Rarely is a high-flying country broughtback down to earth in a single night, but that is precisely what happened to Germanyrecently. In both football (soccer) and politics, the country had come to embody an unseemlymixture of arrogance and denial. It thought itself the measure of all thingsEuropean, in terms of both the European championshipand the European Union. In both cases, it was deceivingitself.

The same night that Germanywas thrashed by the Italians in thechampionship’s semi-finals, German Chancellor Angela Merkel ran up against the limits of her own powers atthe eurozone leaders’ summit in Brussels.Germany’s political coursesince the beginning of the euro crisis two years ago had left it isolated, andshe was no match for an alliance of Italy, Spain,and France.

Indeed, she had no choice but to concedeand agree to far-reaching changes to theEU’s new fiscal compact that will ease refinancing of the crisis countries andtheir banks. The German dogma of “nopayments without counter-performance and control” was thus off the table, and the bargain struck in the earlyhours of the morning was exactly the opposite of what she had wanted. Thefiscal compact had been reduced to a shambleseven before Germany’sparliament, the Bundestag, approved it laterthat day.

In terms of addressing the eurozone financial crisis, however, theagreement reached in Brusselswas anything but a breakthrough, because it never transcendedthe logic of narrow crisis management. It offers no strategy for overcoming thecrisis in the south of Europe, which meansthat the threat to the eurozone has not been removed.

Politically, however, the agreement amounts to a small revolution, becauseit has shifted the balance of power within the eurozone: Germany is strong, but not strong enough to get away with isolating itself completely from Europe’s other major players. Decisions that go against Germany arepossible.

There was patent gloating about theGerman defeat everywhere, only thinlydisguised behind strained expressions of solidarity. The full extent of the politicaldamage that Germany’sbailout policy for the eurozone, with its austerity, mass unemployment, andeconomic depression, has caused in southern Europeremains to be seen.

If Merkel had wanted the agreement reached in Brussels, the outcome would have marked thebeginning of a fundamental revision of the eurozone’s crisis policy – and thusan expression of successful statesmanship.Instead, it is a full-blown defeat for Germany,linked to its firm denial that German policy has sharply reduced the country’sinfluence in the EU. Yet it clearly has: German influence within the EuropeanCentral Bank has declined significantly; the German finance minister will notbecome head of the Eurogroup; and now we have the Brussels disaster!

But Germany’sdefeat, however widely celebrated, holds much cause for concern. First, noteverything that Germanyis arguing is wrong: the urgent need for medium-term fiscal consolidation andstructural reforms to increase the crisis countries’ competitiveness will notgo away. Equally important, however, is the reduction of economic imbalancesand European policy coordination to enable growth.

Second, political paranoia is rising onthe German right: everybody supposedly just wants Germany’s money; ourAnglo-Saxon partners real aim is to weaken us; and the financial markets willnot rest until Germany has invested all ofits wealth and has thus endangered its economic success. Germany isbeing “betrayed to foreigners” by the opposition, and “good” productive capitalis once again being opposed to “bad” speculative capital. In the opinion pagesof some German newspapers, anti-capitalism is returning in a new form, which entails nothing less than a renunciation of Europeand even of the West.

Of course, while the German right threatens to become more nationalistic,history will not repeat itself, because today’s Germany has changed, and so has itspolitical environment. Still, an increasingly Euro-skeptic Germanyin the heart of the EU could, given its great economic clout,seriously endanger the European integration process. And, while that wouldjeopardize Germany’sown interests, practical political action is not always rational, particularlyin times of serious crisis.

The same, incidentally, applies to France, except that the French,unlike the Germans, find it difficult to transfer political sovereignty,whereas for us Germans, it is all about the money. Both of thesemental/political blocks are threatening the European project in equal measure.

Indeed, if the result of the recent summit means that France and Germanywill henceforth each forge alliances against the other, while hiding behind verbalexpressions of solidarity, we might just as well forget about Europe.Without a functioning Franco-German axis, the European project cannot succeed.

Both sides will have to decide whether or not they want Europe– that is, full economic and political integration. Economically, they mustchoose either joint liability and a transfer union or monetaryre-nationalization. Politically, the choice is whether to empower a commongovernment and parliament or return to full sovereignty. What we know forcertain is that, just as one cannot be a little pregnant, the existing hybrid is not sustainable.

Last November, Volker Kauder, the majority leader in the Bundestag, bragged that “suddenly Europeis speaking German.” He was wrong. Just as Spain(not Germany) remains thebenchmark in European football, so Europespeaks broken English at best. From the standpoint of safeguarding the Europeanproject, that is all for the better.