Progress made on bank recapitalisation as summit continues

European leaders are said to be edging closer to an agreement on how to tackle the eurozone debt crisis at an emergency summit towards agreeing a package of measures.

A meeting amongst all 27 eurozone leaders is continuing tonight in Brussels in a desperate attempt to save the euro currency.

David Cameron said tonight that “some good progress” had been made by EU leaders

Emerging from the meeting – which will be followed by talks between countries who use the single currency – Mr Cameron said particular progress had been made on moves to recapitalise banks which had “not been watered down” and was now agreed as part of a three-pronged strategy.

“We have made some good progress tonight,” he said.

Bank recapitalisation would only go ahead when all parts of the plan were agreed, he said, telling eurozone leaders: “Further progress on that needs to happen tonight.”

The British Prime Minister joined the other 26 EU leaders for urgent talks in Brussels amid mounting concerns about Europe’s economic prospects – with German Chancellor Angela Merkel branding it the continent’s worst crisis since the Second World War.

“No-one should take for it for granted that there will be peace and affluence in Europe in the next half-century,” she had said.

“The world is watching Germany and Europe to see if we are ready and able to take responsibility. If the euro fails, Europe fails.”

Taoiseach Enda Kenny, who is also at this evening's meeting, said it was crucial that progress is made.

"The important thing here is that the full flexiblity of the facilities that were approved already be used now to bring certainty… for everybody," he said.

Summit conclusions from the 27-leader meeting confirmed approval of the first of three key accords - strengthening the liquidity of the most exposed banks in Europe.

The recapitalisation of Europe’s vulnerable banks involves increasing their reserves by more than €100bn, with all banks to have a minimum capital ratio of about 9% .

The extra is supposed to be raised via private investors, but if that is not possible the top-up may have to come from the EU’s bailout fund – basically from eurozone governments using taxpayers’ cash once more.

The problem with the recapitalisation figure is that experts are already estimating that it is not enough. They say half as much again will be required to shore up banks sufficiently to satisfy markets.

The deal on recapitalisation remains subject to final agreement on the other two parts of the economic package being thrashed out – a much bigger bailout fund for the eurozone and a writing-off.

With the departure of the 10 non-eurozone leaders, the remaining 17 were settling in for a night of negotiations on the complex financial mechanism which will be needed to reach the target figures the EU hopes will calm market fears that not enough is being done to solve the crisis.

Tonight’s conclusions on recapitalisation set a June 30 2012 target date to achieve the higher capital ratio.

“Banks should first use private sources of capital... if necessary national governments should provide support and, if this support is not available, recapitalisation should be funded via a loan from the European Financial Stability Facility (the bailout fund) in the case of the Eurozone countries," a statement said.

Despite the progress made in the 27-leader meeting, the second and third key accords are the key issues to be settled by the eurozone leaders.

Ahead of the eurozone summit, the German parliament voted in favour of strengthening the EU’s bailout fund – a boost for Mrs Merkel.

On the second issue disputes over efforts to leverage an existing €440bn bailout fund to boost its lending capacity above €1tn may have receded thanks to the German parliament vote, although a figure has not been finalised

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If it is agreed it should demonstrate determination to respond to any more Greek-style meltdowns.

And a decision is still awaited on a demand that private investors – mainly banks – absorb at least a 50% write-off of their loans to Greece. A consortium of global banks has so far suggested 40%, but that has been rejected.

Meanwhile, the spectre of a debt-laden Italy was hanging over the talks, with Prime Minister Silvio Berlusconi facing demands to act on austerity measures in return for financial aid.

The fear is that a Greek-style crisis in Italy will be totally unaffordable for Europe, and make the scale of financial support for Athens look like pocket money.