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But putting changes into effect that would give the European Commission or other governments real control over national budgets is easier said than done, says Simon Tilford of the Centre for European Reform in London. Governments "are going to say all the right things." … "This isn't an issue that's going to be resolved by one or two governments getting tough on public spending," he says.

But the problem is more fundamental, said Simon Tilford, chief economist at the Centre for European Reform in London. "Most of the time, the gap between European rhetoric and reality is just an annoyance," he said. "But that gap is simply lethal when it comes to the euro." Instead of attacking markets and forming a new European agency, "the leaders need to focus on the issue that is driving the markets: the dire growth prospects for the southern rim" of the eurozone, meaning Greece, Portugal, Spain and even Italy.

"Leaders must find a way of preventing the crisis in Greece spiralling out of control, prevent it from bankrupting Greece and prevent it from spreading to the other eurozone countries. Because if it does, it will quite possibly lead to the unravelling of the eurozone," says Simon Tilford, chief economist at the CER. "That would be terribly damaging for Europe, for the EU and the political fall-out would be enormous."

Katinka Barysch, of the CER, said that that realization had hit home in Germany. "It might be unpopular for the Germans and Europeans to bail out Greece, but it will be even more unpopular for them to bail out the banks that owned Greek bonds… If growth stays negative or low in Greece, the fiscal debt will continue to increase, whatever they do," Ms Barysch said, while difficult structural reforms to liberalise the economy will take time. The economists she speaks to "don't really see a solution for Greece in the longer run," she said. …Greece is functionally bankrupt, Ms Barysch said.

As Hugo Brady, an analyst with the Centre for European Reform, said this week: "The EU tried for 10 years on the basis of peer review to make structural changes to the EU economy and no one really listened… Now that simple message might get through."

Alogoskoufis and Papantoniou were joined in a panel discussion by Wim Koesters, a professor at the Ruhr University in Bochum, Germany, and Simon Tilford, chief economist at the CER. "The point really now is about the degree of default, not whether there is going to be one," Tilford said. In the long term, in the absence of a common euro-region budget policy, "then I think we will see ongoing crises and a managed dismantling of the eurozone."

"The problem here is the recurring inability in the European project to say brutal truths honestly and clearly and act on them in a realistic manner," said Hugo Brady, a senior research fellow at the CER. "The markets aren't stupid. They aren't going to be fooled by elaborate peacocking displays. They can see when reactions are credible and when they are not. Anyone could see Greece was going to need bailing out in a matter of weeks, and so that dancing around just made it worse...

"A default of some sort — or debt restructuring — is highly likely and people holding government bonds will have to agree to a haircut," says Philip Whyte, senior research fellow at the CER. "But given the alternative, that would not be the worst possible outcome, which would be for Greece to leave the eurozone, and for Greece's problems to spread to other vulnerable countries, like Spain and Portugal."