection to avoid default within weeks as investors spooked by political setbacks in Europe dumped risky euro zone assets.

A conference call between Greece and its international lenders this evening was described as "satisfying" by the country's finance ministry. It will continue tomorrow.

"A productive and substantive discussion took place," the ministry said in a statement.

"Tomorrow morning, the teams of technical experts already in Athens will further elaborate on some data and the conference call will be repeated tomorrow at the same time," it added.

The call was attended by Greek Finance Minister Evangelos Venizelos, two ministry officials and the heads of the European Union, International Monetary Fund and the European Central Bank mission for Greece.

Hours before the conference call, the IMF representative in Greece spelled out steps Athens must take to secure a vital €8 billion rescue payment next month.

"The ball is in the Greek court. Implementation is of the essence," the IMF’s Bob Traa told an economic conference.

Additional savings measures were needed to cut the public deficit to a sustainable level and reduce the public sector's claim on resources - code for axing jobs and cutting pay and pensions - while improving tax collection rather than adding further taxes, he said.

Greek finance minister Evangelos Venizelos said the country would do what was necessary to get more rescue funds, but would not allow itself to be scapegoated by euro zone policymakers who had failed to deal with the region's debt woes.

European stocks and the euro fell sharply on fears of an early Greek default, the failure of EU finance ministers to agree new steps to resolve Europe's debt crisis at weekend talks, and another regional election defeat for German chancellor Angela Merkel.

In a sign of mounting stress, yields on Italian and Spanish bonds rose further above 5 per cent despite six weeks of European Central Bank buying in an effort to stabilise them. The cost of insuring peripheral debt against default also rose.

The euro zone debt crisis is now dominating the thoughts of policymakers worldwide with the United States, in particular, pushing for more dramatic action from Europe's leaders.

"A new and larger risk looms. The drop in markets and confidence could prompt slippage in developing countries' investment and a pull back by their consumers too," World Bank chief Robert Zoellick said ahead of G20 talks and an IMF-World Bank meeting in Washington later in the week.

Without its next, €8 billion loan tranche, Athens says it will run out of cash in mid-October, leaving it unable to cover state salaries, pensions and pay its bills.

A default would pose the risk of contagion to larger euro zone economies such as Italy and hammer European banks with heavy exposure to Greece.

The Greek cabinet was due to meet after the teleconference with the IMF-ECB-EU "troika", last today, to discuss further austerity measures to make up for a fiscal shortfall.

Prime minister George Papandreou cancelled a planned trip to Washington and the United Nations at the last minute and returned home in response to the crisis.

A senior Greek government official said EU-IMF inspectors expect a new property tax unveiled last week to yield just half the €2 billion targeted this year.

Greek media published a list of 15 austerity measures it said the troika was demanding the Socialist government implement to receive the next tranche of aid. They included firing another 20,000 state workers, cutting or freezing state salaries and pensions, increasing heating oil tax, shutting down loss-making state organisations, cutting health spending and speeding up privatisations.

The European Commission said it was not asking Athens to adopt any additional austerity steps on top of what had already been agreed in the Greek reform programme.

Mr Traa acknowledged that the IMF-EU bailout programme lacked public support and said there was plenty of goodwill to give Greece more time for its adjustment programme in a weaker than expected economy.

He said the economy was set to contract by 5.5 per cent this year and 2.5 per cent in 2012.