The European Union’s leaders convene Thursday for a two-day summit  in Brussels after a weekend in which international finance chiefs expressed some optimism that a firewall is in place to contain the euro’s turmoil and urged further action to quell the main threat to global growth.

With German Finance Minister Wolfgang Schaeuble Sunday ruling out a Greek exit, the 17-nation euro area faces the challenge of harnessing positive sentiment by resolving differences on aid for Greece and Spain before investors pounce again. Also contentious is how to knit euro nations more closely together amid spats over the timing and depth of a banking union.

“The summit will highlight how much remains to be done,” said Alex White, an economist at JPMorgan Chase & Co. in London. “Our concern is that the removal of acute financial market stimuli may reduce the political incentive to deliver.”

That respite is the result of the European Central Bank’s bond-buying pledge last month and the enactment of a 500-billion euro ($647.5 billion) permanent rescue fund, the European Stability Mechanism. Nerves are returning to markets as Spain’s 10-year bonds advanced for a second week after Standard & Poor’s cut the nation’s debt rating to one level above non-investment grade.

Spanish Yields

The yield on Spanish 10-year bonds dropped 20 basis points to 5.625 percent in three days through Oct. 12. The euro climbed 0.5 percent in that period to trade at $1.2951.

In a weekend video address, Chancellor Angela Merkel spoke of the euro as “more than a currency” and said the monetary union’s leaders had finally established the mechanisms to hold the members together for the long term.

“We’re now being tested by the markets on whether we can hold it together,” Merkel said in a video podcast. “For this, over the past two years we’ve established the instruments necessary to protect the euro area on a sustained basis.”

U.S. Treasury Secretary Timothy F. Geithner was among those attending the International Monetary Fund’s annual meeting in Tokyo to laud the new policies, calling Europe’s new policy framework a “more promising strategy.”

Bank Bailout

The currency bloc was nevertheless pushed not to repeat its past error of resting on its laurels. In a checklist of global policies that the IMF deemed vital for economic health, policy makers were told both the ESM bailout fund and the ECB’s Outright Monetary Transactions “need to be deployed.”

If the demand was aimed at Spain, it went unheeded for now as the country resists following its 100-billion euro bank- bailout program with a broader one. Spanish Economy Minister Luis de Guindos said in Tokyo that he felt “extremely comfortable” with his country’s ability to fund itself through the rest of 2012.

“Although Spain might still hesitate to ask for help, it cannot delay much longer,” said Gizem Kara, an economist at BNP Paribas SA in London. “We continue to ask for assistance by the end of this month, but a delay until November cannot be ruled out.”

In Athens, the government and its international inspectors are trying to strike a deal on economic policies ahead of the Brussels summit, at which Prime Minister Antonis Samaras will request more time to implement the overhaul. An agreement is a condition to receive a 31 billion-euro aid installment the country needs to fund banks and pay debts.

Greek Creditors

Greece’s key creditors were divided in Tokyo. Following a study showing fiscal cuts may have bigger effects on economies than previously estimated, IMF Managing Director Christine Lagarde endorsed the idea that Greece be given an extra two years to meet its goals and raised the idea of another round of debt restructuring before further bailout efforts can proceed.

She ran into criticism from Germany’s Schaeuble, who said governments can’t accept losses on Greek debt holdings and that “if you’re doing a long run, you mustn’t make it even longer by briefly running in the opposite direction.”

Still, the German finance chief buttressed efforts to keep Greece in the currency union by excluding a sovereign default.

“It will not happen that there will be a ‘Staatsbankrott’ in Greece,” Schaeuble said in English at a forum in Singapore Sunday, using the German word for state insolvency. He said he saw no “sense to speculate on Greece leaving the euro.”

‘Probable’ Exit

Swedish Finance Minister Anders Borg had done just that, saying that Greece could still quit the common currency within the next six months, damping the post-Nobel glow and any dividend from last week’s trip by Merkel to Athens.

“It’s most probable that they will leave,” Borg said. “We shouldn’t rule out this happening in the next half-year.”

ECB officials in Tokyo handed the baton back to governments to lead the crisis response, arguing politicians must sustain the confidence the central bank’s program had delivered. The monetary policy makers rebuffed the IMF’s call to cut interest rates, saying doing so would have little effect and there are no deflation risks.

Bailouts aside, the leaders will also discuss efforts to integrate a fragmenting banking sector after agreeing to create a common bank supervisor at the ECB to pave the way for direct bailouts from the rescue fund. All 27 EU nations must approve the oversight proposal for it to move forward.

United Supervision

ECB President Mario Draghi said in Tokyo the united supervision may still not become operational before 2014 even if legislation is in place. ECB Executive Board member Joerg Asmussen said the ECB shouldn’t be made responsible for the health of financial institutions unless it can act to defend it.

“We have to move in time, but we also have to move well,” said Draghi.

The summit will also test the appetite for EU President Herman Van Rompuy’s call for leaders to consider the pooling of national bill sales and setting up a euro-area budget with borrowing powers. Top-rated countries such as Germany and Finland have ruled out a switch to full-scale common borrowing using euro bonds.

EU countries plan to complete the road map toward a more integrated monetary union at a December meeting.