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European leaders are meeting in Brussels tonight in another attempt to get a grip on Europe's debt crisis. The issues are complicated. How much of a loss should European banks be forced to take on the value of Greek bonds? How big does a bailout fund need to be to convince financial markets the governments of Europe are serious? The summit is revealing big differences on how to proceed.
NPR's Jim Zarroli is at the European Union headquarters in Brussels and he joins me now. Jim, the effects of this will be felt well beyond Europe, in markets all over the world. What are European leaders hoping to accomplish at this meeting?
JIM ZARROLI, BYLINE: Well, this was billed as the final definitive effort to resolve the crisis, you know, which has been crippling Europe's financial markets for a long time now. The problem, of course, is there have been a lot of summits. There have been a lot of, you know, lots of talk of action plans. They haven't really succeeded so far. But this time, this was an effort to try to show some real resolve on the issue. Here was Greek Prime Minister George Papandreou arriving at the E.U. this morning.
PRIME MINISTER GEORGE PAPANDREOU: Now, is the time for the European leadership collectively to take decisions to end the uncertainty, end the crisis, turn the page and make sure we make a big step forward for the better future and prosperity and security of our peoples in Europe.
BLOCK: So, Greek Prime Minister Papandreou there talking about turning the page. To do that, Jim, what measures are being considered this time around?
ZARROLI: Well, there are a lot of things being talked about and a lot of details still being worked out. For instance, there's been talk about raising the capital requirements for big European banks to 9 percent. In very simple terms, that means they - basically, they'd have to set aside more money against the riskier assets. It's supposed to be kind of a confidence-building gesture for the financial markets.
The problem there is that European banks tend to be undercapitalized, especially compared to U.S. banks. So, it would be a challenge for them to raise the additional capital. And they're supposed to do it by next June. At the same time, European leaders are saying that they don't want the banks to be leveraged too much. In other words, you know, don't try to sell off too many assets to raise the money. So, it's kind of unclear, at this point, how they would meet the targets.
BLOCK: Now, Jim, before the E.U. Summit today the German parliament voted on some of the outlines of a bailout. Germany is key to the recovery effort. What did the German parliament decide?
ZARROLI: Well, the important thing they decided, I think, was to increase the size of the stabilization fund that has been set up to rescue the big European banks. Right now, it's about 440 billion euros, which I think is 600-odd billion dollars. Half of that is said to be pledged already. There are a lot of people who say it's not enough. They say it needs to be a trillion euros or more. The Germans basically agreed to expand the fund.
But once again, they didn't put any numbers on it, no details. The Germans and other European leaders want to extract some promises in exchange for increasing the fund. For instance, they want a promise from some of the holders of Greek bonds that they will take a bigger loss on the bonds than they've been willing to do so far. So, there's no agreement on that score. There's also - right now, there's a lot of pressure on the Italian government to accept some austerity measures and it's not clear whether it will do so.
BLOCK: So, Jim, a lot of focus on Greek debt, how much of a haircut investors will have to take. Also now, a lot of concern about Italy's debt. Why are people so concerned about that?
ZARROLI: Well, Italy has a lot of debt. Its debt is equal to about 120 percent of its gross domestic product. Now, much of that is internal debt, which means it's held by people inside the country, which is usually considered less risky. The problem is that investors are growing more nervous about Italy. It's having to pay more to borrow money. That's not at Greek levels yet, but it's seeing it's interest rates go up. And that's a problem for its banks, because Italian banks are very big holders of government debt.
So, if the Italian government can't pay what it owes, it would, you know, hurt the banks. It would cause a ripple effect through the financial system. That would really affect all of Europe. Now, Italian President Silvio Berlusconi is under pressure to impose some austerity measures. It's very politically contentious right now. There was actually a scuffle on the floor of the parliament today. Berlusconi is actually threatening to resign, you know. But the upside is everything really is just still up in the air. And it seems unlikely that anything definitive and comprehensive is going to come out of this meeting.
BLOCK: OK. NPR's Jim Zarroli speaking with us from European Union headquarters in Brussels. Jim, thanks a lot.
ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.