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After Italy was forced to bring forward austerity plans last week to placate anxious bond investors, European council president Herman Van Rompuy called leaders to an emergency summit this Thursday. The results of "stress tests" by the new European Banking Authority revealed on Friday that eight banks were vulnerable, and must raise €2.5bn (£2.2bn) to cushion themselves against potential losses. The EBA did not calculate the impact of a default by Greece or other vulnerable eurozone countries, but it released detailed data about banks' holdings that will allow analysts to make their own assessment. "Everybody's sitting up crunching numbers," said one market insider. Matt Spick, banking analyst at Deutsche Bank, said: "We expect the sector to still be at the mercy of macro issues." Unless Thursday's summit results in concrete announcements about how to contain the crisis, analysts are warning that anxious investors will continue to target Italy and Spain. Neil Mellor, of BNY Mellon, said: "Everyone expects some sort of default to come about but in the meantime contagion is rife." Italy saw 10-year-bond yields shoot up to their highest level since the foundation of the single currency last week, before finance minister Giulio Tremonti forced through new spending cuts and tax rises. Politicians have been struggling to reach a deal on a new bailout for Greece. Germany's Angela Merkel has insisted that private sector investors must pay part of the price by taking a loss on Greek bonds. But there is no consensus on how this "private sector involvement" would work –European Central Bank president Jean-Claude Trichet claims there are 36 proposals under discussion. With the financial panic now hitting Italy, and funding costs for banks rising, leaders are under mounting pressure to come up with a long-term rescue plan for the entire eurozone. That could mean beefing up the European financial stability facility - the bailout fund created last year. The EFSF has the power to issue bonds and lend the money to crisis-hit economies; but it is much too small to rescue Spain or Italy, and it cannot buy embattled countries' bonds directly, in the event of a crisis. Rome became the latest European capital to feel the wrath of the mighty bond markets last week, when a political wobble over austerity measures was punished by a threatened downgrade from the ratings agencies. For ordinary Italians, the result was tax rises, higher health costs and lower pensions. As the eurozone's leaders prepare for yet another crisis meeting next Thursday, their room for manoeuvre is limited – not just by how much more austerity the ratings agencies will demand from debt-burdened member states, but how much their own voters will bear. It's not just the economics of the eurozone that risk tearing it apart but the increasingly fraught politics. Not only does the Brussels elite need to agree among itself, it has to sell any solution to the eurozone public. In other words, politicians must convince German, Dutch and Austrian taxpayers that it is worth signing up to some kind of Europe-wide rescue fund – or even a common euro bond – to keep the single currency alive, while persuading the Spanish, Portuguese, Greeks and now the Italians to keep taking the pain. In the short term, leaders must come up with a convincing solution for Greece. It desperately needs a fresh bailout, and some form of "selective default" on its debts may be unavoidable; but there is still no agreement about who will bear the costs and the European Central Bank still insists that it is unthinkable. A series of plans, including French proposals to exchange expiring bonds for new loans, and a separate German debt-swap proposal, have so far come to nothing. Friday's stress tests of European banks revealed a bumper bundle of new information about the health of the sector; but they didn't calculate the likely impact of a Greek default.