EU leaders inch towards rescue deal

EUROPEAN leaders inched towards a comprehensive deal to tackle the debt crisis. At the crunch meeting they are also trying to boost the €440 billion EU rescue facility to up to €1 trillion and impose haircuts of up to 50% on Greek bondholders.

A draft statement from the emergency summit, obtained by Reuters, outlined two options to leverage the fund.

Taoiseach Enda Kenny said some progress had been made and emphasised that boosting the European Financial Stability Facility (EFSF) was the most important issue.

“The important thing here is that the full flexibility of the facilities be used now to bring a certainty and a certainty of intent for everybody,” he said.

German Chancellor Angela Merkel made an emotional appeal to her parliament ahead of the talks, saying: “If the euro fails, Europe fails.” The Bundestag overwhelmingly voted in favour of boosting the EFSF even though it could mean greater liabilities for the German taxpayer.

Ms Merkel said Germany had a historical obligation to ensure that the EU’s raison d’etre, to eliminate “years of hatred and spilt blood”, does not fail because nobody knows what may lurk around the corner.

Early reports indicated a €109bn bill to plug holes in Europe’s banks and a cut on distressed Greek debt of as high as 50%, while previously both ING Bank and BNP Paribas said they would not exceed 40%.

Members of the International Institute for Finance were understood to be negotiating the percentage with officials in parallel talks throughout the day. The institute did not comment on the exact figure for haircuts.

EU leaders have agreed the outlines of a package on bank recapitalisation, including raising the core capital ratios of European banks to 9% by the end of June 2012, but they did not provide a headline figure.

One proposal in the draft involves creating a special purpose investment vehicle to tap foreign sovereign and private investors to buy bonds of troubled eurozone countries. The other method involves using the EFSF to offer partial guarantees to purchasers of new eurozone debt.

Talks are likely to last until the weekend.