Monti with Spanish PM Rajoy
Monti with Spanish PM Rajoy Reuters

Like a bad tooth that cannot be filled or pulled, the European debt crisis lingers on, with the focus - this time - on tension between Italy and Germany. Last week, the Italian daily Il Giornale, from the chain owned by Silvio Berlusconi, published an article by Allesandro Sallusti with the heading "Quarto Reich," or "Fourth Reich."

According to the commentator, "the powers of direct intervention by the [European]'s central bank remain the current ones, that is to say zero; the states in difficulty that would like to get assistance will de facto have to renounce their sovereignty and accept new impositions and sacrifices decided between Brussels and Berlin."  He compared this to the German bullying at the 1938 Munich Conference (neglecting the role played by Mussolini)

In an interview with the German magazine Der Spiegel, Italy's technocratic Prime Minister Mario Monti said he had warned Chancellor Angela Merkel about growing anti-German sentiment in Italy  "I referred her to the growing resentment here in Parliament against European Union, against the euro, against the Germans and sometimes against the Chancellor herself."

The tensions grew as a result of requests by Spain and Italy, who have seen their borrowing costs skyrocket, that the European Central Bank buy their debt to dampen interest pressures. It looked like the ECB would agree to the request, but after German pressure, the governor of the European Bank, Mario Draghi, backed down.

The German fear is that if such assistance is granted Spain and Italy, the European Union will quickly become a debt union where the solvent countries are responsible for the debt of the insolvent ones - without any safeguards that their money will be repaid or that the insolvent countries will mend their fiscal ways.

They want Spain and Italy to make a formal request for ECB assistance; in other words, request bailouts. This means that the countries will forfeit their financial sovereignty. Spain and Italy have imposed and followed through with painful austerity measures and Italian Prime Minister Mario Monti is telling the Germans, we don't want your money, we want your trust to solve the crisis.

The longer the issue remains unresolved, the more the contagion spreads. French President Francois Hollande is pressing Rome and Madrid to ask for a bailout because he is scared that France is next in line.

On the other hand, German sentiment has also hardened and there is again talk about asking Greece to leave the euro. Germany is also constrained by a decision of the German Constitutional Court to seek parliamentary approval every time that Germany embarks on a financial rescue measure.

An exasperated Monti has commented that 'If governments let themselves be fully bound by the decisions of their parliaments without preserving any room for maneuver, Europe breaking apart would be more likely than closer integration."

German politicians reacted negatively.  Foreign Minister  Guido Westerwelle replied, "we need a strengthening, not a weakening, of democratic legitimation in Europe,"

Alexander Bobrindt, a leader of Merkel's Bavarian ally the Christian Social Union, was blunter : "Mr. Monti clearly needs a clear announcement that we Germans will not be prepared to abolish our democracy to finance Italian debt."