European leaders are scrambling to finalize a plan aimed at resolving the continent’s government debt contagion in time for Wednesday’s summit.
Details of a package of reforms have not been set and a pre-summit meeting of European finance ministers was called off. That left some analysts questioning whether the heads of state will be able to keep their pledge to complete the plan when they meet in Brussels.
It will be the European leaders’ second summit in four days to try to resolve the crisis. European Union presidents and prime ministers are scheduled to meet at 1600 UTC for their work session.
In broad terms, the plan calls for European banks to forgive billions of dollars of debt for Greece and to sharply increase their own cash reserves. At the same time, the size of the continent’s bailout fund would be boosted to assist other debt-ridden countries in the future.
World financial markets have been troubled as European officials moved slowly to keep Greece from defaulting on its international obligations. The European leaders are trying to keep the debt crisis from spreading to bigger economies in Italy and Spain, and sending other economies into a tailspin.
Greek Prime Minister George Papandreou called the impending decisions “a critical time,” requiring European leaders to “remain clear-headed and calm.”
European leaders want banks holding Greek debt to write off as much as 60 percent of the money they are owed, nearly three times the amount they agreed to in July when Greece’s second bailout in two years was approved. The banks are offering to assume losses of 40 percent. A middle-ground 50 percent loss would amount to about $243 billion.
While agreeing to bigger losses, the banks also would be required to increase their cash reserves next year by about $139 billion.
European leaders also are calling for an increase in the $596 billion bailout fund for the bloc of 17 nations that use the common euro currency. It could be increased to nearly $1.4 trillion.
While the immediate focus has been on debt-ridden Greece, German Chancellor Angela Merkel and French President Nicolas Sarkozy pressed Italian Prime Minister Silvio Berlusconi to move faster to adopt new economic reforms to stave off the need for an Italian bailout.
By late Tuesday, Mr. Berlusconi reached agreement with his Northern League coalition partner on undisclosed austerity measures to send to the European Union ahead of the summit. However, the Italian governing coalition was still at odds over whether to cut spending by raising the country’s retirement age to 67.
