Euro crisis: EU leaders hope to reach debt plan
European Union leaders are gathering...
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, according to BBC.
There is disagreement on how to boost the firepower of the EU`s bailout fund for troubled euro-using countries.
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 a comprehensive deal can be reached in time for the summit.
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.
Additionally, Italy has been asked to provide details of its plans for tackling its huge public debt before the summit begins later on Wednesday.
The ruling coalition led by Prime Minister Silvio Berlusconi is reported to have reached a last-minute limited deal on economic reforms - including the contentious issue of increasing the pension age.
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 is an unconfirmed report in the Italian newspaper La Reppublica 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.
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.
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.
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.
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.
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.
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.
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".
Bailout packages for Greece (twice), Portugal and the Republic of Ireland have already been agreed, but stock markets remain in turmoil.
`Letter of intent`
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".
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.
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.
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.