Press

But a better atmosphere will not necessarily translate into an ambitious summit agreement, said Katinka Barysch, deputy director of the CER. "The relationship looks better, feels better, smells better," said Barysch. "Whether that can be translated into concrete achievements remains to be seen."

"This is the worst possible message they [Germany] could be sending the markets because it suggests they are still not acknowledging what the underlying problem here is," said Simon Tilford, chief economist at the CER. "Far from reassuring the market and stabilizing market sentiment, this will further undermine confidence in the ability of eurozone governments and policymakers to get on top of the crisis. It will aggravate the situation further."

"Essentially, you can't have a single currency without a single economy," says Simon Tilford, chief economist at the Centre for European Reform. "For it to work, there needs to be much greater political and economic integration."

Part of the reason why southern European nations like Spain and Greece are currently in so much debt is that the northern European nations were prepared to lend to them the cash in the first place, explains Simon Tilford, chief economist at the Centre for European Reform. The construction boom in Spain, for example, wasn't financed out of nowhere: it was fuelled by enormous sums of cheap cash borrowed at very low rates.

"The Germans are no closer to understanding that the markets are not the problem," says Simon Tilford, chief economist at the CER. "The markets are right to be uncertain about the sustainability of the euro zone in its current form."

"Germany feels isolated and misunderstood," said Katinka Barysch, deputy director of the Centre for European Reform think tank. "The rift, if badly handled, could make Germany's stance towards the EU more hard-nosed and inward-looking."

As Simon Tilford, the chief economist of the Centre for European Reform think tank points out, if every economy in the eurozone looked like Germany they would all be expected to run trade surpluses, all have minimal labour cost inflation and all have low domestic consumption. "It's a beggar-thy-neighbour strategy," he said. "If everyone is called upon to cut costs and boost export income, then there's massive depreciation pressure and a eurozone wide slump. It would mean big trouble.

"This sends a very unfortunate message," said Simon Tilford, chief economist at the Centre for European Reform, a London-based think tank. "It again suggests that the Germans are no closer to understanding that the markets are not the problem here. The markets are right to be uncertain about the sustainability of the eurozone in its current form. … What is specific to Germany is a readiness to make unilateral announcements on things that would only be doable if they were done collectively," said Tilford. "It's pretty populist stuff.

While the EU's foreign admirers are on the defensive, international eurosceptics are in the ascendancy. Charles Grant, head of the Centre for European Reform, a pro-EU think tank, says he has been struck on his recent travels by the growing disdain for Europe in Delhi, Beijing and Washington. "We're seen as locked into permanent economic and demographic decline, and our pretensions to hard power are treated with contempt," he laments.