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Euro crisis: EU leaders hope to reach debt plan Euro crisis: EU leaders hope to reach debt plan
(about 1 hour later)
European Union leaders are gathering for an emergency summit in Brussels to try to finalise details of a plan to tackle the eurozone debt crisis. EU leaders are gathering for an emergency summit in Brussels aimed at tackling the eurozone debt crisis.
There is disagreement on how to boost the firepower of the EU's bailout fund for highly indebted countries. But with disagreement on how to expand the EU's bailout fund for debt-ridden countries, there is growing doubt a comprehensive deal will be reached.
Urging legislators to support measures to boost the fund, German Chancellor Angela Merkel said Germany's prosperity depended on a solution to the crisis.
There are fears that the Greek debt crisis could spread to Italy and Spain.There are fears that the Greek debt crisis could spread to Italy and Spain.
The BBC's Europe Editor Gavin Hewitt says there are growing doubts the leaders will reach a comprehensive deal at the summit. Ahead of the summit in Brussels, the German parliament will vote on whether to increase the bailout fund's firepower without involving more German taxpayers' money.
Before heading for Brussels, German Chancellor Angela Merkel faces a vote in parliament on increasing the bailout fund's firepower without involving more German taxpayers' money. The measure is expected to pass but the key question is whether Mrs Merkel will need to rely on opposition support. The measure is expected to pass but the key question is whether Mrs Merkel will need to rely on opposition support.
Speaking before the vote, she urged members of parliament to support measures to maximise the bailout fund's spending power. Speaking before the vote, she said it was worth taking the risk to maximise the bailout fund's spending power in order to ensure future German prosperity.
It was a risk worth taking, she said, because if Europe failed, then Germany would fail. The country's prosperity depended on a solution to the eurozone crisis, she said. She also said she would work towards reaching sustainable decisions at the EU summit in Brussels later on Wednesday, but nobody should expect quick solutions.
As attention shifts to Italy and its huge public debt, Prime Minister Silvio Berlusconi has been asked to provide details of its plans for economic reforms before the summit begins later on Wednesday. Mrs Merkel said she wanted to see Greece back on its feet but it would be necessary to stand by the country for "quite some time to come".
The governing coalition led by Mr Berlusconi reached a last-minute limited deal late on Tuesday that reportedly includes the contentious issue of increasing the pension age. As attention shifts to Italy and its huge public debt, Prime Minister Silvio Berlusconi has been asked to provide his EU colleagues in Brussels with details of its plans for economic reforms.
His coalition partner, Northern League leader Umberto Bossi, said late on Tuesday: "In the end, we have found a way. Now we will see what the EU says."
There are unconfirmed Italian media reports that the two reached a secret deal for Mr Berlusconi to step down in December or January and for early elections to be held soon after.
A spokeswoman for the Northern League has told the BBC that the reports are not true and the two only discussed pensions.
Sticking points Sticking points
Among the main points of agreement reportedly reached at the weekend by EU officials are:Among the main points of agreement reportedly reached at the weekend by EU officials are:
  • European banks must raise more than 100bn euros (£87bn) in new capital to shield them against possible losses to indebted countries
  • The European Financial Stability Facility (EFSF) - the single currency's 440bn-euro bailout fund - will be given more firepower, although it is not as yet clear how this will be achieved
  • Lenders to Greece will be asked to agree to much deeper losses than the 21% write-off currently on the table.
  • European banks must raise more than 100bn euros (£87bn) in new capital to shield them against possible losses to indebted countries
  • The European Financial Stability Facility (EFSF) - the single currency's 440bn-euro bailout fund - will be given more firepower, although it is not clear how this will be achieved
  • Lenders to Greece will be asked to agree to much deeper losses than the 21% write-off currently on the table.
According to the plan, the 100bn-euro bank recapitalisation would be provided to banks by commercial investors, national governments and the EFSF.According to the plan, the 100bn-euro bank recapitalisation would be provided to banks by commercial investors, national governments and the EFSF.
Key points of disagreement remain between the main eurozone powers.Key points of disagreement remain between the main eurozone powers.
France had hoped that the European Central Bank (ECB) would support the EFSF by providing it with loans that could increase the fund's total capacity to 2tn-3tn euros.France had hoped that the European Central Bank (ECB) would support the EFSF by providing it with loans that could increase the fund's total capacity to 2tn-3tn euros.
But this idea was blocked by Chancellor Merkel.
It's a self-appointed deadline the eurozone can't afford to miss.It's a self-appointed deadline the eurozone can't afford to miss.
By the early hours of Thursday, we may finally discover how much firepower has been amassed to try to blast away the debt turmoil steadily spreading from Europe's financially wayward periphery to its core.By the early hours of Thursday, we may finally discover how much firepower has been amassed to try to blast away the debt turmoil steadily spreading from Europe's financially wayward periphery to its core.
