After a torrid summer which has seen the eurozone's sovereign debt crisis spread from Greece, Ireland and Portugal to threaten Italy and Spain, the next few weeks will determine the future of Europe's single currency.
A key vote to strengthen the eurozone's crisis management strategy is scheduled in the German parliament on 29 September. But doubts about the long-term future of the single currency are mounting. This suggests that governments must take more urgent action if policy-makers are to seize control of events from the hands of the financial markets.
Financial market confidence in the ability of Europe's political leaders to act decisively to contain the sovereign debt crisis - and so maintain the single currency - has been evaporating. This has put at risk, not just the ability of more eurozone states, especially Italy, to finance themselves on the open market, but also threatened the stability of major European banks in a banking system which holds tens of billions of government bonds on its books.
Europe's sovereign debt crisis is now looking as menacing as the 1982 Latin American debt crisis which brought several of America's biggest banks to the brink of insolvency and plummeted the region into a ‘lost decade’ of economic development.
In recent weeks, doubts about whether Greece can avoid a disorderly default on its sovereign debts – and even continue to pay civil servants their salaries and pensions - have intensified as IMF and European officials negotiating new rescue loans withdrew from the talks.
Meanwhile, signs of slowing global economic growth during the second quarter of the year have raised fears that the transatlantic economies may be facing a second downturn in the recession which hit in 2008. This would be a severe blow for a European debt crisis management strategy which requires growth to bring government budget deficits and debt levels under control.
A second Greek rescue programme agreed in July included steps to strengthen the European Financial Stability Facility, the intergovernmental bail-out agency launched in 2010. But this still requires approval by all 17 eurozone parliaments, including the vital vote in the German parliament later this month.
No less worrying, there have already been disagreements undermining the 8 August deal between the European Central Bank (ECB) and Italy and Spain, which provided financial support in return for promises of economic reform. The untimely resignation of Juergen Stark on 9 September, the German on the powerful executive board of the ECB, highlighted the deep political divisions over the debt strategy not just in the ECB but across the eurozone.
This is a critical juncture for the eurozone, and a decisive moment for the world economy. Achieving financial stability will require bold political leadership and credible measures to restore confidence. This month, a succession of top level meetings - including a gathering of G7 finance ministers and central bankers in Marseille, and the unprecedented participation of a US Treasury Secretary, Tim Geithner, in a planned meeting of EU finance ministers - provides some cause to hope that the necessary political leadership and coordination will be found. However, the stakes are high and the biggest risk is a miscalculation by negotiators. If the crisis is not contained the stability of both the transatlantic and global economies will be at risk.