Europe's leaders intend to multiply their rescue fund fourfold to €1 trillion and press Greece's creditors to accept losses of over 50 per cent on their bondholdings, but the details of their plan to end the debt crisis are still not fully formed.

A draft statement from an emergency euro zone summit today, obtained by Reuters, outlined two options to leverage the €440 billion fund designed to shore up heavily indebted states and thwart market attacks.

If the draft is adopted with little change, the second summit in four days will have sketched broad intentions but failed to produce a detailed master plan to scale up the fund, recapitalise banks and reduce Greek debt to a sustainable level.

"It's moving in the right direction but it is going to disappoint the market, particularly given the emphasis policy makers put on this meeting," said Jessica Hoversen, foreign exchange analyst at MF Global in New York.

One proposal involves creating a special purpose investment vehicle (SPIV) to tap foreign sovereign and private investors, such as Chinese and Middle Eastern wealth funds, to buy bonds of troubled euro zone countries.

The other method for scaling up the European Financial Stability Facility, which was set up last year, involves using it to offer partial guarantees to purchasers of new euro zone debt. The two options could be used simultaneously and the International Monetary Fund could also help.

Euro zone finance ministers will be asked to finalise the terms and conditions in November, the statement said.

EU sources said the EFSF was expected to be leveraged by something like a factor of four giving it scope of around €1 trillion. It has about €250 billion to €275 billion euros available given funds set aside for aid to Greece, Ireland and Portugal and for recapitalising the region's banks.

European leaders' pattern of responding too little, too late to a debt crisis that began in Greece has spawned a wider economic and political crisis that threatens to undermine the euro single currency and the European Union project.

A senior EU source said the euro zone leaders want private sector creditors to accept a writedown of more than 50 percent on their holdings of Greek government debt in order to reduce Greece's total outstanding private sector debt by around €100 billion.

While there is consensus on the need for European banks to raise around €110 billion in extra capital to withstand a potential Greek debt default, governments and banks are still haggling over the scale of write-offs.

In an effort to push through the deal, French president Nicolas Sarkozy and German chancellor Angela Merkel are prepared to meet with bankers on Wednesday night to negotiate face-to-face, the senior source said.

EU leaders agreed the outlines of a package on bank recapitalisation, including raising the core capital ratios of European banks to 9 per cent by the end of June 2012, but they did not provide a headline figure, which will depend in part on negotiations over Greece and its second bailout package.

"There will be give and take with the banks until the last minute," a Greek government source involved in the Brussels negotiations said.

Mr Sarkozy is also expected to talk with Chinese president Hu Jintao soon on Chinese participation in the EFSF bailout fund.

Mario Draghi, the incoming head of the European Central Bank threw the euro zone a lifeline hours before the summit, signalling the ECB would go on buying troubled states' bonds as leaders of the 17-nation single currency area struggled to agree a convincing set of measures.

"The Eurosystem (of central banks) is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission," he said in typically coded ECB language in a speech text released in Rome.

Mr Draghi, who will succeed Jean-Claude Trichet next month, made clear that measures could only be a temporary expedient and said it was up to governments to tackle the roots of the debt crisis that began in Greece two years ago.

However, his statement appeared to rebuff pressure from Germany's powerful Bundesbank for the ECB to end the bond-buying programme which prompted the resignation of the two most senior German ECB policymakers this year.

It also appeared to supersede a dispute between Germany and France over how the ECB, the ultimate defender of the euro, should be involved in trying to resolve the crisis.

Ms Merkel won a parliamentary vote of support for strengthening the rescue fund after warning in a dramatic speech that Europe was facing its most difficult situation since the end of World War II.

"If the euro fails, then Europe fails," she declared, saying there was no certainty that the continent would then enjoy another 60 years of peace.

Ms Merkel told parliament that private bondholders would have to take a substantial write-down so that Greece's debt could be reduced to 120 percent of gross domestic product by 2020 from 160 per cent this year.

Experts said that implied a 50 per cent "haircut" for private investors.

Also weighing on the summit was deep concern about Italy, which is now in the bond market firing line.

Under huge pressure from its euro zone partners, Rome promised a package of reform steps to boost growth and control its public debt, including labour and pensions reforms and additional revenues from property divestments.

In a letter sent to the summit in Brussels, the government said it would produce a plan of action to boost growth by Nov. 15, promising to raise the retirement age to 67, cut red tape and modernise state administration to improve conditions for business and raise €5 billion a year from divestments and improved returns from state property.

Rome's inability to deliver a substantive plan for reforming its pensions system has raised doubts about prime minister Silvio Berlusconi's seriousness in tackling a crisis that threatens the euro zone's third largest economy.

Italy has the euro zone's largest sovereign bond market, with a public debt of €1.8 trillion, 120 per cent of GDP. If it went the same way as Greece, Ireland and Portugal, the rescue fund would not have enough money to bail Rome out.

Additional reporting: Reuters