German Chancellor Angela Merkel said Wednesday European leaders should agree on what would amount to a 50 percent write down of Greek debt from the private sector at a summit to tackle the euro zone debt crisis later.
Addressing the German parliament shortly before a vote on boosting the firepower of the euro zone rescue fund that is set to strengthen Merkel's negotiating hand at the euro zone talks, the chancellor vowed to push for workable, long-term solutions.
I will work towards reaching sustainable decisions this evening, she said, warning that Greece would need the support of the European Union for some time to come and that no overnight fixes were in sight.
We will do all we can to get Greece back on its feet as soon as possible, she said, adding: A debt write down alone will not solve Greece's problems ... structural reforms must still be implemented.
The goal of the meeting tonight must be to get a result under which Greece will by 2020 have a debt to gross domestic product ratio of 120 percent, said Merkel.
Under the sustainability scenarios put forward by the 'troika' of the European Commission, European Central Bank and International Monetary Fund, that means a 50 percent write down from private sector investors.
Merkel is set to win the vote in the Bundestag lower house of parliament, due around 1:00 p.m. (British time), which will give her a mandate to negotiate at the summit.
The chancellor, struggling to convince Germans of the need to support its indebted euro zone partners, said the future of the European Union was at stake.
The world is watching Germany and Europe to see if we are ready and able to take responsibility, she said. If the euro fails, Europe fails. That must not happen. We have a historic duty.
Although Merkel faces a rebellion from within her own centre-right coalition, the bill will almost certainly pass with a large majority because the government has agreed the joint motion with the opposition Social Democrats (SPD) and Greens.
Test votes held Tuesday indicated Merkel will probably in any case win the vote without having to rely on the opposition, which would be a severe blow.
The proposals, to increase the efficiency of the 440 billion euro (384 billion pound) fund without pouring more taxpayers' money into it, are the subject of fierce debate in Europe's largest economy and biggest contributor to the fund.
Merkel is battling sliding ratings for herself and her coalition over her handling of the euro zone crisis. Critics at home and abroad have accused her of taking a dithering approach that has exacerbated the debt crisis, and frustration is intense.
Prospects for a comprehensive deal to resolve the euro zone debt crisis at the summit look dim, with deep disagreement remaining in several critical areas, including how to give the European Financial Stability Facility (EFSF) greater firepower.
One options is to use it to offer guarantees to purchasers of new euro zone debt, the other to use part of its capacity to set up a special purpose investment vehicle to attract money from sovereign wealth funds and other investors. A combination of the two may also be possible.
Merkel said it was defensible to take the chance of higher risks stemming from leveraging the EFSF and not giving the fund more firepower would be irresponsible.
Leaders are also trying to agree on recapitalising Europe's banking system.
Another key area of dispute is over the role of the European Central Bank in the crisis. France wants a deeper and more direct ECB involvement while Germany is strongly against that.
A senior euro zone source told Reuters that a phrase in earlier draft summit conclusions calling on the ECB to continue its purchase of bonds of distressed euro zone sovereigns in the secondary market had been dropped after Merkel intervened.
The motion put to the German parliament states that the ECB will no longer need to buy bonds on the secondary market and that the EFSF cannot be financed through the ECB.
However, the incoming head of the ECB, Mario Draghi, signalled Wednesday the bank would go on buying bonds.
Merkel's hands have been tied in her negotiations on the euro zone crisis since a Constitutional Court ruling last month demanded a greater say for German lawmakers on bailout issues. Merkel said lawmakers would also have to discuss the summit conclusions.
The court ruling has frustrated some EU leaders eager to implement quick solutions.
(Additional reporting by Sarah Marsh,; Writing by Madeline Chambers; Editing by Ruth Pitchford)