Euro Zone: European leaders gather for a crunch EU summit as investors cling to hopes the talks will point towards progress in stemming the euro zone's debt woes.
Investors hope for breakthrough as critical EU debt summit starts
European leaders gather today for a crunch EU summit as investors cling to hopes the talks will point towards progress in stemming the euro zone's debt woes.
The gathering is likely to signal whether the 17-member currency bloc can overcome crucial differences on how to bolster the region's €440 billion (Dh2.24 trillion) rescue fund.
"Pressure for action is growing," said Ben May, a European economist at Capital Economics in London. "There will need to be a big increase in the European Financial Stability Facility [EFSF] if it's to be effective enough in easing the crisis."
Euro-zone leaders are striving to achieve a breakthrough in easing the sovereign-debt crisis before the leaders of the Group of 20 leading and emerging economies gather in Cannes next month. The increasing urgency has already led to a hastily arranged further summit on Wednesday.
It follows indications that officials are unlikely to agree today to enlarging the EFSF.
At the heart of the debt debate is a split of opinion over the future of the EFSF. On the one side, France, Spain and Belgium are among governments that believe it should be transformed into a bank, enabling the facility to gain extra resources from the European Central Bank.
But Germany, the euro zone's largest economy, remains opposed to the idea. It is also reluctant to raise the size of guarantees to the facility to boost its credibility. Instead, progress is more likely on less contentious proposals required to help steady the euro zone.
Support appears to be growing for a proposal that holders of Greek debt need to take a 50 per cent haircut.
An assessment by the European Banking Authority that banks require an €80bn capital injection has also gathered agreement.
European markets ended the week in positive territory as optimism rose about the outcome of the summit.
The Stoxx Europe 600 Index climbed 2.5 per cent to 238.79 at the close in London on Friday, taking the index to its longest run of weekly gains this year.
But leaders have been careful to try to manage expectations. Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president, on Thursday released a statement saying no decisions would be made by today.
They pledged, however, to produce a "global and ambitious" plan at the meeting to be held on Wednesday.
The gathering follows another testing week in the euro zone.
Greece was on Friday evening given a lifeline after the approval of €8bn to help it stave off bankruptcy. The loan will be issued in the first half of next month, subject to approval by the IMF, according to a statement from European finance ministers.
The Greek parliament had earlier passed the latest round of austerity measures.