Only a fortnight ago all the attention was being lavished on France's new president, François Hollande, being sworn in in Paris as Monsieur Growth and rushing off on his first assignment to challenge Europe's Frau Austerity, Chancellor Angela Merkel. "We need new solutions. Everything's on the table," Hollande pledged, meaning he would force Merkel to remove the noseclip and consider things that give off a foul odour in Berlin, foremost among them eurobonds – Germany solving the crisis at a stroke by agreeing to underwrite the debt of Spain, Greece, Italy and all the rest. Fat chance.

By Saturday the growth versus austerity contest had receded as Merkel turned the tables on Hollande. It was her turn to declare there should be no taboos in grappling with the hard options facing Europe's leaders as they wait to see what will happen in Greece and Spain, and plot their next moves at what is shaping up to be a momentous summit at the end of the month.

Merkel appeared to be calling not only Hollande's but France's bluff. By announcing there could be no censorship of the eurozone to-do list, she meant tabling radical, federalist steps involving gradual loss of national sovereignty over budgetary, fiscal, social, pensions, and labour market policies with the aim of forging a new European political union over five to 10 years. The USE – United States of Europe – is back. For the eurozone, at least. Such "political union", surrendering fundamental powers to Brussels, Luxembourg and Strasbourg, has always been several steps too far for the French to consider.

In the third year of muddling through, the choices facing Europe's leaders are getting starker – the death of the euro or the birth of a new European federation.

The outcome would be that the South - including Spain, Italy and Greece - would require a constant influx of cash from their northern neighbors. "It would be a German empire with the periphery as the hinterland," Soros said of the European Union.

He said the eurozone is likely to survive because a breakup would be "devastating" for its member states, including Germany, noting that "Germany is likely to do what is necessary to preserve the euro - but nothing more."

Soros has been sounding the alarm about the eurozone crisis for months. In the words of Felix Salmon, Reuters' financial blogger, Soros was "the winner by far of the most-talked-about-person-in-Davos award" at the World Economic Forum meeting in Davos in January "because he's happy being brutally honest, and because he's giving voice to the plutocrats' darkest fears."

Yet the deluded, self-aggrandising EU elite – currently seeking an unbelievable 6.8 per cent budget increase – think nothing of squandering your money on vanity projects which contribute zero to solving the ever-deepening crisis. As a report by the Open Europe think-tank reveals, the EU’s bloated budget could be cut by £350 million simply by scrapping its many pointless quangos. Closing the European Parliament’s additional building in Strasbourg – which is empty for 317 days a year and exists only as a sop to France – would claw back another £146 million.

The list goes on, with Open Europe saying that, by slashing waste, and refocusing the EU budget on boosting jobs and growth, a total of £33 billion could be saved. The tragedy, of course, is that there is no chance of the eurocrats listening to anybody but themselves.

History will not only damn the current generation of European politicians for being useless. It will also record their breathtaking arrogance. They could not be in charge at a worse – or more financially perilous – time.

The German chancellor, Angela Merkel, said that finding the way to "more Europe, not less" was the next task for Europe's leaders. "The world wants to know how we expect the political union to complement the currency union," Ms Merkel said at a news conference here Monday with José Manuel Barroso, the president of the European Commission. "We have to find an answer in the foreseeable future."

German officials remain adamant that they are not talking about euro bonds, or jointly issued debt, which they have dismissed as unconstitutional. More likely is a plan to combine much of Europe's bad debt into a single fund with the idea of paying it off over 25 years, an idea gaining traction in Germany as an alternative to euro bonds, officials say. The worsening crisis has led to a sweeping effort to chart a new path forward for the union, one that encompasses fiscal integration, Europe-wide banking supervision, and tighter coordination of economic policies.

German leaders have not provided details of a potential deal - and not every country may be eager to sign on - but it would be likely to mean an expansion of executive power in Brussels over fiscal targets in member states and supervision of their banks, along with Europewide deposit insurance. It would go far beyond what was contemplated for Europe even six months ago.

