EU leaders agree on outline of new 'grand bargain' to save euro
EU leaders have promised there will be a comprehensive deal to save the euro this week after Taoiseach Enda Kenny warned "the world is watching what we do".
It comes after a self-imposed deadline for a solution passed without a deal last night.
German chancellor Angela Merkel said some progress was made during a series of talks in Brussels over the weekend in which leaders sketched the outline of a grand bargain they intend to finalise on Wednesday.
The can was kicked down the road into this week because of a Franco-German spat over fundamental elements of the deal, including a move to force Greek bondholders to take bigger losses as part of a second bailout package, and how to leverage more money from the eurozone's €440bn rescue fund.
France is wary of imposing bigger losses on investors over fears that its banks might not be able to afford them, while Germany wants to save taxpayers from having to fund a larger chunk of the second rescue.
Mrs Merkel said she and French president Nicolas Sarkozy were "speaking with one voice" and had made a "major contribution" to the negotiations.
"We are up to our responsibilities," she said yesterday.
Leaders are now expected to ask Greek investors to shoulder a 60pc loss which, according to a report from the EU and IMF, is the only way the country will be able to stay afloat.
Eurozone governments will also have to stump up extra bailout loans as Greece will be unable to raise money on financial markets for the rest of the decade, according to the report.
The plan is then for Europe's 90 biggest banks to have €108bn in new cash pumped in to guard against losses on Greek loans and a hostile investment climate after the losses are inflicted.
The final spoke in the wheel will be to revamp the euro rescue fund, which has been used to part-fund bailouts in Ireland and Portugal.
Leaders and markets fear the €400bn or so left in the kitty after those bailouts will not be enough should Italy and Spain go to the wall, but Germany and the eurozone's stronger economies are reluctant to throw more money or guarantees at the problem.
Instead, the fund will be "leveraged" to over €1 trillion by using the remaining cash to partially guarantee bond sales by weakened governments such as Ireland's.
As part of that plan, China and the IMF could be asked to come on board to help boost the fund's firepower, officials said.
Meanwhile, EU leaders insisted that Italy enact a promised austerity plan and that other cash-strapped countries continue to make cuts.