>> hello and welcome to "the journal." >> thanks for joining us. >> coming up, all eyes are on brussels as leaders meet to hammer out a deal they hope will result the iraq crisis once and for all. there is a lot at stake for everyone. it could be a very long night. captioned by the national captioning institute --www.ncicap.org-- >> a make or break summit in brussels to deal with europe's debt crisis is already making headway. to avoid a meltdown in the banking sector, leaders have agreed european banks must increase reserves to withstand potential losses.

officials also say leaders intend to increase the amount of money in the bailout fund. the leaders are eager to show that are committed to finding a lasting solution to europe's debt problem. >> the meeting of all 27 members produced results as far as how much capital banks should hold with risky investments. >> banks will be required to have 9% core capital. this will have to happen by june next year. >> few observers expected such rapid results. heads of state and government appeared happy with the outcome, but the british prime minister warned against too much optimism at this stage. >> we have made good progress with the bank recapitalization. that has not been watered-down.

it would only go ahead when the other parts of a full package go ahead. >> and binding measures could force banks to bear a bigger brunt of the rescue deal. before he headed into talks, the german chancellor signaled that leaders have difficult negotiations ahead of them. >> this meeting is important. we have an array of problems to solve, and tough negotiations. there is still work to be done, but we are heading into the summit with the goal of making solid progress. >> with europe's leaders promising tangible decisions, journalists are preparing for a long night. >> our correspondent is following the summit from brussels. we just heard in our report a few of the details coming out of the summit and what is being agreed to. tell us what you have heard so far. >> basically, the part about

bank recapitalization is in place, but contingent on the other two parts. angela merkle and french president sarkozy are holding talks with representatives of a consortium of banks in this building tonight to try to win them around, to get the banks to agree to take a big write-down on greek that. in other words, banks would get back less than half of what they are owed, when and if the greek banks repay their debt. they are asked to take a hit because they do not think greece will ever pay it all back. that could be a turning point to the summit. the french and german leaders decided there would have a joint meeting with the consortium to crack the three issues. >> staying on the subject of merkle and sarkozy, do they have the leverage to get what they want? >> it is hard to say. moral leverage is about all they have got, saying to the banks

thus far in the economic crisis it is the taxpayer and national treasuries that have paid out. the banks have got away with a lot. it is time they took it on the chin. i think that is going to be the message. so far, in talks behind the scenes, the consortium has only offered a 40% hair cut, in other words a write-down of greek that. the experts at the summit are saying that needs to be 60% to be credible. those talks are ongoing on the sidelines of this summit. there is the big question -- can the bailout fund be leveraged up to about a trillion euros? angela merkle got clearance from berlin and parliament today to negotiate on that, but it is a question of how you work the math, massaging the figures and making them impress markets. it is a political and economic nightmare and a jigsaw puzzle

that has bit still missing. >> chancellor merkle has said before and again today that if the euro fails other eu leaders agree that is what is at stake here? >> i do not know. i do not think anyone has expressed it as forcefully as that. angela merkle said this just before the summer. she has linked the two. it is the central project in the whole history of the european union, the core back down now, as many see it. even though not all member states share the single currency, i can see emotionally what she says. that could be the end product. >> as always, we appreciate your analysis. german chancellor angela merkle headed to the summit just hours after the bundestag approved

expanding the bailout fund. she got crossed party support and a major majority within her government coalition. she said the eyes of the world war in europe for the worst crisis since the end of the second world war. german involvement in the bailout fund will not exceed 211 billion euros. our political correspondent, simon young, joins me now in the studio to talk more about today's vote. i want to ask you -- why was this vote so important today? >> chancellor merkle says she wants to create a new culture of stability. this gives her a strong mandate to go to brussels and negotiate. in particular, it gives her broad support to argue for this plan to reach the stability fund, which is a key part of

the architecture to save the euro. also, to argue for keeping risks away from the european central bank and german taxpayers. the risks being taken now with germany's finances are not popular in the country at large, but at least the main parties have voted in favor of these plans. >> will stay on that subject. in terms of tax payers, germany has a lot at stake. it is contributing the most to this fund. it has a lot to lose, at the same time. >> germany is the biggest contributor, but this plan raises the possibility that money will be called on. it will not just the guarantees. that increases risk. the question is what will the ratings agencies say. will they be tempted to look again at germany's credit rating?

