After frantic last-ditch talks with his partners in government, Antonis Samaras, new Prime Minister of a fragile right-left coalition, was able to announce that Greece had accepted the need for a further 14.5 billion euros ($17.8 billion) of spending cuts over the coming two years. This was an essential deal; otherwise, the EU and IMF had indicated that the next 31.2-billion-euro ($38.3 billion) loan tranche would not be forthcoming. If this had happened, the Greek Government would have been unable to pay pensions and public-sector salaries. This could have led to a "Grexit" from the euro within weeks.

German concerns go beyond Greece. The parliament is waiting on a judgment from the Constitutional Court on the proposed fiscal compact agreed to by EU leaders in June. Once the fiscal compact is in place (it needs 12 out of 17 euro-zone members to ratify), governments will have to limit their total borrowing to 3 percent, with an additional 0.5 percent allowed in times of recession. These rules are supposed to stop them accumulating too much debt, and make sure there won't be another financial crisis. The new permanent fund, part of the fiscal compact, will have 500 billion euros ($615 billion), but there are doubts whether even this huge sum would be sufficient to deal with simultaneous bailouts in Spain and Italy.

No quick solution

The current crisis has little to do with government debt. Most of the debts in Spain and Italy are the result of private sector borrowing. When they joined the euro over a decade ago, interest rates fell to a historic low. This led to a debt-fuelled boom with consumers buying more and more German cars and Chinese goods. As Germany built up its cash reserves, it lent substantial amounts to Spain, Italy and Greece.

But debts are only part of the problem in the Mediterranean countries. During the boom years, and unlike the situation in Germany, wages rose steadily leading to a loss of competitiveness in Spain, Italy and even France. All Mediterranean countries are now facing nasty recessions, because no one wants to spend. Companies and citizens are too busy repaying their debts to spend more. Governments are slashing public spending. But this is leading to even more unemployment (already over 20 percent in Spain), which makes the repayment of debts even more difficult.

Markets are simply reacting to these unpleasant facts and rising bond yields are a reflection of market uncertainty. Some experts argue that the crisis would be over at a stroke if the ECB were to authorize the issue of eurobonds. But such a move is strongly opposed by Merkel and other more fiscally conservative governments such as Finland and the Netherlands.

The ECB clearly has a key role to play. It has already lowered interest rates to a record 0.75 percent. It could re-launch bond purchases as a signal of support for the weaker economies. Such a move is currently blocked by the German Bundesbank, Germany's central bank, at least until governments show more resolve in implementing austerity programs. The ECB could also issue a banking license to the European Stability Mechanism, the monetary union's rescue fund as part of the fiscal compact. This would enable the mechanism to post the bonds it buys to obtain ECB liquidity and thus increase its firepower.

Meanwhile, the IMF has warned that the continuing euro-zone crisis poses a "key risk" to China's growth prospects. Most Chinese exports go to Europe and if the debt crisis continues it would affect consumer sentiment and demand, resulting in a cutback in exports. U.S. President Barack Obama is also pressing the EU to sort out its problems lest the crisis damage his re-election hopes for November.

The euro-zone crisis looks set to run and run. There is no quick solution in sight. Governments are all searching for the magic mantra that allows economic growth while keeping a tight rein on public expenditure. They may be searching for some time.

The author is director of the EU-Asia Center, Brussels

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