Another EU leaders’ summit has kicked off in Brussels aimed at taking concrete steps to deal with the Eurozone debt crisis. Ahead of that, German legislators agreed to support a massive expansion of the European bailout fund.
In one of the first decisions to emerge from the summit, big European banks will be required to raise their capital cushions to 9 percent of their risky investments. The recommendation to banks exposed to the unhealthy finances of Greece, Ireland, Portugal, Italy and Spain is to be put in effect by June 2012, the Associated Press reported, citing Polish Finance Minister Jan Vincent-Rostowski.
Moreover, a draft statement obtained by Reuters suggests the EU’s bailout fund will be increased “several fold.” The EU finance ministers are to agree the details of the scale up no earlier than in November. The enlargement of the European Financial Stability Facility (EFSF) might be achieved via cooperation with the International Monetary Fund.
Wednesday’s summit, which was called after an earlier gathering on Monday failed to produce any concrete results, is still to focus on resolving Greece’s debt crisis, scaling up the EU’s bailout fund – and Italy’s staggering finances.
“We need a deal tonight, and we need political agreement to the key aspects that are on the table,” European Commission spokesman Olivier Bailly said in Brussels.
Still, the summit may not provide the final figure on writing down the Greek debt, he added.
But before the meeting, German Chancellor Angela Merkel indicated that private investors should take a cut of at least 50 percent on Greek bonds. Such a “haircut” would imply for creditors a loss of 103 billion euros.
The chancellor also said the summit should deliver a solution, which will allow Greece to reduce its debt burden to 120 percent of GDP by 2020. At the moment, there are fears that Greek debt will continue mounting and may hit 190 percent of GDP in 2013.
Italy’s Prime Minister Silvio Berlusconi is set to deliver a letter offering details on the package of 54 billion euros ($75 billion) in austerity measures adopted by Italy in September to balance the country’s budget. Less than 24 hours prior to the summit, PM Berlusconi managed to push through retirement reform to knock the retirement age for all Italian workers from 65 up to 67 by 2025.
In Germany, the vote to enlarge the bailout fund of the European Financial Stability Facility (EFSF) passed by a broad margin of 503 against 89 with four abstentions in the German Parliament. Germany is the only country where the Constitutional Court ruled that bail-out operations involving taxpayers’ euros must first gain legislators’ approval.
Still, this “massive vote in favor of fiscal sovereignty,” as Markus Kerber described it, gives Merkel a mandate to begin negotiations in Brussels – but not to conclude them.
“For the time being, Germany has neither said yes, nor said no” to enlarging the bailout fund, said Kerber, a professor of political economy at the Berlin Institute of Technology.
Watch RT’s full interview with Markus Kerber
At present, the EFSF’s lending capacity is at 440 billion euros ($600 billion). The boosting discussed by the EU leaders in Brussels would send the fund’s lending capacity above 1 trillion euros ($1.4 trillion), but this has yet to be finalized. According to the Associated Press, the EU summit will consider scaling up the EFSF by offering government-bond buyers insurance against possible losses and by attracting capital from private investors and sovereign wealth funds.