Welcome back to our continuing coverage of the eurozone crisis as we head into the evening. Europe’s leaders have gathered in Brussels to try to deliver a solution to the sovereign debt crisis. It has been a nervy day in the markets and national capitals – all of which you can read about on our live coverage from earlier on. Tonight we should discover whether Europe’s leaders can overcome their differences and chart a course towards recovery or whether they will once again fail to reach a deal. We’ll bring you news and commentary as we get it.
All times are London time. By Tom Burgis on the news desk in London, with contributions from FT correspondents around the world.
22.38: We’re going to wrap up our live coverage from London now. But fear not, the FT reporters at the summit will not rest until we have an outcome from the evening’s second summit, of all 17 eurozone leaders. See ft.com for all the latest news.
It seems only right to give the final word on today’s developments to Justin Timberlake, whose new film, In Time, has the strap line: “Tomorrow is a luxury you can’t afford.” Over the coming hours we’ll discover whether European leaders – and the markets – share that sentiment.
22.35: A quick recap on what we know so far
- The 27 EU leaders agreed a statement as per a leaked draft, fleshing out some headline details of how the bank recapitalisation will work
- Silvio Berlusconi’s letter to his fellow eurozone leaders included a commitment to raise the Italian retirement age to 67
- Nicolas Sarkozy will call his Chinese counterpart tomorrow in what seems to be part of efforts to win Chinese investment for a fund to buy eurozone debt
- US markets dealt with all of this pretty calmly, finishing the day in the black
22.27: Stanley Pignal, one of the FT cohort prowling the summit as the meeting drags on, reports:
“The eurozone summit is now well under way, with hundreds of journalists watching out for the white smoke (and final communique) that will mark an agreement to save the euro.
When will it come? Belgian premier Yves Leterme said on his way into the meeting a deal needed to be wrapped up ‘before markets open’, though he didn’t specify which markets.
In previous summits, somewhere around 2:00-3:00 Brussels time (an hour ahead of London) has been the unspoken deadline. Much later than that, and the Asian stock markets open without an agreement, with unpredictable results. As those exchanges set the tenor for Europe and later the US – traders start their day by reading the Asia market report – this is of no small importance.
Here is a list of stock-market opening times as compiled by the FT, all of them Brussels time (some have pre-opening settlement periods):
- Syndey: 1 am
- Tokyo: 2am
- Singapore: 3am
- Hong Kong/Shanghai: 3:30am
- Mumbai: 4:45am
One presumes Mr Leterme didn’t mean the opening of European stock markets, which is 9am Brussels time.”
22.06: After the New York close, the FT’s Ajay Makan in New York reports:
“US markets ended the day positively as the reports of a possible Sarkozy-Hu Jintao phone call on Thursday morning (see 19.49) triggered a mini spurt. The S&P 500 was up 1.1 per cent to to 1242, the blue-chip-heavy Dow did better, up 1.4 per cent to 11,869.04, helped by strong earnings from Boeing. The Nasdaq Composite index lagged slightly up 0.5 per cent to 2,650.87, as Amazon tumbled more than 10 per cent after warning it could post a fourth quarter loss.
US investors had hoped third quarter earnings season, which reaches its peak this week, would decisively detach US markets from European concerns. But the late spurt on Wednesday was yet another example of newspaper reports at the end of a day of European summitry moving US markets, in what some US analysts are calling “the FT effect.” (We couldn’t possibly comment.)
Bulls and bears are divided over how to respond. The S&P 500 has decisively broken above the 1,220 to 1,230 range this week. That range had signalled the peak for previous rallies off the August lows, as investors took profit. The new highs are leaving some fund managers nervous about missing out on a Europe-inspired rally.
Others are unconvinced. ‘It’s all talk for now,’ said Channing Smith, a fund manager at Tulsa, Oklahoma-based Capital Advisor just before the close on Wednesday. ‘Given the complexity of the European situation, without concrete plans we’re unlikely to buy into this rally.’”
