After high-level meetings on May 7, European politicians are scrambling over the weekend to agree on a crisis mechanism to stave off contagion in other countries
Stunned by recent market developments, euro area leaders agreed on Friday night (7 May) to race ahead with plans to set up a euro area crisis mechanism.
Gathered for an emergency meeting in Brussels, the leaders decided to have the new mechanism in place already by next week, with all 27 finance ministers set to approve the deal on Sunday.
The permanent fund is intended to provide loans to euro area states in financial difficulty in the future, something analysts say could greatly have reduced the turmoil produced by the current Greek debt crisis.
"The eurozone is going through the deepest crisis since its creation," French President Nicolas Sarkozy said at a press briefing after the meeting.
"Today we face an attack on the whole Europe, not just Greece. We had to respond with community mechanisms, not just bilateral loans as it was the case with Greece."
"We either let the markets decide for the euro or take measures to stop speculation and come out stronger and more united, as we did tonight."
He insisted that none of the measures required a change in the EU treaties, but that everything could be agreed and put in place "by Monday morning, when markets open."
Still, the new instruments and rules have to be agreed by all 27 member states, including the ones outside the euro, such as the UK.
"It is in the interest of all EU countries that these mechanisms are put in place. Everybody would suffer, including the non-euro countries, if the eurozone defaults," said Mr Sarkozy.
German chancellor Angela Merkel, criticised for her reluctance to agree to the Greek bail-out and opposing most of the proposals agreed on Friday, only made a brief statement when leaving the summit.
"We acknowledged that there is a great deal of speculation against the euro as a whole," she told German press on the way out.
Sources say the fund will be "inspired" by the EU's already existing 'balance of payments facility,' under which the commission can raise money on capital markets at low interest rates, and subsequently lend on to non-euro area countries.
Prior to Friday's decision, economists have pointed to lack of a bilateral transfer mechanism as one of the eurozone's weaknesses. Officials insist that the commission proposals are fully in accordance with current EU treaties, with little appetite in national capitals for further changes.
The commission will push ahead with plans to publish a communication on greater economic co-ordination and surveillance within the eurozone next Wednesday, while a task force looking at similar themes, headed by European Council President Herman Van Rompuy, will fast-track its work.
The leaders communiqué also includes language, designed to show markets that national governments are committed to consolidating public finances. Doubts over Athens, Lisbon, and Madrid have been at the heart of this week's turmoil that saw the euro fall to a 15-month low against the dollar.
"Each one of us is ready, depending on the situation of his country, to take the necessary measures to accelerate consolidation and to ensure the sustainability of public finances," say the leaders.
EU finance ministers will review the situation in each country "by the end of June at the latest," based on a commission assessment.
Officials on Friday evening were staying tight-lipped over the possibility that the European Central Bank could decide to buy government sovereign bonds as a further means providing governments with sufficient capital to meet refinancing needs.
Earlier in the evening, ECB chief Jean-Claude Trichet referred to a "systemic crisis" at the heart of the eurozone, while euro area leaders stressed the importance of the bank's role.
"We fully support the ECB in its action to ensure the stability of the euro area," says the final communiqué, although diplomats stressed that the bank's independence was being fully respected.
In light of the current crisis, euro area leaders also stressed the need to push ahead with the bloc's package of reforms, designed to step up financial market regulation and supervision.
Greater transparency on financial derivatives and the role played by credit rating agencies is also needed, they said, adding that the financial sector must pay "a fair and substantial contribution" to "the costs of crises."