Europe's recession fears driving agreement on debt

Eurozone leaders are meeting in Brussels today, trying to come to an agreement that would save the Euro, prevent a credit crisis, and deal with the Greek problem.

They are meeting as new data shows economic growth has stalled in most EU countries which will only exacerbate the debt problems facing many of its members.

The Guardian:

The eurozone's two biggest powers, Germany and France, on Sunday launched an unprecedented attack on Italy to stop the rot by taking far more radical measures to reform its economy and get its debts under control.

The German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president, held a series of face-to-face talks with the Italian prime minister Silvio Berlusconi - who was then subjected to a roasting at the hands of other European leaders who are worried that the EU as a whole is on the verge of another deep-rooted recession.

The onslaught on Berlusconi, now viewed as a liability across the whole of Europe, came as a fractious summit of the 27 members of the EU ended and an equally stormy eurozone summit began with no agreement on all three core elements of a package to solve the sovereign debt crisis and restore market confidence.

France retreated on its demands for the key part of the three-pronged package, dropping its plan to boost the €440bn firepower of the main bailout find, the European Financial Stability Facility (EFSF), by turning it into a bank in the face of German, Dutch and Finnish intransigence.

All 27 EU leaders approved a deal reached on Saturday night by finance ministers to enable a €108bn recapitalisation of European banks to go ahead, with the final details due to be settled at a second summit on Wednesday.

EU leaders had prepared markets last week for a lack of concrete news from this weekend's summit but even so analysts were braced for further volatile trading on Monday morning.

As private creditors held secret talks with EU, International Monetary Fund and European Central Bank officials about writedowns to Greek debt, a report showed this was now unsustainable because of the worsening economic and social situation. Bondholders reportedly offered to increase their voluntary writedowns to 40% - almost double the 21% offered in the bailout of Greece in July.

When push comes to shove, it appears that member states revert to looking out for their own interests rather than doing what is best for the EU at large. It isn't surprising that this is so; what's remarkable is that anyone was dumb enough to believe otherwise. The concept of "Europe" as a political entity sounds great, is given lip service by politicians, but when push comes to shove, member states revert to their sovereign responsibilities.

They will probably get something done regarding bond holder haircuts for Greek debt and bank recapitalization. But the row over the bail out mechanism - the European Financial Stability Facility (EFSF) - may be so fractious that what they end up with won't help as much as it's supposed to.

Another "can kicking" expedition by the EU.