October 24th, 2011
01:13 PM GMT
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Brussels (CNN) – Here in Brussels Europe's heads of government talked their way through lunches, dinners and various press conferences at the weekend as they moved closer to finalizing a 'grand plan' to end the eurozone's sovereign debt crisis.

Despite hours of hard talk, the outcome was decidedly soft, with politicians promising that progress had been made and details remaining sketchy at best.

Leaders of the union's 27 countries are trying to hammer out a plan to restore fiscal order among the 17 of its member states that share the euro as their common currency-collectively known as the eurozone.

The most pressing issue on the table is how to deal with a disorderly default of Greece but the focus has also shifted to Italy, amid concerns that this larger, core eurozone country could become the next victim of the world's volatile credit markets.

Italian Prime Minister Silvio Berlusconi was given an ultimatum by the leaders of Germany and France to rein in public spending ahead of Wednesday's deadline to finalize a collective crisis response.

In a joint press conference Angela Merkel and Nicolas Sarkozy laughed nervously when asked if they had confidence in Berlusconi. The French President said: "How can I put it? We have confidence in the financial, political and economic institutions of Italy."

Providing reassurances about the sustainability of Italian debt is essential to stave off a possible bankruptcy of other nations that – just like Lehman Brothers – are deemed too big – or too expensive – to fail.

To achieve this goal the chiefs of government must find a "lasting" and "credible" solution to three, interdependent problems, namely:

- Boosting the EFSF, or eurozone bailout fund, to ring fence a Greek default

- Writing down part of Greece's debt via a "haircut" imposed on investors

- Recapitalizing Europe's banks to counter the effect of such write downs on their capital

Still, the dialogue has been marred by differences of opinion about how to go about achieving those aims.

France wants the EFSF to become a bank so that it can avail itself of the liquidity provided by the ECB to financial institutions.

Germany says that goes too far. On Sunday Merkel said the treaties did not provide the ECB being involved.

When it comes to the "haircut" on Greek debt, the EU agreed in July to propose a voluntary write down worth around 21% for investors of Greek debt.

It is now likely though that bondholders will have to lose more and share the increased burden of bailing Greece out.

The question is how much?

Germany wants 50%, maybe even 60%, whilst France is concerned about the effects of such a write down on the balance sheets of its banks, many of which hold large swathes of Greek holdings. In the meantime the fate of France's coveted AAA credit rating hangs in the balance.

As EU leaders wrapped up this seemingly endless round of summits, they promised a solution would be in place on Wednesday, "no question!" as EU Parliament President Jerzy Buzek put it.

If they don't reach one by then, this crisis threatens to be come not just European but global and that could well make for some stronger language when many of shake hands with their G20 colleagues in France next month.

soundoff (9 Responses)
  1. Victor

    From 1997 onwards, the EU's Stability and Growth Pact provided a temporal sequencing in disciplining domestic fiscal policies. Such a 1997 Pact develops the excessive deficit procedure by speeding up the stages in the decision-making sequence: from initiation by the European Commission, through issuing and early warning by the Council, specified deadlines for corrective measures, to sanctions.
    However, the Council retains effective control over this temporal sequencing, as it demonstrated by rejecting the European Commission's recommendation on France and Germany in November 2003.
    After 1999, the main problems of non-compliance focused on relations of large states with the European Commission, notably France and Germany.

    October 24, 2011 at 2:34 pm |
  2. Eric

    The EU is in trouble and has to sahpe up.
    But the US is in much worse shape as far as Debts and deficits are concerned.
    He who lives in a glass house...............

    October 24, 2011 at 3:03 pm |
  3. Neo

    Berlusconi is nothing but a joke, so as the italian people vote him again and again and never bring him down from power. Berlusconi is too busy by fighting for his own issues and let italy go down the drain, he catch hold on the power only for enjoy immunity before court, where he will have to show up at once he finaly lose his position..

    October 24, 2011 at 6:33 pm |
  4. Radu

    Any reporter that compares Lehman Brothers to one of the biggest economies in the world should be re-considered as "host" of even the Muppet Show.
    To compare EU (a situation with no clear economic response) with US (where the main reasons for the situation are rather political) is an even bigger error.
    Please stop trying to asses such elements in 3 lines of reporting / commentary and stick to facts.

    October 24, 2011 at 7:16 pm |
  5. Liam

    ..........AND THE CAT HERDING GOES ON............

    October 24, 2011 at 9:44 pm |
  6. Ramirez

    Berlusconi is such a clown... he isnt even taken serious by other world leaders...

    October 24, 2011 at 10:08 pm |
  7. Peter Gardiner

    They are looking to muddle through clearly without any plan except printing the minimum to please the German woman. We will go from one mess to another. Good news is that it will discourage Europe from messing about in silly American wars.

    October 24, 2011 at 11:22 pm |
  8. pimvansanten

    Tonight in The Netherlands the Socialist party (PVDA) spokesman for economics Ronald Plasterk said that his party will not support any plan that comes out of the meeting on wednesday that doesn't offer a long-term solution for the crises. He said:" We will vote also against any plan that's just a cover for the disagreement between different countries e.g. France,Germany and Italy. " He expected that on wednesday the EU doesn't present a plan that his party can defend to his voters. While the Dutch government is depending on support of this oppasition party it is likely that there is no majority in the Dutch parliament for the plans on wednesday. It is very likely that the Dutch will vote against the plans and then everything is grinding to a halt. And after that the real trouble starts!
    The Netherlands

    October 25, 2011 at 1:45 am |
  9. Carlos Araujo

    Virgil, at the Aeneida said: TIMEO DANAOS ET DONA FERENTES. He was referring to the wooden horse left at Troy doors. The greeks have made another trojan horse. It remains to see if the EU and the rest of the world would accept and swollow it. The only culprits: the banks greed and greek traditional corruption.
    It can only be resolved as Argentina did. Default and recovery.

    November 2, 2011 at 11:44 am |

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