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HomecommentaryThe 'Merkel put' is a safe bet

The ‘Merkel put’ is a safe bet

Architects of the European integration never hid their view that this unique historical process was bound to proceed by crises. But they did not consider that a fatal design flaw. Following Machiavelli, they thought that periodic tremors would offer opportunities to correct problems, and to make further progress in binding together Europe's erstwhile irreconcilable enemies.

These opportunities do exist. As an example, here is what Germany ran up against when it recently tried to set up an effective quick fix for major structural problems that led to the last financial crisis.

Apparently seeking to avoid a long and uncertain process of treaty changes, German Chancellor Merkel proposed, during the euro area summit on December 19, 2013, that member countries sign a "binding contract" with the E.U. Commission with respect to fiscal policy and structural changes they were required to implement.

Spain's prime minister would have none of it. For him, a "binding contract" was out of the question. Interestingly, Spain was supported by countries which usually vote with Germany, such as Austria, Finland and the Netherlands.

(Read more: Germany's new face at the ECB: Who's in the frame?)

John Thys | AFP | Getty Images

According to a well-informed source, the German chancellor responded by saying: "Without the necessary cohesion, the monetary union will explode… but if this text is not acceptable to Spain, let's drop the whole idea…come to the edge of the precipice to act, let's go home and wait… you will see what will happen, and who will pick up the pieces…" and if we have to

Playing the Paris-Berlin axis

The German initiative was then rescued by the French president, who suggested discussing the matter again after the elections for the European Parliament scheduled for late May. Chancellor Merkel agreed, with a caustic remark: "I don't want anybody telling me that they lost the elections because of contracts…" It was concluded to take a decision on this issue by next October.

This example shows how much the cohesion within the monetary union cannot be taken for granted. It also shows the struggle to reach a consensus on something that looks like a quick, simple and robust device to plug that leaking structure.

Undaunted, Chancellor Merkel will continue to push for "binding contracts" as a major building block toward the euro area fiscal union. She knows that even such a transitional measure would create, with the European Central Bank (ECB), a strong political, institutional and functional framework the common currency does not have at the moment.

In spite of this temporary setback, I therefore believe that the process leading up to the fiscal union remains on track. All the euro area leaders know that the fiscal union is the only way to put an end to improvisations and violations of non-binding rules about deficits and public debt. They also know that this is the only way to lead Greece, Italy, Portugal and Ireland back to fiscal sanity. In the third quarter of last year, these countries' crippling public debt went from 125 percent of gross domestic product (GDP) in Ireland to 172 percent of GDP in Greece.

But the political calendar is too charged now for any major decisions. European parliamentary elections will be held in late May, a new president of the European Commission has to take over in October, and a new president of the European Council (a forum of the E.U. heads of state and government) will begin his/her mandate in December.

(Read more: German firms most optimistic in 2.5 years)

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