The German leader forced French President Nicolas Sarkozy to bend to her will on using the European rescue fund only as a last resort, ruled out an automatic crisis-fighting role for the European Central Bank and dragged banks back to the table to take greater losses on Greek debt. She even wrung further budget concessions out of Italian Prime Minister Silvio Berlusconi.

"Merkel got what she wanted," Shada Islam, an analyst at the Friends of Europe policy-advisory group in Brussels, said by phone yesterday after the summit ended. "This has confirmed Germany's role as the make-or-break player not only in the euro- zone crisis but in European Union affairs beyond Europe."

Two years after the debt crisis came to light in Greece, Merkel is finally translating her status as leader of Europe's biggest economy and biggest contributor to euro-area bailouts into international clout.

Private banks holding Greek debt will accept a write-off of 50% of their returns. The move is expected to cut the nation's debt load to 120% of its GDP in 2020. Under current conditions, it would have grown to 180%.

The firepower of the main euro bailout fund - known as the European Financial Stability Facility (EFSF) - is to be boosted from the 440 billion euros set up earlier this year to 1 trillion euros. There is about 250 billion euros left available in the EFSF, which the summit statement said could be leveraged 4-5 times.

European banks will be required to raise about 106 billion euros in new capital by June 2012. It is hoped that this would help shield them against losses resulting from any government defaults and protect larger economies - like Italy and Spain - from the market turmoil.

It is thought China may pay about 70 billion euros ($100 billion) into the fund, which is expected to be boosted to 1 trillion euros. Meanwhile French President Nicolas Sarkozy said debt-ridden Greece's entry to the eurozone was a mistake. Greece was "not ready" when it joined in 2001, he said, adding that it could be rescued thanks to a new deal on the debt crisis.

European leaders worked into the early hours of Thursday in Brussels to secure an agreement aimed at preventing the crisis from spreading to larger eurozone economies. The deal triggered a worldwide shares rally.

The President of the World Bank, Robert Zoellick, has said he believes China will invest in Europe only if there are incentives for it to do so. "I don't think that China will just come in as a white knight to try to provide money just to bail out Europeans," he told the BBC.

Exactly how far the signals have to go can make a difference in such trades. Alexander Wissner-Gross told the American Physical Society meeting that financial institutions are looking at ways to exploit the light-speed trick. Dr Wissner-Gross, of Harvard University, said that the latencies - essentially, the time delay for a signal to wing its way from one global financial centre to another - advantaged some locations for some trades and different locations for others.

There is a vast market for ever-faster fibre-optic cables to try to physically "get there faster" but Dr Wissner-Gross said that the purely technological approach to gaining an advantage was reaching a limit. Trades now travel at nearly 90% of the ultimate speed limit set by physics, the speed of light in the cables. Because there is a clear, physical advantage to the approach, Dr Wissner-Gross said that the first firm to try to exploit the effect will be at significant competitive advantage - until more firms follow suit.

Eurozone leaders sealed a three-part deal in the hope that the markets would be convinced there had been effective response to the crisis. Officials in Brussels said an accord had been reached with banks on a 50% write-off of Greek debt and they also approved a complex mechanism to boost the eurozone's main bailout fund to 1 trillion euro (880 billion pounds). The FTSE 100 index was 2 per cent higher this morning as investors welcomed the long-awaited action plan.

But only hours earlier, concerned about the consequences of a failure to deal with the crisis in the eurozone, German Chancellor Angela Merkel raised the spectre of military conflict. "What is good for Europe is good for Germany," she said. "Another half century of peace and prosperity in Europe is not to be taken for granted. If the euro fails, Europe fails. We have a historical obligation: To protect by all means Europe's unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail."

Her comments surprised many observers who suggested that now was a time for cool heads if the euro crisis was to be resolved, and it would not help to raise the spectre of war. But British officials heading to Brussels for the chaotic crisis summit feared eurozone leaders had failed to scrabble together the "big bazooka" remedy needed to rescue the single currency, despite proposals for stitching together a trillion-plus euro rescue package.

One senior Tory in Brussels dismissed the plans, saying "Without addressing the fundamentals, it remains a sticking plaster on a gaping wound." Mr Osborne cautioned that it was now necessary to keep momentum up and deliver precise details on how the three-part agreement will work. And he insisted that Britain will not contribute money to the European Financial Stability Facility bailout fund or to any IMF package specifically targeted at the eurozone area.

The French are suddenly treating the labor market reforms of Germany's package of reforms known as Agenda 2010 as their blueprint. But they are also impressed by the social partnership that exists in Germany between employees and employers, and not just on the labor side of the equation. "The strong cooperation between labor unions and business helped companies to remain flexible during the crisis," says employer lobbyist Didier.

