This blog has now closed - it will continue here.

Time to say goodbye. My colleague Dominic Rushe in New York is taking over shortly. Many thanks for all your great comments.

Time for a look at the markets. On Wall Street, the Dow Jones is trading 87 points higher at 11793, a 0.75% gain. The FTSE has edged nearly 10 points higher to 5535, a 0.2% increase. Germany's Dax and France's CAC have climbed about 1% each, reversing earlier losses.

Some news on the haggling between banks and politicians over the writedown private investors will be forced to take on Greek government bonds.

The lead negotiator for the banks said Greek government bondholders had made a "significant" new offer, without giving details, however. A spokesman for the Institute of International Finance said:

"A significant new offer was made by Mr Charles Dallara, IIF managing director, on behalf of private investors in discussions yesterday. The offer was for a debt exchange on a voluntary basis in support of Greece. I am not able to elaborate at this point."

Banks are being urged to take a loss of 50% plus on their Greek debt holdings, but have been resisting this.

More from David Gow in Brussels.

Well, the Bundestag may have delivered Angela her crushing majority and her red lines but, down the street from the circus tent, the atrium of the Justus Lipsius building, senior EU officials are still locked in negotiations with private creditors over those haircuts. Someone in the know tells me the EU would like 60%, would settle for 50% and won't go below 40% - the latter being the bondholders' last offer. The EFSF, meanwhile, will be composed of two elements - insurance and special purpose investment vehicle - and these will be combined in a single package with input from the IMF, Chinese (talks start in Beijing on Friday with Klaus Regling, EFSF chief) et al. Enda Kenny has told Irish MPs Ireland wants a piece of this action to reduce its debts. These people are pretty sanguine about the outcome and so are the Portuguese journos who are running a bet on when the eurozone summit ends: only €5 each. Your correspondent joined a cluster around 2315CET. The Italians are still worried sick. Berlusconi will turn up with his list of "commitments" and hand them over 15 minutes before the shenanigans start. These are due to be enshrined within two pages of communique on economic governance.

Another update from John Hooper in Rome:

Silvio Berlusconi has left Palazzo Grazioli, his home in Rome, to fly to Brussels for tonight's meetings. He had previously spent an hour or more with some of his ministers, including a senior member of the Northern League, in an effort to put some more substance into the letter he is taking to the EU summits. Gianni Letta, a junior minister and former newspaper editor who is Berlusconi's all-purpose Mr Fixit, had said earlier that some retouching was needed. Indeed. If the promise of bringing the pensionable age up to 67 by the year 2026 is the jewel in the crown, as indicated by government sources late last night, then the letter is a pretty scanty garment with which to cover the prime minister's blushes. The existing plan was to get to 65 by the same date.

Germany's Bundestag has approved the motion to strengthen the euro bailout fund EFSF by leveraging it, with a large majority. Chancellor Angela Merkel will be relieved as she needed the mandate ahead of the leaders summit in Brussels this evening.

The vice president of the lower house of parliament said 503 lawmakers had voted in favour of the motion, 89 voted against and 4 abstained. The motion states that the European Central Bank will no longer need to buy bonds on the secondary markets, and that the rescue fund cannot be financed through the ECB.

Back to the German parliament, where they are finally voting on the EFSF enlargement, after a lengthy debate, which lasted nearly three hours.

Earlier, Merkel indicated that European leaders should agree on a 50% writedown in the face value of Greek debt for private bondholders. She said she would "work towards reaching sustainable decisions this evening". Meanwhile, Slovakia's prime minister Iveta Radicova said private investors should accept a haircut of more than 50%, as she was leaving for the EU summit in Brussels.

Banks have been haggling with politicians over the scale of write-offs. The Greek finance minister, Evangelos Venizelos, said banks and insurers would receive €15 in cash and €35 in 30-year 6% coupon bonds for every €100 of debt they own, according to the Greek newspaper Kathimerini.

