France, Germany in bid to resolve debt impasse
Update French President Nicolas Sarkozy and German Chancellor Angela Merkel were ready to take the eurozone debt crisis in hand, even going to world bankers in person to ensure an EU summit overnight produced tangible results.
A deal in principle to beef up a eurozone rescue fund and a greenlight from the European Union’s 27 leaders to recapitalise Europe’s banks were among accords struck during the much-anticipated summit.
Eurozone leaders plan to increase the firepower of their bailout fund to one trillion euros ($A1.34 trillion), said a diplomat familiar with a draft deal to be adopted at a summit overnight.
The figure will be mentioned in the final declaration the leaders must adopt at the end of the summit, expected to end late in the night, the diplomat said.
They were originally not expected to announce a figure.
Eurozone leaders were meeting in Brussels to find ways to beef up the 440-billion-euro European Financial Stability Facility (EFSF) without actually increasing the individual guarantees provided by governments.
Markets were concerned that the EFSF is not big enough to rescue a big economy, such as Italy, after Greece, Ireland and Portugal were bailed out.
Banks yet to agree
It’s not the devil that’s in the details, it’s all of hell
Meanwhile, the group of major banks negotiating on a write-down of Greek sovereign debt say it had not reached a deal on its debt, including any new write-downs.
‘‘There has been no agreement on any Greek deal or a specific ’haircut’,’’ said Charles Dallara, the head of the Institute of International Finance which is representing the banks in EU negotiations.
‘‘We remain open to a dialogue in search of a voluntary agreement. There is no agreement on any element of a deal.’’
Earlier, European leaders spoke of progress at the summit.
‘‘We made good progress on the bank recapitalisation, that wasn’t watered down, it now has been agreed,’’ said British Prime Minister David Cameron after a summit of the 27-nation EU, which preceded talks among the eurozone’s 17 leaders.
Cameron added that the deal ‘‘will only go ahead when the other parts of the full package go ahead, and further progress on that needs to happen tonight’’.
With fears growing that the eurozone debt drama will turn into a banking system meltdown, European leaders want banks to boost their core capital buffers so they can absorb expected losses on Greek government debt.
But eurozone negotiators have struggled to convince banks to accept a write down of at least 50 per cent on Greek debt, with bankers offering 40 per cent instead.
A senior government source told AFP that ‘‘Merkel and Sarkozy will possibly go to meet the banks tonight’’.
A German official could not confirm.
China, Russia offer help
China and Russia earlier in the day waded in with offers to help Europe safeguard the global economy by contributing to the eurozone rescue fund.
At the summit, however, there was no agreement on the ultimate size of the fund, which needs to be beefed up.
The 1620 GMT (0320 Thursday AEDT) gathering of EU leaders was their second summit in days as markets and world leaders called on them to produce the watertight deal needed to defuse fears the crisis will trigger global recession.
‘‘We discussed the situation and all leaders stressed their common resolve to do their utmost to overcome the crisis and to help face, in a spirit of solidarity, the challenges confronting the European Union and the Euro area,’’ EU president Herman Van Rompuy said.
Europe’s leaders have been scrambling to produce a battle-plan to shield the euro after two years of turmoil embroiling Greece, Ireland and Portugal and now threatening the eurozone’s third and fourth economies, Italy and Spain.
‘‘Everyone is impatiently awaiting the details but it’s not the devil that’s in the details, it’s all of hell,’’ said Polish Prime Minister Donald Tusk.
‘‘Will we know the details tonight? I’m prudent, not to say sceptical.’’
Embattled Italian premier Silvio Berlusconi meanwhile made ‘‘a good impression’’ at the summit with a letter outlining plans to tackle EU concerns over Rome’s giant debts by November 15, Tusk said.
While Berlusconi’s real battle will be to convince his 16 fellow eurozone states, Tusk said ‘‘Berlusconi and Italy were not a feature of the discussions’’ among the 27 EU member.
Europe has demanded that Italy slash its 1.9-trillion-euro debt pile, equal to 120 per cent of annual GDP, and also enact structural reforms - including raising its retirement age.
Ensuring Italy shapes up, boosting the rescue fund to prevent contagion, reducing Greek debt and recapitalising the banks are the main elements of a comprehensive package eurozone leaders have pledged to deliver.
A primary aim was to bolster the European Financial Stability Facility (EFSF), which rescued Ireland and Portugal but is too small to fly to the rescue of more potential victims, Italy, Spain, and even France.
With the world on tenterhooks over any such prospect, emerging powers China and Russia earlier Wednesday offered to help.
Hopes the EFSF could be increased from its current 440 billion euros to more than a trillion rose when diplomats told AFP that China has agreed to invest.
Russia then too offered to join in, but through the auspices of the International Monetary Fund.
The development came as global powers, from the United States to Japan and China, pressed European leaders to come up with a lasting solution to the debt crisis before a G20 summit in France on November 3 and 4.
Europe’s leaders are examining two options to boost the EFSF without increasing guarantees from members states as taxpayers in countries such as Germany are fed up with pouring money down what they see as a bottomless hole.
One option is to use the EFSF to insure investors against potential losses on bonds of troubled countries, a bid to tempt nervous traders into buying the debt of shaky economies, so allowing them to raise needed funding.
The other option is to create a second fund, possibly linked to the EFSF or to the IMF, to entice non-eurozone governments and private investors the world over, to buy the debt.