Of course, Merkel is also still trying to avoid the introduction of any form of Eurobonds. She hoped that the recent steps undertaken by the European Central Bank had put those discussions to rest, at least until the German elections in late 2013. Hollande, however, once again stressed that he supports them, and the latest proposals made by the President of the European Council, Herman van Rompuy, advocate the need to issue common T-bills. Eurobonds, of course, are still unacceptable for Berlin. However, Merkel is also determined to counter the widespread perception that Germany is not willing to show bigger financial solidarity and is still only obsessed with austerity. The German Chancellor is now advocating the creation of a common fund (despite her reluctance to call it such. It would be in effect a common budget) tasked with helping to finance structural reforms in countries in need. Not surprisingly, the money could only be disbursed with conditions attached. It is unclear how much financial firepower this ‘growth fund’ could have. If it were to be raised merely through a financial transaction tax however, the size could end up being very limited.

As we have pointed out repeatedly, merely symbolic gestures will not convince skeptical markets. The German Chancellor can convince her voters with new proposals, but markets and a growing number of European partners will press her for action.

Overall, it is hard to dispel the impression that Merkel is on the defensive. The debate surrounding the banking union is quickly becoming a chance for European partners to call Germany’s bluff: If Merkel really wants more integration she could − and should − start with the banking union. If she really wants to regain the initiative, she has to do more than just throw new ideas on the table. She should mold, not further delay critical decisions.