Probably the best analysis of dealing with the debt crisis in the Eurozone I've read:

We think that the EU has a range of good options for structuring enhanced replacement bonds, which would have an implicit seniority, contingent guarantees, value recovery mechanisms and debt swap provisions. This structure would be a much more efficient, less costly and more politically acceptable and sustainable use of EFSF and IMF funds than what we have seen so far.

The special EFSF programs could be redirected to make contingent financing available to sovereigns in the form of stand-by letters of credit for partial guarantees on the issue of replacement bonds. These enhancements could take many forms, such as guarantees on all or portions of principal due at maturity or according to an amortization schedule, or guarantees on portions of coupon interest.

By first focusing on bolstering European bank balance sheets and dealing with their sovereign exposure to the periphery, the fear of systemic contagion of a European sovereign restructuring would be greatly reduced. Furthermore, a bold and comprehensive "Trichet Plan" seems to be the only way to break the vicious feedback loop Europe finds itself in.

Our proposal, unlike other European debt proposals, is predicated on the notion that the borrowers and lenders and not outside parties should take the losses, set terms of the restructuring, and design the instruments in a menu of options which best fits their needs. The consenting adults who created Europe's crisis are the ones who should resolve it - albeit with assistance from EU regulators and officials

There is much at stake, not just for Europe, but the rest of the highly-indebted West. Forbearance by piling debt upon debt to deal with what is ultimately an insolvency issue is no longer an option in the Eurozone and further stumbles could increase global systemic risk. Policymakers should not entirely discount the risk that the crisis in the periphery could spread to the core of Europe and even skip across continents and oceans.