Europe Leaders in Last-Gasp Effort to Stop Financial Melt Down

ABC News’ Simon McGregor-Wood reports:

What happens to the European currency, the Euro, may seem a distant and complicated financial issue to many, but doubts about its survival are driving market uncertainty everywhere and impeding economic growth in the US.

It’s hoped that at Wednesday evening’s European summit in Brussels a plan will be agreed on to deal with the Euro debt crisis once and for all. But that is looking unlikely.

Several countries in Europe are drowning in debt. Their governments have spent more than they take in. Greece is the worst off, living off bailout loans from its European partners and now locked in recession.

But others, including much larger economies like Italy and Spain, are also dangerously indebted. If they go the way of the Greeks, the European single currency project would likely collapse, sparking a massive financial crisis.

The heads of European governments are working on a three-point plan to save the Greek economy from imploding, and the crisis spreading to Italy and Spain.

Point 1 – forcing Banks which have lent money to Greece to accept a write down of their Greek loans of up to 60 percent. No agreement yet. The banks, not surprisingly, are resisting.

Point 2 – providing those exposed banks with a safety net of almost $150 billion to protect them from their huge losses.

Point 3 – Increasing the so-called European Financial Stability Fund so that it can throw up a financial fire wall which will protect the crisis spreading to Spain and Italy. The IMF says this will need around $2 trillion. There are major disagreements between the French and Germans on how to do this.

Add to this toxic mix Italy and demands from EU leaders that it must, today in Brussels, present serious plans for spending cuts in return for financial “protection” from the EU.

But Italy’s Prime Minister Silvio Berlusconi is in real political difficulty over this. He is locked into an unwieldy coalition government in Rome which does not want to respond to the demands of the European Union. Reports in Rome early Wednesday suggested he may even be considering resignation.

An eleventh hour deal in Brussels can’t be ruled out, but the more likely result is a late night statement of principles by leaders, with details being worked out by EU finance ministers in coming days ahead of next week’s G20 summit in Cannes.

The question is whether markets will find that sufficient.

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