Time to recapitalise EU banks on a massive scale

German GDP growth has stalled, raising fears that the eurozone's biggest economy is teetering on the brink of recession. The news comes as the latest economic data also showed growth in the wider eurozone fell from 0.8 per cent to 0.2 per cent in the last quarter.

The news piles the pressure on German chancellor Angela Merkel and French president Nicolas Sarkozy who are meeting today to discuss a response to the eurozone debt crisis. They have already ruled out one course of action, which is backed by many serious economists: allowing the European Central Bank to issue Eurobonds, debts backed by the eurozone as a whole rather than by individual countries.

Time is running out. Robert Peston, the BBC's business editor, believes that the trend in economic activity adds urgency to efforts by eurozone leaders to agree measures that will provide reassurance to creditors and investors that Spain and Italy will not default on their debts.

"If market confidence is bashed as much as it may be... the European Central Bank will doubtless have to redouble efforts to buy Spanish and Italian bonds, to prevent the borrowing costs of the Spanish and Italian governments moving back up to dangerous levels."

But, asks Peston, how long will it be before the ECB's exposure to such poor quality debts becomes "embarrassingly large" and it decides it has bought enough?

Germans may be about to turn against the euro. Poor economic growth figures from Germany are "not just an economic event; [they are] a political one too", writes Jeremy Warner in the Daily Telegraph. He says that the low value of the euro – caused by worries over sovereign debt in weaker eurozone countries – has been a boon for Germany's export-driven economy. This advantage "is all that has been keeping Germans onside on measures to support the euro".

"If Germany isn't even deriving a trade benefit from membership of the euro, then its support for further bailouts will begin to look more questionable still."

Wholesale reform is needed. Former British prime minister Gordon Brown pops up in the New York Times today to offer a sobering assessment of the situation: "Little now stands between Europe and a decade of low growth, high unemployment, industrial decline and popular discontent, the nearest modern economic parallel for which is the 1930s," he writes.

Brown says there is no solution possible within the existing euro structure. So what is the solution? Nothing less than "the biggest recapitalisation of the banks in European history and a wholesale reformation of the euro, which will require the coordination of its monetary and fiscal policy, fiscal transfers from rich to poor nations and a commitment to a common European debt facility". Such a solution, he writes, will need the support of the IMF and possibly China and America.

This is not just a debt crisis. Speaking of the IMF, the body's new chief, Christine Lagarde, warns in the Financial Times that recent events show that reducing government debt – in the way that British, European and the US governments are currently being forced to do - should be approached with caution. "We should remember that markets can be of two minds: while they dislike high public debt – and may applaud sharp fiscal consolidation – as we saw last week they dislike low or negative growth even more." ·