BERLIN -- With the euro crisis intensifying, Germany has indicated that it is prepared to accept a grand bargain that would provide greater support for its most indebted eurozone partners in exchange for far more centralized control over government spending in Europe.
German Chancellor Angela Merkel said finding the way to "more Europe, not less" was the next task for Europe's leaders. "The world wants to know how we expect the political union to complement the currency union," Ms. Merkel said at a Berlin news conference Monday with Jose Manuel Barroso, president of the European Commission. "We have to find an answer in the foreseeable future."
German officials remain adamant that they are not talking about euro bonds, or jointly issued debt, which they have dismissed as unconstitutional.
More likely is a plan to combine much of Europe's bad debt into a single fund, with the idea of paying it off over 25 years -- an idea gaining traction in Germany as an alternative to euro bonds, officials say.
The worsening crisis has led to a sweeping effort to chart a new path forward for the union, one that encompasses fiscal integration, Europe-wide banking supervision and tighter coordination of economic policies.
German leaders have not provided details of a potential deal -- and not every nation may be eager to sign on -- but it would likely mean an expansion of executive power in Brussels over fiscal targets in member states and supervision of their banks, along with Europe-wide deposit insurance. As such, it would go far beyond what was contemplated for Europe a year or even six months ago.
Changes on this scale would not be easy, involving an arduous process of treaty alterations that could take years, and it is unclear if they would be enough to reassure markets of the euro's stability. But as Ms. Merkel has repeatedly made clear, Germany would be open to rescuing ailing banks and member states in the region only if that were part of an overhaul of the basic architecture of European governance.
Such central authority expansion is not assured of universal support. While weaker nations might be expected to agree, it may well be opposed by Britain, which opposed an earlier bid to increase fiscal discipline out of concern for the effect on its banks.
Even less certain are the positions of Italy and, most problematic, France. Neither wants to find itself in the position of answering to fiscal and banking authorities that, fairly or not, will almost inevitably be deemed an arm of the German government.
But almost everyone agrees that something must be done, and quickly. Billionaire hedge fund investor George Soros warned over the weekend that the "political and social dynamics" of the eurozone were "working toward disintegration," and said officials had, at best, a three-month window to repair the internal contradictions of the currency union.
Predictions of the euro's demise in the absence of bolder action have grown louder as global growth slows, banking-sector woes compound and governments wobble.
The mood was further depressed Monday when the Group of 7 finance ministers said they would hold an emergency conference call today on the crisis, and then Portugal announced that it would become the latest European country to fall short of its growth forecast.
As the troubles mount, all sides turn to Germany, the only country with the financial wherewithal to calm the turbulence and guarantee the currency zone's collective solvency. "Nothing can be done without German support," Mr. Soros said.
German officials worry that without safeguards on spending and deficits, the country would quickly be bled dry by overspending partners. To forestall that danger, a proposal by the government's independent council of economic experts to pool excessive debt has garnered increasing attention.
First Published: June 5, 2012, 4:00 a.m.
Updated: June 5, 2012, 4:16 a.m.
