BRUSSELS - Europe's government-debt crisis, which has dragged on for more than two years, is entering a pivotal week, as leaders across the continent converge to prevent a collapse of the euro and a global financial panic that could result.
Expectations are rising that Friday's summit of leaders of the 27 countries in the European Union will yield a breakthrough. An agreement on tighter integration of the 17 EU countries that use the euro especially on budget matters would be seen as a crucial first step. That could trigger further emergency aid from the European Central Bank, the International Monetary Fund or some combination, analysts say.
The coming days "will decide if the euro will survive or not," Emma Marcegaglia, the head of Italy's industrial lobby, Confindustria, said Sunday.
French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank Chief Mario Draghi and even U.S. Treasury Secretary Timothy Geithner will star in a 5-day financial drama leading up to the summit.
If the summit is a failure, Sarkozy warned last week, "the world will not wait for Europe."
CBS News correspondent Mark Phillips reports that Sarkozy and Merkel will meet in Paris on Monday to try to agree on a cohesive plan that would impose tighter rules across Europe on how much government's can borrow, and even possibly impose penalties on nations which break those rules. The two leaders, who have worked closely on the crisis for weeks, have been dubbed "Merkozy" as they try to move their positions closer.
The two agree overall on the need for tougher, enforceable rules that would prevent governments from spending or borrowing too much and on certain penalties for persistent violators.
"Where we today have agreements, we need in the future to have legally binding regulations," Merkel said Friday.
Merkel wants to change the basic EU treaty to reflect the tougher rules on euro countries and make them enforceable. Even if there is general agreement on Friday, actually putting new rules in place through treaty changes could take more than a year. And many economists fear the new rules alone would not be enough to halt the rise in Europe's borrowing costs.
The hope is that a firm expression of intent, however, would reassure the ECB, so that it can make stronger efforts in the short term. That would give governments time to get their finances under better control and make economic reforms that would improve growth.
any final solution to Europe's crisis, however, may be difficult for Merkel to stomach.
While Schlesinger agrees with Merkel's appraisal that no short term measures can work, she adds that the financial crisis gripping Europe, "requires a coordinated effort among the 17 eurozone countries, one which admits that the survival of the EU requires the stronger economies to bail out the weaker ones - sorry Germany!"
"It will also require debts to be restructured and, as a result, big banks will take it on the chin," says Schlesinger. "Unfortunately, the suffering will also extend to taxpayers, most of whom had little to do with creating the crisis."
The urgency has been heightened in recent weeks as Italy and Spain, the continent's third- and fourth-largest economies, face unsustainable high costs to finance their debts. The yield on 10-year Italian bonds is around 7 percent. Yields above that level forced Ireland, Portugal and Greece to seek bailouts. By comparison, bond yields in Germany, Europe's largest and most stable economy, are roughly 2 percent.
"The eurozone is threatened to face an existential situation if it becomes clear over the next few weeks that several member states cannot cover their refinancing needs, or can only do so at suicidal conditions," former German Finance Minister Peer Steinbrueck told the Sunday edition of German tabloid Bild.
"Everything must be done to hinder the eurozone from breaking up," he said.
Italy, whose government debt is equivalent to 120 percent of the country's annual economic output, needs to refinance euro200 billion ($270 billion) of its euro1.9 trillion ($2.6 trillion) of outstanding debt by the end of April.
The size of the problems facing Italy and Spain are considered too large for the existing funds available to the European Financial Stability Facility ($590 billion) and the IMF ($389 billion.) To boost the firepower of the IMF, several economists have proposed that the ECB lend to it.
"We are now entering the critical period," the EU's financial chief, Olli Rehn, said last Wednesday.
That same day, the U.S. Federal Reserve, in coordination with the ECB and four other central banks, sought to give stressed-out European banks some relief. The Fed announced a plan to make it cheaper for banks to borrow American dollars, which is the dominant currency of trade. It was the most extraordinary coordinated effort since October 2008, and it prompted a nearly 500-point rally in the Dow Jones industrial average.
Still, that help did not address the fundamental problem in Europe: unsustainable levels of government debt.