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Greeks ask European leaders in Brussels for grand solution, but expectations kept low
BRUSSELS (AP) ' Greece's prime minister pleaded Sunday for a comprehensive solution to the European debt crisis that has swallowed his country and is threatening to suck in larger economies, but European leaders said the world may have to wait a few more days.
So far, the continent's banks have been at the center of marathon talks in Brussels. European Union leaders gathering in the city will ask banks to accept much bigger losses on Greek bonds to ease the pressure on the country and to raise billions more in capital to weather those losses.
Austria's chancellor said the cut in the value of Greek government bonds will likely be raised "in the direction of 40 to 50 percent."
"A cut in the debt is the right step," Werner Faymann told Austrian newspaper Wiener Kurier. The comments were confirmed by one of his aides.
But the grand plan originally promised for Sunday has been put off yet again, raising questions about whether Europe has the will to act boldly and quickly enough to help Greece dig out of its debt, prevent bigger countries like Spain and Italy from falling into a similar hole, and calm markets that have reacted negatively to the turmoil. Another summit of EU heads of government is scheduled for Wednesday.
Meetings this weekend have made progress on reducing Greece's debt after a new report showed that worsening economic conditions mean it could take the country decades to emerge from the crisis. Greece is in revolt, reeling from several rounds of budget cuts that have sparked a series of strikes and riots.
"Greece has proven again and again that we are making the necessary decisions to make our economy sustainable, and make our economy more just," Greek Prime Minister George Papandreou told reporters as he headed into Sunday's meetings. "We are doing what we need from our side ... but it's been proven now that the crisis is not a Greek crisis. The crisis is a European crisis, so now is the time that we as Europeans need to act decisively and effectively."
The report from Greece's international creditors said they would likely have to lend Athens more money unless banks accept a 60 percent writedown of the bonds they hold.
The eurozone and the International Monetary Fund have already been propping up Athens with euro110 billion ($150 billion) in rescue loans since May 2010.
Another rescue of a similar size was agreed to in July, but it's now clear that deal did not go far enough. For instance, it called for only a 21 percent cut in Greek bond holdings; leaders are now discussing a much more significant reduction, though an exact percentage has not yet emerged.
The near certainty of having to accept steeper losses on their Greek bond holdings is one of the reasons banks across Europe ' not only in the 17-country eurozone ' will be forced to shore up their capital buffers.
A European official said Saturday that new rules agreed by EU finance ministers force banks to raise just over euro100 billion ($140 billion). The official was speaking on condition of anonymity because the rules were pending approval from EU leaders.
However, Sunday it was uncertain whether EU leaders would even be able to sign off on those rules. A draft of summit conclusions from Sunday morning only welcomed the progress made by finance ministers, adding that the final decision would be made by yet another finance ministers' meeting on Wednesday ahead of a second summit the same day.
The search for a comprehensive solution has divided the continent, and despite progress this weekend many obstacles remain.
Leaders are in the difficult position of not being able to decide on anything until everything is in place, since each piece of the puzzle affects the others.
The biggest sticking point is 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. The EU doesn't have enough money to rescue Italy and Spain as it did the other three countries; analysts say the EU must act now to eliminate the possibility of their collapse.
Until it does, the continuing uncertainty will roil markets and slow growth across Europe and even the world.
"The crisis in the eurozone is having a chilling effect on all our economies, Britain included. ... We have to deal with this issue," British Prime Minister David Cameron said on his way into the meeting of the heads of the 27 countries in the European Union.
Britain does not use the euro. Later in the day, the leaders of countries the 17 that use the euro will meet on their own.
Other leaders tried to lower expectations for Sunday's meetings, saying the real decisions will be made Wednesday at another emergency summit.
"Let's put the expectations in context: Don't count on decisions today," German Chancellor Angela Merkel said.
Disagreements between Merkel and French President Nicolas Sarkozy over how to use the bailout fund, which is called the European Financial Stability Facility, are largely responsible for the delay.
France wants the fund to be allowed to tap the massive cash reserves of the European Central Bank ' an option Germany rejects. And weaker economies are wary of agreeing to the other two parts of the grand plan ' bigger bank capital and cuts to Greece's debt ' without assurance that the bailout fund is ready to provide support.
Associated Press writers Raf Casert, Elena Becatoros, Slobodan Lekic and Don Melvin contributed to this report.