Europe leaders gather ahead of do-or-die summit on eurozone

European leaders head into a crunch summit in Brussels on Thursday aimed at saving the debt-laden union from collapse. Ahead of the talks, French president Nicolas Sarkozy and German Chancellor Angela Merkel are at a meeting of conservative EU leaders in the French port city of Marseille to drum up support for their plan to fix the eurozone. 

Reuters/Ralph Orlowski

The franco-german plan would impose stricter fiscal rules including legal or constitutional limits on deficits and automatic penalties for eurozone nations that overspend.

The two countries also want a new common legal framework to boost financial and labour market regulation, the harmonisation of the corporate tax base and the imposition of a tax on financial transactions.

But the EU is divided over how to tackle what is seen as the most serious crisis the single currency has faced. Germany will not accept anything short of a full treaty change while Britain insists on protection of its vital financial services industry.

Meanwhile, the European Central Bank policy council is gathered in Frankfurt at a meeting which is widely expected to announce a cut in its key interest rate.

The ECB has played fire-fighter throughout the long and debilitating crisis. But its officials, including its new chief Mario Draghi, insist that such a role is only temporary and it is ultimately up to governments to get their finances in order.

There is widespread pressure for the ECB to solve the crisis by simply printing enough money to buy up a large part of the mountain of debt that many eurozone countries have amassed.

The bank, strongly backed by Germany, is vehemently opposed to this, which it argues runs against the very rules that the eurozone, and the wider EU, is built on.

The situation is veering from serious towards desperate, 24 hours from a self-imposed EU deadline to save the bloc from imploding - so much so that US President Barack Obama held urgent telephone talks late on Wednesday with German Chancellor Angela Merkel.

France’s minister for European affairs has warned the European single currency could break up and Europe itself unravel if political leaders fail to tackle the region's debt crisis,.

"The situation is serious," in the European Union, "the euro can explode and Europe unravel", Jean Leonetti told France's Canal Plus television.