21.58: US markets appear relatively sanguine about developments in Brussels – possibly because of talk that China might invest in a special fund to buy eurozone debt. An Emergency Markets Live over on FT Alphaville has more, some of it in Polish
21.47: And so we wait. The leaders of the 17 eurozone members are in their conclave. Meanwhile, from tomorrow’s paper, Lex has this under the delightful headline “My big fat Greek shredding”:
The fight over how much investors holding Greek government bonds should lose is akin to the question of how long is a piece of string. The answer is a guess, no matter how painstaking the assumptions used…
21.38: 
More on the Brics bailing out Europe from the FT’s Alan Beattie in Washington (see 18.45):
“Along with the IMF-heavy (trust fund governed by IMF executive board) and IMF-light (account registered at the IMF, no board control), I gather that another variation is doing the rounds of plans to funnel emerging market money to the eurozone: an IMF-middleweight.
This would involve donors putting money into an account at the IMF which wouldn’t be managed by the board but which would involve IMF staff formulating and monitoring a list conditions for the money – a sort of shadow IMF lending programme. This would import more of the credibility of the IMF without the restrictions of having a full IMF-run fund.
How much any of the Brics [Ed - Brazil, Russia, India and China, lest we forget] would want to give remains an open question.”
Doubtless one that Nicolas Sarkozy will raise when he calls up Hu Jintao tomorrow (see 19.49).
21.24: All this talk of haircuts makes one wonder exactly what sort of trim EU leaders will end up agreeing with the holders of Greek bonds.
Will they take a hard line and end up with something like this?
Or might the banks win concessions, producing something more like this?
21.06: The FT’s video team has just posted a video interview on the prospects for finding value in volatile European markets. Feast your eyes on Richard Milne, capital markets editor, talking to David Jacob, chief investment officer at Henderson Global Investors
20.40: Are Europe’s two heavyweights planning to spring a surprise on the bankers? The FT’s Alex Barker, working the corridors at the summit, has picked up this:
“This rumour is surely too delicious to be wrong. Word is spreading that Nicolas Sarkozy and Angela Merkel are plotting a late night ambush on the bankers locked in the Greek haircut negotiations. The theory is that they’ll bust in to the Greek negotiations, which are taking place across the road from the summit, to give the bankers a good fright. Who knows what will worry them more — the pair looking triumphant or angry?”
20.24: The statement from the 27 EU leaders is as expected: “broad agreement” on requiring banks to raise their core tier one capital, a measure of their balance sheet strength, to 9 per cent by the end of June, taking into account the market value of sovereign debt they hold as of September 30.
The FT’s Alex Barker in Brussels, who has been investigating efforts to water down those banking sector proposals (see 19.22), muses:
Is the European bank recapitalisation a done deal? Not if you ask the Germans and Spanish. A broad agreement on raising the capital bar for banks has been announced this evening. But some technical details — that make a big difference to some banks – have been left open.
Berlin and Madrid are mounting a last-ditch bid to lower the bar by allowing a broader range of capital to be used as part of the “temporary buffer”. German and Spanish banks in particular will have a lot more work to do to reach the new, 9 per cent core tier one capital ratio if they are not allowed to count some hybrid forms of capital.
This is reopening a highly-charged (and tremendously technical) debate that overshadowed the European Banking Authority stress tests last summer. After a long fight, the EBA overruled the Germans and Spanish and imposed a relatively narrow definition of capital that excluded so-called convertible debt.
This time around, there is a chance there will be a little more leeway. European officials insist that the capital criteria will largely match that used in the summer stress test. But even some small tweaks could make a big difference. Some banks’ core tier one capital would rise by 1 or 2 per cent, if the hybrid capital were accepted. Morgan Stanley reckon that, under this scenario, the capital shortfall could be as low as €50bn-€90bn.
None of this was clarified in the European leaders’ statement this evening. But eventually the details will emerge. Will the market be impressed?
20.03: 
Peter Spiegel, FT Brussels bureau chief, has laid his hands on the hotly anticipated 14-page letter Silvio Berlusconi sent to his counterparts ahead of the summit:
“It’s a mixture of bravado and contrition. The first two pages of the letter go into great depth about how Berlusconi’s government has already taken measures to shore up his moribund economy, and argues the ‘speculative attacks against sovereign debt’ are sign of weakness in single currency itself, and not just Italy.
