BRUSSELS — Europe's government-debt crisis, which has dragged on for more than two years, is entering a pivotal week, as leaders across the continent converge to prevent a collapse of the euro and a global financial panic that could result.
Expectations are rising that Friday's summit of leaders of the 27 countries in the European Union will yield a breakthrough. An agreement on tighter integration of the 17 EU countries that use the euro — especially on budget matters — would be seen as a crucial first step. That could trigger further emergency aid from the European Central Bank, the International Monetary Fund or some combination, analysts say.
The coming days "will decide if the euro will survive or not," Emma Marcegaglia, the head of Italy's industrial lobby, Confindustria, said Sunday.
French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank chief Mario Draghi and U.S. Treasury Secretary Timothy Geithner will star in a five-day financial drama leading up to the summit.
If the summit is a failure, Sarkozy warned last week, "the world will not wait for Europe."
Sarkozy and Merkel meet in Paris today to unveil a proposal for closer political and economic ties between the 17 euro countries. The two agree overall on the need for tougher, enforceable rules that would prevent governments from spending or borrowing too much — and on certain penalties for persistent violators.
Merkel wants to change the basic EU treaty to reflect the tougher rules on euro countries and make them enforceable. Even if there is general agreement Friday, actually putting new rules in place through treaty changes could take more than a year. And many economists fear the new rules alone would not be enough to halt the rise in Europe's borrowing costs.
The hope is that a firm expression of intent by the governments, however, would reassure the central bank so it can make stronger efforts in the short term. That would give governments time to get their finances under better control and make economic reforms that would improve growth.
The urgency has been heightened in recent weeks as Italy and Spain, the continent's third- and fourth-largest economies, face unsustainable high costs to finance their debts. The yield on 10-year Italian bonds is around 7 percent. Yields above that level forced Ireland, Portugal and Greece to seek bailouts. By comparison, bond yields in Germany, Europe's largest and most stable economy, are roughly 2 percent.
The United States is ratcheting up its involvement. Geithner will visit Germany on Tuesday, France on Wednesday and Italy on Thursday. The bigger threat to the United States and the global financial system is that Europe's debt crisis could spiral out of control.