EU reform debate

Brussels, for a change, is not beset in panic over the economic crisis. No one expects the eurozone to collapse with a moment's notice. German Chancellor Angela Merkel said she expects Greece to remain a part of the European common currency zone despite the troika's latest report that shows Athens is still lagging in implementing reforms and budget cuts.

The European Central Bank's decision this summer to take the helm of the eurozone's financial bailout is responsible for creating much of the relaxed atmosphere across the European Union. ECB President Mario Dragi said the institute would buy unlimited amounts of bonds issued by weaker states to give them - and the European Union itself - extra budgetary room to maneuver. The time bought by the ECB has been helpful for the EU, according to European Council President Herman Van Rompuy.

"The results are starting to show," he said. "Look at the increasing competiveness and exports performances of Spain, Portugal and Ireland."

'No way around reforms'

State deficits across Europe are gradually falling and trade imbalances are starting to even out, he said. He added, however, that European governments needed to continue their efforts.

EU Commission President Jose Manuel Barroso said there was no way around unpopular and painful austerity measures.

"There is nothing more anti-social than high levels of debt," he said. "Every euro spent on interest is a euro that's not going to public health, to education, to help for the most needy."

In the same breath, Barroso referred to Europe's "old demons," which he said could come back to haunt the continent.

"The old demons of Europe are the divisions of Europe," he said. "In Europe we have had a division between East and West. Now I think there is a risk of a having a consolidation of a division between North and South."

In the face of ongoing protests in southern European countries, Italian Prime Minister Mario Monti said last week in Brussels that people need to see the "reward of the sacrifices they are being asked to accept." Otherwise, he added, they would grow increasingly skeptical of reforms and that this "may shake the foundations of our democratic systems."

Four presidents' paper

After years of crisis, exhaustion has set in across Europe. But a group of leading European politicians has spent since June looking at ways to move forward. Europe's four presidents - Council President Van Rompuy, Commission President Barroso, ECB President Draghi and eurozone head Jean-Claude Juncker - will present a preliminary report. But European heads of state are not scheduled to act on the report's conclusions until their summit in December.

Much of the report is vague, but it is clear in calling for further economic integration within the eurozone, particularly with regard to budgetary and economic issues, and even the possible establishment of a central budget for euro member states.

Such integration would put to rest the long-time debate over Eurobonds, according to Herbert Reul, a German member of European Parliament.

"I think it's a clever idea to have a budget specifically for the euro area to create an instrument to help states in difficulty," he said.

Lots of reform recommendations

German Finance Minister Wolfgang Schäuble raised the ire of many European politicians on Tuesday by floating regulatory ideas.He suggested giving the European economics commissioner the power to reject national budgets. Such a change, like many of the potential reforms suggested in capitals across Europe, would be difficult to implement without major changes to current laws and treaties.

The United Kingdom is the only EU member that is not a part of the fiscal union. If only the eurozone is interested in integration, then the divide in the 27-member bloc will only widen.

But with the "roof on fire," Reul warned that the time has come to look for quick and potentially unconventional answers - even if that means not all countries agree to a particular course of action.

A banking union is one of the points where European leaders should be able to agree during the summit. At its core, it calls for a Europe-wide regulator, which is necessary for the bloc's bailout fund, the European Stability Mechanism (ESM), to lend directly to banks. Pushed for by Spain, ESM loans to banks would bypass national governments and keep down sovereign debt.

Leaders are debating whether the banking union should come into effect at the beginning of 2013 or if it has to wait longer.

Amid the heated debate, Van Rompuy offered a philosophical view of events in the EU: "Before our eyes, Europe is changing," he said. "Our union and the architecture of the eurozone look different today from how they did three years ago. This process of change is bound to continue further."