It also points out that Italy’s deficit last year was the lowest in the eurozone save Germany, meaning as a percentage of gross domestic product, it was one of the bloc’s lowest borrowers: ‘In conclusion, in 2010 Italy — together with Germany — demonstrated by far the most virtuous conduct in terms of net borrowing in relation to GDP,’ the letter reads.
But the letter then goes on to matters of substance, and in some respects, it breaks new ground, including promising measures long urged by Italy’s business community, like cuts in regulation and reductions in lawsuits.”
The key bone of contention between Mr Berlusconi and Umberto Bossi, the Northern League leader who is his partner in the governing coalition, was raising Italy’s retirement age to 67 – and there Mr Berlusconi appears to have overcome Mr Bossi’s resistance. Here is the entire section of the letter on pensions:
“Welfare legislation has been amended repeatedly during the current legislative period, making the Italian pension system among the most sustainable in Europe and among the most able to absorb possible negative shocks. Bearing in mind the actual retirement age (windows), the old-age pension age is already higher than that of our principal European partners. The government is committed to achieving the required pension age of 67 years for all workers (men and women) by 2026. The requirements for obtaining an old-age pension have already been reviewed. These requirements will increase gradually, stabilising as from 2013.”
19.49: 
We have confirmation that Nicolas Sarkoy, French president, is due to talk with Hu Jintao, his Chinese counterpart, tomorrow. European leaders hope to attract outside investment from China, Brazil and other developing countries sitting on piles of cash for a special fund expected to be agreed at tonight’s summit. The fund would effectively help to generate more bang for each buck in the EFSF, allowing the purchase of more eurozone member bonds.
19.35: The summit of the 27 EU leaders has broken up. Stanley Pignal, FT Brussels correspondent, reports:
“Poland’s prime minister (who has a mildly special status as leader of the country holding the EU’s rotating presidency) did his best to dampen expectations of a sweeping deal by the eurozone 17 who have now started their own meeting.
Donald Tusk told reporters: ‘I would be cautious to say all decisions will be taken today. We are close, but some details may require more time. What is important tonight is that the euro area shows that political agreement has been reached, with only technical elements still left to be resolved.’
Jacek Rostowski, his finance minister, gave few details of the one issue that the 27 as a whole were here to discuss: bank recapitalisations. The amount of extra cash banks will need will depend on the private-sector involvement, or PSI, i.e. the haircuts voluntarily taken by banks who hold Greek debts (see Alan Beattie at 18.45).
‘That will be announced in due course by the European Banking Authority – not here at the summit,’ he said.”
19.22: In the wake of leaked details from a draft summit statement on EU leaders’ plan to shore up the banking system, FT reporters in Brussels, London and Madrid have a story on German and Spanish efforts to water it down:
Germany and Spain are mounting a last-ditch effort to soften the details of Europe’s plan to strengthen its banking system, pressing for a broader range of capital to be counted towards the mandatory “temporary buffer” for banks …
18.55: With European leaders still in only the first of tonight’s two meetings, fears for the eurozone weighed on early trading across the pond, says Ajay Makan, an FT markets correspondent in New York:
“US markets opened up on solid economic data – increased new home sales and a rise in business orders of durable goods – but fell back as attention returned to Europe.
At 1.45pm in New York the S&P 500 was up 0.5 per cent to 1,234.88, the Dow Jones Industrial Average was up 0.8 per cent to 11,797.97, but the Nasdaq composite index was off, 0.1 per cent to 2,637.04, weighed down by Amazon, whose shares fell more than 10 per cent in the morning session.
‘The US market is still hostage to politicians and news flow,’ said Quincy Krosby, New Jersey-based market strategist at Prudential Financial. ‘Economic data and earnings have been good, but investors are still waiting on Europe.’”
18.45: 
Amid much talk of “haircuts” and how severe they will be, Alan Beattie, the FT’s Washington-based international economy editor, has been crunching some numbers:
“Some of the usual confusion coming out of Europe about the International Monetary Fund ‘demanding’ a particular haircut, i.e. percentage writedown, of private sector holdings of Greek sovereign debt. Leaving aside the fact that calculations of net present value reductions are an art more than a science, what I suspect is actually going on is this.
From the outset, the IMF hasn’t specified a level of private debt writedown – it has just said that the lower the writedown, the higher the level of official finance needed to fill the gap. And since IMF resources are limited, most of the official cash will have to come from Europe. This is illustrated by the table on page 7 of the troika debt sustainability report.
Mind you, is it just me that spotted some eerily familiar numbers there? The estimate for the official finance needed under the current scenario (with limited writedown), if the Greek economy does particularly badly, is €444.1bn, or just over the headline value of the European Financial Stability Facility. Meanwhile the official financing required with a 60 per cent writedown is €109.3bn – almost exactly the same as the original estimate under the current scenario, made back in July before things got worse.
In other words, eurozone people, if you want to keep the bailout size where it is, you need a 60 per cent writedown; if you want to keep the writedown where it is, you will spend the entire EFSF (which in any case in practice probably can’t raise €440bn) on it. In this case, you literally pays your money and you takes your choice.”
18.14: 
Peter Spiegel, FT Brussels bureau chief, has more exclusive news from the summit:
“The FT has received more details on the draft conclusions that were presented to the 17 eurozone leaders as they headed into Wednesday’s summit. The most interesting thing about the communiqué may be what’s not in it.
After a long section praising Spain for reducing its budget deficit, restructuring its banks, reforming its labour markets and adopting a constitutional balanced budget amendment is a blank section just labelled ‘Italy’. So far, there’s nothing in the section. Clearly, the eurozone leaders are still undecided whether efforts Silvio Berlusconi has made to date are enough to warrant the same praise as Madrid.
The sections on Greece still remain vague and inconclusive, a reflection of the still unresolved talks with Greek bondholders, which many now believe may not be completed in time for summit’s end.
The draft also for the first time makes clear that both proposals for enhancing the firepower of the €440bn eurozone bail-out fund – a first-loss guarantee scheme and a special purpose vehicle to be seeded with bail-out money – will be implemented at the same time. But it also calls on the ‘modalities to be completed by eurozone finance ministers sometime next month.
These documents always change before the summit wraps up, but it gives no reason to believe that specifics will be decided by the night’s end.”
18.02: The summit is officially under way, reports Stanley Pignal, Brussels correspondent, who is tweeting from our @ftbrusselsblog account
17.53: Fresh off the train from Paris, the FT’s Hugh Carnegy was among the journalists with whom Swedish prime minister Fredrik Reinfeldt stopped for to chat on his way to the summit. Hugh reports:
“He was strongly playing down expectations. Sweden is not in the eurozone but Reinfeldt clearly wasn’t expecting too much from either the meeting of the 27 EU leaders or the 17 eurozone leaders.
He said the very complex and technical nature of the issues meant a full solution would probably not be achieved at the summit. ‘We might need more time to to do this to get things in place,’ Reinfeldt said.
The deal had to encompass Greek debt relief, the EFSF rescue fund and bank recapitalisation together, he said. ‘That’s why it’s so complicated. We need to have parallel answers to all these (issues) at the same time.’
Sweden, of course, had its own massive financial crisis in the mid-1990s and so knows something about how to get out of such a mess. It is now one of the EU’s strongest economies with enviably stable public finances.
17.39: Developments so far today:
- Trading on world markets has been wary. The FT’s Jamie Chisholm’s 4pm update has all the figures
- Angela Merkel won an emphatic majority for her mandate to take to Brussels and lawmakers approved expanding the firepower of the eurozone’s rescue fund
- Silvio Berlusconi found himself juggling tough demands from his fellow EU leaders for a concrete reform plan and a fractious coalition. The Italian PM was working on his proposals right up until he left for Brussels. And MPs in Rome started thumping one another. The FT’s Guy Dinmore reports from Rome
- Private holders of Greek bonds were closeted with EU negotiators over the size of the “haircut” to the value of Greek bonds. The bondholders said they had made a “significant new offer” but details were there none
17.00 The leaders of the EU are gathering in Brussels. First up is what is supposed to be a brief meeting of all 27 members’ heads of state and government. Then the 10 who haven’t adopted the euro will head out into the night, leaving the single currency’s 17 members to hammer out a deal – in theory, at least. A brief recap on today’s pre-summit goings on follows shortly. In the meantime, you can read what’s happened so far on our earlier live post.
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