A German made fiscal corset
Meanwhile, technical consultations will continue. After the European elections, Germany will get French support to set up a more binding budgetary process within the euro area in a way that would not require major and immediate treaty changes.
Financial markets seem blissfully oblivious to all of this. They should not be because this next step will be of great importance for the stability of the common currency. Here is why.
The area's fiscal consolidation has made considerable progress, but countries like Ireland, Spain, Portugal and France – where deficits range from 4.1 percent of GDP (France) to more than 7 percent of GDP (Spain and Ireland) – are still far from the euro area budget rule of 3 percent of GDP.
An even more serious problem is the need to set up a binding institutional framework to guide and maintain fiscally sound policies in the euro area as a whole.
Greece, for example, will probably report a budget deficit of only 2 percent of GDP for last year, with a substantial primary budget surplus (i.e., budget balances before interest payments on public debt), but all this may be compromised by the country's political instability and unfinished administrative reforms. Greece needs a strong, German-made, fiscal corset.
And so does Italy. The budget deficit for last year is expected to be somewhere around 3 percent of GDP. There is no progress compared with 2012, and Italy is falling far short of its commitment to reduce its huge and rising public debt of 133 percent of GDP. To make matters worse, all that is happening in the midst of such an unruly political process that even the Italian Episcopal Conference had to appeal last week for calm in the parliament, where the party led by a comedian is trying to block the proceedings, create chaos (chanting: "buffoons," "fascists," "thieves"), bring down the government and provoke anticipated elections.
(Read more: Germany has a new government, what next?)
Looking at all this, Chancellor Merkel's pathos sounds more foreboding than anything I have seen in a long time. But make no mistake: the German leader is a convinced European – a person whose unrelenting efforts to strengthen the euro area investors can take to the bank.
She now has two powerful and likeminded partners to work with: the French president and the ECB president. She is the leading player of a formidable trio fully aware of what has to be done to keep the euro as an instrument of peace and prosperity on a continent where the worsening unrest in Ukraine serves as a reminder of Europe's unfinished business.