The European debt crisis escalated sharply last week amid growing fears that Greece would soon default on its debt - with Ireland to follow suit.
The threat of Greece being forced out of the euro also loomed larger after the Greek EU commissioner Maria Damanaki became the first senior European official to warn that the debt crisis rocking her country could force it leave the euro.
Europe's response to its debt crisis clearly isn't working. It needs to come up with solutions fast before a union that is over 50 years old starts to fall to pieces. What options does it have?
Some believe the answer to Europe's debt crises lies in the creation of a new bond, dubbed the eurobond. EU countries would essentially pool their government debt by issuing eurobonds, which would then be held by a central European debt warehouse. Doing so would allow troubled economies to refinance their existing debt at lower interest rates, improving their solvency and making it easier for them to raise money. To prevent the eurobond promoting reckless lending, it would only be available to help countries repay responsible borrowing.
Proponents of the eurobond believe it would represent far less of a financial risk to Europe than to actively bail a country out. They also believe it would enable debt-ridden countries to get back on their feet quicker and make them less likely to default, thereby increasing the stability of the eurozone.
"Lending money to debt-ridden countries is not a solution in itself," said Ronan Reid chairman of Dolmen Securities. "The European Central Bank (ECB) needs to create a structure where they buy back some of the debt and create a warehouse for that debt. Buying out some of the debt is a big risk for the ECB, but it either does that or it will have to write off some of the debt if a country defaults."
Central Bank governor Patrick Honohan last month suggested that Ireland's debt bill should be linked to its economic growth. Honohan advocated GNP-linked bonds, where Ireland would pay back a greater share of the repayments on bonds issued by the European Financial Stability Facility (an EU bailout fund) if its economic growth was strong. Conversely, Ireland would have to pay back less if its economic growth was weak.
Gray believes that the best way to resolve the debt crisis is for Europe and the International Monetary Fund (IMF) to give countries such as Ireland and Greece a longer time to clear their debts. He also believes Europe and the IMF should reduce interest rates.
"An immediate step that should be taken is for a more reasonable interest rate to be applied to the Irish loans," said Gray.
"This will not be a panacea for Ireland but will ease the adjustment it must make (to repay its debt) in some small measure."
Simon Tilford, chief economist of the Centre for European Reform, believes that Europe will have to write off half of the debt of countries such as Greece and Ireland. "Far from improving access to the financial markets, the support packages for Greece and Ireland have left these countries facing record borrowing costs," said Tilford.
"Initially, the EU will no doubt try and get away with 'soft' restructurings, involving a combination of longer maturities and lower interest rates. Unfortunately, in the case of Greece and Portugal at least, even this will not guarantee continued membership of the euro."
Greece, Ireland and Portugal must get back on their feet economically - otherwise any moves to resolve their debt crises will be meaningless. To prevent a similar crisis re-occurring, Reid believes the ECB needs to lay down some simple rules for EU banks.
"The ECB also needs to change its mandate to one that fosters economic growth rather than one which controls inflation and ensures the stability of the monetary system," said Reid.
ONE EUROZONE ECONOMY
Some believe the only way to stop debt-ridden countries like Greece and Ireland dropping out of the euro is to create a eurozone with tighter political and fiscal integration.
In a report last month, Adalbert Winkler, a professor of finance at Frankfurt's School of Finance and Management, said: "A substantially more comprehensive economic union might be needed."
The problem with a single eurozone economy is that it is "politically near-impossible", said Alan McQuaid, chief economist with Bloxham Stockbrokers.
"Not only would it mean surrendering sovereignty - few issues are more sovereign than collecting taxes and financing a budget - but it would be the bailout to end all bailouts. Wealthy European countries such as Germany and the Netherlands would assume the collective debts and risks of the likes of Portugal and Greece.
"It would also mean that those countries 'rescued' would face no incentive to overhaul their economies to make themselves more competitive and grow.
"They would be more likely to go on as they have done, knowing they are protected under the eurozone banner."The European Central Bank needs to create a structure where they buy back some of the debt