Angela Merkel, the German chancellor, and Nicolas Sarkozy, French president, held tough talks with Silvio Berlusconi, at the start of the day-long summit in Brussels, insisting that he take more radical measures to restore the trust of investors. Confidence in Italy’s public finances is critical to preventing the spread of the Greek debt crisis across the eurozone, but France and Germany are worried that Mr Berlusconi is not taking tough enough measures.
The clash with Mr Berlusconi came as 27 European Union leaders negotiated the three pillars of a package aimed at stemming the crisis. They agreed on the need for European banks to find €108 billion in new capital to persuade investors that they can withstand the pressures of the sovereign debt crisis.
On Sunday night, the 17 eurozone leaders debated without reaching a conclusion two potential models to expand the financial firepower of their €440 billion European Financial Stability Facility – the eurozone rescue fund – using financial engineering to leverage the core capital by up to five times.
One plan would set up a special fund to attract global investors, including potentially the IMF, that would buy Italian bonds and those of other troubled eurozone countries. The other, which could run in parallel, would guarantee against losses by bondholders. Ms Merkel and Mr Sarkozy warned that both plans involved technical complexity.
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