Changes on this scale would not be easy, involving an arduous process of treaty alterations that could take years, and it is unclear if they would be enough to reassure markets of the stability of the euro.

But as Ms Merkel has repeatedly made clear, Germany would be open to rescuing ailing banks and member states in the region only if that were part of an overhaul of the basic architecture of European governance. Such an expansion of central authority is not assured of universal support. While the weaker countries might be expected to sign on, it may well be opposed by Britain, which opposed an earlier effort to increase fiscal discipline out of concern for the effect on its banks.

Shortly before Pentecost, Benedict's private secretary, Monsignor Georg Gänswein, reportedly uncovered Gabriele as a spy. Investigators found four boxes with copies of strictly confidential letters to and from Pope Benedict in Gabriele's apartment. Since then, Gabriele has been viewed as a traitor and called "il corvo," the raven, an animal known for its thieving disposition. His lawyers say he will finally submit to formal questioning this week - and that he is prepared to tell all.

Is this merely the climax of the so-called "Vatileaks" scandal, which has been smoldering since January, when a series of secret documents began coming to light? Or is it just the beginning? There's no doubt that this flood of paper out of the Vatican is a sign of what the Italian weekly magazine Panorama calls one of the "worst crises in the history of the Holy See," or what Vatican spokesman Reverend Federico Lombardi has described as a "difficult test" for the pope.

Indeed, they appear to remain at large. Despite the butler's arrest, the leaks continued over the weekend. While the pope was on a three-day trip to Milan, Italian paper La Repubblica published Vatican documents on Sunday that included two bearing the signature of his secretary.

But the president will be looking, too, for attention from a few miles further off, in China, whose rise as a trading and diplomatic partner but also as a potential rival for control of thinly populated Siberia's resources has brought a new focus in Moscow on both business and military investment in the far east. Putin, who meets Chinese leaders in Beijing on Tuesday as he settles back into his role in the Kremlin, has poured money into the Vladivostok area since it was chosen five years ago to host this September's Asia-Pacific APEC summit.

The bridge, which with a central span of 1.1 km (1,200 yards) can claim to be the longest of its type in the world, is a sweeping statement of intent. It connects Russia's main Pacific port to Russky Island, where just 20 years ago, as Soviet Communism collapsed, soldiers starved to death for want of rations being dispatched to this remotest of outposts. Today, though some question the efficacy of bureaucrats pouring taxpayers' roubles into the region, it shows a will in the Kremlin to engage in the east, where Putin must balance the opportunities and risks presented by the rapid growth of China.

With Greece, Ireland and Portugal all under international bailout programmes, financial markets are anxious about the risks from a Spanish banking crisis and fret a Greek election on June 17 could lead Athens to leave the single currency and precipitate yet more economic turbulence.

"We have reached a point where we need to have a common understanding about the problems we are facing," Japanese Finance Minister Jun Azumi told reporters. Earlier, Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act.

Toronto and Washington both called for more action. "Markets remain skeptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen," White House press secretary Jay Carney told reporters.

Clear signs of trouble are emerging in the US, until now the last bastion of strength. The New York Institute of Supply Management said its ISM business index – a proxy for business demand – flashed a "screeching halt" in May, crashing to 49.9 from 61.2 in April, where anything below 50 denotes contraction. Unemployment is rising again after grim jobs data for April and May, indicating that the economy may have fallen below stall speed.

Central bank governors and finance ministers from the G7 bloc are to hold an emergency teleconference call on Tuesday to grapple with Europe's escalating crisis. There is mounting anger in North America and Asia over the failure of the Europeans to use their vast resources to contain the brushfire in Spain.

The world money data collected by Simon Ward at Henderson Global Investors show that real M1 for the G7 economies and leading E7 emerging powers peaked at 5.1 per cent in November and has since plunged to 1.6 per cent in April. The data explain why commodity prices are falling hard, with Brent crude down to a 16-month low of under $97 a barrel. The latest data show that the real M1 money supply – cash and overnight deposits – for China, the eurozone, Britain and the US has been contracting since the early Spring. Any further falls risk a full-blown global recession.

