What steps will the euro zone take on its debt crisis?

The aim is to finish the package by a European Union summit on March 24-25, when EU leaders may approve it. A preliminary summit on March 11 is expected to agree on part of the package: a "competitiveness pact" which Germany and France want euro zone members to adopt in order to strengthen their economies.

Below are some of the proposals that have been discussed for possible inclusion in the comprehensive package. Several are adamantly opposed by Germany or other member states, and therefore unlikely to make it into the final agreement.

The European Commission, France and to an extent Germany agree that the effective lending capacity should be boosted to the full 440 billion, but there is no agreement on how to do it.

HOW COULD THE EFSF'S CAPACITY BE INCREASED?

Raising the EFSF's capacity could require euro zone states to increase their guarantees, forcing some governments to seek fresh approval from their parliaments, a tricky move especially in countries such as Germany, where public opinion is against bailouts and where Chancellor Angela Merkel faces several tough regional election battles in coming weeks.

Berlin has indicated that instead, euro zone countries with a rating below the top notch could inject cash into the EFSF, making up for their lack of a triple-A grade.

If the 11 non-AAA countries in the zone injected cash, the fund would no longer need cash buffers to secure its rating and could therefore lower its interest rate. But non-AAA countries are not keen to spend cash, so the end-result could be a mix of both options, euro zone sources have indicated.

LOWERING THE INTEREST RATE ON EFSF LOANS

Germany has indicated it might agree to this in exchange for concessions by countries in other areas — for example, if Ireland were to alter its corporate tax rate.

The EFSF charges a penalty margin of 3 percentage points on top of the interest rate at which it lends money to governments, plus a one-off 0.5 percentage point fee. That is substantially above International Monetary Fund lending rates. Ireland, for example, currently pays around 5.8 percent on its loans, which it says is punitive.

Olli Rehn, the European commissioner for economic and monetary affairs, has said he believes the interest rates on Greek and Irish loans should be reconsidered.

It is not clear how large any reduction might be, but investment bank JP Morgan said in a research paper that to make the debts of Greece and Ireland sustainable after 2013, the European Union needed to extend its emergency lending at a rate of about 1 percentage point over German Bunds.

HAVING THE EFSF BUY COUNTRIES' BONDS

This idea appears to have lost momentum; Germany seems strongly opposed to allowing either the EFSF or the European Stability Mechanism, the permanent crisis resolution facility that will succeed it from mid-2013, to buy bonds.

There have been proposals for the EFSF to be able to buy the bonds of troubled countries in the primary or secondary markets, and a suggestion that the EFSF lend money to states such as Greece and Ireland, allowing them to buy back their own bonds.

The proposals remain on the table, but so many objections have been raised by senior officials in EU member states and in Brussels, on grounds of both economic theory and practicality, that it would be difficult to reach a common agreement.

Members of parliament from Germany's ruling coalition put forward a motion last month demanding that debt purchases by the ESM be ruled out, saying this would equate to a "transfer union". The tone of the motion suggested strong opposition to letting the EFSF buy debt as well.

However, talks on this issue are likely to continue all the way up until March 24-25, as some policymakers are intent on ensuring there is more "flexibility" in the EFSF — code for letting it to do more than just lend money in a crisis.

If the EFSF were allowed to buy bonds on the secondary market, it would have a role similar to that of the European Central Bank, which in recent months has bought the bonds of distressed sovereigns such as Portugal. The ECB supports this idea and France backs it too, but Germany is a big obstacle.

BANK STRESS TESTS

The European Union plans to conduct a new round of bank stress tests, possibly with more transparency, over the next few weeks to establish potential losses of banks under various scenarios and their recapitalisation needs.

Criteria for banks passing or failing the tests are to be set next month. Although officials insist this year's tests will be much tougher than last year's, some analysts doubt they will be tough enough; for example, they will not include assets held in lenders' bank books, allowing peripheral sovereign bonds classified as held until maturity to escape writedowns.

Also, the European Banking Authority has said bank liquidity will not be a formal part of the tests, but analysts say liquidity is a critical issue that should be assessed.

Stress tests published last July initially reassured markets but the positive effect faded after Irish banks, which had done well in the tests, ran into serious trouble.

EXTENDING MATURITIES ON DEBT

German central bank chief Axel Weber has suggested transforming international rescue loans to Greece and Ireland into 30-year loans, euro zone sources have said. Current maturities are three years for Greece and seven for Ireland.

It is not clear if Weber has German government backing for the idea. German Finance Minister Wolfgang Schaeuble has not ruled out a radical reprofiling of Greek debt, but several euro zone sources said there were no talks on the idea at this stage.

The idea of a debt swap for private investors, who would be invited to exchange their Greek bonds voluntarily for new bonds with maturities of maybe 15 to 20 years, has also been floated.

FLEXIBLE CREDIT LINE

The EFSF could extend a credit line to an at-risk country in a scheme modelled on the IMF's flexible credit line, which has been provided to Poland, Mexico and Colombia. This would be a precautionary step to reassure investors that money was at hand for a country which had a fundamentally sound economy and policies, but which could find itself temporarily under stress.

The idea might be incorporated in the ESM but may be difficult to push through for the EFSF, a euro zone source said, because Germany insists that EFSF money should be a last resort.

PORTUGAL

Shortly before or after the package, the EU might extend a bailout to Portugal to address a big source of instability, though the rescue might not be formally presented as part of the package and Portugal would have to ask for the assistance.

Lisbon still strongly opposes turning to the EU and the IMF for help, but some EU governments have been boosting diplomatic pressure on Lisbon to consider the idea seriously. A euro zone source has said Portugal may be forced to seek aid before April.

The source roughly estimated the size of a potential Portuguese aid plan at 60-80 billion euros, noting the needs of the banking sector were still unclear.

COMPETITIVENESS PACT

Germany and France are urging euro zone countries to meet economic and fiscal criteria including: limits on sovereign debt written into national laws; higher retirement ages based on demographics; a common corporate tax base; abolition of index-linked wage increases; and unified crisis-resolution measures for banks.

Many euro zone member states immediately rejected the proposals, but after consultation with the European Commission and the president of the European Council, Herman Van Rompuy, a watered-down version of the pact appears to have gained broad support and looks likely to be agreed by all 17 members.