The victory for Morocco's Justice and Development Party came a month after Tunisia handed power to a previously-banned party of moderate Islamists. Egypt's Muslim Brotherhood is also expected to do well in an election starting Monday. PJD, which will get its first chance to head a coalition government, has said it will promote Islamic finance but steer clear of imposing a strict moral code on a country that depends on tourism.

The party, whose deceased founder was a physician of King Mohammed's grandfather, is loyal to the monarchy and backs its role as the supreme religious authority in the country. PJD won 107 seats in the 395-seat parliament, according to results from the interior ministry carried by the official MAP news agency. Three parties from the secularist Koutla bloc, with which the PJD wants to form a coalition, won a total 117 seats, the results showed.

Speaking before 50,000 army volunteers in Bushehr, the minister said "Iran is not Iraq or Afghanistan, if the Americans make the mistake and attack Iran, we will show them how to fight," adding "Israel has to be punished for what it has done to the Muslims in Palestine and Lebanon." However, according to Iranian news outlets Vahidi did not specify if the missiles would be fired from Iran or other locations.

On Saturday a senior commander of Iran's powerful Revolutionary Guard said the country would target NATO's missile defense shield in Turkey if the US or Israel attacks the Islamic Republic. General Amir Ali Hajizadeh, head of the Guards' aerospace division, was quoted by the semi-official Mehr news agency as saying the warning is part of a new defense strategy to counter what it sees as an increase in threats from the US and Israel.

As Pakistan army chief General Ashfaq Pervez Kayani attended the funerals of the victims, including a major, the US sought to minimize the fallout from the crisis, which plunged Washington's already troubled relationship with Islamabad to an all-time low. Pakistan also ordered the US to vacate an airbase that is used by American drones to target al-Qaida and Taliban militants in the country's tribal region along the Afghan border.

There are forces working against a total rupture in the relationship. Pakistan still relies on billions of dollars in American military and civilian aid, and the US needs Islamabad's help to push Afghan insurgents to engage in peace talks. But tensions could rise further if militants unleash attacks against the stranded trucks ferrying NATO supplies to Afghanistan.

Suspected militants destroyed around 150 trucks and injured drivers and police a year ago after Pakistan closed one of its Afghan border crossings to NATO supplies for about ten days in retaliation for a US helicopter attack that accidentally killed two Pakistani soldiers.

The situation could be more dire this time because Pakistan, outraged at the alleged NATO attack before dawn Saturday, has closed both its crossings.

The two countries have found tensions rising since the killing of Al Qaeda leader Osama bin Laden by US special forces in a secret raid on the Pakistani garrison town of Abbottabad in May. Pakistan called the raid, which took place in the early hours of Saturday morning, a flagrant violation of its sovereignty while the Foreign Office equally condemned the attack. 'Prime Minister Yusuf Raza Gilani has condemned in the strongest terms the NATO/ISAF attack on the Pakistani post,' ministry spokeswoman Tehmina Janjua said in a statement.

The leaders of the three largest economies in the eurozone met in Strasbourg earlier, in an attempt to resolve the ongoing turmoil. The markets have continued to struggle, destabilising other world economies and both Merkel and Sarkozy have faced criticism about their failure to reach a solution. Speaking after meeting with the German Chancellor and Italian Premier Mario Monti, Sarkozy said "propositions for the modification of treaties" would be presented in the coming days.

He wouldn't elaborate on what these changes may be but said they would be ready in time for the next EU leaders summit on December 9. Treaty changes are a notoriously laborious endeavor, requiring the agreement of all 27 EU nations, including non-euro countries such as Britain and Poland. Merkel said the treaty changes would "make clear that we must take steps toward a fiscal union to express the conviction that we know policies must be more closely coordinated if you have a common, stable currency. It is political confidence in Europe that has been lost - we can only win it back politically," Merkel said.

Analysts warned that euro meltdown would wreak havoc in the banking system and plunge the global economy back into recession. Whitehall sources said contingency plans are being drawn up - and indicated that the longer the euro limps on, the more time Britain has to prepare. Fears are mounting that Greece will be forced to default on its debts as the crisis threatens to sink Spain and Italy. The storm hit Belgium last night as the country's credit rating was cut from AA+ to AA by Standard & Poor's amid tumbling confidence in the region.

And a leading French economist, Jacques Attali, the former president of the European Bank for Reconstruction and Development, said there was only a 50-50 chance of the euro surviving until Christmas.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. The Treasury confirmed earlier this month that contingency planning for a collapse is now under way. A senior minister has now revealed the extent of the Government's concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

"It's in our interests that they keep playing for time because that gives us more time to prepare," the minister told the Daily Telegraph. Some economists believe that at worst, the outright collapse of the euro could reduce GDP in its member-states by up to half and trigger mass unemployment.

Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder. "When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences," UBS said.

Belgium has been without a permanent government for 530 days, as a series of negotiators has struggled without success to bridge the country's divide between its French-speakers and its Dutch-speakers. "In our opinion, protracted political uncertainty remains a risk to its creditworthiness," the ratings agency said.