financial risks are increasing and political risks are increasing as well. >> thank you for your analysis. let us handed over to steve and hear more about potential scenarios for helping countries pay down the mountains of debt. >> still plenty to work for as they keep the coffee brewing in brussels. important progress in the lead up to the summit and a significant breakthrough. we are hearing the eurozone plans to leverage its 440 billion euro bailout fund severalfold. also news of recapitalization for european banks. one of the big unsolved issues is still how to handle planned writedowns on greek debt. that will have a profound effect on future purchases of bonds in europe. >> one problem crisis managers have to solve is how to make bonds from troubled governments

attractive to investors. the first is a debt guarantee. it works like an insurance fund. if a bond defaults, the eurozone covers part of what is lost. that lowers the risk to investors, and the reward stays the same. the second model would create a special purpose vehicle. the european rescue fund and as many other investors as can be found would pay into it and the capital used to purchase bonds. these can be reinforced with additional guarantees. the problem is that investors do not seem to be lining up for the bonds. emerging economies with extra cash have so far shown little interest. the finance minister said the eu has to find its own solutions, but the eu is also looking to china. the head of the rescue fund will visit to drum up interest in bonds from the eu nations in

crisis. >> onto the market. after trading flat for much of the day, a bit of volatility late in the session. we have this summary from the frankfurt stock exchange. >> at the end of the session, uncertainty took control of the market and sent share prices down. uncertainty about the outcome of the eu summit. uncertainty about all these problems to be solved. a disagreement between politicians. the dax went down by 0.5%. the european currency has been hit hard by these concerns and lost nearly 1 cents in half an hour. well the burning season shows that german companies are still on track, s.a.p. and merck reported results earlier this morning that beat expectations.

>> we stake in frankfurt for the closing numbers wednesday. the dax finished down by 0.5%. the eurostoxx 50 also lower. the dow managed a nice gains, up by 1.4%. on currency markets, the euro trading slightly higher this hour at $1.39 down nine. -- $1.3909. the greek government is desperately looking to put an end to tax evasion using a marietta of loopholes. creeks have consistently held and their wealth from the government, but those days could be over. >> boats are docked in greece, but some of them are registered for away, in tax shelters in the caribbean. it is one trick wealthy greeks

used to escape taxes. >> last year, only 17 people declared an income of over 1 million euros on their tax return. this year will probably be the same. that is a clear sign the trend over the last 30 years is continuing. employers and retirees carry the brunt of the financial load. the burden is lopsided. >> workers have been hit by austerity measures and are turning their anger on the wealthy. >> he should pay more if you earn more. if you earn little, you should pay little. >> it is absolutely audacious. it is audacious that the government allows it to happen. the government should go to the double. if they stay in power, the people would revolt. >> the tax rates are generally high for everyone. the rich should have to pay

their taxes regularly, but clearly they do not want to. >> traditionally, greece's will to do have had an easy time evading the system, often bribing authorities to keep quiet. >> the risk of getting caught is higher, but so far there have not been in the consequences tied to the crime. we have not seen anyone go to court or prison for evading taxes. the problem is partly our sluggish buses system. -- justice system. >> as austerity measures take their toll, it is increasingly difficult for wealthy greeks to find a safe haven. >> vote counting is still under way into nietzsche's first election, but an islamic party has emerged as the clear leader. it has started coalition talks with the two largest secular

parties. and how it plans to form an interim government of national unity. it will prepare for a full transition to democracy over the next year, with a new constitution. they advocate a clear islamic identity for tunisia, but support rights for women. they have named a candidate for prime minister. much of thailand's capital is expected to be submerged in the coming days as the country faces its worst floods in decades. the prime minister has warned that flood barriers may not hold and parts of the city would be inundated. a special five-day holiday would began on thursday to give people chances to fortify or evacuate their homes. >> it seems paradoxical, but crews are dismantling sandbag barriers in bangkok, allowing

water to drain off toward the sea. along the way, whole suburbs have to be evacuated. residents fear that authorities are not coordinating the situation well enough. the prime minister sought to reassure them. >> we will control the runoff so only the necessary amount of water enters bangkok for the shortest time possible. we will stop the flow of water in the most important way, using all the drainage we have. shelters are at risk of flooding, creating more problems. >> the authorities cannot let us stay here, but what if they do not provide food and water? >> the international airport is also threatened by the water approaching the city. inner-city hotels are shoring up

their interest is -- entrances. many are choosing to leave the country. 1/3 of thailand is under water. more than 350 people have died so far, and more rain is forecast. >> after the earthquake in turkey, the government has excepted international assistance, including emergency assistance from israel. rescue workers continue to call from the rubble -- to pull survivors from the rubble. this teacher was buried for nearly 70 hours with no food or water. survivors living in tent cities are dealing with a lack of clean drinking water. there have been isolated incidents of violence as people fight over a supplies. stay tuned. we will be back with more on ongoing efforts to solve the iraq crisis.

-- euro crisis.

