Panicky investors drove the price of gold to an all-time high yesterday, amid renewed fears for the future of the European and US economies and rumours that European finance ministers are set to call yet another crisis meeting this Friday, presumably to coincide with what are expected to be disappointing results from so-called "stress tests" on the strength of leading Italian, French and German banks.
In America, the chair of the Federal Reserve, Ben Bernanke, hinted that he might launch a so-called "QE3" third round of quantitative easing – a further massive direct injection of money into the American economy on top of the $1 trillion expended to rescue its recovery. Meanwhile, ratings agency Moody's warned it may cut the US AAA debt rating because it is increasingly likely its debt ceiling will not be raised in time to avoid a default.
Gold surged to a new high of more than $1,580 an ounce. At the same time, the Greek Prime Minister, George Papandreou, tried to force the pace on a second, €100bn, bailout of his country: "The current mood doesn't help us to get through this crisis. This uncertainty scares investors. If we don't get a decision soon supporting the second Greek programme so that the country can begin its far-reaching reforms, the programme itself could be held up."
The IMF countered that Greece itself must move faster on fiscal and structural reforms to avoid default, and urged eurozone countries to speed up a decision on how to support their troubled partner. European leaders have consistently been behind events since the crisis broke almost 18 moths ago.
Italian government bonds, the subject of another stampede for the door by investors, were faring slightly better yesterday, but the "contagion" so feared by European leaders and which threatens the single currency itself shows few signs of permanently abating.
A downgrade of Irish government debt to "junk" status by a credit ratings agency on Tuesday did little to boost confidence, especially as Moody's said debt-laden Ireland would probably need a second bailout. A week ago the ratings firm slashed Portugal's rating to junk with a similar warning. And while a second round of bailouts to small nations would be manageable for the €440bn European bailout fund, a collapse in Italy or Spain would stretch its resources beyond breaking point.
"There will be an extra summit this Friday," a senior eurozone diplomat told Reuters, which also reported a French government source saying that Paris was also in favour of a meeting. The timing was not yet fixed, however and in Spain, European Council President Herman Van Rompuy said he had not ruled out a meeting. Germany's finance minister, Wolfgang Schauble, said a second Greek rescue could wait until September, though whether that intention will survive is doubtful.
If and when Greece and others devalue their bonds the losses will be imposed on the central and commercial banks around the Continent that hold that paper, often because local regulators dictated such bonds as "safe" assets.
They would then have to be rescued again by national governments – if they can afford to do so. Nervous banks may simply refuse to lend to each other, and the matrix of cross loans and financial linkages that bind Europe's banks might then trigger a second credit crunch, and another contraction in lending to the real economy.
Continental view: Eurozone crisis, country by country
If France and Germany cannot agree, Europe cannot agree. A series of profound disagreements between Paris and Berlin goes a long way towards explaining the recurrent eurozone crises of the last 18 months.
Yesterday, France and Germany could not even agree that there should be an emergency summit to discuss the crisis in Brussels tomorrow night.
President Nicolas Sarkozy believes such a meeting is essential to stop the bond markets from testing the euro to destruction early next week. He wants EU leaders to support plans for a large "buy-up" of Greek debt by the European Financial Stability Fund – essentially turning part of the colossal Greek debt into pan-European, or pan-Euroland, debt.
France argues that Berlin is largely responsible for the present crisis by insisting that big banks must agree to write off part of the Greek debt – ade facto default which has encouraged an orgy of anti-euro speculation.
Chancellor Angela Merkel's conservative-led coalition faces public resentment towards its undertaking to rescue so-called "failed" eurozone states with bailouts seen to be financed by taxpayers.
In an attempt to reassure voters, her government has stressed its commitment to ensuring that private banks and insurance companies share the burden by helping to finance bailouts, albeit on a voluntary basis. However the strategy appears to have partially backfired, and is now being blamed for increasing the risk of eurozone contagion and for inducing the current financial crises in Italy and Ireland.
Jens Weidemann, president of the German Federal Bank, the Bundesbank, yesterday said Europe's politicians should be prepared for a scenario in which countries like Greece were forced to declare bankruptcy.
Italy's Finance Minister, Giulio Tremonti, yesterday pledged to further "reinforce" austerity measures aimed at calming the markets and preventing the eurozone's number three economy from being sucked into the debt crisis. His government's apparent determination to rush through a €40bn, four-year savings package appeared to have brought some respite yesterday following ominous rises in bond yields and big falls in stocks in the previous 48 hours. But with one of the highest public debt levels in the world and one of the lowest growth rates in Europe, all eyes remained on Italy.
After talks with his EU counterparts in Brussels, Mr Tremonti said the proposals to remove the country's annual deficit by 2014 would be "reinforced over all four years". Opposition parties have indicated they will help to speed the austerity proposals through the Senate.
In the normal course of events, the Spanish Economy Minister, Jose Manuel Campa, would not need to talk up the likelihood of strong demand for a government debt auction. But he did yesterday, ahead of the sale scheduled for next week, such are these unusual times.
The comments came hours after the government in Madrid won a vote to cap public spending next year, on top of aggressive cuts last year designed to convince the markets that Spain's sovereign debt is manageable.
"Given the instability we are seeing in the financial markets, in particular in the debt markets, driven without a doubt by Greece's problems, it is more necessary than ever to prove our firm commitment to austerity in spending," the Finance Minister, Elena Salgado, told parliament ahead of the vote.
Ireland remains deep in the economics of austerity following the collapse of what seemed to be a new era of unprecedented prosperity.
A new coalition government is grappling with the country's most serious ever economic plight. It has found little to offer the public apart from continuing pain from ever deeper spending cuts. It is, however, being given more credit than the previous administration for its efforts to stabilise an economy which appeared to be in freefall. This meant there was some shock at this week's decision by the credit ratings agency Moody's to cut its debt to junk status.
Following the bailout to Ireland by the IMF and EU, the message from the big international financial institutions has been that the government has acted responsibly in sticking to the conditions imposed on it.
Athens' frequently raucous streets have gone quiet. The demonstrations against the government's austerity policies to secure a €110bn lifeline from the IMF and EU have calmed after Prime Minister Papandreou managed to pass a crucial bill of punishing austerity measures as well as an ambitious privatisation programme to stave off a looming bankruptcy. He now must prove he has the clout to implement them.
Next week, the Finance Minister, Evangelos Venizelos, is to appoint the team that will head Greece's privatisation agency, which is expected to sell €50bn-worth of the country's assets. But despite all of Greece's efforts, the country seems unable to meet its budget targets and contain a crisis that has shaken the eurozone. The ratings agency Fitch last night cut Greece's rating by another three notches, to CCC.
Her European partners are no longer ruling out a partial default to stem its financial woes that have also sent shockwaves around the continent.