EU mini summit

It was the opposite of what the European Commission and MEPs call the "community method." The new Italian head of government, Mario Monti, explaied his reform program to the undisputed leading figures of the single currency union, Angela Merkel and Nicolas Sarkozy.

A meeting among equals it was certainly not. Although Italy is the eurozone's third-largest economy and has - touch wood - not even asked for a bailout yet, Mario Monti looked like the poor relation who has to justify his every move. He has to deliver - and fast, so as not to drag the whole of the eurozone down with Italy.

As a former president of the European Commission, he is acutely aware of the questionable nature of this process, and he said as much in Brussels on Wednesday. Then again, he did not have much of a choice, he had to accept the invitation to Strasbourg. Merkel and Sarkozy involving the Commission and other EU and eurozone governments in this matter? Not a chance.

Strasbourg was a textbook example of the "intergovernmental method," meaning a consultation between governments. Some MEPs even speak of a new tendency in Europe towards the ways of the Congress of Vienna that saw the four biggest political powers at the time establish a new order in Europe after the Napoleonic Wars.

The eurozone debt crisis seems to be heading into its final battle. Tempers are frayed and the main parties are still pulling in different directions. While EU Commission President Jose Manuel Barroso is pushing for Eurobonds, Merkel emphatically rejects the idea. The southern member states in particular want the European Central Bank (ECB) to be able to buy up unlimited sovereign bonds, which is, essentially, another way to make European debt a communal responsibility. But Merkel has also dismissed that idea.

Much to Merkel's chagrin, even France is sending mixed signals and, traditionally, the country is more affiliated with the southern European states anyway. But that is not all - it is not just France that has to worry about its triple-A credit rating these days, even Germany is not immune to the debt demons.

At the most recent auction of 10-year Bunds, only two thirds of the bonds on offer found buyers. While some in Greece and Spain may indulge in a spot of schadenfreude here, they are clearly worried about staring into the abyss that is the sovereign debt disaster.

So far, all attempts to stabilize the currency union, be it austerity programs, new governments or rescue funds, have failed. Merkel's hobby horse, making changes to the EU treaty to reform economic governance, is not exactly gathering steam. So, given the mighty pressure this crisis is putting on Germany, Merkel may soon have to decide between the devil that is the Eurobonds and the deep blue sea that is the ECB as lender of last resort.

Author: Christoph Hasselbach, Brussels / ng
Editor: Andy Valvur