German Chancellor Angela Merkel doused expectations of a breakthrough, saying on the way into the meeting at EU headquarters in Brussels that “work’s not been done yet, but everyone’s coming here today with the goal to progress quite a bit.”

The Greek deadlock darkens the summit’s prospects, since deals on recapitalizing banks and bolstering the 440 billion- euro ($608 billion) rescue fund hinge on steering debt-laden Greece back toward financial health.

While policy makers and bondholders were converging on a 50 percent writedown of Greek debt, clashes over the structure of the transaction will limit the summit to issuing a mandate for further talks, the official said in Brussels today on condition of anonymity.

European leaders convened for the second summit in four days -- and the 14th in 21 months -- amid mounting global exasperation over their failure to extinguish the two-year-old crisis that now threatens to ravage Italy and France and brake the world economy.

“It’s the details that are being awaited and I’m skeptical about those being finalized today,” said Prime Minister Donald Tusk of Poland, one of 10 leaders of non-euro countries who will take part in the summit’s first session.

Euro Weakens

The euro slumped on concern that what was billed as a decisive meeting will fall short. The currency weakened 0.4 percent to $1.3855 at 5:45 p.m.

Dramas played out across Europe during the day, with Merkel winning a German parliament mandate to negotiate on the rescue fund, Italian Prime Minister Silvio Berlusconi hustling to prepare new budget cuts and EU representatives jousting with banks over the costs of reviving Greece.

“There is a fatigue on financial markets listening to politicians always coming up with the ultimate, final plan,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview with Francine Lacqua on Bloomberg Television.

Euro leaders won’t rule out a forced Greek writedown, while continuing to pursue a “voluntary” solution that would scale up a July accord that foresaw 21 percent losses for bondholders, the EU official said.

Bank Lobbying

The Institute of International Finance, which lobbies on behalf of 450 financial firms, sweetened its offer yesterday, proposing to go beyond the 40 percent losses it mooted last week, said two people with knowledge of the talks.

The outlines of a deal to safeguard banks emerged, centering on a June 30, 2012 deadline for lenders to reach core capital reserves of 9 percent after writing down their sovereign debt holdings, according to a draft summit statement.

Banks below that target would face “constraints” on paying dividends and awarding executive bonuses, the draft said. It showed little appetite for an EU-run plan, bowing to German calls to make European money available only as a last resort.

Germany, the biggest contributor to bailouts of Greece, Ireland and Portugal, paved the way for a strengthening of the rescue fund with a Bundestag endorsement in Berlin.

Leaders are weighing two options for extending the reach of the fund: using it to insure bond sales and to finance a special investment vehicle that would court outside money, including from the International Monetary Fund.

Waiting on a Number

While markets clamor for a signal that the euro area will devote 1 trillion euros or more to combating the crisis, the EU won’t be able to produce a number until late November, the EU official said.

In Italy, Berlusconi said he would come to Brussels with a letter of intent on further budget cuts that would provide a rationale for the European Central Bank to continue supporting the Italian bond market.

The cracks in Berlusconi’s coalition widened, preventing him from delivering the comprehensive plan to boost growth and trim the debt load. Newspaper la Repubblica reported that the embattled leader hatched a secret deal to resign in January and hold early elections.

“Either this government is able to take structural reforms or we need another government,” Mario Baldassarri, chairman of the Senate Finance Committee and a former Berlusconi ally, said in an interview in Rome. “We will see in the next few days or week” whether Berlusconi resigns.