Mario Monti, the Italian prime minister, gave German Chancellor Angela Merkel an unexpected ultimatum: He would block all deals until she agreed to take action against Italy's and Spain's rising borrowing costs.
The nine-hour confrontation between Italy and Germany led to a compromise that wasn't the sweeping action Mr Monti wanted. But it has helped pave the way for a possible intervention by the European Central Bank to stabilise the teetering bond markets of Italy and Spain—a high-risk step that could be Europe's last chance to save the euro.
The Italian-German conflict has also exposed a deep philosophical fissure at the heart of the eurozone: Are painful reforms and austerity in countries such as Italy and Spain enough to restore confidence in the common currency, as Germany has insisted? Or do they need Europe's collective financial support while they fix their economies, as Mr Monti argues?
That question still hasn't been answered. Investor flight from Italy and Spain still threatens both countries with financial meltdown. Markets doubt Europe's common currency will survive in its current boundaries. Germany remains deeply sceptical about massive ECB intervention in government bond markets, fearing that it would take the pressure off countries to overhaul their economies.
© Wall Street Journal
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