This admiration for the German approach is new. Only last year, Berlin had to listen to then French Finance Minister and current International Monetary Fund head Christine Lagarde tell them that German frugality was detrimental to consumption in neighboring countries. In the country of savoir-vivre, it was felt that German discipline was somehow small-minded. But now, according to a survey in the magazine Le Parisien, the French have more confidence in German Chancellor Angela Merkel than they do in President Sarkozy.

"Europe is a constant beauty pageant, and Germany has just won," says Jean-Paul Fitoussi, an economist at the OFCE economic institute and an advisor to the prime minister. But he also warns: "If we try to improve our competitiveness by taking the same approach as Germany, it will be at the expense of other countries in Europe." THERE IS ONLY ONE WAY OUT OF THE CRISIS FOR EVERYONE, SAYS FITOUSSI: MORE EUROPE.

The 84-year-old pontiff stood on the platform as aides pushed it up the central aisle, which is about 100 metres (yards) long. Wearing green vestments, he blessed the faithful as he made his way up then celebrated Mass from the main altar. He appeared to be in good health.

"This is just not to tire him," chief Vatican spokesman Father Federico Lombardi said. "Nothing else should be read into the general state of his health, which is good." The platform, which has three steps and brass handles, was built to transport the late Pope John Paul during the last five years of his life.

The European Financial Stability Facility will be worth about $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy said at a briefing in Brussels at 4 a.m. local time. The presidents will speak about noon Brussels time and Chinese support will be welcomed, he said.

Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China's biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.

"China will need time to evaluate this plan very carefully," said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. "What worries China is that there is so much disagreement among European policy makers. It doesn't want to be seen spending money on a plan that even Europeans don't want to support."

Sarkozy and Hu's conversation comes a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world's largest foreign currency reserves at more than $3.2 trillion.

Cartoons have sprung up depicting the European Union's "troika" as ferocious soldiers in World War Two German uniforms, and some Greeks are beginning to resent the German tourists flocking their ancient sites.

The staff cartoonist for the liberal daily Eleftherotypia has drawn dozens of such cartoons in recent months, often showing Greek Finance Minister Evangelos Venizelos giving the Nazi salute "Sieg Heil" (Hail Victory) to a soldier.

"I used the German uniforms symbolically," cartoonist Stathis Stavropoulos told Reuters through an interpreter.

"They show that what Germany did not manage with weapons during World War Two, it is now trying to do through economic means," he said.

In a dark blue jacket reflecting the mood in and about the eurozone, Merkel abandoned her usual cautious rhetoric and warned outright of a war. "Nobody should take for granted another 50 years of peace and prosperity in Europe. They are not for granted. That's why I say: If the euro fails, Europe fails," Merkel said, followed by a long applause from all political groups. "We have a historical obligation: To protect by all means Europe's unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail."

"It cannot be that sometime in the future they say the political generation responsible for Europe in the second decade of the 21st century has failed in the face of history," the chancellor continued. While stressing that Germany's contribution to the EFSF loan guarantees would continue to be capped at 211 billion euros, she said she could not exclude there may be "risks" for Germany linked to the EFSF increase of firepower. Her own party colleagues had demanded that she clearly excludes German state assets, such as the central bank's gold reserves, to be put as collateral for the EFSF lending power.

"Nobody can clearly estimate if there will be such risks. What I can say is that we cannot exclude it," she said, insisting that the current situation is pushing European leaders into "uncharted territories". "Not to take these risks would be irresponsible. There is no better and more sensible alternative. Europe and the world are looking at Germany," the chancellor said.

The European Banking Authority said that French banks would target raising 8.8 billion euros, Spanish banks would target raising 26.2 billion euros, German banks would target raising 5.2 billion euros, and Italian banks 14.8 billion euros. Ireland requires no additional capital.

In a move that could unsettle global markets, the leaders failed to produce the promised "ambitious and comprehensive response" to the debt crisis, instead settling for a raft of compromises. The underwhelming denouement came after a day of high drama in which Angela Merkel, the German Chancellor, said politicians had "now or never" to save the euro. She even warned the political stability of Europe was at stake.

For all of our knee-jerk sympathy for the protesters that have recently been gathering on Wall Street as well as in cities like Frankfurt and Barcelona, it would be interesting to know whether they're actually in favor of rescuing Greece or of booting it out of the euro zone. Likewise, are they fighting speculation and the power of the markets - or simply capitalism as such?