What are we looking for at the summit? Elsa Lignos, senior currency strategist at RBC Capital Markets has compiled this list:

1) Greece, the haircut and second bailout. It looks like we may not get a final figure today which would be a disappointment for markets expecting progress. A Greek paper suggests 50% is on the table (with no EFSF guarantees but with a mixture of cash and bonds in the swap) but also says the communiqué is likely to make a more general reference to "haircuts of 50-60% and a long-term target for debt/GDP in 2020". And still no conclusion on whether this can be done "voluntarily" without triggering a credit event. (2) Bank recaps. After Sunday's summit, a figure of €108bn did the rounds though it can't be possible to finalise it until the Greek haircut is known. (3) New structure for the EFSF: Here we should hear more detail about the two plans on the table – the insurance option (to guarantee new issuance) and the SPIV (which aims to attract external investors and can also buy secondary market debt). But what can't be known is the "total size" of EFSF v3.0 until external investors show their interest (which may take several weeks). Overnight a Chinese diplomat in Brussels said China supports the EU efforts but there is nothing concrete on investing in an EFSF SPIV. Meanwhile EFSF Chief Regling is travelling to China on Friday for talks with buyers. (4) Finally Italy is expected to present concrete measures to reduce its deficit/debt. The Italian cabinet is said to have reached agreement late yesterday. This morning Italian paper La Repubblica said part of the deal is that PM Berlusconi will step down in Jan (though he has made promises like this before). Still we will be waiting to see how realistic the measures are, e.g. whether there has been compromise on raising the retirement age. Also on the agenda will be reforms to economic governance though they typically fail to rouse markets. Beyond the Greek PSI deal (at the margin positive if agreed, negative if not), markets will take their cue from the general level of detail in the final communiqué, clearly the more, the better, though there is recognition parts of it (the total size of the SPIV) will have to wait.

David Gow in Brussels has tracked down the draft summit statement(s). Just to be clear: that's the draft for the first meeting at EU-27 level, not for the 17 eurozone leaders who meet later (around 1930CET for dinner). As one wag put it: "It'll finish at 9; can't say whether that's pm or am." Bet the Congress of Vienna wasn't as exhausting as this Circus of Brussels.

Just when you're looking for clarity on today's events along come two draft statements in quick succession and, of course, they merely confirm what we already know about banks and "urgently needed" measures for restoring confidence in the banking sector and "strengthening prudential control". The "consensus" on banking package, to be endorsed by the EU-27 leaders later on today, talks about avoiding a credit crunch and safeguarding the flow of credit to the real economy. And it spells out that a "simple repetition" of the 2008 experience with "full national discretion" is not on or adequate and a "truly co-ordinated" approach at EU level is required regarding entry criteria, pricing and conditions for ensuring liquidity. The capital target is, of course, set at 9% (after accounting for market valuation of sovereign debt exposure) and has to be achieved by June 30, 2012 (nine months from end-September). Interestingly enough, national supervisors, acting with the EBA, "must ensure that banks' plans to strengthen capital do not related to excessive deleveraging" and credit keeps flowing to the real economy. Finally, eurozone countries alone can use EFSF funds as a last resort for recapitalising banks and these should be "subject to constraints regarding the distribution of dividends and bonus payments until the target has been achieved." And, of course, state aid rules shall apply. All in all, nothing new there. Still waiting for the real news: size of haircuts and scale of EFSF firepower (bazooka or pea-shooter?) So far, we're talking 50% for the first and €1.4trn for the latter.

Back in London, M&G's Stefan Isaacs comments on the eurozone mess – "time for inflation protection".

Travelling through Switzerland I can't help but think that politicians both here and in the UK have a lot to thank their predecessors/electorates for. The relative safe-haven status enjoyed by both economies reflects, at least in part, the arm's length relationship with the euro. (Swiss readers may not take kindly to being compared with us Brits, but you take my point.) The eurozone policy makers who are currently trying to thrash out some sort of 'deal' have an almost impossible task on their hands. Despite a belated recognition that some leadership is much required, the reality is that a comprehensive solution won't be reached. We've talked before (see here) about the inherent dangers in any monetary union absent fiscal union. Are the French, Italians, the Spanish, even the Greeks ready to be governed by Berlin? Or indeed, if Greece et al are willing to give up all sovereignty, are the Germans willing to take responsibility for the deficit countries of Southern Europe? Fiscal union requires both the debtors and creditors to be compliant. The foundations of the building are unsafe; replacing the roof may help keep the rain out but it won't ultimately stop the house collapsing. Absent fiscal union and two outcomes spring to my mind; euro breakup (of some form) or the monetisation of deficits. The former would likely see a return to 1930s depression economics, the latter some would argue risks a rerun of the 1920s Weimar experience. While we're certainly not predicting a rerun of 1920s hyperinflation, it will be the temptation to inflate that will win out. The structural adjustments required of many European economies will likely prove too big a pill to swallow. German led protests will fall on deaf ears, and German resignations from the ECB will make little difference. Inflating away liabilities will prove an easier sell for economies that have binged on debt and leverage for decades. Time to visit some inflation protection? Given there is so little inflation priced into bond markets right now, I think so!

