20 October 2011 Last updated at 11:18 ET

Q&A: Eurozone rescue proposals

This weekend, Europe's leaders meet to again try to solve the eurozone debt crisis once and for all.

Much like all their previous summits to solve the crisis once and for all.

Finance ministers from the European Union will meet on Saturday, with heads of government gathering on Sunday.

There has been widespread criticism that they have been far too slow in grasping the gravity of the situation. And Germany has admitted that differences remain before the summit.

And in that time, problems have spread beyond the core of the 17 nations that share the euro.

So what now?

Why the need for further action?

Bailout packages for Greece (twice), Portugal and the Republic of Ireland have already been agreed, but stock markets remain in turmoil.

The reason is simple.

Despite the tens of billions of euros pumped into these countries, together with widespread austerity measures adopted by other highly indebted nations, investors still believe there is far too much debt swilling about in the eurozone economy.

Many believe a Greek default is all but inevitable.

In the meantime, bond yields have shot up in Spain and Italy, raising pressure on them to sort out their finances, and they have had their credit ratings slashed.

There is talk that France could be the next country to have its debt downgraded.

And investors also fear that banks in France and Germany do not have enough cash in reserve to withstand defaults by their debtors.

These are massive economies that are too big to bail out under the current funding arrangements.

The fact that it took several months for the July deal to be ratified by each and every country in the 17-nation eurozone is also a further issue for any new deal.

What is the latest plan?

There are three main strands to what might become a plan of action.

1) Greece will simply be allowed to pay back less than it actually borrowed. This means those institutions that lent money to Athens will have to write off some of the money they are owed.

Eurozone proposals put forward in July suggested creditors write off about 20% of what they are owed, but the latest suggestion is that this so-called "haircut" would actually be higher than 50%.

Reports suggest that France and Germany are split on the level and how to implement it.

France wants less - as its banks are the most heavily exposed to Greek debt.

2) The eurozone rescue fund, known as the European Financial Stability Facility (EFSF), would be massively increased in size, from 440bn euros ($595bn; £383bn) to about 2tn euros.

A fund of this size should be able to deal with the huge economies of Spain and Italy.

The 440bn euros is the agreed amount of money the facility can raise through issuing bonds. Expanding the fund would not simply involve increasing this figure, as this would be too politically sensitive, observers say.

Leveraging the fund is considered the most obvious solution, but also the most politically difficult for Germany.

One suggestion has been for the EFSF to guarantee the first part of any losses that creditors sustain from a government defaulting on its debts, with the ECB providing an additional 1.5tn euros of loans.

Whether the fund will be leveraged - and how much of it will come via the ECB - is what the markets will be looking for.

3) Finally, there is the suggestion of strengthening big European banks that could be hit by any defaults on national debt obligations by Greece.

Bank shares have been among the worst hit over the past few months, as investors lost faith in their ability to stave off losses.

That claimed Franco-Belgian bank Dexia as its first victim earlier this month. If the eurozone cannot agree a deal, might other banks be next?

What impact is it designed to have?

Letting Greece off some of the money that it owes means very simply that it has less to pay back and is therefore less likely to default on the rest.

Bolstering the EFSF means that the safety net, in the event of any default or a need to provide further bailout funds to indebted nations, is large enough to prevent the problem spreading out of control.

Providing more capital to banks will allow them to cover any losses from any possible default, as well as restoring confidence in the sector, allaying fears of another credit crunch.

It also means banks would be able to carry on lending, providing businesses with much-needed funds to grow and to help drive overall economic growth, which is absolutely key to solving the debt crisis in the long term.

If individual economies can grow faster, then they can better afford to reduce their deficits and pay down their own debts.

Finally, it is also hoped that decisive action will at last restore confidence, not only in the financial system, but in policymakers' ability to respond to crises.