Broadly speaking, I agree with your concerns. The proposed budgetary rules might increase pro-cyclicality. Nevertheless, I think that Germany and France are basically trying to express the same sentiment that is expressed in the Maastricht Treaty: that converging fiscal behavior would create similar economies (with similar monetary needs). Unfortunately, Germany and France were the first two countries to cheat that treaty! In any case, I think that they overlooked trying to converge the financial-regulatory architecture. That would have gone a long way towards preventing the current situation. After reading the BBC article on the matter however, I think that its not all bad. There are also some positive aspects. First of all, a sub-optimal attempt to address the fiscal situation is better than no movement at all on this front. Second, they want a Tobin tax. That would really dampen financial volatility and also make a decent source of revenue.

The letter sent by Sarkozy and Merkel to Barroso yesterday has been posted online here: http://media.ft.com/cms/1e93f294-c8df-11e0-a2c8-00144feabdc0.pdf

I largely argee: the proposals will do little to overcome the current crisis. Furthermore, I would agree that a constitutional ceiling on debt is not wise. I think it is wrong, however, to always focus on the negatives. It is easy to underestimate the magnitude of the political problem facing Europe. Down the years national politicians in all countries used the EU as a scapegoat when it suited. Big bad Eu making us cut payments to farmers, enact senseless environmental regulations, and so on. There has never been honest, consistent straight-forward communication with electorates on the pros and cons of European engagement at the big picture or for specific measures. This plus the failure to admit the necessity of deeper political integration as a counterpart to economic integration. The problem here is that the Eu doesn't have the political architecture to deal with this crisis, therefore the initiative has to come from the dominant nation states - Fr and Gr. But here too there are political reasons why some of the obvious solutions are difficult to pursue. It is no secret that there's a lack of statesmanship on the part of these powers, particularly I would say from Germany. The EU solution to this crisis can only evolve slowly because it needs to build a new toolset along the way - indeed it is really trying to modify its constitution as it goes along. This isn't a trivial exercise. Realistically, how can German voters be persuaded to take on Eurobonds? How will Britain react to proposals for further integration, even with opt outs for itself? In the end I do believe Germany and France 'will do whatever it takes' to preserve the Euro - because they have to.

The "Hotel California" comparison is spot-on. The way I see it: for a country to leave the Eurozone without killing its economy dead, it would have to be on a solid financial footing w.r.t. its EU neighbours. Only that way could they prevent a mass bank run and cash flight out of the country. However, if the country was able to get to that kind of solid state, they probably wouldn't need to consider leaving in the first place. The Euro didn't break countries like Greece & Ireland: it served to expose pre-existing structural problems, and (IMHO) the rest is mere detail!