Caretaker Prime Minister Yves Leterme said Friday "we really need strong signals now" from the six political parties trying to resolve the 2012 budget. He said the six parties needed a deal "tonight, the coming days - but preferably before we hit the market again" on Monday. After negotiators reached a constitutional deal two month ago giving regions more autonomy, talks are now stuck over how to contain Belgium's high debt and deficit.

In a statement, Standard & Poor's said Leterme's caretaker government "lacks a mandate to implement deeper fiscal and structural reforms."

The country's yields on long-term bonds are closing in on 6 percent - getting closer to the 7 percent financial danger zone that has pushed other European nations into international bailouts.

A "sudden crisis", according to Exclusive Analysis, would be triggered when a sovereign is unable to meet its financial obligations to creditors without outside help such as rescue by the IMF, financial assistance by another sovereign or renegotiation with creditors. Since the firm published its November 8 report giving a 65 percent probability to a "sudden crisis" scenario unfolding by 26 November, bond yields have risen in peripheral euro zone countries; core European bond markets have come under attack and growth estimates have been downgraded across the euro zone.

"We retain this weighting but are deferring the timing until late January," Exclusive Analysis said in a note on Friday. "This is mainly because new technocratic governments in Greece and more so Italy are likely to enjoy short honeymoon periods, receiving support from European leaders (eg ECB bond purchases tempering the rise in Italian yields)," it said. It warned however that these honeymoons were unlikely to last into 2012 "as opposition hardens towards unelected officials trying to impose tough austerity measures".

Other positive events that have "bought some time" for the euro zone, according to the firm, include strong ECB purchases of Spanish and Italian bonds which has tempered the rise in bond yields. Hopes that the December 9 European Summit will yield the prospect of a lasting solution to the crisis have also brought temporary relief, Exclusive Analysis said. The research firm pointed out that despite reports of the decline in interbank lending as banks scale back their exposure to the debt of Portugal, Ireland, Italy, Greece and Spain, "the withdrawal is not yet as rapid as to cause a banking crisis in the week beginning 21 November."

The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills - more than three percentage points higher than a similar debt auction on October 26. It was the highest interest rate Italy has had to pay to sell such debt since August 1997, according to Bloomberg News. But there is no sign the ECB plans a major response, like buying large quantities of the country's bonds to bring down its borrowing costs. The ECB "is not the fiscal lender of last resort to sovereigns," Jose Manuel Gonzalez-Paramo, a member of the executive board of the bank, told an audience at Oxford University on Thursday, a view that has been repeated by members of the bank's governing council in recent weeks.

To many commentators, the ECB's attitude seems so incomprehensible that they assume the central bank is just putting pressure on politicians to make sure they keep their promises. Rather than let the euro break apart, the thinking goes, the bank will eventually relent and drench the economy with cash as the United States Federal Reserve and Bank of England have done. But another possibility is that when the ECB says "no," it in fact means "no." "I think markets are going up a blind alley thinking there's going to be a common euro bond or thinking that the ECB is going to act as a lender of last resort," Norman Lamont, the former British finance minister, told Bloomberg on Friday. "I think Germany would rather leave the euro than see the ECB's integrity affected."

Instead, the ECB insists, euro area governments must amend their errant ways. "Governments need to ensure, under any circumstances, the achievement of announced fiscal targets and deliver the envisaged institutional and structural reform programs," Mr Gonzalez-Paramo said in London on Friday. To outsiders, it may seem that the ECB, based in Frankfurt and steeped in the conservative culture of the Bundesbank, would rather let the euro go up in smoke than compromise its principles. But policy makers do not see the choice in those terms. To them, the best way to address the crisis is to stick to principles, the most important of which is preserving price stability. That is set out in the first sentence of the statute that defines the ECB's tasks. "The primary objective" of the European system of central banks "shall be to maintain price stability," the statute reads.

ECB policy makers also believe that their charter forbids them from using bank resources to finance governments. If they expanded the money supply to provide debt relief to Italy, policy makers believe, they would be breaking the law. They would also effectively be transferring the debt burden from countries like Greece and Italy to countries like Germany or the Netherlands.

On Friday, Standard & Poor's downgraded Belgium's credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk.

While European leaders still say there is no need to draw up a Plan B, some of the world's biggest banks, and their supervisors, are doing just that. "We cannot be, and are not, complacent on this front," Andrew Bailey, a regulator at Britain's Financial Services Authority, said this week. "We must not ignore the prospect of a disorderly departure of some countries from the euro zone," he said.

Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. "The euro zone financial crisis has entered a far more dangerous phase," analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, "a euro breakup now appears probable rather than possible," the bank said.

The report, which echoed a Reuters report on Friday from Brussels, quoted German government sources as saying that the crisis fighting plan could possibly be announced by Merkel and Sarkozy in the coming week. The report said that because it would take too long to change existing European Union treaties, euro zone countries should avoid such delays by agreeing to a new Stability Pact among themselves - possibly implemented at the start of 2012.

It could be similar to the Schengen Agreement that allows for uninhibited cross border travel for citizens in countries that take part. Among the countries in the Stability Pact there would be a treaty spelling out strict deficit rules and control rights for national budgets. The European Central Bank should also emerge more as a crisis fighter in the euro zone. The ECB is independent and governments cannot tell it what to do. But the expectations on the ECB are clear, Welt am Sonntag wrote.

