Global markets, including the long-term debt markets that fund Australia's banks, are this morning waiting on a European financial rescue plan to be unveiled tonight.All 27 European Union heads of state are scheduled to attend an emergency meeting tomorrow evening, European time, to sign off on the plan.The expected plan will have three key elements: an investor "haircut" on Greek bonds, bank recapitalisation, and a bond-buying rescue fund.European stocks hit 11-week highs and the Euro briefly reached a six-week high against the $US in trading overnight, as hopes grew that the plan will stabilise European financial markets, banks and governments.Under the evolving deal, private lenders to the Greek Government would reportedly take a haircut of around 50 per cent on the face value of their bonds. European negotiators have pressed for a tougher 60 per cent haircut for bondholders, the Financial Times reported.But banks represented by the Institute of International Finance are reportedly warning a tougher haircut could trigger "credit events" under the credit default swap contracts that "insure" many bonds. Most of the bonds are held by European banks, particularly Greek ones, and some observers fear that such an event could expose European financial institutions and governments to Lehmann Brothers-style collapse.Media reports suggest around €108 billion ($A144 billion) could be set aside to recapitalise banks, with much of that going to Greece and Portugal. There is increasing speculation that Greek banks could be nationalised.The European Financial Stability Facility will be given additional funds to buy government bonds of stressed governments in economies like Italy and Spain. More importantly, it is expected to be able to borrow to substantially leverage its purchases. That could give it more than €1trillion ($A1.33 trillion) in buying power.