The euro faces a decisive week as European Union (EU) leaders, urged on anxiously by the US, seek agreement on the definitive rescue plan that has eluded them for two years.

Despite short-term market optimism about a possible deal to tackle Europe's sovereign debt crisis and ensure the survival of the single currency, the outcome is far from certain as the EU gears up for a summit in Brussels on Thursday and Friday.

"This week, the stable future of the euro and thus the economic recovery in Europe and employment are at stake," EU economic and monetary affairs commissioner Olli Rehn said.

"This calls for a convincing package of measures from the European Council (summit)."

Portuguese Prime Minister Pedro Passos Coelho went further. "We have to find a response" to the crisis, he said in an interview with daily Publico. " If we don't, clearly that could represent the end of the EU," he added.

If all goes according to plans being hatched in Berlin and Paris, the EU will have taken a step towards fiscal union by Friday night, agreeing on a treaty change to anchor coercive budget discipline for the 17-nation currency area.

The European Central Bank (ECB) will have cut interest rates on Thursday to counter a looming recession and taken new measures to provide longer-term funding for Europe's teetering banks.

And new prime ministers in Italy, Greece and Spain will have demonstrated their commitment to tough austerity measures and structural economic reforms to tackle their debt problems and restore investor confidence.

A convincing show of political determination to stand behind the euro and surmount the crisis through closer euro zone integration could prompt the ECB to do more to support Italian and Spanish bonds, cementing that reversal of market sentiment.

However, if the 27-nation EU is unable to agree, or settles for another half-measure after months of dithering, the flight from euro zone bond markets may accelerate, confidence may ebb further and the crisis could become acute in January, when Italy has to start a massive refinancing campaign.

Underlining Washington's vital interest in averting a euro zone meltdown, US Treasury Secretary Timothy Geithner will visit Frankfurt, Berlin, Paris, Marseille and Milan from tomorrow to urge key European officials to take decisive action.

Sources close to German Chancellor Angela Merkel say she is prepared - despite hostility from the German Bundesbank - to see the ECB step up buying of troubled states' bonds as a short-term bridging measure until stricter euro zone budget controls take hold.

But things may not go entirely according to plan.

Merkel visits French President Nicolas Sarkozy in Paris today to outline joint proposals on economic governance, but Berlin and Paris still have significant differences about how the euro zone would control national budgets.

While Sarkozy and Merkel put forward their plan, Italian Prime Minister Mario Monti will unveil rigorous austerity measures and economic reforms designed to save Rome from requiring the next international bailout. And bailed-out Ireland will be presenting an eye-watering 2012 austerity budget.

The Greek parliament is due to give final approval tomorrow to a draconian 2012 austerity budget that is a condition for a second bailout package still under negotiation with private creditors, euro zone governments and the IMF.-Reuters