The late-October Merkel-Sarkozy plan, which appeared to set Europe on a better footing, has stumbled over funding the proposed €1 trillion stabilization fund. Policymakers lost critical momentum over the Greek referendum fiasco, and the ECB chose not to use aggressive quantitative easing to prevent an untenable rise in Italian, French, and Spanish bond yields. Confidence has fallen amid political squabbling, and now the European Financial Stabilization Facility appears unable to issue bonds to provide relief.

The stress test imposed on European banks, while credible, is also causing concern. The banks are required to substantially raise their capital ratios by next summer - a good and prudent step - but appear to be having difficulty raising private capital. Rather than turn to the government, banks are choosing to de-lever and we suspect have become the main sellers of Italian, Spanish, and other euro sovereign debt. With the ECB buying reluctantly rather than assertively, the 'game of chicken', which we described last week is resulting in a self-fulfilling loss of confidence.

David Fuller's view If there were not harsh economic consequences to all this, including contagion risks well beyond Europe's boarders, we could enjoy the tragicomic spectacle. To outside observers it may resemble a 'mad hatter's tea party'.

The Weekly View describes it as a 'game of chicken'. It also resembles high-stakes poker. And the challenge of finding agreement among the euro's seventeen member countries, including their politicians, bureaucrats and technocrats is like herding cats.

Needless to say, this is all highly disconcerting and frustrating for those of us who live outside the eurozone and just want Europe to sort it out.

Actually, they are sorting it out although entering the markets still feels like crossing the Somme for investors. That is because we are caught up in the day to day chaos, uncertainty and apparent futility.

What we need to do is look beyond the current quagmire, to see if we can figure out the end game.

Here are the central themes:

Europe has a horrific debt problem which has to be addressed. European leaders appear unanimous in their determination to preserve the euro dream. They cannot do this by austerity alone, without alienating their citizens and inviting Europe's version of the 'Arab spring'. Also, Europe needs to promote economic growth.

Most European citizens now realise that the entitlements party has bankrupted their economies. This cannot be blamed on the banks. Therefore, the public is now more likely to accept cuts in the welfare state that are seen as equitable. This starts with raising the retirement age, immediately and incrementally.

Europe will have to introduce more pro-growth policies, including cutting bureaucracy and reforming labour laws which currently deter hiring.

Lastly, to achieve the above the ECB will have to become the lender of last resort. This will require a significant amount of quantitative easing, although no central bank uses that description of its 'money printing' activities. Every realist, including German monetary officials, knows that QE is inevitable, given the other priorities above.

It would be nice, not to mention good for the global economy, if Europe could take these steps sooner rather than later. It may, although I understand that there is also a process, if only to keep most people onboard. Meanwhile, Europe has already moved more quickly on fiscal union than anyone expected a few months ago. This will make it easier to prevent a repeat of today's crisis in some future decade.

The European economy is the world's largest. There is no reason why it cannot be reformed to function more efficiently, if that is what people now want. The euro will not collapse as its debt is partially monetised, just as the US dollar has not collapsed. The euro is still the world's second largest reserve currency. It is very much in the interests of China and the USA that Europe remains a stable and viable economic region.