Greece is seeking a two-year extension of its latest austerity programme aimed at improving the country’s debt sustainability and prospects for a return to growth, according to a document obtained by the Financial Times. Antonis Samaras, the centre-right prime minister, is expected to outline the proposal during talks next week with Angela Merkel, German chancellor, in Berlin and French President François Hollande in Paris.

The euro zone's $13 trillion economy is shrinking, data published Tuesday showed, a development that threatens to worsen a global slowdown and intensify the debate about Europe's attempts to restore confidence in the currency union, The Wall Street Journal reported. Economic activity in the 17-country currency bloc fell at an annualized rate of 0.7% in the second quarter after stagnating in the first three months of 2012, according to the European Union's statistics arm.

Ireland's budget adjustment in the period 2008-2014 will be the second largest after Greece among the euro area’s bailed-out countries, the Irish Times reported. In a new paper – Fiscal Consolidation: Does It Deliver? – Central Bank of Ireland economist Laura Weymes finds Ireland’s budget-tightening packages will be almost twice as large as those of Cyprus, Portugal and Spain – the other countries in bailouts by the European Union and International Monetary Fund.

Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen, Spiegel Online reported. There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.

A new challenge to the European Stability Mechanism, the eurozone’s permanent €500bn rescue fund, has been filed in the German constitutional court, seeking to delay ratification by Germany until it has sought the opinion of the European Court of Justice in Luxembourg, the Financial Times reported.

After the party, the hangover looms: London's golden Olympics may soon be a distant memory as Britain returns to the reality of its economic mess and years of more belt tightening, Reuters reported. The 2012 Games have lifted the nation's spirits, but the government has few alternatives to an austerity drive that may last for the rest of this decade - although some academics and economists believe yet more radical policies may be needed.

A far-left-wing party is emerging as a front-runner in next month's elections in the Netherlands, as it benefits from growing voter resentment toward the German-led austerity drive and euro-zone bailouts, The Wall Street Journal reported. A win by the anti-austerity Socialist Party could threaten to unravel a cost-cutting plan agreed under the current government in April, and also could derail stringent budget targets for 2013 set by the European Commission and fiercely advocated by Prime Minister Mark Rutte.

A handful of European banks have figured out a way to boost their profit and capital ahead of new regulations: grab back their bonds, The Wall Street Journal reported. With the European crisis knocking down the value of banks' longer-term debt, some are taking advantage by buying back their debt from investors at a discount from the original value. Banks can book the difference in price as an accounting gain, adding to their bottom line—and their ability to withstand losses.

An outgoing member of the Bank of England’s Monetary Policy Committee has challenged the governor Sir Mervyn King for his insistence that central banks should buy only government bonds in quantitative easing programmes to stimulate growth. Adam Posen told the Financial Times that the BoE could be much more effective in fostering economic recovery if it ditched “anguished religious ethics” over what it considered reasonable intervention.

Some Italian banks are prodding the Bank of Italy to let them revalue at current prices the stakes they have owned in the central bank for nearly 80 years, The Wall Street Journal reported. The move is aimed at bolstering the balance sheets of Italy's banks and was proposed in recent weeks by individual banks and an industry group. So far, the Bank of Italy has given no indication that it will agree to the revaluation, but proponents gained some optimism when the central bank said it is open to discussions on how to change its unusual ownership structure.