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.

The obstacles are horrendous, but they're simple (we have to get past that yeti, etc). The tension builds as the final battle approaches, and then it arrives, easy to understand. And everyone knows when the battle is won: the enemy is defeated and the heroes share a laugh.

With the European financial crisis, it's the opposite: with every day that passes, it gets messier, more complicated, and, frankly, more boring. Instead of coming together to a logical conclusion, new subplots break out daily. Previously, it was relatively easy to explain: Greece is bankrupt and we don't know what to do about it. But then we bailed Greece out and it's still not over. Now it's something along the lines of: Greece is bankrupt, but then French and German banks own Greek debt, so they might be bankrupt too. Then Italy has lots of its own debt, which Germany would like it to pay off, just in case the markets start worrying that Italy is bankrupt too.

And that's before we even get into the proposed solution (mostly it seems to be that Germany should throw money at everything, which the Germans understandably aren't too keen on). How big does the bailout fund need to be? Who pays for it? Who do we (well, the Germans) bail out: the Greeks, or the banks? Should the European Central Bank be allowed to buy government bonds? No one is sure of any of this. Not even the people whose job it is to understand it. Is it any surprise that one JP Morgan analyst got so frustrated he tried to explain it all with Lego?

The problem is that this applies to our politicians too. This afternoon, the leaders of 27 European countries will get together in a big room in Brussels, and they are expected to agree on a solution to a crisis so complicated that we don't even know who we can't agree to bail out any more. The coffee will taste bitter and they won't have slept much. Each has a different electorate, different newspaper headlines to wake up to and different political allies at home to appease. Few are economics specialists, or have the time to research this properly: they are all dependent on advisers, each of whom will say different, confusing things.

Unfortunately, we cannot expect successful solutions from a meeting like that. We will have a day of frantic speculation, reporting and comment today, and in all likelihood, tomorrow, everyone will emerge even more exhausted and no closer to agreeing on anything. The best we can hope for is enough to delay armageddon for a few more months. That will at least give us time to build more fall-out shelters.

Amateur video shows a violent torrent of water pouring through the centre of Monterosso, in Liguria. The water appears to reach the top of shop front windows. Diggers can be seen clearing roads blocked by fallen trees as cars struggled through water and debris. "Everything is missing here - supplies, water, electricity," said Angelo Betta, mayor of Monterosso. "People are getting into their houses through the terraces, everything is flooded. Monterosso doesn't exist anymore," he added.

It has been reported that several bridges and houses have been destroyed by the flooding. Rescue teams said they were having difficulty reaching some of the flooded areas and people were being evacuated by sea from some towns along the spectacular coast. The Italian army has been put on standby to help in rescue efforts.

• IMF 'wants investors to take 70-75 per cent losses on Greek debt'

• Germany says no new money for euro bail-out fund

• Draft agreement: banks to raise money in markets, not bail-outs

• Berlusconi reportedly agrees to resign to push through reforms

• Markets trade flat as investors wait for eurozone rescue plan

• EU leaders meet in late afternoon to thrash out agreement

Latest

14.15 Meanwhile, somewhere else in Brussels, the European Parliament has just voted through a nice budget increase for itself.

According to Open Europe, MEPs votes for a 5.2 per cent increase in the 2012 EU budget. Some 431 were in favour, 120 against, and with 124 abstentions. And setting a great example for Greece & Italy to follow when it comes to austerity!

13:35 Tensions over the tough economic reform programme have proved a little too much for a pair of Italian deputies, who just started a brawl in parliament. Two deputies from the Northern League, a member of the ruling centre-right coalition, fought with members from the opposition FLI party speaker Gianfranco Fini, grabbing each other by the throat as other parliamentarians rushed to separate them.

The sitting was suspended for a while after the fight, which broke out because of sarcastic remarks on television by Fini alleging that the wife of League leader Umberto Bossi had retired at 39. It was only last year tempers flared in the lower house of parliament in Rome with one MP calling an opponent "a piece of ****" before several ended up wih black eyes.

Follow the crisis as it happens - live:

http://www.telegraph.co.uk/finance/financialcrisis/8846201/Debt-crisis-live.html

Silvio Berlusconi's government is in trouble. Not only has the Italian prime minister apparently lost the respect of his counterparts in Germany and France, but his coalition is facing fracture over possible austerity measures and social system reform. Indeed, after coalition partner Umberto Bossi of the Northern League ruled out a proposed increase to the retirement age from 65 to 67, Italian dailies reported on Wednesday that Berlusconi may be planning to resign at the end of the year. Both La Repubblica and La Stampa write that Berlusconi and Bossi reached a secret agreement which foresees new elections to be held next March rather than in spring of 2013 as originally planned.

