Urgent talks aimed at resolving Europe’s debt crisis were continuing last night as David Cameron insisted EU leaders had made “some good progress” towards agreeing a solution.
The Prime Minister appeared optimistic after he joined leaders of the other 26 EU countries at an emergency summit in Brussels.
The meeting was widely seen as being critical to Europe’s economic prospects, with German Chancellor Angela Merkel describing the problems threatening the euro as the continent’s worst crisis since the Second World War.
Before leaving Brussels, Mr Cameron said particular progress had been made on a move to shore up banks which are at risk of running into trouble. That recapitalisation measure is expected to form part of a three-pronged strategy, also involving a much bigger bailout fund for the eurozone and the writing-off of some debts.
“We made some good progress tonight,” Mr Cameron said. “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 tonight.”
After the meeting of all 27 EU leaders had finished, further talks began between countries that use the single currency.
Bank recapitalisation would only go ahead when all parts of the plan were agreed, Mr Cameron said, telling eurozone leaders: “Further progress on that needs to happen tonight.”
Conclusions from the summit confirmed that an agreement had been reached to strengthen the liquidity of Europe’s most exposed banks.
None of the UK’s financial institutions would be recapitalised under the scheme, which would involve increasing vulnerable banks’ reserves by more than 100bn euros (£87bn).
Private investors are expected to raise the extra money, but if that is not possible it may have to come from the EU’s bailout fund – which would involve eurozone governments using taxpayers’ contributions once again.
Even then, that money might be insufficient. Analysts believe half as much again may be needed to shore up banks enough to satisfy markets.
The leaders last night set the target of achieving the higher capital ratio by the end of June next year.
A summit conclusion read: “Banks should first use private sources of capital...if necessary national governments should provide support and, if this support is not available, recapitalisation should be funded via a loan from the European Financial Stability Facility (the bailout fund) in the case of the Eurozone countries.”
Mrs Merkel raised the stakes before the meeting by warning that peace in Europe could not be taken for granted.
Speaking to the German parliament, she said Europe faced its toughest period since the Second World War.
“No one should take it for granted that there will be peace and affluence in Europe in the next half-century,” she said.
“The world is watching Germany and Europe to see if we are ready and able to take responsibility. If the euro fails, Europe fails.”
Mrs Merkel went to the talks with a strong mandate from parliament after German politicians voted 503-89 in favour of bolstering the 440bn euro (£382bn) rescue fund to make it more effective.
Although the summit was billed by some as a make-or-break meeting for the euro, officials in Brussels sought to dampen expectations.
More EU-level ministerial meetings are expected in the next few days, and it is understood that Downing Street considers a G20 summit scheduled for early November to be the real deadline for an agreement.
Crucial to the plan’s success will be economic stability in Italy, where Prime Minister Silvio Berlusconi faces demands to act on austerity measures in return for financial aid.