The rare announcement was the first time the IDF officially admitted it engages in cyberwarfare for offensive purposes. It also came a week after a new virus was discovered to have attacked Iran, widely presumed to have been developed by Israel. The IDF’s Operations Directorate recently drafted a document describing and defining the purpose and use of cyberwarfare for the Israeli military.

According to the document, cyber space is viewed in the IDF as another battlefield like land, sea and the air. “Professionally speaking, the IDF is fighting consistently and relentlessly in cyber space, is collecting intelligence and protecting the IDF networks as well,” the IDF said. “In addition and when needed, cyber space is also used to execute attacks and other information operations.”

One year later, with the euro zone's debt crisis threatening to tear the bloc apart, Germany is pushing its partners for precisely the kind of giant leap forward in fiscal integration that the now-departed European Central Bank president had in mind. After falling short with her "fiscal compact" on budget discipline, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice.

She is also seeking a coordinated European approach to reforming labor markets, social security systems and tax policies, German officials say. Until states agree to these steps and the unprecedented loss of sovereignty they involve, the officials say Berlin will refuse to consider other initiatives like joint euro zone bonds or a "banking union" with cross-border deposit guarantees - steps Berlin says could only come in a second wave. The goal is for EU leaders to agree to develop a road map to "fiscal union" at a June 28-29 EU summit, where top European officials including European Council President Herman Van Rompuy will present a set of initial proposals.

European countries would then put the meat on the bones of the plan in the second half of 2012, several European sources have told Reuters, including a timetable for overhauling EU treaties, a step Berlin sees as vital for setting closer integration in stone. "The fundamental question is relatively simple. DO OUR PARTNERS REALLY WANT MORE EUROPE, OR DO THEY JUST WANT MORE GERMAN MONEY?" a government official in Berlin said.

The question has grown more urgent since the release of data on Friday showing a record high rate of unemployment in the eurozone, poor job creation in the United States and a slowdown in manufacturing in China. Combined, those signals have fueled fears of a second worldwide recession.

On consecutive days last week, two of the most powerful figures in Europe — Mario Draghi, president of the European Central Bank, and Olli Rehn, the most senior economic official in Brussels — warned that the future of the eurozone was in doubt. In the words of Mr Rehn, the union might well disintegrate UNLESS POLICY MAKERS TAKE STEPS TO BIND THE 17 EUROPEAN UNION NATIONS THAT USE THE EURO CLOSER TOGETHER. Coming as they did from two men at the very soul of the European project, the cautions were a stark reminder of just how much the Spanish financial crisis had shaken the confidence of the European brain trust, to say nothing of investors from New York to Beijing.

Spain is sitting on an estimated €220 billion or about $273 billion, in failed real estate loans alone — a number that surpasses the entire output of the Greek economy. And with the fourth-largest eurozone economy — behind Germany, France and Italy — there is little doubt that Spain is too big to fail. Or, more precisely, to be allowed to fail. “The eurozone is disintegrating and this has started to feed into institutional capital flight out of the eurozone,” said Jens Nordvig, a senior bond and currency specialist at Nomura in New York. “THE CRISIS HAS REACHED A NEW LEVEL. POLICY MAKERS ARE REALIZING THAT THERE ARE ONLY TWO OPTIONS. FURTHER INTEGRATION OR A BREAKUP.”

"Bond yields are at an all-time low. Even in the global financial crisis we didn't see bond yields at the levels that they have reached now ... THIS IS A FLIGHT FROM RISK ASSETS THAT IS UNPRECEDENTED," Burge said.

"The jobs number from the US was shocking and Spain is now becoming a big worry. On top of that everyone who thought Q1 would be the bottom for the Chinese economy has realized that this is a real slowdown that could go on," said Larry Jiang, Hong Kong-based chief investment strategist at Guotai Junan Securities. Analysts said the flight to bonds would continue until clarity emerged on issues such as the outcome of Greek elections due on June 17 and the recapitalization of European banks, now in the shadow of a Spanish banking crisis.