The German debate continues. Gerda Hasselfeldt, head of the conservative CSU parliamentary group (which belongs to Merkel's government coalition), has just insisted that the EFSF "must not become a money printing machine".

On a lighter note, our Rome correspondent John Hooper has sent us this:

A bit of light(-ish) relief prompted by the Northern League's veto on any change in the system that allows some Italians to retire unusually early (and which means Silvio Berlusconi will return almost empty-handed to Brussels later today). Ushers in the Italian parliament had to step in this morning to prevent two deputies coming to blows over a remark by the speaker, Gianfranco Fini, last night on television (Italian speakers can watch the video here). Fini reminded viewers that the wife of Umberto Bossi, the leader of the Northern League, was also in retirement -- and had been since 1992 when she gave up work at the ripe old age of 39. League deputies were furious. Just before the scuffle with a Fini supporter, one of them accused the speaker of "offending those who took advantage of pension regulations that were in effect at the time."

And the news from the US is that we are expecting the markets there to open up, after sharp falls yesterday.

The S&P 500 was down 2% on Tuesday while the Dow fell 1.7%. Stock index futures indicate a 78-point climb at the open for the Dow, and a seven point rise for the S&P 500, rises of 0.7% and 0.6% respectively.

While we follow that German debate, a few details of a draft statement from EU heads of state is leaking out.

The upshot is that banks will have to have a capital ratio of 9%, by June 30, 2012.

In order to raise capital, banks should use private sources first, be restricted in what dividends and bonuses they can pay until the capital targets are met, Reuters is saying.

Helen Pidd, who is at the Bundestag in Berlin, has sent us this:

Angela Merkel was really banging home her demand for changes to the European treaties in order to correct the 'weaknesses' in the European union's foundations. She says it's defeatist nonsense to suggest any changes will result in a decade's bickering, pointing out that it only took six months for German reunification to be planned in 1990. She was heckled a lot by MPs from Die Linke party, who have announced they will vote against the euro rescue plans later. But she was applauded by her own coalition for tough talk on ensuring misbehaviour by euro countries in the future must be punished. Merkel received a big round of applause for her speech, which lasted for almost 40 minutes. She closed by saying that another 50 years of prosperity in Europe was "not to be taken for granted", then repeating her mantra that "if the euro fails, Europe fails." No one knows the consequences of failure, she said. Frank-Walter Steinmeier from the SPD is the first politician to speak now in the pre-vote debate.

The German chancellor says the risks related to EFSF enlargement is "defensible" - in fact, "it is not defensible and not responsible NOT to take this risk".

In an emotional final appeal to parliamentarians, amid much applause from her own coalition, Merkel says:

What is good for Europe is good for Germany ... Another half century of peace and prosperity in Europe is not to be taken for granted. If the euro fails, Europe fails.

Merkel says the situation is serious and there are no simple solutions to the crisis - the current issues "will occupy us for years to come".

In passing, Merkel says "we're in an existential crisis". Regulation of financial markets is one of the main challenges which hasn't been tackled yet. She will push for a tax on financial transactions at the Cannes summit.

Merkel confirms that Germany has had its way and that any models that involve the ECB are not on the agenda tonight - i.e. she is ruling out using the ECB to provide more liquidity to sovereign debt markets. See earlier post [10.27am]. She also stresses that there won't be any new money for the eurozone bailout fund - Germany's contribution of €211bn in guarantees to the EFSF will not change.

