When in October the Portuguese Minister of Economy, Fernando Teixeira dos Santos, said that if Portugal’s bonds went through the ceiling of seven percent the country would have to be rescued by the EU, like Ireland, the noose was already dangling a little closer. For weeks now, Portuguese ten-year bonds have hovered above that seven percent mark.

When after the last Ecofin the same Teixeira complained on 15 February of "the delays and doubts", especially those of Germany, over the widespread request to expand and make more flexible the current temporary rescue fund, he was absolutely right. Portugal, as with Greece, is doing its part with the austerity programme. Like Greece, it’s paying a high price for the tardiness of Berlin in coming to a decision. And for suggesting in January that Berlin pick up the pace.

This pact is not a bad idea

The go-slow is calculated. Chancellor Merkel also has her reasons. She’s being squeezed by the upcoming German elections and a near-unanimity across society on the ultra-orthodox/nationalist view of the monetary union: strict deficit reduction, nothing doing with Eurobonds, no new common commitments... That’s why she’s urging a "global package" on her European partners, with a little something in return for her support of the single currency: the Competitiveness Pact.

This pact, with its six points, is not a bad idea. But it was tabled on 4 February as an accession agreement, as a “diktat” from the Merkel-Sarkozy duo, and it landed like a bull in a china shop. Rightly, it stirred up a rebellion among the shopkeepers.

President Van Rompuy has trimmed its horns. He has cut down on its intergovernmental nature and swung the reins back towards the common institutions, for without those there are just two member states in the saddle. And he has watered down the absurdity of imposing a zero deficit on constitutions.

But the other points – linking wages to productivity, if social dialogue is respected; mutually recognising diplomas and degrees; harmonising the corporate tax bases of the EU27 (it is more crucial to unify the bases, since multitudes of obscure deductions proliferate, than to pool the rates); coordinating retirement ages; or agreeing on a plan to resolve future bank crisis – are not merely agreeable. They are necessary. They should be an essential fixture in a true economic union.

Or Europe will be dragged along the road to Calvary

If this plan is adopted, Berlin will have no choice but to play its part. How? Some are betting on back-door agreements, on a compromise that will come in useful at this month’s summits. The current Rescue Fund will be expanded to 500 billion euros (with the support of more solvent countries); or it may issue Eurobonds (the right dream, but still a dream); or buy bonds from countries in distress (resisted by many Germans, not just the Chancellor); or make loans to those affected to let them buy their bonds back at a higher price. The economic effects of the latter two initiatives would be equivalent to issuing Eurobonds.

And in return, Berlin would get what it craves: that the banks will pay a chunk of the bailout bill. How? By buying back the not-so-good bonds at their secondary market price, well below the nominal price. The result would be partly achieved: some private debt would be removed without a country having to declare a suspension of payments. Or something similar will be cobbled together. Or Europe will be dragged along the road to Calvary. Or there will be a train wreck.

Translated from the Spanish by Anton Baer