European leaders meet again today in Brussels for an emergency summit where they will work on a strategy for combating the euro-zone debt crisis. Greece could still potentially default on its sovereign debt, which would send shockwaves throughout Europe that could threaten to engulf Italy and even France.
Today’s meeting will see finance ministers, central and commercial bankers, chancellors, presidents, and prime ministers haggling over the shape of Greece’s second bailout, the recapitalization of European banks, and a restructuring of the European Financial Stability Facility to give it more power to act effectively and decisively to combat the debt crisis.
The 14th crisis summit in 21 months will begin today in Brussels at 6 p.m. local time with a meeting of all 27 European Union leaders. At 7:15 p.m., chiefs of the 10 non-euro nations will depart, leaving the rest to bang out a course of action. A meeting of finance ministers, originally scheduled to precede the summit, was canceled. They will now meet at an as-yet undetermined time, following the summit, in order to complete the summit’s main elements, including safeguarding banks and writing down Greek debt.
With nations around the world pressure Europe to get its financial troubles under control before they infect the global economy, European leaders have until a Group of 20 meeting in Cannes, France, on November 3 and 4, to have a plan in place. Europe must “deliver on the commitments they’ve made,”said U.S. Treasury Secretary Timothy Geithner yesterday in Wilmington, North Carolina. “They’re saying a lot of the right things and they’re clearly working on it and they’re moving with a greater sense of urgency. That’s all welcome, but until we see what they come together with, it’s a little hard to evaluate.”
European leaders must also resolve issues at home ahead of today’s meeting. German Chancellor Angela Merkel has to win parliamentary approval of her anti-crisis strategy, while Italian Prime Minister Silvio Berlusconi must push through necessary budget cuts.
At today’s summit, European leaders will discuss instituting a haircut of between 50% and 60% on Greek debt. Greece’s bond writedowns will determine the amount of damage to European banks. They will also discuss how to obtain a commitment from the European Central Bank to continue purchasing the bonds of at-risk sovereigns without appearing to be giving orders to the politically independent central bank. ECB involvement in rescue efforts is crucial because the EFSF won’t be ready immediately after the summit and may not have enough firepower to do much anyway.
Talks of enhancing the 440 billion-euro rescue fund have centered on two models — one that would insure bond sales, another that would fund a special investment vehicle that would court outside investments, which could come from the IMF, as well as private investors or sovereign nations. Debate continues on how to pair the EFSF fund with the 500 billion-euro permanent fund, the European Stability Mechanism.