Back to the German parliament. Merkel is setting out measures needed to prevent the eurozone debt crisis spreading. First, recapitalisation of European banks, which will go a long way to helping prevent systemic risk. Second, a "firewall" - she used the English word - to ward off contagion from Greece's debt problems. "Every country needs to do its homework."

This just in from David Gow in Brussels.

The Commission confirms the Berlusconi letter has not yet arrived "but we are confident we will receive the letter from the Italian authorities before the end of the day". Pressed by Italian journos, the spokesman says Rome must set out concrete and detailed measures to restore confidence in financial stability of the eurozone. Also: "We need a deal tonight. What we expect is a credible political answer to the key questions on the table".

Merkel notes that Ireland is "on a good path" and Greece has started making much needed reforms. She says that "a lot is being asked of the Greek people and they deserve our respect". She says the troika's three-month reports on Greece are not enough, calling for permanent monitoring of Greece, adding that a debt writedown alone will not solve the country's problems. The goal of tonight's summit discussions must be a solution that puts Greece on a debt to GDP ratio of 120% by 2020. "We must help Greece back onto its feet."

Merkel has started making the case for the latest changes to the eurozone rescue fund. MPs applaud when she says that Germany has emerged from the crisis stronger than it went into it and unemployment is the lowest in 20 years.

It's clear that Germany can't do well if Europe doesn't. It is therefore important that Europe emerges from the crisis stronger than it went into it. Europe must become a 'stability union'.

Angela Merkel just got up to address the Bundestag.

The debate in the German Bundestag is about to start - apparently at 11.10. You can watch it live here.

Charles Jenkins, economist at the Economist Intelligence Unit, has sent us his thoughts on Italy.

The fact that the Italian government is weak and divided and only capable of taking policy initiatives to tackle its fiscal and economic problems when put under enormous external pressure to do so is a major cause of the present crisis in the euro zone. The indecisiveness of the government has led to a loss of confidence of potential private purchasers of government debt. It also makes it more difficult for the other euro zone countries to put in place the required massive increase in public sector support available from the European Financial Stability Facility since this requires the sanction of German and other parliaments. It does now seem that Italy is prepared to contemplate much more serious cuts to the cost of public administration than previously mooted as well as further pension reforms and a liberalisation of labour markets. But whether these proposals will be made sufficiently specific to be credible and be both agreed without watering down and effectively implemented still remains to be seen as eurozone heads of government hold a crucial summit today. In the circumstances the summit is not likely to produce a sufficiently robust agreement to reassure markets that eurozone leaders are on top of the situation.

Our Rome correspondent John Hooper says the Italian treasury this morning auctioned €8.5bn of short-term debt (six-month bills known as BoTs) -- and the interest rate was almost 0.5% higher than at the last comparable auction in September. Ominous. The latest rate was 3.535%.

A phrase calling on the European Central Bank to continue its "non-standard measures" will likely be dropped out of conclusions drafted ahead of the summit following Germany's opposition, a senior eurozone source told Reuters.

EU sources had said the phrase on non-standard measures referred to the ECB buying bonds of distressed euro zone sovereigns in the secondary market. But German Chancellor Angela Merkel intervened on Tuesday by saying that had not been agreed with Germany and instead she called for a statement by the ECB on what it wants to do.

"It looks like Germany got its way over France. The phrase will likely not be in the next draft," the source said.

The latest from the Bundestag is the vote will be around 14.15 CET, so 1.15 London time, says Helen Pidd in Berlin. It's a moveable feast. I will amend the agenda lower down again ...

Louise Cooper, markets analyst at BGC Partners, writes in her morning comment: "It is always best to "Under Promise and Over Deliver... But it seems that European policy makers are doing the opposite..."

