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The euro zone's real crisis: weak leadership

As Merkel and Sarkozy lead another critical European summit, do they possess the gravitas needed to reshape the continent?

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Angela Merkel,German Chancellor, attends debates at the Bundestag after giving a government declaration on the Euro and the current Eurozone debt crisis on December 2, 2011 in Berlin, Germany. (Sean Gallup/AFP/Getty Images)

ATHENS, Greece — Over the next two days, leaders struggling to save the euro are holding yet-another summit to end all summits.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will be in the spotlight, attempting yet again to forge a robust solution to the euro zone’s debt crisis. They have proposed bold changes to the way the euro zone governments spend money, with tough oversight they hope will ensure fiscal stability. The French president has tried to speak convincingly of guaranteeing “the future of Europe.”

More: Can Germany save Europe? Will it?

If successful, the leaders will be hailed as saviors. But will this really be their finest hour? Will they finally manage to achieve the overarching goal of restoring confidence in the battered euro, saving Europe and the world from another devastating recession?

Many political observers are pessimistic. For nearly two years, summit after summit has failed to produce a solution, in large part because of weak leadership, they argue. Unlike the towering visionaries who created the common market and its currency, Merkel and Sarkozy just don’t seem to be up to the task, they say..

“They’re not outright disasters but they’re not great leaders and visionary strategists,” Klaus Larres, a German who is professor of history and international affairs at the University of Ulster, said of Merkel and Sarkozy.

A ‘tear down this wall’ moment would go a long way toward rallying support, Larres said. Passion and charisma have been missing from past summits, in which euro zone leaders have focused on technical solutions to the crisis – boosting bailout funds, and enacting austerity measures, for example.

But ultimately, the crisis is fueled by rising bond yields on government debt, which reflect the lack of confidence in leaders’ willingness and ability to do what’s needed. Europe has many trillions of dollars worth of debt to pay back; of course it needs adequate economic backstops. But the markets must also be convinced that this marriage of 17 disparate countries (or 27, when the non-euro countries are included) can make tough decisions in a crisis, and unanimously support them.

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“This has been a case of very poor leadership,” said Roberto Castaldi, an international relations lecturer at Sant’Anna School of Advanced Studies of Pisa.

Castaldi, in a paper published shortly after Greece received a $150 billion bailout in May 2010, argued the response showed a “complete lack of European leadership.” He wrote there is “glory waiting around the corner” for European leaders who create a true fiscal union and European treasury.

The current Merkel-Sarkozy proposal doesn’t strive for such financial unity. After meeting Monday in Paris, the two leaders said that they’ll push for a new or revised EU treaty that imposes penalties on governments that violate debt and budget limits. They also want the changes written into state constitutions.

Sarkozy, who faces a reelection fight next year, is reluctant to relinquish sovereignty to a fiscal union favored by Merkel. The German leader, meanwhile, opposes Sarkozy’s desire to unleash the European Central Bank as a lender of last resort.

“Merkel is on the right path but doesn’t see the urgency,” Castaldi said. “Sarkozy sees the urgency but he’s on the wrong path.”

As if they needed more pressure, Standard & Poor’s credit ratings agency warned late Monday that it may downgrade euro zone countries, including Germany and France, if there’s no progress. It later said it may also downgrade the EU’s top rating.

World leaders have exerted extreme pressure on Merkel, in particular, for a solution. She’s the head of Europe’s largest and strongest economy. Any fix needs the support of Germany. But her failure to act has made things much worse.

What began as a comparatively small debt problem in Greece — which accounts for just 3 percent of all euro zone public debt — has become a crisis threatening to decimate the global economy.

Most economists agree that the ECB could save the euro by acting as a lender of last resort to indebted governments shunned by the bond market. Mario Draghi, the ECB president, hinted last week -- in central banker-speak -- that if there’s a “fiscal compact” that “other elements might follow.” The bank’s governing council meets Thursday in Frankfurt.

But Merkel, who