So asks Megan McArdle at The Atlantic:

I remain skeptical, in the end, that Germany is going to agree to substantially deeper fiscal integration with Greece and Italy. You hear a lot of people saying that "We know what will work" and lamenting the fact that policymakers won't do it, but if the last four years should have taught us anything, it's that we don't actually know that anything will work.

Don't get me wrong--I think that either an ECB intervention or a eurobond are the only things that are likely to work. But I can also see scenarios where they don't, or where they work for only a short period of time.

The current plan on the table, as I understand it, is for the PIIGS to get bailouts in exchange for letting the more solvent countries step in and run their budgets if they violate budget rules. I can see how this could work, but I can also see how that might be the last straw, and that if the central countries actually tried to execute on this authority, they might find that it doesn't actually exist . . . while their guarantees of that debt very much do. The EU, in fact, has a rather long history of creating toothless institutions that everyone ends up ignoring. If I were German, I'd be thinking really, really hard about that . . . even if I believed (as I do!) that letting the PIIGS go would be vastly more expensive in the short term.

Why might this be unstable? Leaving aside perjoratives about Mediterranean nations (though really--if the Greeks can't collect taxes, how are the Germans going to manage?), there are big problems that bailouts don't fix..."

Bottom line: Germany and France are strong because their exports have exploded under the euro while the southern periphery is weak because their exports remained stagant.

Keeping the euro together requires much more than fiscal integration--all fiscal integration does is turn the peripheral countries into something like those Algerian ghettos ringing Paris. Actually correcting these imbalances is going to require a lot of people in the periphery to get up and move. That's a really tall order. Despite the fabled European multi-lingualism, in my experience, the majority of workers speak English about like I spoke high-school French and college Spanish; well enough to go on vacation, but not well enough to enjoy living in another country. I'm told that this is about standard. And that's just one of the many barriers to movement between countries.

It's not just the Germans who have to ask themselves whether the PIIGS won't eventually say "Enough!" and renege. The bond buyers have to ask the same thing. At this point, it's not entirely clear to me that any solution is credible enough to kick the can more than a very short distance down the road.

Germany is making some tentative moves in the current negotiations toward relenting on the role the central bank will play in any bailouts. But McArdle has it pegged correctly; the problems go far deeper than bonds. They go to the very nature of the "united states of Europe" and the role nationalism and sovereignty will play in the future. Unless the nation states of Europe can leave their sovereignty at the door, the EU will shortly be history and with it, the dream of a united Europe for at least another generation.