We were promised a master plan two weeks ago and yet here we are, even after extra meetings, expecting to be disappointed. Its the Finance Ministers and their financial calculators that help give us the nitty gritty of any rescue plan and they are a no-show for today's event. Meanwhile markets are adopting a "wait and see" approach, even though expectations are pretty low as to what will be achieved from today's latest get together. Grand, bold statements yes, and lots of talk of "saving the Eurozone" and "solidarity" but in reality, if you ignore the PR managed quotes, what will actually have been achieved? Its highly unlikely that it will be a large volume day for the share market although any who have ridden the rally from 5000 to 5500 in the FTSE since the beginning of the month, may be tempted to take some profits. Ahead of the meeting, most traders will be reluctant to be take large positions, given the volatility of equity markets currently and the unpredictability of politicians. Equity markets are also pretty unforgiving at the moment - Amazon's shares traded 15-20% lower in after hours trading after disappointing figures last night. And there is more caution from the raft of European corporate results today with concerns from Peugeot, and another profit warning from Carpetright (fifth of the year). The long winded and dysfunctional European decision making process is being highlighted by the current crisis. And the country with the purse strings is more hampered than most with Angela Merkel having to return to her parliament to get approval for her position (let alone the restrictions imposed by the German Constitution). But with 17 democracies in the Eurozone and 27 in the European Union, how else can it be?

Italian business morale weakened this month to the lowest level since January 2010. National statistics office ISTAT's business confidence index fell to 94 in October, from 94.5 in September.

Meanwhile, the Conference Board Leading Economic Index for the eurozone declined by 0.7% in September to 105.9, following a 1.3% fall in August and a 0.1% drop in July.

Jean-Claude Manini, the Conference Board's senior economist for Europe, said:

The further decline of the Euro Area Leading Economic Index, coupled with widespread weakness among its components has pushed the index into recessionary territory. The deterioration of consumer and business confidence has been much stronger than the decline in real measures. Nonetheless, if the latest policy intentions to contain the debt crisis fail to reassure investors and businesses, it will be much harder to prevent decline in measures such as industrial production and retail trade.

It looks like Angela Merkel's Regierungserklärung has been postponed until noon German time (11.00 UK time), says our Berlin correspondent, Helen Pidd.

Our man in Rome John Hooper has the latest on the situation there:

< All the Italian newspapers today are reporting that he and his chief ally, Umberto Bossi of the Northern League, cut a deal last night to increase the age at which Italians qualify for an old age pension to 67 – but only in 2026. The education minister, Mariastella Gelmini told a TV interviewer the idea was to raise the age "for men and women in the public sector and the private, gradually increasing the pensionable age from 2012 to 2025". That only represents a modification of existing plans, and according to most reports this morning, it is the sole firm pledge contained in a long (14- or 15-page) letter that Berlusconi will take to Brussels to set before his fellow-European leaders. No one thinks they will be much impressed. The key point is that Bossi has successfully blocked Berlusconi's plan to abolish Italy's separate time-in-work pensions, which allow some people in Italy to retire unusually early. The opposition La Repubblica alone reports that, in order to get this minimal concession from his ally, the prime minister entered a "secret pact" to stand down in January, opening the way for elections in March. But this has been the expectation in Italy for months now, and the paper's story has prompted little interest here. La Repubblica, by the way, is not making much of its scoop on its website. The link to the story is seven lines below the picture of Bossi where it says "Alle urne a marzo".

My colleague Katie Allen has done this handy Q&A on the European summit - what is the meeting about, what are the risks, what is a haircut and what happens if not enough progress is made?

A quick round-up of today's papers. The Sun has the headline "Hope EU have a happy B-Day [that's B for bailout]" with a handy debt crisis for dummies guide.

The Financial Times has "Fears euro summit could miss final deal - Talks on Greek bondholder haircuts remain inconclusive".

It is better to take time to agree a policy that will work than to rush through an ill-considered response. Leaders should bear in mind at Wednesday's scheduled summit that Europe cannot afford another half-baked solution dressed up as the real thing.

Meanwhile, the Guardian's economics editor Larry Elliott writes:

Europe has form when it comes to long, drawn-out summits and diplomats once took nine months to thrash out a political settlement in a time of crisis. This, though, was the Congress of Vienna between September 1814 and June 1815, long before leaders had to worry about credit default swaps, bond spreads and the instant judgment of the ratings agencies. Now they do, but Europe's leaders have been moving at a pace that would have been familiar to Metternich and Castlereagh.

German news magazine Der Spiegel talks of a "Fateful day for the world economy".

