Does Merkel Need a 'Lehman Crisis' to Save Euro?

In 2010 former US Treasury Secretary Hank Paulson admitted that if had not allowed Lehman Brothers to fail, he would have not been able to win approval for the Troubled Asset Relief Plan (TARP) -- the bailout of the country's banks -- from Congress.

“We didn't have TARP without Lehman Brothers," Paulson said.

Could Europe be on the cusp of a Lehman moment?

The euro zone debt crisis has now spread from the sovereigns – after the ECB came in and purchased Italian and Spanish debt – to the banking sector. Although the EU authorities put in place a short-selling ban, which has another week to run, the banking sector is back at the pre-ban levels or in some cases even lower.

Europe’s banks are by and large less capitalised than their U.S. peers. They are also exposed to Europe’s sovereign debt and European loan books. Even if a member state manages to avoid a default, growth is now slowing and we could be in line for another recession that would most likely increase bad debts and further erode banks’ profits.

Greek Crisis Now Worse, Not Better: Analyst

On July 21, EU leaders agreed to a second bailout for Greece, one that was supposed to draw a line under the euro zone debt crisis and give the new government in Athens a chance come to grips with the huge debts it inherited when it was elected.

One month later, and the situation appears to be getting worse rather than better, according to Simon Derrick, the head of currency research at Bank of New York Mellon.

Franco-German call for 'true euro economic governance'

The French and German leaders have called for "true economic governance" for the eurozone in response to the euro debt crisis.

Speaking at a joint news conference, German Chancellor Angela Merkel and French President Nicolas Sarkozy urged much closer economic and fiscal policy in the eurozone.

Merkel and Sarkozy rule out talks on eurobonds

German Chancellor Angela Merkel and French President Nicolas Sarkozy will not discuss the controversial question of eurobonds when they meet on Tuesday to discuss the eurozone crisis, spokesmen for both governments said on Monday.

"Eurobonds will play no role in the talks," government spokesman Steffen Seibert said.