Few expect the final package reached at Brussels will quite be the "big bazooka" demanded by UK Prime Minister David Cameron.Few expect the final package reached at Brussels will quite be the "big bazooka" demanded by UK Prime Minister David Cameron.
Yet the nature of the deal that's finally agreed will show whether the partners - and Germany in particular - have the will and capability to hold the currency zone together.Yet the nature of the deal that's finally agreed will show whether the partners - and Germany in particular - have the will and capability to hold the currency zone together.
We are about to witness what may go down in history as one of the most significant meetings in EU history.We are about to witness what may go down in history as one of the most significant meetings in EU history.
Of all the myriad issues that need fixing. the financial world expects clear responses on the three crucial issues of beefing up the rescue fund to protect Italy and Spain, reducing Greece's debt mountain and shoring up vulnerable banks that have lent to highly-indebted countries.Of all the myriad issues that need fixing. the financial world expects clear responses on the three crucial issues of beefing up the rescue fund to protect Italy and Spain, reducing Greece's debt mountain and shoring up vulnerable banks that have lent to highly-indebted countries.
But this idea was blocked by Chancellor Merkel.
Instead, governments are expected to agree that the EFSF can help out troubled eurozone governments such as Italy and Spain by providing partial guarantees to investors and banks who lend them more money.Instead, governments are expected to agree that the EFSF can help out troubled eurozone governments such as Italy and Spain by providing partial guarantees to investors and banks who lend them more money.
The BBC's business editor, Robert Peston, says the EU is left with using complicated financial engineering that may only boost the EFSF capacity to about 1tn euros. BBC business editor Robert Peston says the EU is left with using complicated financial engineering that may only boost the EFSF capacity to about 1tn euros.
The markets may be disappointed in this, our business editor says, and it may only buy a year or so - not enough time for fundamental reform of Europe's debt-ridden economies.The markets may be disappointed in this, our business editor says, and it may only buy a year or so - not enough time for fundamental reform of Europe's debt-ridden economies.
There was also disagreement over the extent of losses that should be imposed on Greece's lenders, with Germany seeking a 50%-60% haircut.There was also disagreement over the extent of losses that should be imposed on Greece's lenders, with Germany seeking a 50%-60% haircut.
The ECB is said to be against such an increase in potential losses.The ECB is said to be against such an increase in potential losses.
And difficulty about such details appear to have been behind a decision to cancel a meeting of EU finance ministers which was to have preceded the leaders' summit.And difficulty about such details appear to have been behind a decision to cancel a meeting of EU finance ministers which was to have preceded the leaders' summit.
There are fears that a unilateral default by Greece - such as a debt write-off without lenders' consent - could have unforeseen consequences.There are fears that a unilateral default by Greece - such as a debt write-off without lenders' consent - could have unforeseen consequences.
French Prime Minister Francois Fillon said that if Wednesday's summit ended in failure, "this could tip the European continent into unknown territory".French Prime Minister Francois Fillon said that if Wednesday's summit ended in failure, "this could tip the European continent into unknown territory".
Bailout packages for Greece (twice), Portugal and the Republic of Ireland have already been agreed, but stock markets remain in turmoil. Election speculation
'Letter of intent' Mr Berlusconi is expected to provide only promises of economic reforms in Italy, despite being demanded by other eurozone leaders to bring to Brussels concrete details of plans to reduce government debt.
Chancellor Merkel has told Prime Minister Silvio Berlusconi that Italy's high level of debt "has to be reduced in a credible way in the years ahead". In a long day of talks with his Northern League coalition partner, an agreement was reached on the contentious issue of raising the retirement age.
Raising the retirement age is one of the key economic reforms demanded by the country's EU partners as a condition for supporting Italy's bonds. The Northern League denied Italian media reports that Mr Berlusconi had agreed with its leader Umberto Bossi that he would step down at the end of the year in order to hold early elections.
Despite the reported deal - the so-called "letter of intent" - reached after marathon talks later on Tuesday, Mr Berlusconi's main coalition partner, Northern League leader Umberto Bossi, said he remained pessimistic.
The BBC's David Willey in Rome says there is little ground for optimism that the deal is going to satisfy either Italy's EU partners or international financial markets about the country's ability to repay its long-term debts.The BBC's David Willey in Rome says there is little ground for optimism that the deal is going to satisfy either Italy's EU partners or international financial markets about the country's ability to repay its long-term debts.
Italy, the third largest economy in the eurozone, needs to issue some 600bn euros in bonds over the next three years to refinance maturing debt.
Do you live in a country that is in the Eurozone? What are your expectations of the meeting and what do you make of the delay? You can share your thoughts by filling in the form below.Do you live in a country that is in the Eurozone? What are your expectations of the meeting and what do you make of the delay? You can share your thoughts by filling in the form below.
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