The whole world looks to the chancellor. On Wednesday, her rescue plan must pass the Bundestag. Then she meets with eurozone leaders in Brussels. Everywhere people hope for a breakthrough - because a delay to the rescue measures would be a serious blow to the global economy.

By contrast, France's Le Monde is leading on the French banks, saying they have confirmed that they can recapitalise themselves.

Paul Donovan at UBS has launched his latest podcast:

The 14th emergency summit of the Euro area has profound economic consequences. In a utopian idyll today's decisions would be taken by economists. (In a utopian idyll economists would rule the world and the crisis would not exist because the Euro would not exist).

The FTSE is now 17 points higher at 5542, a 0.3% gain. Germany's Dax is up 16 points, or 0.27% and Italy's FTSE MIB has gained 0.5%. Elsewhere, France's CAC has edged 4 points lower, or 0.1%, Spain's Ibex has lost 0.4% and Portugal's PSI has shed 0.2%. Gold has rallied a one-month high on growing doubts that the EU summit will be able to resolve the eurozone debt crisis.

Manoj Ladwa, senior trader at ETX Capital, said:

Traders remain jittery and volumes stunted as the market waits for Europe's leaders to finally put a lid on the debt crisis. The recapitalization of European banks and a 50% haircut on Greek debt seems to be on the cards and could be just enough to ease investor concerns. But the market will also look for measures to ring-fence Italy and Spain from any contagion effect. If deemed inadequate, we could see a return to the volatility of three months ago.

Gary Jenkins, head of fixed income at Evolution Securities, says he feels like Bill Murray in Groundhog Day.

It seems that every day I wake up, get to work and write the same stuff about the European sovereign crisis. We seem to be going through the same "market concerns, leaders talking the talk, meetings arranged, large numbers mentioned, proposals announced to end the crisis, sugar rush reaction followed by disappointment as it becomes clear that the proposals will not bring about a lasting solution…and repeat". But this is the day I wake up to a new dawn. Yes, it's the day of the Grand Plan! Though I have to admit that there seems to be a lot of work being left to the last minute. It is likely that they will want to announce some kind of agreement today but it is likely to be light on specifics. The cancellation of today's finance ministers meeting announced yesterday lowered expectations as it seems there was no details for the finance ministers to work on. It is reported that the voluntary haircut on Greek bonds has not been finalised and unless progress is made today the concluding statement will refer to a range with 50%-60% being mentioned, but not actually agreed upon. The 'leverage' of the EFSF fund is also said to need further consultation with investors before plans can be finalised, although we might hear more details when Mrs Merkel addresses her parliament this morning. We said on Monday that it would be a challenge to obtain financial commitment from outside parties by Wednesday for the proposed special purpose vehicle and it looks as if that is the case. We expect today's deal to include the much talked of guarantee scheme as well as the SPV, but it is questionable whether it will be possible to specify by how much the two schemes will be able to stretch EFSF funds. There is scope for great disappointment, though if there seems to be general agreement on the bigger scheme and a tight timeframe for the details to be worked out markets may give them the benefit of the doubt. However with Italian yields near 6% and Spanish yields rising even in the short auction held yesterday market confidence is key and it may be fading further without more details on how these schemes are going to help Italy refinance over €300bn in bond redemptions over the next three years. I have a funny feeling that I will wake up tomorrow to the song "I Got You, Babe"…

Our Berlin correspondent Helen Pidd is cycling to the Reichstag to get a good seat for the Bundestag debate. She has sent us this:

