EU leaders tackle debt crisis

BERLIN -- European leaders worked feverishly into the early morning today on a deal to solve the continent's debt crisis and prevent it from igniting a new global financial meltdown.

After hours of meetings, European Union leaders agreed to guarantee more lending to shaky governments and force financial institutions to forgive even more debt owed by Greece, whose descent toward bankruptcy started the crisis.

"We made good progress," on helping banks holding shaky government bonds to stay afloat, British Prime Minister David Cameron announced after meeting with other leaders of the 27-nation European Union at an emergency summit in Brussels, the headquarters of the EU.

Few specifics were provided on the framework of the deal, such as how much money the wealthier European nations would agree to pony up should debtor nations default on their loans.

Financial markets and governments worldwide were closely watching the talks, which if unsuccessful could cause economic instability in the United States and elsewhere.

"We have made clear that we believe that the Europeans have the financial capacity to deal with this challenge and they need to meet that capacity with political will," White House press secretary Jay Carney said.

Carney said failure for Europe to act "creates headwinds for the American economy."

A draft statement by the leaders said the eurozone will boost "several-fold" its $610 billion European Financial Stability Facility, or bailout fund, according to the Associated Press, by providing "risk insurance" to lenders and through other methods.

Part of the plan is also to help banks boost their holdings of cash and other assets, which would allow them the flexibility to lend more, said German parliamentary member Frank-Walter Steinmeier. The move is intended to help the continent's biggest banks weather losses on loans they have made to Greece.

The plan calls for banks to raise money through private investors and governments. If that fails then the bailout fund can be tapped.

German Chancellor Angela Merkel and French President Nicolas Sarkozy were meeting with bankers Wednesday to persuade them to agree to forgive 50% of Greek debt. Merkel pushed for 60%. Bankers have so far agreed to 40%.

The ultimate aim is to lessen the massive debt burden of Greece, which is in its third consecutive year of recession.

European leaders said the deal's details should be finalized next month, possibly when European finance ministers meet on Nov. 7.

Some analysts said the proposal does not go far enough.

"They agreed to plan more, that's what it is," said Constantin Gurdgiev, professor of economics at Trinity College Dublin.

"The EU leadership did what it does best: It had a meeting and decided to be irresolute and refuse to take leadership."