Thirdly, for all those who point out how Germany likes to draw red lines in the sand, it would be helpful to remember how many times Chancellor Angela Merkel has crossed those same lines and by doing so has increased German commitments to the rescue effort.

Overall, Merkel still believes that her incremental approach is working. At the same time, she is mindful of the fact that her key euro zone partners, such as France’s President Nicolas Sarkozy and Italy’s Prime Minister Mario Monti, need more German support to solidify their domestic political power. Merkel will more than likely agree to add more German funds to the EFSF and ESM, but not to the point of seeing the funds double in size. She may also decide not to announce such a step at the upcoming summit on January 30th, but rather to hint that it will come at the next gathering of European leaders scheduled for March.

Size and timing matter when it comes to increasing the firepower of the bailout funds, and that is where things could still go awry. However, even a hint that Germany is willing to go in that direction would be significant at this stage of the crisis. German officials are well aware of the fact that the next months could be crucial in restoring confidence in the euro zone. They seem to have finally made the choice to stem the fire more forcefully. In a recent policy paper, the Peterson Institute for International Economics, a Washington based think tank, suggests looking at what European Union leaders are actually doing rather than just listening to what they say. Particularly in the coming weeks, we should indeed all keep our eyes wide open