>Today is going to be very busy for Angela Merkel. At 9:30am CET (8:30 BST) she will chair the weekly cabinet meeting; at 11am CET (10am BST) she will address Germany's parliament, the Bundestag, and explain her position on how Europe should best proceed in the debt crisis. After a debate, parliament will vote – a result is expected around 12:30pm CET. Then she will hotfoot it to Brussels in time for the two euro summits, one with all 27 EU leaders and another with just the 17 eurozone gang. It's going to be a long, long day. The expectation here is that Merkel will easily win the vote, even if around 16 MPs from her coalition are likely to rebel. She can afford 19 rebellions from her own side and still win the so-called "chancellor majority", which means winning a motion without relying on help from the opposition. In this case, both the Greens and the Social Democrat (SPD) opposition have indicated support for the bill, so it is in little danger of being rejected. "The chancellor will go to Brussels today strengthened by a clear and very broad mandate," Peter Altmaier, parliamentary floor leader of Merkel's conservative bloc told German radio this morning. The chancellor is expected to reassure parliament that German guarantees will not exceed the €211bn already committed to the bailout fund. Addressing her Christian Democratic Union (CDU), and its Bavarian sister party the CSU, on Tuesday, she told MPs the European Central Bank would not be turned into a "money printing machine". She also insisted the risks Germany would face were "vertretbar", which means justifiable or maintainable. Her finance minister Wolfgang Schäuble told the same meeting that Germany insists troubled euro countries would only be allowed to dip into the rescue fund if they promised to carry out "reform programmes". In her Bundestag speech today, Merkel is likely to confirm German support for leveraging the EFSF up to a trillion euros and beyond, while stressing that Germany's liability will remain unchanged. Having on Tuesday told reporters that she was opposed to a phrase in the draft summit conclusions urging the ECB to continue using "non-standard measures in the current exceptional financial market environment", the chancellor is expected to emphasise Germany's demand for central bank independence.

> Italian prime minister Silvio Berlusconi has agreed to step down by January and to bring elections forward to 2012, the Italian daily la Repubblica reported.

Berlusconi agreed with Umberto Bossi, leader of the Northern League, which holds the key to Berlusconi's parliamentary majority, to hold early elections in March in exchange for reforms on pensions, liberalisation and bureaucracy.

The FTSE has just turned negative, down more than 5 points at 5519. Looks like trading will be volatile until we know more about the outcome of the summit.

The market is trading sideways ahead of the EU summit, with the FTSE up nearly 4 points at present at 5529. France's CAC has also edged 4 points higher, and the Dax over 1 point.

Lothar Mentel, chief investment officer at Octopus Investments, told Reuters:

I'm convinced it's going to disappoint because they can't quite pull the rabbit out of the hat yet, though they will probably get something better over time. Markets will react badly.

Here is today's agenda:

• Italian Business confidence 9:00; bond auction

• CBI Industrial trends survey for the UK 11:00

• German chancellor Angela Merkel speaks to Bundestag at 11:00; vote on changes to EFSF expected at 13.15

• US Durable goods orders 13:30

• US New home sales 15:00

• European summit begins in Brussels 16:15; working dinner at 18.15 followed by press conference

All times are UK local.

Welcome back to the live blog. We'll bring you the latest news and commentary in the run-up to the crucial European leaders summit, which starts late afternoon in Brussels. It's crunch time for the eurozone - yesterday's sudden decision to cancel the finance ministers' meeting set investors' nerves jangling, and Italian prime minister Silvio Berlusconi's wobbly government is adding to the uncertainty. European stock futures point to a lower open.

Michael Hewson, market analyst at CMC Markets, said:

Agreement is expected on measures to leverage the EFSF to €1trn, subject to a successful vote this afternoon in the German Bundestag. This could prove politically divisive though leaving Angela Merkel weakened if she has to rely on opposition votes to get the measure through. The main concern remains on the extent of the new public sector involvement for voluntary Greek haircuts with numbers between 40% and 60% being bandied about. This could remain a sticking point with banks reluctant to take more than a 40% hit while the IMF, and EU leaders insistent on a much bigger haircut. This impasse could well delay the second Greek bailout, and we may well find that some parts of any agreement could get kicked down to G20 at Cannes next week.

On top of this, Italy's government could be on the verge of collapse with Berlusconi, under huge pressure to finally deliver on spending reforms from fellow EU leaders, struggling to get support from within his own government for such measures.



Later this morning Italy is set to publish its latest business confidence figures for October . Italy is also expected to sell €10bn of short-term debt and 2013 bonds, and given the recent rise in yields, could well end up paying much more to get them away, said Hewson.

In the UK, the latest CBI industrial orders data for October is expected to show only a marginal improvement from -9 to -7, reinforcing concerns about UK industry. Later in the US we get durable goods orders for September, which are set to slip further, while new home sales are expected to bump along the bottom.