Europe's dangerous autumn
For Europe's leaders and officials, the holidays are over. They owe a debt of gratitude to Mario Draghi, the president of the European Central Bank (ECB). Ever since he said that he would do what it took to preserve the euro, the markets have been becalmed. Vacations have not had to be broken to fight the latest eurozone crisis.
There has been much talking during August, but now difficult decisions have to be made - and the weeks ahead are full of dangerous stumbling blocks.
Firstly, this Thursday the ECB holds a critical meeting. Mr Draghi will have to flesh out his plans. The expectation is that the ECB will return to buying the sovereign bonds of troubled countries like Spain and so lower their borrowing costs. The most likely outcome is for the ECB to indicate it will buy bonds, but only after a country has requested help from the eurozone's current bailout fund, and agreed to conditions.
If this happens, it will be in the face of fierce opposition from the German Bundesbank and its allies. A former chief economist at the Bundesbank, Juergen Stark, has warned that the bank is treading "a very dangerous path" and that it is "allowing its independence to be eroded by politicians".
The ECB says that it is part of its mandate to intervene with "exceptional measures" when markets are "influenced by irrational fears". In its view, the high borrowing costs of Spain and Italy are an indication of that. Already one head of the Bundesbank has resigned over bond-buying. If another were to leave, it would create immense political difficulties for Chancellor Angela Merkel.
It could also mean that the ECB will be less ambitious with its plans.
That brings in Spain. There are a few glimmers of hope with its exports and improving wage competitiveness, but the country is in a deepening recession with rising unemployment. Sizeable funds are being withdrawn from the country, and the Spanish regional governments are now queuing up for financial help. Even though Madrid has already negotiated a banking bailout, there is a strong case for it needing a full bailout. Many European officials expect that.
If Spain needs help, its Prime Minister, Mariano Rajoy, is determined to avoid the humiliation of accepting new conditions. He says that Spain already meets the conditions for aid but sooner or later the question will have to be resolved as to whether the country can survive without a general bailout. Chancellor Merkel will be in Madrid this week. A general Spanish bailout, however, will seriously deplete the eurozone's rescue funds.Grexit?
Both a clear decision by the ECB and the Spanish government may have to wait until 12 September when the German constitutional court rules on whether the eurozone's permanent bailout fund, the European Stability Mechanism (ESM), contravenes German basic law. Government circles in Berlin expect the court to approve participation in the fund, but what will be closely watched is what conditions are attached and whether this complicates how the fund operates.
As the month draws on, the so-called troika (debt inspectors from the European Union, the International Monetary Fund and the ECB) will complete their report on Greece and whether it is honouring commitments made in exchange for a second bailout. If there are serious failings, the eurozone governments will have to decide whether to continue with the funding. Without it, of course, Greece would go bankrupt and be forced out of the euro.
The signs from Berlin are that Chancellor Merkel will do almost anything to keep Greece in the eurozone. The problem comes if the troika concludes that the current bailout plan is not sustainable without further help for Greece. The German parliament is unlikely to support that and, in that event, could force Chancellor Merkel into accepting a Greek exit. The polls in Germany indicate growing opposition to financing further bailouts, and the German general election is only a year away.
Greek Prime Minister Antonis Samaras and his coalition are still negotiating the spending plans for 2013 and 2014. Very sensitive issues like reducing pensions, healthcare and cuts to the salaries of state employees are on the table. Ministers fear a return of large scale protests.
All of these issues are made harder because economic conditions in Europe are deteriorating. It will be a testing few months.