European markets upbeat on debt crisis solution

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European stock markets were upbeat Monday as the region's leaders declared they made "good progress" towards resolving the eurozone crisis.

After Asian stock markets charged higher earlier, European stocks opened firm, with Frankfurt's DAX 30 gaining 0.73 percent to 6,014.36 points, London's benchmark FTSE 100 index adding 0.42 percent to 5,511.60 points and in Paris the CAC 40 rising 0.61 percent to 3,190.71.

On Sunday, European leaders, including French President Nicolas Sarkozy, and IMF chief Christine Lagarde, said "good progress" had been made in talks on the debt crisis that has threatened the world economy.

Nevertheless, markets would have to wait until a second summit for the exact details to be announced.

And in a sign of tempers fraying at the huge pressure involved, Sarkozy reportedly launched a scathing attack on British Prime Minister David Cameron saying he was "sick of him telling us what to do."

Cameron had convinced those at the meeting that all 27 EU members should be invited to the second eurozone summit on Wednesday to ensure that the single currency group, dominated by France and Germany, did not make decisions alone that would affect the EU as a whole.

Despite the tensions, French Finance Minister Francois Baroin speaking early Monday, said he was "convinced" a comprehensive deal to end the eurozone debt crisis would be agreed by Wednesday.

"I'm convinced of it," Baroin told Europe 1 radio.

"We know where we are going, we know that we don't want Greece to default," Baroin said stressing that the crisis was "serious" and a "threat on a global scale."

Sarkozy and German Chancellor Angela Merkel seemed to have resolved earlier differences, insisting "a quite broad agreement" had been reached on the main sticking point, boosting the EU bailout fund.

Leaders are concerned the 440-billion-euro ($605-billion) European Financial Stability Facility (EFSF) will be insufficient if it has to bail out a big country like Italy, so are examining ways to beef up its firepower without actually putting in more money.

"Work is in progress and progressing well," said a bullish president of the European Commission, Jose Manuel Barroso.

"We expect those decisions to be taken in 72 hours and I am confident those decisions will be taken."

According to EU president Herman Van Rompuy, there were two models still on the table.

One is a scheme whereby the fund would insure investors against potential losses on their bond holdings, a bid to tempt nervous traders back into buying the debt of shaky economies.

The other option would create a second fund to attract contributions from non-European nations such as China, although this has prompted splits within the EU.

By using such financial inventiveness, leaders hope to "leverage" the fund up to as much as a trillion euros, which they hope will be enough of what has become known as a "bazooka" to reassure volatile financial markets.

Van Rompuy told reporters: "It could even be that we combine the two models and have a cumulative effect."

European leaders also achieved breakthroughs on two related and complex issues, managing a huge write-down on the debt of stricken Greece and making sure banks had enough resources to withstand these losses.

Again, the summit produced no concrete figures in this area, but negotiations are underway with banks for them to take losses of at least 50 percent on their holdings of Greek bonds.

Greek Prime Minister George Papandreou called for a "viable solution to the Greek debt -- especially on the participation with private Greek banks," pension funds and insurance firms.

In parallel, the EU wants banks to raise their core capital reserves to ensure these losses do not drag them into the mire. An estimated 107-108 billion euros would be required, diplomats said.

After hours of pressure on Italy to reduce its staggering 1.9-trillion-euro pile of debt, Prime Minister Silvio Berlusconi said he would hold an emergency cabinet meeting on Monday to try and plough through reforms.

The meeting was scheduled for 6:00 pm (1600 GMT) on Monday.

Van Rompuy called for a "major effort" from Italy and said EU leaders would work "hand-in-hand" with Berlusconi to ensure promises are fulfilled.

Merkel too urged "credible" cuts in Italy's debt as part of efforts to save the eurozone.

"Italy is a great economic force but Italy also has a very high level of debt and it must be reduced in a credible way over the coming years," she said.

© 2011 AFP

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