Deep divisions between France and Germany mean they will make scant progress on strengthening the euro zone bailout fund at a summit on Sunday in a sign that Europe's leaders are still some way from getting a grip on the bloc's debt crisis.
France and Germany said in a joint statement that European leaders would discuss a global solution to the crisis on Sunday but no decisions would be adopted before a second meeting to be held by Wednesday at the latest.
The major sticking point is over how to scale up the European Financial Stability Facility, a €440 billion fund so far used to bail out Portugal and Ireland.
France and Germany disagree over the best way to bolster the facility, with Paris fearing its triple-A credit rating could come under threat if the wrong method is chosen.
Failure to agree on leveraging the EFSF will further damage confidence in the euro zone's ability to tackle its debt crisis after nearly two years of trying to get on top of a problem that started in Greece and now threatens Italy, Spain and even France, not to mention the broader global economy.
In their effort to agree a comprehensive resolution plan, euro zone leaders are striving to agree new steps to reduce Greece's debt, strengthen the capital of banks exposed to weak sovereign debt and leverage the EFSF to stem contagion to bigger economies.
The communique, issued after French President Nicolas Sarkozy and German Chancellor Angela Merkel spoke by telephone tonight, said Paris and Berlin wanted negotiations to start immediately with the private sector over its contribution to a sustainable plan for Greece's mountainous debt.
The statement from the euro zone's dominant two leaders, who will meet in Brussels for talks on Saturday, suggested little progress had been made in that area either.
Despite the divisions on the EFSF, EU leaders have made headway on another critical element in tackling the crisis - the recapitalisation of European banks - while a draft statement for Sunday's summit showed euro zone countries will make rules to limit budget deficits and public debt part of national legislation by the end of next year.
EU officials said all 27 member states had agreed that just short of €100 billion was required to bolster bank balance sheets, a substantial step forward in attempts to protect the system against the threat of a default in Greece or elsewhere.
"The figure has been discussed with member states. It is now acceptable for everybody," an EU source involved in the discussions said.
Banks will be required to come up with the capital from shareholders first, and if that fails than national governments will provide the support. Only as a last resort will the EFSF be used to recapitalise institutions.
A deal on bank capital clears one hurdle ahead of Sunday, but at least three others remain - a deal on a revised second bailout package for Greece, the extent of the private sector's involvement in that, and the EFSF's structure.
The International Monetary Fund and the EU also do not see eye-to-eye over the sustainability of Greek debts, with the IMF concerned that EU projections may be too optimistic and that deeper debt reduction is needed, EU sources said.
Reuters