Eurozone still living on borrowed time

Detailed deal on debt crisis 'weeks away' despite emergency summit

Peace and prosperity in Europe cannot be guaranteed, the German Chancellor Angela Merkel warned last night, as it emerged that a comprehensive deal to save the eurozone economies will not be finalised for weeks.

European leaders meeting in Brussels believe that market uncertainty is likely to continue well into next month despite a "political deal" on the broad details of a three-point plan to restore economic confidence.

But the specifics of how to recapitalise Europe's banks, force Greek bondholders to take a "haircut" of up to 60 per cent on their investments and create a €1 trillion fund to prevent future sovereign debt crises are still to be resolved. Acknowledging how high the stakes were, Ms Merkel warned that a deal had to be done. "Nobody should believe that another half a century of peace and prosperity in Europe can be taken for granted. It cannot," she said.

"If the euro fails, Europe fails. The fundamental weaknesses and holes in the construction of the economic and monetary union must either be addressed now or, I say, never."

But last night there were concerns that Italy might backtrack on key pledges it made to other European leaders on economic reform – a precondition of any deal.

Silvio Berlusconi spent his last minutes in Rome modifying Italy's "letter of intent" setting out his Government's commitments to a timetable for reform.

The original 15-page document contained no dates and sparked a chorus of concerns at the EU. By the time he arrived in Brussels it included a plan to sell €5bn of state assets a year for three years and raise the pension age.

But privately some senior European officials still question whether Mr Berlusconi can deliver the reforms with a fractured coalition and a slim majority in parliament. Italy has now been given until later next month to provide exact details of how it will implement its plan.

In another setback yesterday, talks between the EU and Greek bondholders failed to reach agreement. The EU is seeking voluntary participation by banks to write-downs of up to 60 per cent on their investments.

While the EU could impose a forced write-down on the debt, it fears this could trigger a Lehman Brothers-style contagion and further market uncertainty. This would not happen if a voluntary write-down is agreed.

There is also still disagreement about what role the IMF might play in any Special Purpose Vehicle set up to administer a €440bn protection fund – which will be leveraged to provide total financial firepower of more than €1trn.

Sensitive to public opinion in Britain, David Cameron is insisting that the IMF – to which Britain contributes – should not provide any funding to the new body.

But despite political agreement between the European leaders last night on establishing the fund, it is far from clear that it will be big enough to reassure the markets that it has enough financial firepower to deal with future sovereign debt crises in much larger European economies such as Italy.

In a sign that the summit results may not be enough, the incoming head of the European Central Bank, Mario Draghi, announced that the bank would go on buying troubled states' bonds until a comprehensive settlement was reached. His statement appeared to rebuff pressure from Germany's powerful Bundesbank for the ECB to end the bond-buying programme which prompted the resignation of the two most senior German ECB policymakers earlier this year.

But it is also a sign of the growing realisation that a deal will take longer to complete despite Franco-German assurances that a "comprehensive solution" would be found. Speaking after the first part of the summit which discussed the bank recapitalisation David Cameron said: "We made some good progress tonight. It's very much in Britain's interests that we sort out these problems and solve this crisis. We have made good progress on the bank recapitalisation; that wasn't watered down, it has now been agreed. It will only go ahead when the other parts of a full package go ahead and further progress on that needs to happen."

However Mr Cameron did not take part in the crucial part of the talks – being held by Eurozone leaders – which took place afterwards.

Force Greek bondholders to take a 'haircut' of 60 per cent

Greek debt levels are unsustainable and everyone agrees they need to be reduced in an orderly way to stop the country from defaulting – and triggering mass market panic.

Problem Most of the debt is held by financial institutions and they have failed to agree with the EU on how much they are prepared to write-off.

Boosting eurozone bailout fund

The plan: create a "big bazooka" fund of up to €1 trillion to guarantee European countries against future sovereign debt crises.

Problem How you raise a fund big enough to reassure markets. Investment may be needed from China and Gulf Sovereign Wealth Funds. Uncertain they will agree to this.

Sport
Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Voices
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
Sport
world cup 2014
Sport
Ray Whelan was arrested earlier this week
PROMOTED VIDEO
Arts and Entertainment
In a minor key: Keira Knightley in the lightweight 'Begin Again'
film
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
books
News
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
News
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Life and Style
It beggars belief: the homeless and hungry are weary, tortured, ghosts of people – with bodies contorted by imperceptible pain
lifeRough sleepers exist in every city. Hear the stories of those whose luck has run out
News
Mick Jagger performing at Glastonbury
people
Life and Style
fashionJ Crew introduces triple zero size to meet the Asia market demand
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Santi Cazorla, Mikel Arteta and Mathieu Flamini of Arsenal launch the new Puma Arsenal kits at the Puma Store on Carnaby Street
sportMassive deal worth £150m over the next five years
Arts and Entertainment
Welsh opera singer Katherine Jenkins
musicHolyrood MPs 'staggered' at lack of Scottish artists performing
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Arts and Entertainment
Currently there is nothing to prevent all-male or all-female couples from competing against mixed sex partners at any of the country’s ballroom dancing events
Potential ban on same-sex partners in ballroom dancing competitions amounts to 'illegal discrimination'
News
business
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

£30000 per annum: Harrington Starr: A global leader in trading platforms and e...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice