- Associated Press - Sunday, October 23, 2011

BRUSSELS (AP) — True to form, European leaders on Sunday put off the tough decisions needed to save the Continent from its debt crisis but promised that a comprehensive plan still is coming.

As they dawdled, the danger was rising in an already high-stakes game.

Leaders of Europe’s richest countries had unusually stern words Sunday for Italian Prime Minister Silvio Berlusconi, because many fear his nation could be the next dragged into the debt crisis if it does not make major budget cuts quickly.

That would spell disaster: Europe has rescued three small nations — Greece, Ireland and Portugal — but cannot afford to rescue Italy, the eurozone’s third-largest economy. Analysts say leaders have to act now to eliminate the possibility of Italy’s financial collapse.

For weeks it’s been clear what the 17 countries that use the euro must do: reduce Greece’s debt burden so the country eventually can stand on its own, force banks to raise more money so they can ride out the financial storm that will entail, and show that their European bailout fund is big and nimble enough to prevent larger economies from getting dragged into the crisis.

French President Nicolas Sarkozy (center) and European Commission President Jose Manuel Barroso (left) speak with Austrian Chancellor Werner Faymann during a round-table meeting at a European Union summit in Brussels on Sunday, Oct. 23, 2011. (AP Photo/Yves Logghe)
French President Nicolas Sarkozy (center) and European Commission President Jose Manuel Barroso ... more >

On Saturday, officials said the leaders were nearing agreement on slashing Greece’s debts and strengthening European banks, many of which are awash in Greek bonds.

But Sunday, the only solid detail to emerge from three days of intense talks was that banks will have to raise their capital buffers much faster than they had planned — by the end of 2012 instead of 2019.

A European official said Saturday the banks would be forced to raise just over 100 billion euros ($140 billion) more for their rainy-day funds, but leaders have not given an official figure.

Instead, at a series of news conferences Sunday, all they could do was promise to deliver big at their next summit, called for Wednesday.

“It is a comprehensive package, and the recapitalization of the banks, getting a lasting solution to the Greek debt and what we call the leveraging of the European Financial Stability Facility are the three main parts of that package,” said EU President Herman Van Rompuy, who chaired the discussions of the 27 EU leaders. “We are confident that we will get an agreement on Wednesday.”

Analysts who have seen this pattern for months couldn’t help but be skeptical.

“By failing to agree on anything substantial today, EU leaders may have set themselves up for an even bigger fall,” said Sony Kapoor, managing director of the Re-Define think tank. “They owe it to Europe to pull a rabbit out of the hat now, but this seems to be beyond them.”

Part of the challenge is that European leaders are unable to decide on anything until everything is in place, since each piece of the puzzle affects the others. The value of Greece’s bonds can’t be slashed until banks are strengthened — or at least have confidence they can get help from the rescue fund. But some countries are reluctant to strengthen the fund until they know there’s a plan to bring Greek debt under control.

Banks, which already have agreed to cut the value of their Greek bonds by 21 percent — are rumbling at suggestions that they might need to double or nearly triple those losses. But without reducing Greece’s debt load, the whole plan does not work.

The eurozone also still needs to work out how to most effectively use Europe’s bailout fund to make sure Italy and Spain don’t see their borrowing costs spiral out of control, as happened with Greece, Portugal and Ireland.

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