At the EU summit in Brussels on Monday, German Chancellor Angela Merkel represented the only major euro zone country that has managed to retain its AAA credit rating.

It may not be as strong as in years past, but Germany is still Europe's growth engine. And the country's economic power gives its chancellor a leadership role that Merkel was hesitant about two years ago, but has come to embrace.

Standing at Europe's helm is a lonely business, however. At the World Economic Forum in Davos last week, Merkel refused to promise more funds to avert expansion of the euro crisis - contrary to appeals by the International Monetary Fund (IMF), the US and many European leaders. 

But Angela Merkel has found a supporter in French President Nicolas Sarkozy.  During the past two years of joint crisis management, the Franco-German leaders - dubbed "Merkozy" by the press - increasingly aligned their positions.

In December, almost overnight, they came up with a eurozone budget discipline pact. "If you want to join, you join. If you don't, you don't," Sarkozy said after talks with Merkel in Paris.

In the driver's seat

Other EU leaders, however, are less happy with Merkozy's leadership style and with what is perceived as making proposals that appear to be without alternatives.

Luxembourg's Prime Minister and senior EU head of state, Jean-Claude Juncker, complained about the impression that the entire EU is always gathered in the Franco-German corner. He said the two leaders tended to present old proposals to stabilize the 17-nation eurozone - previously agreed by the bloc's finance ministers - as fresh ideas of their own making. 

Merkel herself has brushed off all such criticism. "Germany's size is not our fault," she recently said. She said she didn't tell others what to decide, but Germany couldn't just sit back and hope for the best. "We're prepared to learn from others," she said. "That has nothing to do with dominance."

Nicolas Sarkozy has tried to give the French people the impression that it's him who is in charge of the Merkozy tandem. Yet the recent loss of France's top credit rating and the country's weak economic forecast have put Sarkozy's role in perspective.

The French President, hoping for re-election in April 2012, clearly seeks the proximity of the German chancellor, who is well-respected in France. Pierre Lallouche, a senior foreign trade official, said on Sunday France must learn from Germany and restructure its own export-oriented industry.

Dissatisfaction

But Hannes Swoboda, the socialist group leader in the European Parliament, said Merkozy irritated many of the smaller EU nations. He told Deutsche Welle that any solution should be worked on by the entire European Union rather than dictated by France or Germany.

Polish Prime Minister Donald Tusk favors closer consultations with EU states such as Poland that don't have the common currency yet but are interested in joining the euro.

Luxembourg's Juncker wants small nations to have more of a say in matters. Per capita, he said, Luxembourg contributes more than Germany to the bailout fund. He said Germany has a bigger budget deficit than 17 of the 27 EU countries, but "Germany acts as if it constantly has to defend budget orthodoxy against minor sinners."

To calm the waters, the German chancellor earlier this month invited the Swedish, Portuguese and Austrian heads of government to Berlin.

Count Italy in

Mario Monti, Italy's new prime minister, appears to have taken on a European leadership role himself, joining Merkel and Sarkozy on the podium.

In no time, the independent economics professor forged ahead with reforms and austerity plans dormant during his predecessor's era. Monti is aware of the fact the euro can only prevail if his country overcomes the debt crisis.

Merkel, Sarkozy and Monti met several times ahead of the summit - the "Merkozy" has become a trio, nicknamed "Merkonti".

More confusion?

Members of the European Parliament have mixed feelings about the strong leadership role assumed by heads of states. The new compact is a treaty between nations - which means the EU parliament formally has no right to join the debates.

Conservative member of parliament Elmar Brok told Deutsche Welle, the fiscal compact was just one building block in solving the crisis. After all, he said, the idea was for the compact to soon become EU law. "We will still all together work on the solution," he said.

EU Commission President Jose Manuel Barroso, however seems somewhat less optimistic. The EU commission has over the course of the crisis lost more and more of its influence to leaders of states such as Merkel or Sarkozy.

Ahead of the summit, Barroso warned that "if we want things to work out, we must keep things simple. The best path is to respect the EU institutions that are already in place: The EU commission, the parliament and of course the EU central bank. We can not afford to create parallel structures."

Not everything going Berlin's way

The discussion about Berlin allegedly calling for an EU bureaucrat to be put in charge of Greece's financial affairs has added to the already high tensions. Greece is upset about the plan, Portugal is concerned it might be next in line.

Yet Merkel may not be as powerful as many of her critics fear. Berlin failed to get its candidate of choice, Jörg Asmussen, to become chief economist at the European Central Bank. France vetoed Asmussen's assignment.

Eurobonds are another area of contention - most EU members including France and Italy, are in favor of the bonds but Germany has so far ruled out giving its green light. It's an issue that's bound to lead to strong discussions within the Merkonti trio.

According to finance investor George Soros however, it is neither Merkel, Sarkozy nor Monti who are calling the shots in Europe. In the end, he argued at the World Economic Forum in Davos, it is the financial markets that dictate European politics. "It's the creditors that are in the driving seat," he said.

Author: Bernd Riegert / db, ai
Editor: Nicole Goebel