We are about to reach what we all hope will be the final denouement of this longest running Greek tragedy.
Make no mistake, Wednesday's meeting of European leaders is crunch time. Failure to agree a comprehensive solution risks market mayhem and economic calamity.
UK policymakers would not be able to insulate Britain according to Ben Broadbent, the new member of the Bank of England's interest rate-setting committee, speaking to the Financial Times today.
The overall package, to be agreed on Wednesday, is based on three elements:
- Recapitalisation: The need for an additional €107-8bn for European banks, which need first to try and raise the capital themselves. If this is not possible then the banks will look to their Governments to be the backstop, and lastly if Governments are too weak then recourse to the European Financial Stability Facility (EFSF).
- EFSF: Two main models have so far been discussed on how to expand the European Financial Stability Facility - creating a special fund to attract global investors, targeting Sovereign Wealth Funds and the IMF, that would buy the bonds of troubled sovereigns such as Italy. The fund would be used to guarantee against losses by bondholders.
- Greece: Create a new rescue fund to help Greece cut its own debt burden.
A new fiscal discipline 'super-commissioner' in the euro area is also likely to be created. This proposal had previously been promoted by the Dutch, in which a commissioner could, upon the support of a majority of Eurozone countries, make a heavily indebted state a "ward" of the EU executive.
This would mean that all economic decisions would be taken out of the hands of the country concerned and vested instead in the super-commissioner. Ouch!
So what's outstanding?
While the recapitalisation figure of €107-8bn has been agreed, full details are yet to appear. It is unknown whether the exact details will be released in advance of Wednesday, or detained until the full package is agreed to. The details of the recapitalisation will include which banks need what financing. Markets will want to know.
A big question remains though over the funding of the EFSF for those Eurozone countries with the banks with the biggest debts. The most concern lies with Greece, Spain, Portugal and Italy, where their banks have lent most to their respective Governments - meaning that the second phase of the recapitalisation (i.e. governments being the backstop) is largely unworkable.
There has been greater focus on Italy, for example, with "Merkozy" putting pressure on Berlusconi to take more radical measures to shore up his country's finances. There is widespread concern that not enough is being done to drive through austerity measures, with Italy needing to borrow €250bn next year in order to refinance the country's existing debts that are up for repayment soon.
The current formation of the EFSF means that it does not have enough money to cover Italy and any other Member State that might fall into difficulty.
The two main options for the EFSF are yet to be finalised. The first idea is to create a new fund which new investors to invest in. The second idea is to use the fund as an insurance scheme to limit the risks of potential investors.
The concern is that both methods are largely untested, especially option one which is extremely complex.
A third option for the EFSF to be turned into a bank and therefore able to use ECB funds has been rejected after strong criticism from Germany and the ECB. This option was previously favourable to the French, who are concerned that other options on the EFSF may negatively impact its own credit rating.
But Germany is in the driving seat on all of this.
Hold on to your hats for Wednesday. We are on the cusp of a truly momentous moment in economic history.