It is tempting sometimes to reduce the EU crisis to something every family can understand. France. Italy and Spain are the teenagers.

They want their parents' cash, but then want the parents to make themselves scarce. Money without obligations or responsibilities.
But Mrs Angela Merkel is using the beckoning forefinger. Not so fast, son. In the technical lingo, Germany refuses to agree to joint liability of eurozone debts unless there is further fiscal, banking and monetary union.

We will know more after the summer's regular EU summit today and Friday, but the German proposals represent a truly great leap forward and could lead to a new relationship between the union and the nation state. There could be years of squabbles before everything is settled through national referenda, as treaties will have to be torn up. The United Kingdom may vote to leave and London could face its greatest ever threat as the potential of new rules restricting trading with the euro to eurozone members might move that business to Frankfurt.

Chancellor Merkel told the German parliament this week that her proposed political union would be based on four supervisory blocks controlled from Brussels to ensure the money lent to the ailing southern nations would not just disappear down a black hole. German commentators are at pains to point out their economy is not an endless pot of gold and that, if Germany were dragged into the mire, everyone would lose.

The German solution will include budgets balanced in Brussels and even encroachments on the holy cow of national sovereignty, national tax rates. Merkel is also expected to call for a competitiveness pact and structural reforms to make southern Europe more like Germany. The Germans believe they are realists and want everyone else to be. Europe does not have any other option faced by the manufacturing juggernauts of the Far East. Germany is prepared to support the southern nations: to stick with them, but as a form of tough love, and only after tough controls are instituted against backsliding.

The European commission appears to be on the same page, having just published a seven page document arguing for the 17 country eurozone to have its own treasury office and pre-emptive supervision of banks. But the German proposals are going to be deeply problematic for Paris which has greater clout than the southern nations and has become their spokesman.

Pooling sovereignty has always been a problem for this proud nation which prefers its position to be sovereign and leading Europe rather than ensconced in a federal democracy within it and yet France wants solidarity payment structures - preferably in the form of eurobonds - as soon as possible to stop a train of southern defaults that would damage not least heavily involved French banks.

One difficulty is that the new French president, Francois Hollande, has not exactly got his relationship with Mrs Merkel off to a good start by lowering the French pension age to sixty.

It gives ammunition to the kind of claims expressed in the Frankfurter Allgemeine Zeitung newspaper two weeks ago."Hollande hasn't given up the dream of life in a hammock financed by German tax money".

This is the most exciting time in European politics in ages. Money problems give an urgency to the discussion about political union that was not there at the time of endless debate about the EU constitution, which was essentially about the same thing, but ended up watered down. The choices are stark but completely comprehensible.

What worries me is that Britain had not really thought things out. Where it wants to be and what it wants to do in the new Europe. There is a lack of trust between the leaders of France and Germany, but the French and Germans have always managed to thrash out a compromise in the past. And when they finally make their deals, Britain often loses out.

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Pelle Neroth -- EU correspondent

Edited: 04 July 2012 at 03:54 PM by View from Brussels Moderator