Gathered in Luxembourg, finance ministers will weigh the threat of a Greek default, grapple with how to shield banks from the fallout, consider a further boost to their rescue fund and tackle the question of “governance” -- shorthand for who will be in charge of a better-managed euro area.

Smarting from global criticism including U.S. President Barack Obama’s jibe that Europe’s fiscal pain is “scaring the world,” European leaders are looking at a Group of 20 summit in early November as a deadline for showing they are in control of events.

“The euro zone is the new international scapegoat,” Carsten Brzeski, an economist at ING Group NV in Brussels, said in a research note. “It seems as if the advice from Washington didn’t fall on deaf ears. Policy makers are already considering new measures behind closed doors.”

Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros ($402 billion) in credit risks.

Loan Delayed

Today’s meeting, starting at 5 p.m., was the original target date for approving an 8 billion-euro loan payment to Greece, the sixth installment of the 110 billion-euro lifeline put together at the outbreak of the crisis in May 2010.

Now that decision has been pushed back until mid-October, as Greek Prime Minister George Papandreou concocts plans to squeeze additional savings out of a population weary of two years of budget cuts and tax increases.

European monitors agreed to 6.6 billion euros of austerity measures proposed late yesterday by Papandreou after Greece said it will miss the 2012 budget-deficit target. The shortfall will be 6.8 percent of gross domestic product, compared to a goal of 6.5 percent of GDP.

As the brinksmanship unfolds, Greece’s chances of getting the next disbursement are “in my view clearly higher than the likelihood of not being paid out,” Austrian Finance Minister Maria Fekter told Welt am Sonntag newspaper in an interview published yesterday.

The payout would buy Greece time as seven countries including Germany, Europe’s dominant economy, consider unstitching a July accord on a second bailout, potentially calling for Greek bond writedowns of as much as 50 percent that would constitute default, two European officials said.

Greece Reviewed

Greece’s odds hinge on an assessment by European Commission, ECB and IMF experts who returned to Athens last week -- only to find their way into some Greek government offices barred for two days by anti-austerity protesters.

The IMF’s latest judgment, released Sept. 20 in its Fiscal Monitor, was that Greece will post a budget surplus net of interest costs in 2012 and the debt will start declining in 2013.

Pessimism reigns among investors. A full 93 percent expect Greece to default, according to Bloomberg’s quarterly Global Poll last week. Some 56 percent said Portugal is heading for the same fate, while a majority now sees Ireland, the third aid recipient, returning to fiscal health.

“The failure of Greece would be the failure of all of Europe,” French President Nicolas Sarkozy told reporters Sept. 30 after hosting Papandreou in Paris. “Remember in 2008, when the U.S. let Lehman Brothers fail, the global financial system paid the price. For both economic reasons and moral reasons, we can’t let Greece fail.”

EFSF Ratification

Fourteen of the 17 euro countries have approved the reinforcement of the temporary rescue fund. Of the three to go, Slovakia poses the biggest hurdle, with Prime Minister Iveta Radicova squaring off against euro-skeptics within her coalition. Slovakia is slated to vote by Oct. 17.

The revamped fund, known as the European Financial Stability Facility, will obtain the powers to buy bonds on the primary and secondary markets, offer precautionary credit lines and enable capital infusions for banks.

Germany’s passage of the upgraded EFSF last week unleashed debate over how to scale up the fund’s 440 billion-euro capacity, potentially by giving it a banking license, using it for bond insurance or to offer credit enhancements.

‘Leveraging’

So-called “leveraging” will have to be done in a way that doesn’t require another round of parliamentary ratifications, so that the ideal technical solution might take a back seat to what is legally feasible, a person involved in the discussions said.

Bank of France Governor Christian Noyer said today in Tokyo he’s “open” to the idea of using borrowed money to enhance the capabilities of the fund.

“I’m very concerned of things getting out of control,” Nouriel Roubini, chairman of Roubini Global Economics LLC, said in an interview yesterday in Dubai. “You need a huge bazooka of at least 2 trillion euros, but you can’t wait three months, you have to do it in the next few weeks.”

A 78 percent majority of Germans don’t trust the government’s assertions that another EFSF expansion won’t be necessary, an Emnid GmbH survey for Bild am Sonntag newspaper showed on Oct. 1.

ECB Role

The ECB, which has bought 156.5 billion euros of peripheral countries’ bonds, is eager for the EFSF to take over that job. The bank’s crisis-management role is complicated by a jump in inflation to 3 percent in September, damping speculation of an interest-rate cut at its Oct. 6 meeting.

That policymaking session is the last for ECB President Jean-Claude Trichet, who leaves office at the end of the month. Incoming President Mario Draghi faces pressure not to show favoritism to Italy, his homeland.

Europe’s search for answers has also raised the prospect of fast-tracking the planned permanent fund, known as the European Stability Mechanism, set to be created in July 2013. Drawing on paid-in capital, the 500 billion-euro ESM will have more flexibility than the guarantee-based temporary fund.

A broad majority of national officials last week endorsed rushing the ESM into place by July 2012, two people involved in the discussions said. Faster enactment would cut the extra debt of donor countries by 38.5 billion euros, saving Germany 11.5 billion euros and France 8.6 billion euros, according to a working paper obtained by Bloomberg News on Sept. 23.

ESM Terms

Nor are the ESM’s terms settled. The version signed on July 11 provides a tool for sharing the burden with bondholders. Ten days later, euro-area leaders declared the investor stake in Greece’s second bailout “exceptional and unique” and promised to “honor fully their own individual sovereign signature.”

Finance ministers will also try to reach a deal on Finland’s demand for collateral -- such as shares in nationalized Greek banks or real estate -- to underpin its contribution to Greece’s second package.

At a meeting last month, the ministers only agreed that countries receiving collateral must give up something in return, such as a share in profits from emergency loans. Another idea is to assign collateral junior status, making it worthless for up to 30 years until an aid recipient has serviced its official loans.

The crisis-management gauntlet continues with an Oct. 9 meeting of Sarkozy with German Chancellor Angela Merkel, an Oct. 13 euro-area decision on Greece’s next installment, G-20 finance ministers meeting in Paris on Oct. 14-15, and an Oct. 17-18 European Union summit in Brussels. The G-20 summit is Nov. 3-4 in Cannes, France.