Reuters Last Wednesday's failed bond auction in Germany may mark the moment the penny dropped for Berlin. That, at least, is the hope of some of its European partners. While Greece, Ireland and Portugal have had to suffer the ignominy of taking bailouts from the EU and IMF, and Spain, Italy and France are now firmly in the firing line, Europe's most powerful economy has remained above the fray. But the inability to sell nearly 40 percent of the bonds offered at an auction of 10-year Bunds has suddenly revealed a chink in Germany's armor, with implications not just for the markets, but for the politics of Europe's debt crisis too. The very image of German debt management superiority has been called into question, and by extension so have some of the more rigid positions that German Chancellor Angela Merkel has adopted over the course of the debt unrest. Other euro zone states – most particularly France – will now feel emboldened in challenging Germany's resistance to ideas such as the European Central Bank playing a more direct role in firefighting the crisis and to jointly issued euro zone bonds. In the corridors of Brussels, there was poorly concealed delight at Germany's auction setback, although officials who said they hoped it would spur Berlin into action also acknowledged that Merkel was not easily moved and did not expect any sudden or dramatic change of course. That has become the critical issue. In the slow-motion train-wreck that is the European debt crisis, how much longer are markets and other onlookers going to have to wait until a dramatic, decisive intervention is launched? The next summit of EU leaders is on Dec. 9 and expectations are already mounting that it might deliver a ‘big-bang' moment. But to listen to Merkel and read between the lines of what is emerging from Berlin, such an early breakthrough looks unlikely. With Germany insistent that changes to the EU's treaty – its fundamental set of laws – are now essential if there is to be a long-term solution to the problems, European policymakers now find themselves battling on two major fronts. They are trying to craft immediate crisis-response mechanisms, such as scaling up the EFSF, to calm pressure on sovereign bond markets, while also looking at how to reshape the very framework underpinning the 55-year-old European project. While those are discrete goals in terms of timeframes, they are intricately linked. Without clear commitments on treaty change, Germany appears unwilling or unprepared to give ground on any of the more immediate steps other euro zone states want to take, even if Berlin has not said so explicitly. __
