European leaders meet to tackle debt crisis

BERLIN -- Hours after the German parliament signed off on a deal to expand the powers of a bailout fund for Greece and other struggling euro-zone nations, European leaders arriving in Brussels said they were working feverishly to finalize a package that could contain the spiraling debt crisis.

"There are still many problems to handle and many negotiations to come," said German Chancellor Angela Merkel in Brussels just before the first of a series of meetings that are likely to last until the early hours of the morning.

Other EU leaders talked about "lacking the details" but setting out in the "general direction" the euro-zone must take before the crisis sparks global recession.

European leaders arrived in Brussels on Wednesday facing pressure to come up with a comprehensive solution to the continent's debt crisis. The heads of state remained divided on some of the issues they need to solve or risk renewed turbulence on financial markets across the globe.

Markets feared that failure to seal a deal to save struggling Greece and other nations dealing with significant deficits could push Europe into recession and cause the failure of the euro. The euro was falling against other currencies early Wednesday.

"Our challenge today is not simply to save the euro. It's to safeguard the ideals we cherish so much in Europe: peaceful cooperation amongst our nations, social cohesion and solidarity without prejudice amongst our people," said George Papandreou, the prime minister of Greece.

Up for discussion in Brussels was how to shore up the $610 billion European Financial Stability Facility to stop the crisis from overwhelming large economies such as Italy and Spain.

European Union governments may give guarantees to banks seeking funding in order to avoid a credit crunch and to keep them lending to the economy, according to a draft statement from EU leaders in Brussels, Reuters reported.

The leaders waited for a response from Italian Prime Minister Silvio Berlusconi on demands that Italy change its budget and cut spending to qualify for more assistance.

Earlier in the day, Merkel won the overwhelming support of German lawmakers to a de facto increase of the bailout fund, allowing it to be leveraged to bring its amount to more than $1.4 trillion. Lawmakers indicated that private investors such as banks should take a "haircut" of at least 50% of their Greek debt holdings.

After the vote, Merkel headed to Brussels with a strong mandate to seal a deal on Europe's debt crisis. Lawmakers called for an end to the European Central Bank's program of purchasing euro-zone bonds on the open market to prop up weakened euro-zone members and for a clear commitment to the ECB's independence from political interference.

In the resolution, which was drafted by all the major parties in the Bundestag, German lawmakers urged Merkel to work toward introducing a Europe-wide financial transaction tax after the meeting of leaders from the Group of 20 industrialized and developing countries in Cannes next month.

The resolution calls for banks considered systemically relevant to raise core capital to 9% by a deadline of June 30, 2012.

"The world is watching to see if we are ready and able to take responsibility in the hour of Europe's most serious crisis since the end of World War II," Merkel told the German parliament Wednesday. "If the euro fails, Europe fails."