Merkel and Cameron
Merkel and CameronReuters

Both President Barack Obama, as well as British Prime Minister David Cameron, have appealed to the European Union - and more particularly to Germany - to solve the crisis in the euro zone. In general, the uncertainty in Europe also ripples through the British and American economies that are finding it difficult to rebound and actually show signs of taking a turn for the worse.

What aggravates the situation is the transformation of the American dollar and the pound sterling into partial havens from the European turmoil.

As the euro continues to fall against the dollar and the pound sterling, this means that American and British exports find it difficult to compete against cheaper euro zone products. This is not enough to lift the Europeans out of the doldrums, because such a situation works to the benefit of export-oriented economies such as Germany, while doing less for the more problematic states.

Essentially, what the United States and Britain would like Chancellor Merkel to do is to agree to greater flexibility by the European Central Bank to issue euro bonds to soak up the deficits of the problematic countries.

For Germany this means that it will serve as the financial guarantor of insolvent European countries. This position is anathema to the German public.

At the same time,the German Chancellor does not want to appear to be the heavy in this drama and portrayed as a person who could have saved European Union but refuses to do so.

Therefore, what she is replying to David Cameron is  that there is no taxation without administration. The price of increased German generosity in salvaging the European economy is a greater move towards federalism. At the very least, there will be a fiscal and financial union in the euro zone followed by a political union where  "We must, step by step, cede responsibilities to Europe.”

Merkel would like to create a European public with a common identity and represented by genuine trans-European parties. Merkel repeated these ideas with Cameron standing next to her in a discussion with German students.

The British Prime Minister is already viewed as a wimp on European issues by many of his backbenchers, and therefore, he diplomatically parried Chancellor Merkel's vision as unrealistic. “The idea we’re going to have genuinely European-wide parties when countries have so many institutions, traditions and thoughts is unrealistic,” he said.

He added: “If you think you can just establish a European Parliament and a flag and everyone will be loyal to it, that’s nonsense.”

Cameron even has limits on common economic measures. For example, he opposes a transaction tax on the banks, a policy that he fears will harm the British banks, one of the most important sources of his country's invisible earnings.