Nov. 30 (Bloomberg) -- Radoslaw Sikorski made a striking comment in Berlin on Monday night. “I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.”

I see his point, though “inactivity” doesn’t quite do justice to Germany’s impressive dedication to deepening the euro area’s crisis. This isn’t mere inactivity. This is zeal in pursuit of catastrophe.

The German government sees itself as standing up for fiscal and monetary rectitude. The euro area’s problems, it believes, have been brought on by lack of discipline in countries with lower standards. This is true, of course -- yet one wonders how much scorched earth Germany thinks is needed to drive the point home.

Let’s put it another way: Germany owns the biggest house -- fully insured and with the best fire prevention money can buy -- in a tight cluster of dwellings in the European subdivision. One of those houses caught fire because the owner, despite repeated warnings, refused to fix a broken heater. Conditions are parched, and a hot, dry wind is picking up. The flames have spread, and several other houses are burning.

A rational person might say, “Call the fire department.” Germany says, “Hang on. Didn’t we tell you this would happen? Let’s get clear on how it started before we start spraying water everywhere. You can do a lot of damage that way. Plus, what’s the rush? If we put fires out the instant they start, then why would anyone take fire prevention seriously in the first place?

“Also, we’ll need a joint insurance policy (watch out for that flaming debris over there) with a tough inspection system to avoid any future free riding.

“Actually, maybe we can use this fire to improve the neighborhood. Honestly, it’s the only way to get anything done around here.”

Germany’s thinking would be easier to understand if it were narrowly self-serving. But it isn’t. If the euro comes apart, and with it most likely the European Union itself, Germany will see its export markets collapse and be a principal loser. None of the houses in this subdivision is fireproof. Germany’s struggle to sell bonds last week was a gentle reminder that, if the worst happens, it will not emerge unscathed.

There’s no mystery about the steps needed to stop the crisis -- if it’s not already too late. To cut the risk of bank failures, the danger of sovereign default needs to be contained. Default in Greece is pretty much unavoidable, so acknowledge the fact and get on with it. But the debts of Italy, Spain and other countries in jeopardy are perfectly manageable so long as the current scare subsides. If it doesn’t subside, no country in the euro area is safe.

Collective Steps

Two main things are needed to stop the panic. Europe’s governments must collectively underwrite an impressive proportion of euro-area sovereign debt, through the issuance of euro bonds or otherwise, and the European Central Bank must step forward as lender of last resort to distressed governments.

Would that work? Remember that the euro-area countries are not as a group dangerously over-indebted. Taken together they are creditworthy, which is why the impending catastrophe was easily avoidable. It can still be avoided -- though no longer as easily -- so long as Germany relaxes its determination to make a point.

Germany is right that the design of the EU needs to be looked at afresh, but first things first, for heaven’s sake. Proper debate and consultation about closer fiscal union, which Germany wants to see, will take time, which the EU does not have. Constitutional innovation as a species of crisis management -- for too long the EU’s preferred method of advance -- doesn’t guarantee good results. If you question that, look around.

Moreover, Germany is hopelessly confused over what it wants. It seeks closer fiscal union for the purpose of tightening fiscal discipline. But the loss of sovereignty entailed by closer fiscal union will not be confined, as Germany seems to think, to the others. Greater formal pooling of political power has the potential to diminish the clout Germany derives from its economic and financial might. In other words, closer fiscal union does not guarantee greater fiscal rectitude. Everything depends on the details.

What’s more, new fiscal rules are only part of the longer-term reform that Europe needs. Greece’s debt crisis has become an EU-wide emergency because of the risk of contagion through banks. If Europe’s banks had been adequately capitalized, a Greek default would have been less threatening. The best cure for moral hazard in sovereign debt is a financial system strong enough to let a fraudulent overborrower go bust.

Misplaced Emphasis

Europe needs both new fiscal rules and a stricter, more coherent system of EU-wide bank regulation. The first is getting too much emphasis, the second too little.

The deepest contradiction in Germany’s approach to Europe’s future, though, is not economic or financial but political. Its government calls for closer political union just as the crisis has exposed how little sense of shared purpose and identity the EU has yet developed. And the worse the crisis gets -- thanks to Germany’s reckless inflexibility -- the further this sense of shared purpose, such as it is, will be eroded.

You must agree, the German government’s logic is perplexing. Its citizens are understandably furious at the thought that their taxes might bail out profligate governments elsewhere in the euro area. Therefore, let’s move to closer political union. (a) There’s nothing you can do with those people; they’re hopeless, so don’t ask us to help. (b) Let’s be one big happy family.

My watchword for the next European constitution -- if it’s not too late to undergo such mending -- would be: greater political integration where necessary, less where possible. But that is a debate for another time. Right now the neighborhood is on fire.

(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own.)

To contact the author of this article: Clive Crook at clive.crook@gmail.com.

To contact the editor responsible for this article: David Shipley at djshipley@bloomberg.net.