One giant step to EU fiscal union
Watching the French president and the German chancellor in Paris yesterday I tried to imagine myself a Dutch or Italian voter.
Here, in the middle of August, the two leaders of the eurozone's most powerful countries had interrupted their August to announce that, in future, there would be a eurozone government with an elected president.
Fiscal union - the coordination of tax and spending - has not yet arrived but it has moved a giant step closer.
Sure it was just a proposal but there was plenty of detail.
This new government, according to President Nicolas Sarkozy, "will be made up of heads of state and government that will meet twice a year and more often if necessary. It will elect a stable president for two and a half years." The eurozone and the EU can still give the appearance that it is a Franco-German enterprise.
The Paris summit was intended to send a signal that these two leaders recognise that if the single currency is to work it will require closer economic integration. That is surely true but these changes will involve countries surrendering sovereignty and it will be interesting to see whether voters will be consulted.
The Austrians quickly indicated they were not prepared to relinquish completely their ability to set economic policy for the sake of closer integration. "The agreement is very, very far away - I don't see it yet," said Maria Fekter, the finance minister.
Chancellor Angela Merkel and President Sarkozy want all eurozone nations to enact constitutional amendments requiring balanced budgets by the summer of 2012. The Germans have insisted on this. The French were far less keen. And there may well be protracted arguments in various national parliaments over this. Agreement by next year seems ambitious.
This meeting at the Elysee palace, however, had little to say about the present crisis. The markets are focused on high debt, low growth and a fragile banking system. Investors want to know what happens if a major eurozone country like Italy struggles to finance its debt.
The current bailout fund - the EFSF - is backed with 440bn euros (£387bn; $634bn).
It would not be adequate to rescue large countries like Spain and Italy if they ran into trouble. The two leaders chose not to increase the fund's size. And that reflects a new reality. Growth in Germany is slowing. It has stalled in France. They cannot further commit to underwriting other countries without putting their own economies at risk.
'Poison bill' bonds
President Sarkozy and Chancellor Merkel also turned their backs on eurobonds for the time being. Many see eurobonds as the answer to Europe's crisis because the debt of all countries would become common European debt with countries like Germany acting as guarantor. A single bond would have allowed weaker economies to borrow on the same basis as France and Germany which would mean lower borrowing costs.
President Sarkozy said: "Eurobonds can be imagined one day but at the end of the European integration process, not at the beginning."
Chancellor Merkel was far more cautious. Key members of her coalition have made it clear their outright opposition to eurobonds. The coalition could even break up over the issue. Deutsche Bank has called eurobonds "poison pills".
The fear is that they would encourage fiscal back-sliding, leaving Germany to bank-roll other European countries with very different economic cultures.
There is another factor to this. Sentiment in Europe seems to be turning against providing further guarantees or bailouts. A poll published yesterday suggests 59% of Germans are against further bailouts, 47% of the French do not agree with more rescues and in Britain - which is not part of the eurozone - the figure rises to 65%.
Another idea was floated at the Elysee: a tax on financial transactions. It is an old idea but difficult to implement unless it is on a G20 basis.
Potentially it could raise a lot of money. Its attraction to the French and German leaders is that it signals a commitment to bind economies closer together.
They also propose harmonising their corporate taxes. Again it is all about showing that France and Germany are prepared to work together to protect the euro.
But fierce resistance will lie ahead, particularly from financial institutions which are lined up to take a hit on their lending to Greece. The City of London, which is Europe's main financial centre, will be particularly wary.
Ireland will insist that any new financial transaction tax applies to all 27 members of the European Union. The UK will oppose this.
What was on offer yesterday was a long-term political plan intended to show closer integration of the eurozone. What it did not do was to address the current debt crisis that so unnerves investors.