Eurozone's crisis countdown
The leaders of France and Germany have put a clock on the crisis.
They have given themselves a deadline. They have agreed to come up with a comprehensive, sustainable package to fix the patient by the end of the month.
No details were provided and it is smart to be cautious. There have been countless meetings that give bounce to the markets and then unravel.
But, from the sidelines, the voices are becoming more strident and urgent. David Cameron was today urging France and Germany to get out the big bazooka. No more piecemeal approach. The head of the World Bank, Robert Zoellick, complained of the "total lack" of vision of Europe's leaders. US President Barack Obama said that the biggest headwind faced by the American economy was uncertainty about Europe.
President Nicolas Sarkozy has every incentive to deliver. There is a G20 summit in Cannes on 4 November. He cannot come away empty-handed. It is his shop-window for his presidential campaign. The energetic French leader wants to sell himself as a fixer, a big player on the world stage compared with his inexperienced Socialist challengers. Appearing to fix the eurozone crisis will surely get his juices flowing.
So what is to be done?
1. Remove uncertainty over Greece
The facts are that after weeks of meetings we still do not know whether Greece will receive the next tranche of bailout money. Indeed the decision has been pushed back into next month. Greece needs 8bn euros (£7bn) or it runs out of money.
That is a relatively easy decision. The next is harder. Should there be a managed Greek default? With its debt-to-GDP ratio heading towards 172%, no-one believes it can escape its debt trap. President Sarkozy and Chancellor Angela Merkel have both said Greece will stay in the eurozone, but all the indications are that Germany is preparing plans for a Greek default.
The hardest part is the unknown. In the event of a default it would be possible to protect Greek banks and Europe's banking system, but can Greece be ring-fenced or will there inevitably be a domino effect? No-one can be sure.
Under the bailout plan agreed on 21 July, the private investors in Greece agreed to take losses of up to 21%. That is nowhere near big enough to make a difference. 50 or 60% is closer to reality. Banks and financial institutions want the uncertainty to end.
2. Strengthening the banks
The debt crisis has morphed into a banking crisis.
The IMF believes that Europe's banks need between 100bn and 200bn euros to protect them from Greek and other defaults. There is agreement that this should be done on a pan-European basis. There will be further stress tests. This time the risk of sovereign default will be realistically factored in.
But the big question is where do the funds come from? The Germans believe that the banks should tap their shareholders first and only if that fails should governments get involved. The French see it differently. They have their eyes on the greatly expanded EFSF - the main bailout facility. Why? Because if the French government has to bail out its banks that could threaten its AAA rating. President Sarkozy sees that as political suicide.
Belgium is an example of the dangers of bailing out banks. It has agreed to pay 4bn euros to take over the domestic retail side of Dexia bank. It is also guaranteeing - along with France and Luxembourg - the bank's toxic assets. The risk is that it pushes its debt-to-GDP ratio close to 100%. It has already been warned of a possible downgrade.
So, one problem in building up the banks is that it could deepen a country's debts. And then there is the not insignificant political fact: voters everywhere are against further help for bankers. The Spanish Finance Minister, Elena Salgado, said Spanish banks, and not taxpayers, must pay for any further losses.
With all the uncertainty banks are cautious about lending to each other and that could strangle what fragile growth there is. As Andy Baldwin of Ernst and Young Financial Services said:
"The entire financial services sector shares the same credit pool, which is beginning to shrink rapidly in the face of prolonged market uncertainty. Sustained failure to act will exacerbate the current lack of market confidence and credit markets will freeze further from both a supply and demand perspective, closing down income streams for banks and limiting lending to the wider market simultaneously."
3. Expanding the bailout fund
The other unknown that troubles the markets is Italy. It has spluttering growth and a debt-to-GDP ratio of 120%. It is on the life support system of the European Central Bank which continues to buy its bonds. It is difficult to see how that can go on indefinitely. If Italy cannot pay its way then the current bailout fund (at 440bn euros) is simply too meagre to save Italy. That is why in Washington recently the cry went up to leverage this fund to 2 trillion euros or even more. But how? The German government has already told its voters that more of their money will not be put at risk.
Some people want the EFSF to become the European Monetary Fund, or a bank that could borrow against its AAA rating. Every move, however, has implications.
Sony Kapoor of the economic think tank Re-define wants the ECB to do whatever it takes to help Italy and Spain. "Italy and Spain," he said, "are now stuck in a self-fulfilling downward spiral which only an open-ended intervention by the ECB can be guaranteed to stop."
But always it comes back to these questions: what is the cost and who will pay?
Further down the road, France and Germany now accept that a treaty change is inevitable to introduce greater central control over tax and spending with enforceable sanctions. But that does not address the here and now. And the story of this crisis is that every potential solution carries within it the germ of yet another problem.
The clock is ticking.