So far, the signals have been ambivalent. The cluelessness of the elites has become the cluelessness of the street, and now average people are creating what might be called their own befuddlement. Given this situation, congratulations are in order for our completely overwhelmed politicians, who have managed to divert attention away from their own impotence by joining forces with the protesters against the easiest common enemy to target: the evil bankers! Bashing banks has always been popular, though it has often, since the 19th century, come with anti-Semitic overtones. Even today, some crackpots are convinced that Goldman Sachs is part of some global Jewish conspiracy.

Banks are, of course, responsible for things like excessive bonuses, the bankruptcy of Lehman Brothers and financial instruments ranging from the murky to the devastating. But others have failed as well, including economists, journalists and, most of all, those politicians who, feigning understanding, are currently aligning themselves with the young protesters.

Economists have failed because they predicted neither the 2007 nor the 2011 crisis - and because now they are talking each other to death in ideological trench warfare. We in the media must also admit to having failed because we've hardly been able to explain the crisis and because, now that a whiff of resistance is developing against "those at the top," we are looking forward to an anti-capitalist global revolution with greedy enthusiasm.

The agreement was reached after more than eight hours of hard-nosed negotiations involving bankers, heads of state, central bankers and the International Monetary Fund and aims to draw a line under spiraling debt problems that have threatened to unravel the European single currency project.

Under the deal, the private sector agreed to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of GDP by 2020, from 160 percent now. At the same time, the euro zone will offer "credit enhancements" or sweetners to the private sector totaling 30 billion euros.

The aim is to complete negotiations on the package by the end of the year, so that Greece has a full, second financial aid program in place before 2012. The value of that package, EU sources said, would be 130 billion euros - up from 109 billion euros when a deal was last struck in July, an agreement that subsequently unraveled.

The Israeli government can and should allow Jews freedom of prayer on the Temple Mount. Yesterday I was detained by the Israeli police, and charged with "disorderly conduct that might cause riots." What I had actually been suspected of was bowing down in prayer on the Temple Mount. The authorities are concerned that Jews praying on the Temple Mount could kick off local Muslims' anger and that they might use this as an excuse for staging protests and riots. In their opinion, these fears are reason enough to strip law-abiding citizens of the very basic right of freedom of religion and prayer.

It is simply unacceptable that such a policy exists at all and it's even worse that it's based on fear of a threat that might rise by a party who might choose violence as a tool to establish facts on the ground. This is a clear case of government policy being influenced by concern over threats. The State has a responsibility to protect its citizens' rights and not to cave in to bullies. Ten of the eleven gates of the Temple Mount are closed to Jews and open to Muslims at all times. Jews are permitted to enter the site only via the Mugrabi Gate on the south side of the Western Wall - and only during four hours daily on weekdays. Jews who wish to enter the Temple Mount must go through a security check and clearance that is not mandatory for other visitors.

While non-Jews walk in freely with little or no security check, Jewish visitors are treated to pat-downs by police, who check their pockets and bags for prayer books and then warn them not to pray on the Mount. Once Jews get through all of this, they are followed by teams of police and Muslim Wakf guards who watch to see if they might be breaking the rules and praying without permission. These special regulations for Jews are degrading and should be stopped.

A Jew who is suspected of breaking the rules by daring to whisper a prayer is likely to be arrested and brought in for questioning by the Israeli police. In what other country would you expect a citizen to be interrogated for praying? Can you imagine the police officer saying, "You have the right to remain silent, anything you say can be used against you in a court of law..." and then "you are suspected of praying..."?

Merkel said she sees no 'better alternative' to the efforts being made to protect the euro and added: 'If the euro fails, Europe fails.'

Speaking of the magnitude of the debt problems facing Europe, she said: 'The world is looking at Germany, whether we are strong enough to accept responsibility for the biggest crisis since World War Two.'

Speaking shortly before a vote on boosting the firepower of the euro zone rescue fund that is set to strengthen Merkel's negotiating hand at the euro zone talks, the chancellor vowed to push for workable, long-term solutions. 'I will work towards reaching sustainable decisions this evening,' she said, warning that Greece would need the support of the European Union for some time to come and that no overnight fixes were in sight.

'We will do all we can to get Greece back on its feet as soon as possible,' she said, adding: 'A debt write down alone will not solve Greece's problems... structural reforms must still be implemented. The goal of the meeting tonight must be to get a result under which Greece will by 2020 have a debt to gross domestic product ratio of 120 per cent,' said Merkel.

WHAT HAPPENS IF LEADERS FAIL TO AGREE A DEAL?

If a deal is not reached over the future of Greece, the International Monetary Fund may be forced to act. British and American taxpayers could be hit indirectly, as eurozone officials indicated that the IMF could host a new fund to extend loans to governments at risk. Britain will have to pay 4.5 per cent of any IMF contribution.