"Based upon these measures, there should be a majority within the ECB for a stronger intervention in capital markets," Welt am Sonntag said. It quotes a central banker as saying: "If the politicians can agree to a comprehensive step, the ECB will jump in and help." The European Commission, the EU executive arm, put forward proposals on Wednesday to grant it intrusive powers of approval of euro zone budgets before they are submitted to national parliaments, which, if approved, would effectively mean ceding some national sovereignty over budgets. This could lead to joint debt issuance for the euro zone, where countries would be liable for each others' debts.

Germany strongly opposes the joint issuance idea fearing spendthrift countries would piggyback on its low borrowing costs - meaning no gain for the virtuous and no pain for the sinners.

Lenders have instead turned their attention to reducing the burden of carrying such assets over months and years, with many looking at popular pre-crisis "capital alchemy" arrangements to minimise capital requirements and boost their ability to use the assets to tap central banks for cash.

Deadlocked talks with potential buyers - a mix of private equity firms, hedge funds, foreign banks and insurers - show little sign of making breakthroughs, say bankers taking part in those negotiations, with the stalemate threatening to block the industry's ability to save itself from collapse through a mass deleveraging.

"European banks have spent far too long saying everything is fine, when it really isn't," said one banker at a US bank who has been advising European clients on their options. "They are slowly realising that they just won't be able to do what the market is expecting. We are edging slowly closer to the depths of the crisis."

The longer this eurozone crisis continues, the more likely it becomes that "contagion" threatens the fiscal stability of Germany itself, the region's economic powerhouse. Anyone who doubted that received a stern wake-up call last week, when an auction of 10-year German sovereign bonds was seriously under-subscribed, with investors buying just 3.9 billion euros (3.34 billion pounds) of a 6 billion euros offer. Bond yields spiked across the board, taking them above those in the UK.

Many observers seem to think such market pressure means Angela Merkel will "relent". With Berlin's own credit-worthiness being openly questioned, the German chancellor is now apparently more likely to launch a massive "bail-out" fund for the eurozone laggards, while sanctioning overt QE "money-printing" by the European Central Bank.

I'd venture a different view. However much one particular branch of the German elite wants "the European project" to succeed, the vast majority of the German public are appalled at the idea of financing the rest of Europe. They resent not only the cost, but also (rightly) worry that one eurozone bail-out inevitably leads to another. I reckon that surging bund yields make it less likely that Germany will agree to fund a bail-out, while letting the ECB let rip. German voters, and the country's powerful parliament, will see rising borrowing costs as further proof of the harm the euro, in its current form, is doing. Merkel must answer to both.

Germany stood by and watched back in the 1990s, as the Exchange Rate Mechanism collapsed under the weight of its own incoherence. Since then, life has become much tougher for the big industrialised Western economies. While still head and shoulders above the rest of Europe, even Germany is now on the back foot. The country's bellwether manufacturing PMI Index fell from 49.1 to 47.9 this month, indicating a sharp economic contraction. Germany would be unlikely to entertain money-printing and paying for a eurozone bail-out at the best of times. Under current circumstances, the chances are even slimmer.

They insist that the huge costs to the British taxpayer "far outweigh the benefits" of being in the EU. The peers' attempt to force an inquiry into the economic benefits of Britain being in the EU, which was voted through yesterday, will increase the pressure for a referendum on EU membership. And it gives fresh impetus to the Daily Express crusade to cut Britain's ties with Brussels altogether.

Last month we forced a historic vote on a European referendum in the House of Commons. And earlier this week we revealed that Britain poured a colossal 18.5 billion pounds into the EU last year - equivalent to 51 million pounds a day. The staggering figures, 730 pounds a year for every household in the UK, come on top of the 12.5 billion pounds shelled out to help rescue Greece, Ireland and Portugal with bailouts.

Speaking in the House of Lords yesterday, former Ukip leader Lord Pearson of Rannoch said a cost-benefit analysis of Britain's membership of the EU was long overdue. He told peers that a seven-strong committee of inquiry to report on the economic costs and benefits would help increase pressure for a referendum on EU membership.

The high death toll from an incident between two supposed allies suggests Nato helicopters and jets strafed Pakistani positions with heavy weapons. The deadliest friendly fire incident since the start of the decade-long war also prompted Pakistan to ban Nato supply trucks from crossing into Afghanistan and to issue an order demanding the US quit the remote Shamsi airbase, from which the US has operated some unmanned drone aircraft. At border crossings, hundreds of supply trucks are reportedly stranded by the ban, with drivers fearing insurgents will take the opportunity to attack if they are not allowed to move.

A spokesman for Nato's International Security Assistance Force (Isaf) said it was "highly likely" that aircraft which had been called into the area to provide "close air support" to troops on the ground was responsible for causing casualties among the Pakistani soldiers. For their part, a statement by the Pakistani military claimed that it was they who were attacked first, forcing them to respond to Nato's "aggression with all available weapons".