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German Chancellor Angela Merkel said: "If I give money to Spanish banks, I'm the German chancellor but I can't say what these banks do". Later, French president François Hollande was asked about his willingness to accept further political union as the price of greater pooling of debt, he replied: "There can be no transfer of sovereignty if there is not an improvement in solidarity". Boiled down, this is a debate over whether Germany should write blank cheques.
The eurozone is now at one minute to midnight. Its financial system has fragmented, confidence is evaporating, demand is drying up and deposits are leaking out of the banks. There is now an international consensus on the measures needed to halt the immediate crisis: Massive bond-buying by the European Central Bank, the direct recapitalisation of banks by bailout funds and the creation of common eurozone bonds.
The idea that the eurozone can pool debt without a clear agreement on political union is a dangerous illusion. To create a fiscal and banking union without a political union would multiply the original mistakes in the creation of a monetary union. And there is one country that has historically said "non" to the transfers of sovereignty that might put the eurozone on a long-term stable footing: France. France has always been reluctant to cede sovereignty to the European Union. It prefers intergovernmental—as opposed to supranational—solutions to European challenges, reflecting its long history as a centralised state. That is why the eurozone was largely designed along French lines, as a club of sovereign states.
It makes no sense for Germany or the ECB to agree to pool debts, even assuming the legal obstacles could be quickly overcome. The markets will not be fooled for long if there is no robust mechanism to ensure countries address long-term solvency problems and or to allocate losses if all the debt sours remains unresolved.