Berlusconi finds himself in a tight spot after German Chancellor Angela Merkel and French President Nicolas Sarkozy asked him to present a plan in Brussels on Wednesday for paying down Italy's vast mountain of debt. Concerns are mounting that Italy, with sovereign debt worth close to 120 percent of its annual economic output, could become the euro zone's next Achilles heel. Indeed, interest rates on the country's sovereign bonds have once again begun climbing to worrisome levels, reminiscent of developments in August when the European Central Bank stepped in to buy significant quantities of Italian bonds to keep down interest rates.

Conservative daily Die Welt writes:

"For Berlusconi, it's all or nothing. His coalition with the Northern League, a party... which is opposed to raising the retirement age, is in danger. As a result, so too is Berlusconi's power base and his entire political future - including protection against various criminal proceedings. Instead of being a part of the solution, Berlusconi has long since become part of the problem. But Italy is much too big to be propped up by the euro backstop fund. The debt crisis has long since become a crisis of faith in the euro zone. For Italy, it could also become a state crisis."

Now, seven months later, that floating debris is on a direct collision course with the Pacific Coast of the United States - and it might be coming sooner than expected. "Across the wide Pacific, the drift rate is about five to 10 miles per day," oceanographer Curt Ebbesmeyer told ABC News.

Early computer models predicted that the debris would not hit the United States for two to three years. But a Russian training ship, the STS Pallada, following a map of the computer models, hit an extended field of debris in mid-Pacific, close to Midway Island, a US territory about 1,700 miles from Hawaii.

The ship's encounter with the 1,000-mile-long mass of tsunami debris came in September - 300 miles ahead of schedule, and nearly 2,000 miles from the site of the tsunami in Japan. The ship's crew found a battered, 20-foot fishing boat marked "Fukushima," the same spot in Japan that was ground zero for the tsunami. The Pallada's crew sailed through the debris, surrounded by everything from appliances and televisions to furniture, all of it now headed straight for Hawaii.

The first of it is expected to hit Midway Atoll this winter, then Hawaii in early 2013, and the US West Coast - mainly Washington and Oregon - in early 2014. Experts now estimate that lighter objects will wash ashore Midway's beaches this winter.

"We are living in crucial times. If the summit is a failure, this could tip the European continent into unknown territory," the sources from the ruling UMP party quoted the prime minister as saying during the meeting. "Pressure does not stop growing on the eurozone and the whole of the global economy," the sources quoted him as saying. "It is undeniable that the forecasts for global economic growth are undergoing brutal falls."

"If the results of the European summit are positive, the pessimism (on growth rates) will abate," he said. "An agreement must be found with Germany," he said. He also denounced press reports that Paris was following Berlin's lead in dealing with the eurozone crisis, saying: "I remind you that the initiatives (to deal with the crisis) are French."

The demand came as European officials attempted to reach a final agreement on giving the eurozone's 440 billion euros rescue fund more firepower so that it can assist Italy by purchasing Italian bonds, lowering Rome's borrowing rates, which are near 6 per cent. While such EU assistance falls well short of a full-scale Italian bail-out, senior European officials said it would come with tough new conditions, and that the demands on Silvio Berlusconi were the beginning of a more intrusive effort by Italy's eurozone partners to ensure Rome convinces the financial markets it is sincere about fiscal reforms.

Talks early on Tuesday between Mr Berlusconi and his Northern League coalition partners failed to resolve the deadlock - centred on proposed pension reforms - after inconclusive negotiations the night before. Talks between the coalition parties continued into the night, indicating no substantial agreement on reforms had been reached.

"At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn't," Greenspan said. "Instead, northern Europe fell into subsidizing southern Europe's excess consumption, that is, its current account deficits."

Greenspan predicts that as the south's fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe's standard of living will go down. "The effect of the divergent cultures in the eurozone has been grossly underestimated," he added. "The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren't, it simply can't continue to work."

Greenspan feels that, to a very large extent, what's driving the United States at the moment is Europe. "Today, there is one single integrated global stock market," he said. He also expects the European crisis, coupled with a failure to address the US budget deficit, may be severe enough to cause a bond market crisis if the market suddenly decides the US is more like Greece than not.

Cameron's government, which is against holding a referendum, in the end won the House of Commons vote 483-111 due to support from the Liberal Democrats - the Conservatives' euro-friendly junior coalition partners - and the main opposition Labour Party. But the eurosceptic wing of the Conservative Party delivered Cameron a blow by ignoring whip pressure to vote in favour of a referendum in the biggest show of internal party dissent since he took office in May 2010.

After the vote, a spokesman from Cameron's Downing Street office said the government respected the fact that members "felt very strongly" about the issue, but that it had to do with "what is in the national interest." Cameron's strong stance was necessary to preserve the benefits which Britain enjoys from being an EU member but the leader is determined to bring about "fundamental reform" in the 27-nation bloc, added the spokesman in Monday's statement.

Although the vote was never to be legally binding, the rebellion is politically significant, particularly as polls suggest it has public support. A YouGov survey for The Sunday Times this weekend found 66 percent of Britons back a referendum on European Union membership.