"It's not an issue of risk-on or risk-off anymore, IT'S NERVOUSNESS ALL OVER until a clear direction emerges on a long-term trend," said Hisamitsu Hara, chief foreign exchange manager at Bank of Tokyo-Mitsubishi UFJ. US jobs growth braked sharply for a third straight month in May and the jobless rate rose for the first time in nearly a year, with 69,000 jobs added to payrolls last month, the least since May last year. The weak data followed poor Chinese manufacturing and dismal European data on factory activity, rattling markets that had already been on edge over the deepening eurozone crisis.

The numbers fuelled speculation that the US Federal Reserve would have to launch FURTHER MONETARY STIMULUS to shore up growth. "If the European situation worsens, then the global interest rate and policy solutions would require coordinated actions by the Bank of Japan and the Federal Reserve to assure access to US dollar money markets, otherwise risk a contraction in global trade," said Richard Hastings, macro and consumer strategist at Global Hunter Securities.

The European Union is “like a bubble” – not a financial bubble but a political bubble – that could pop as a result of the eurozone crisis, Soros said. “In the boom phase, the EU was what the psychoanalyst David Tuckett calls a ‘fantastic object’ – unreal but immensely attractive,” he said. “In retrospect, it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank (ECB) their rights to create fiat money. They did not realize what that entails – and neither did the European authorities,” he said.

The eurozone needs a European deposit insurance scheme for banks, Soros said, as well as direct financing by the European Stability Mechanism (ESM) for banks, which “must go hand-in-hand with eurozone-wide supervision and regulation.” The “blockage” at the moment is coming from the Bundesbank and the German government, he said. German Chancellor Angela Merkel has been cautious about increasing Germany’s support for the rest of the euro zone.

Soros believes Germany will eventually do what it takes to keep the eurozone going because of the large losses German banks would suffer if it broke up and the damage to exports which could be caused by a return to the Deutschmark, which would likely be substantially stronger than the euro.

Soros said that too much blame had been placed on peripheral eurozone countries such as heavily indebted Greece and Spain, and that creditors like Germany had to share responsibility. “THE “CENTER” IS RESPONSIBLE FOR DESIGNING A FLAWED SYSTEM, ENACTING FLAWED TREATIES, PURSUING FLAWED POLICIES AND ALWAYS DOING TOO LITTLE TOO LATE. In the 1980s, Latin America suffered a lost decade – a similar fate now awaits Europe,” he said. “That is the responsibility that Germany and the other creditor countries need to acknowledge.”

Denmark’s central bank said it was battening down the hatches for a "splintering" of EMU. It has cut interest rates twice in a matter or days and pledged to do whatever it takes to stop euros flooding into the country. Contingency plans are on the lips of officials in every capital in Europe, and beyond.

On a single day, the European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Their plaintive cries may have fallen on deaf ears in Berlin, but they were heard all too clearly by investors across the world.

Joschka Fischer, Germany’s former vice-Chancellor, said EU leaders have two weeks left to save the project. "Europe continues to try to quench the fire with gasoline – German-enforced austerity. In a mere three years, the eurozone’s financial crisis has become an existential crisis for Europe. Let’s not delude ourselves: IF THE EURO FALLS APART, SO WILL THE EUROPEAN UNION, TRIGGERING A GLOBAL ECONOMIC CRISIS ON A SCALE THAT MOST PEOPLE ALIVE TODAY HAVE NEVER EXPERIENCED," he said.

But former high-ranking officials of the German defence ministry told Der Spiegel that the government always assumed Israel was putting nuclear warheads on the Dolphin-class vessels. The article, based on a months-long probe, cited files from the foreign ministry in Berlin indicating the West German state was aware of the practice as early as 1961. In Israel, foreign ministry spokesman Yigal Palmor said only: "I can confirm that we have German submarines. It's no secret. As for the rest, I am not in a position to talk about their capacity," he told AFP.

Israel is the Middle East's sole if undeclared nuclear-armed power. Germany has already supplied Israel with three of the submarines in question, footing most of the bill, and another three are to be delivered by 2017 under a recently signed contract.