British newspapers are often sensational and sometimes wrong on big issues, so take this with a grain of salt. But the Telegraph reports that European leaders are constructing a “multi-trillion” euro plan to deal with the banking crisis that has gripped the continent. I very pointedly say “banking crisis” because we should wean ourselves off calling this a sovereign debt crisis. The sovereigns are the pass-throughs to European banks which made bad bets and still never resolved them from the financial crisis of 2008. That’s the problem being solved here:

German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone’s sovereign debt crisis is spiralling out of control.

Their aim is to build a “firebreak” around Greece, Portugal and Ireland to prevent the crisis spreading to Italy and Spain, countries considered “too big to bail”.

First, Europe’s banks would have to be recapitalised with many tens of billions of euros to reassure markets that a Greek or Portuguese default would not precipitate a systemic financial crisis. The recapitalisation plan would go much further than the €2.5bn (£2.2bn) required by regulators following the European bank stress tests in July and crucially would include the under-pressure French lenders.

Officials are confident that some banks could raise the funds privately, but if they are unable they would either be recapitalised by the state or by the European Financial Stability Facility (EFSF) – the eurozone’s €440bn bail-out scheme.

OK, so the first step of this plan is to shovel “many tens of billions” of euros to the banking sector, either directly through the stronger countries or through a bailout fund. The second step is to throw more money in the bailout fund, the EFSF. Two trillion euros are contemplated there. And they’re proposing to do it in a screwy way that would mean Eurozone countries wouldn’t need approval from their parliaments. This says it all:

The arrangement is similar to the proposal made by US Treasury Secretary Tim Geithner to the eurozone at the September 16 EcoFin meeting in Poland. Gathering turmoil in financial markets has convinced Germany to begin work of some kind of variant of the US plan, despite having initially rejected the notion as unworkable as threatening to compromise ECB independence.

Germany in particular still needs parliamentary approval on letting the bailout fund recapitalize the banks, and with Angela Merkel’s coalition shaky, that will be difficult to ratify. The vote is expected next week.

Finally, Greece will undergo a “managed default” with a substantial haircut for the creditors, up to 50%. And then Greece would get another bailout.

The internal deadline for all of this is November 4, when the G20 officially meets for a summit in Cannes.

Of course, this still remains a plan to bail out European banks, with no such program for the people of Europe. It does not address a potential “collapse in global demand” feared by the IMF, with a double dip recession attached. This is a dangerous moment for the global economy, and the elites of the world are still making sure that banks and wealthy investors won’t have to cover too many of the losses.

UPDATE: Yves Smith with more on this.