>> welcome back. crucial talks are under way in brussels as members in the eurozone seek a way out of the debt crisis. >> one of the issues is to enlarge the euro rescue fund, the financial stability facility. >> angela merkle and nicolas sarkozy are clear on one issue. europe must find a solution by the time the g-20 convenes in early november. >> there is a lot at stake for germany. as europe's biggest economy, it is making the biggest contribution to the fund. if things do not work out, and germany has the most to lose. rescue packages for the euro and at-risk economies average over 1.5 trillion euros. if worse comes to worst, and germany would have to come up with a large part of that.

germany already has 17 billion euros in the international monetary fund existing rescue packages, most in foreign loans. nobody can say when or if these will ever be paid back. the eu set up the efsf with a lending capacity of 700 billion euros to help countries and if necessary banks. germany has put up a third of the fund, plus 22 billion euros in direct cash aid, and loan guarantees totaling 668 billion euros. they can be tapped, should a better state the fall. the eu provided a rescue package of 80 billion year rose to keep grease liquid. each part is -- euros to keep greece liquid. then there is the european

central bank. despite resistance from german banks, the ec be has been buying bonds from troubled countries. should this prove worthless, germany could part with more taxpayer money. in addition, the issuing bank of greece, portugal, italy, and spain are getting tax infusions from the eu, known as target loans. these are also put by germany for 113 billion euros. all germany's stakes currently add up to 379 billion euros. this is far more than the german federal government have budget for the entire year of 2011. >> our business reporter is with us now for more input. we are talking huge sums of money. the german taxpayer is not happy about putting this bill. what does this mean for the

german economy? it is horrible for the taxpayer. the burden for the german government is very tight. some experts already expect a recession. >> why is it so crucial for banks to accept this severe hair cut voluntarily? >> it is very important but the rating agencies keep their current ratings. if they see the hair cut as a forced measure, it certainly would have negative consequences. they could interpret it as a default. this would be a disaster for european countries and pension funds. this could lead to a chain reaction in europe. >> thank you for joining us in the studio. as we heard details on some of

the vital issues that still have to be worked out, a lot is at stake. but german chancellor angela merkle and french president nicolas sarkozy are clear europe needs to find a solution to the crisis by the time the g-20 convenes. the crisis is not only damaging the eurozone. it is having a major impact on the global economy. >> it was shawn country should -- jean-claude trichet's last appearance before retiring. he had a warning. the sovereign debt crisis could spread and destabilize the european economy. one key problem is the lack of transparency in financial markets. this makes it hard to predict not gone effects. it is making american banks and

insurers nervous. u.s. banks hold a relatively small exposure, but european banks decided to reinsure their investments in u.s. banks using a tool called credit defaults swaps. now those banks hold nearly 25 billion euros agree that. most of the major financial services funds in the u.s. are involved -- goldman sachs, jpmorgan, and bank of america, to name just three. the details of who injured how much money in those institutions remain unclear. bank of america looks to face the biggest blow. it was already hit hard by the financial crisis in 2008. it is slashing tens of thousands of jobs. if the bank of america collapsed, it would send shock waves through the financial sector at a time when the u.s. is battling its own debt problems and the american

economy is flagging. market tensions have also spread to other industrialized countries, such as japan, south korea, and taiwan. their economies depend heavily on foreign investments and exports, and markets are closely integrated with those in europe and the u.s. stocks there have been in a tailspin for two months. in emerging economies like brazil, china, russia, and india, governments are urging quick and decisive action. the iraq crisis has triggered inflation, and central banks have raised income -- interest rates several times, slowing economic growth. that could have consequences for everyone. emerging economies helped write the ship after the financial meltdown. if they are pulled down by europe's debt crisis now, the entire global economy could

slide into recession. >> the incoming head of the european central bank, mario draghi, has signaled an intention to continue to buy troubled bonds. that comes to good news in financial crisis. he said central banks would maintain nonconventional methods to ensure stability in financial and monetary markets. the ecb has flooded the market support european bonds this summer with cash. >> sports news. preparations for the 2012 summer olympics in london have reached a milestone with completion of the 2012 dormitory room in the olympic village. athletes living at the village will have a close-up view of the entire olympic venue. it will provide housing for

17,000 competitors, and later 6000 paralympic competitors. when the games are over, it will be turned into condominiums. eu presidents and ministers are meeting in brussels, negotiating a comprehensive solution to the burgeoning debt crisis. leaders are ready to boost the eurozone bailout fund several times, and have agreed on a bank recapitalization plan that would force major banks to increase capital reserves, offering risky investments and helping them withstand expected losses on the greek that. angela marco and nicolas sarkozy will meet -- angel the merkle and nicolas sarkozy will meet with bankers about significant write-downs on greece.