Europe's leaders cross fingers summit can turn crisis corner

(BRUSSELS) - For the first time in two tumultuous years, European Union leaders gather Monday without their talks being tagged either a "crisis" or a "last-chance" summit.

Talk of an end in sight may be optimistic -- Greece is as close to default as it is to a second bailout, and Spain is back in the mire with Europe-wide recession threatening an even steeper deterioration in its public finances.

But even after a mass eurozone downgrade by global credit rating giant Standard & Poor's earlier this month, bond markets have been calm, largely credited to cheap funds issued on a major scale by the European Central Bank.

Italy, so endangered that Silvio Berlusconi was forced out as prime minister, has seen a reduction in its borrowing costs -- soothing pre-Christmas fears.

"Markets have changed their attitude recently," Hans Martens, head of top Brussels think tank the European Policy Centre, told AFP.

"Despite the downgrades, there have been some fantastic debt auctions," he added, so much so that "even Greece leaving the eurozone now seems to be factored in as bearable."

The eurozone had enjoyed a brief lull last year, until Portugal was bailed out.

"We can't yet say the crisis is behind us," cautions a well-placed EU official, warning it's "too soon to drop our guard."

But some senior officials appear to be breathing easier these days.

French Finance Minister Francois Baroin sees "signs of a certain stabilisation" while Germany's Wolfgang Schaeuble suggests the worst is behind Europe.

A senior global financial official suggested that eurozone leaders may finally be approaching the sort of "equilibrium" lacking throughout previous attempts at designing a "comprehensive solution."

"The pieces of this puzzle are at last falling into place," said the official, who has been closely involved throughout the crisis.

The official pointed out that the eurozone is building a new rescue fund, sealing a new fiscal pact for deeper and long-overdue economic integration and putting more money into the IMF, while the ECB appears more willing to help.

And while Greece is back centre-stage, in a big change from a year ago with voices such as the Dutch now saying that even a messy default could be politically acceptable.

A diplomat from a big EU state outside the eurozone maintained there is "shedloads" of money at the heart of the currency area that can be directed at ending the contagion.

And indeed, "I think we can reach a consensus on the issue," said Austrian Finance Minister Maria Fekter.

The IMF reckons a sufficient warchest -- maybe up to 2.0 trillion dollars -- could begin to take effect if the eurozone agrees to add another 250 billion euros to a new 500-billion-euro fund due to become operational in July.

Germany, Europe's top economy and paymaster, remains the key player in all of this.

To cough up once more, Berlin has to be able to tell its public opinion it has secured agreement on a new treaty meant to ensure that budgetary discipline becomes more than just words.

In essence, Germany wants governments to follow its example by putting balanced budgets into law, in return for more German checks.

But Berlin remains cautious, as demonstrated during closed-door dealings this week in Brussels.

Shared with AFP after talks among EU finance ministers, official papers showed that Germany, Italy and Spain were the three countries arguing against a planned new law that would in future empower Brussels to order an overspending state to accept external financial assistance.

With aid, of course, would come strings attached.

That trio forced a rewrite of the draft, to make sure officials under EU economics commissioner Olli Rehn could not "pre-empt" such a decision and to ensure all such discussions "remain confidential."

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