If the proposed bonds, then, go nowhere, the politics surrounding the dispute may still bring some movement. The Germans, after all, have no desire to become the naysayers of Europe. They want to relieve the tension and surely also want to give Hollande, Monti and others something like a victory to take home to their constituents. Indeed, Hollande and Monti may have pressed an issue on which they already knew that Merkel was intransigent just to get compromise elsewhere. Such compromising might occur on four fronts:

Berlin might seek to relieve political pressure and also quell market fears by offering greater funding for the European Stability Mechanism. By reassuring investors that Europe has the resources to meet the obligations of its weaker members, a substantially larger fund, even if unused, would strengthen the market for all sovereign debt.
Berlin might also offer greater funding for the European Investment Bank (EIB). With enhanced resources, the bank could undertake more infrastructure projects across Europe, relieving some of the strains of austerity on member countries without encumbering government budgets.
Berlin might also give beleaguered Eurozone members more time to meet deficit goals. Such an approach would still give German policy its ultimate goal but in the interim relieve these nations of the need for especially intense austerity and so lift the worst political pressure on national leaders cooperating with the austerity regime.
Berlin could also broaden the criteria used to enforce austerity. By targeting spending growth, for instance, or regulatory burdens in addition to direct deficit targets, the beleaguered members could point to progress, and thereby encourage markets, even if improvement in the raw deficit figures were to take longer than originally planned.

A Lord Abbett colleague, Zane Brown, describes such German accommodations as replacing shackles or cables of austerity with more yielding rubber bands. Such accommodations would offer Europe's leadership a way around the eurozone bond impasse, give France and Italy's leaders something to offer their constituents, and still protect German taxpayers, to a degree. (At least they would escape a potentially unlimited liability.) Most importantly, they would also help relieve European political and financial strains, whatever Greece decides to do.

Instant Insights /

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