Europe scrambles to finalise debt crisis solution

European leaders are attempting to nail down a solution to the worst economic crisis Europe laboured to put the finishing touches on a lasting defence against the debt crisis by Wednesday as leaders homed in on a deal and Italy pledged reforms to prevent a devastating contagion .
European Union leaders and IMF chief Christine Lagarde hailed "good progress" after a first summit on Sunday aimed at overcoming a crisis that has threatened to pitch the world into a fresh recession.
However, presidents and prime ministers left Brussels with few concrete details, vowing to reveal all at a second gathering on Wednesday despite mounting international and market pressure.
French President Nicolas Sarkozy and German Chancellor Angela Merkel seemed to have resolved their differences, telling reporters at a packed joint news conference there was "a quite broad agreement" on the main sticking point, boosting the EU bailout fund.
Leaders are concerned the 440-billion-euro ($605-billion) war chest 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."
EU president Herman Van Rompuy said 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.
"I wish to take advantage of this situation to see if we can advance measures I was unable to implement up until now due to differences within the majority," Berlusconi told reporters.
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.
Asked what would happen if countries failed to make the required efforts by Wednesday, he replied briefly and confidently: "They will make the commitments."
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.
In a bid to prevent such a crisis from happening again, leaders also pledged readiness to alter EU treaties to allow closer economic integration within the eurozone, and tougher sanctions for those that break the rules.
However, this prompted an angry response from the 10 countries outside the euro area, led by Britain's David Cameron, who warned the response to the crisis risked marginalising the rest of the EU.
"There is a danger ... that as this eurozone coming together happens, there is a risk that those countries outside the euro ... might see the eurozone members starting to take decisions that affect the single market."
He stressed that he had pushed for safeguards to be included in the final statement to prevent this happening as diplomats said a row over the text had delayed the end of the meeting.
The final statement insists on "a level playing field among all member states including those not participating in the euro."
Attention now turns to Wednesday, amid fears the markets could go into meltdown if a "comprehensive package" is not clinched before a meeting of the G20 in Cannes on November 3-4.