Today's summit has long been sold as a deadline for leaders to sign off on a swathe of economic reforms including boosting guarantees for its temporary bailout fund, the European Financial Stability Facility (EFSF), which has already been used for Greece and Ireland.
It was also branded as the summit that will finalise a permanent rescue fund after 2013 - the European Stability Mechanism (ESM) (see draft term sheet).
But in light of recent political developments in Portugal, Finland and Germany, both of these goals have been put in jepoardy, EU diplomats say.
The Portuguese parliament yesterday rejected an austerity package aimed at reducing the country's deficits and Prime Minister José Socrates announced his resignation yesterday night shortly after the vote.
This places EU leaders in a difficult position as Socrates will be unable to agree on any of the economic reforms that were due to be passed at today's summit. He is now also unable to formally ask for an EU bailout.
Adding to the euro zone's woes, Germany put the brakes on a deal for the ESM on Wednesday as it revealed it could not foot payments it had committed to make in 2013. And Finland said it would resist raising the EFSF's ceiling before elections scheduled on 17 April.
"Those providing the guarantees cannot, and those who may soon need a bailout may not be able to request one," an EU diplomat said yesterday, alluding to Finnish resistance to the EFSF and a political meltdown in Portugal preventing it from requesting a bailout.
Deadline extended until June
At a meeting due to start at 5pm tonight, leaders will agree to extend the deadline for upping the EFSF and reaching an agreement on the ESM until June "to allow national procedures to be completed in good time for signature of both agreements," according to draft conclusions seen by EurActiv.
Though this language lets leaders off the hook on forging any agreements, diplomats said a deal on the ESM could still be struck tomorrow, on the second day of the summit. But agreeing on the EFSF is out of the question, they added.
In addition, the summit had also been dubbed as the time and place that Ireland would perhaps secure lower interest rates on its bailout, but that has now also been wiped off the menu, said EU diplomats.
Finland
However, Portugal will not be the only problem facing the euro zone today. Finnish Prime Minister Mari Kivinemi is holding out on backing an agreement that would raise the lending capacity of the European Financial Stability Facility from €250bn to €440bn because she is facing elections in April, according to commentators in Helsinki.
Kivinemi is pandering to the True Finns party, which is staunchly against footing any bailouts of other countries and is also riding high in pre-election polls, coming second only to the National Coalition Party. The prime minister also recently stated she would be willing to form a coalition with the party.
The True Finns are not alone. Other opposition parties, including the Social Democrats and the Leftist Alliance, have objected to providing funds or guarantees to help Greece and Ireland.
Germany puts EU bailout fund into question
Although it appeared that negotiations over the EU's permanent bailout fund - the European Stability Mechanism or ESM - were nearing an end, the German government threw a spanner in the works on Tuesday when it announced it would not be able to provide the first of three tranches to the ESM, around €10-11 billion, in 2013.
Finance ministers were yesterday reportedly engaged in long phone calls to discuss re-jigging the ESM into five lower payments, something leaders will also have to discuss at today's summit.
"If the revised approach could reduce capital or put the triple AAA credit rating in jeopardy, then neither of those outcomes are a good thing," an EU diplomat said.
About 8% of the ESM's capacity is made up of capital paid in by member states, while the remaining 92% will be raised by callable capital and guarantess, meaning countries will not have to accrue more debt to pay debts.
Portugal
Talk is rife of an imminent Portugese bailout, to follow those in Greece and Ireland, but the Portugese government is unable to request a bailout as it cannot secure an agreement in its national parliament on economic reforms needed for the rescue.
EU diplomats speaking ahead of the Portuguese government's collapse yesterday said they expected it to fall, warning that this may make matters worse as a caretaker government may not have the authority to request guarantees from the EFSF.
"Leaders will be asking the Portugese prime minister what a caretaker Portugese government will be able to do," an EU diplomat said.
Irish bailout takes back seat
Ireland's request for lower interest rates has now joined the back of a long queue of issues.
Angela Merkel has signalled a readiness to reduce Ireland's rates under its €85 billion bailout if Ireland can offer something in return, like raising its corporate tax rate, which is currently at 12.5%, one of the lowest in the euro zone.
The Irish have long argued that they will not be increasing the corporate tax rate and sources who wish to remain anonymous say Enda Kenny, the Irish leader, will have no alternative concession to offer the German leader today.
In spite of all of these near misses, leaders are set to agree on the so-called six-pack of economic reforms which have been thrashed out since February 2010.
The pack includes measures to police debt and imbalances and punish countries who infringe agreed ceilings on both.
A 'pact for the euro'
In addition, leaders will discuss a raft of proposals to boost their national competitiveness, such as raising pension ages, restructuring fiscal policy and engraving debt ceilings into their national law.
Eurozone leaders on 12 March gave in to demands from Berlin to sign up to the pact in return for increasing German-backed bailouts to rescue debt-laden countries.
The 17 eurozone countries have already agreed to the pact in principle, but diplomats said there is still a lot of bitterness about the pact's sudden arrival at a time when they are struggling to convince their national parliaments of the need for tougher reforms.
The demands in the pact range from lowering wages to match productivity levels to lowering taxes on labour, linking pensions to life expectancy and greater tax policy coordination.
"Show me one politician who can do something like this in only three weeks when it effects major changes like social contributions," an EU diplomat railed against the pact.
The pact, which some angrier diplomats describe as peer pressure dressed up as a voluntary measure, was renamed "euro plus" from its previous title a "pact for the euro", as non-eurozone countries like Denmark and Poland signalled they wanted to participate in it.
The presidents of the European Council and the European Commission, Herman Van Rompuy and José Manuel Barroso respectively, unveiled the pact at the end of February.
Sweden, the Czech Republic and Hungary will today tell their partners they are not willing to join the pact.
Some countries which have signed up to it, such as Slovakia, will today present reforms which they say are going to realise the pact's goals.
