The New Euro Solution?

The new be all end all solution to the euro crisis from Merkel and Sarkozy involves tighter rules on budget rule violators but is this enough?  What this means is that countries who are experiencing a slow down to their economy will automatically have to cut spending at a time when tax receipts are slowing thus magnifying the slow down?

What do these countries get in return for their sacrifice?  Does this mean that Germany will allow the ECB the flexibility it needs to combat future problems within the Euro zone?  Does this mean that there will be one common voice on fiscal policy thus taking away the necessary consensus of 17 parliaments that you currently need within the euro zone to get anything done during a time of crisis?  The answer is no to all questions.  Once again Germany is leading everyone to believe that this crisis was generated because of profligate spending by the trouble economies of Europe.  With the exception of Greece such was not the case.  The problem stems from a current account deficit generated by the countries of the southern region of Europe when Germany made an effort to get themselves out of their own mess 10 years ago.  Germany's surplus is the rest of the Euro zone's deficit.  This in combination with an ECB that caters to Germany and the lack of courage by anyone in the Euro zone to make the tough decisions and push for the necessary reforms have created a perfect storm.

What do I expect from the Euro zone summit at the end of this week?  A lot of promises, a grand announcement (there's even talk of two highly leveraged bailout funds) and a market rally afterwards to run out the rest of the year.  However, unless the ECB decides to make some tough choices for all (including Germany) then this mess will only be resolved after a nasty undressing of what was once know as the Euro.