Germany, France and the ECB

The three central players in the Eurozone drama have all spoken publicly in the last 24 hours. What have we learned?

We've learned that both the French President and the head of the European Central Bank (ECB) are willing to give some ground, to resolve this crisis. (A lot, in the case of President Sarkozy.) But this morning the German Chancellor was again giving very little away.

So here's the question of the day: is there a viable solution to the crisis which involves everyone, including the IMF, simply doing what Germany wants?

Germany's way

Investors are right to spot that the political effort to save the euro has finally picked up momentum over the past few days, stirred by worrying signs of a deepening credit crunch in European financial markets.

But they will also have spotted that the momentum has all been Germany's way.

President Sarkozy's speech on Thursday night demonstrated this in a very acute way. He spoke repeatedly of "telling the French the truth" - hard truths like the country is going to have to work harder, for longer, to get on top of its debt.

But the biggest truth running through the speech is that France, as Charles Grant has written, is learning the art of "followership" in Europe.

On every important dispute in this crisis, President Sarkozy has eventually had to give in to Germany: whether it's changing the treaties, or laying off the ECB.

Last night he said that France would not lose sovereignty to Europe, but gain it - because being part of a stronger Europe gave France the capacity to act. The brutal subtext is that France does not have freedom of action right now; it just has to do what Germany says.

'Sequencing' matters

As I said yesterday, all this talk of fiscal union and accelerated treaty change was meant to produce some movement from Germany, and the ECB.

The reasoning was that Germany would help countries get out of the mess they are in, once she and the German people could be absolutely sure that it wasn't going to happen again.

Mario Draghi made clear yesterday that the ECB wanted the same; and that it was important that this fiscal piece of the puzzle came first: "sequencing matters".

But talk of 'sequencing' at least suggests, explicitly, that something will follow from this fiscal labour.

Dr Draghi appears to have recognised that moral hazard works both ways: there ought to be some reward for governments like Italy who agree to take their fiscal medicine. Otherwise, not only will they not listen to you in future - but they won't actually get well.

The road to fiscal union

Italy's economic reforms will hammer their growth prospects if the ECB and/or strong countries like Germany don't do something to ease the pain.

But Chancellor Merkel today did not talk much of sequencing. She talked of a road to fiscal union, as an end in itself. And she talked of not underestimating the mechanisms for resolving the crisis that the eurozone already has.

Throughout this crisis, Germany has tended to move last. Optimists say that will happen this time.

When France and Germany unveil their plans on Monday, the hope is that there will be enough new commitments from Germany - for example, to a more ambitious version of European bailout fund, the EFSF - to take the rescue plan to the next stage.

Then, so the thinking goes, the IMF and the ECB will do their bit, and the euro will go on; stumble maybe, but not crash.

Perhaps. But even this souped-up version of the 'muddle through' scenario requires some movement from Germany. We haven't seen it yet.