The Italian delegation was in a mixture of fear and sulkiness. There they were, representatives of the eighth largest economy in the world and a founding culture of Europe, and they were being treated like schoolchildren who had been caught fibbing about their homework.

A day earlier, German Chancellor Angela Merkel and French President Nicolas Sarkozy had publicly voiced impatience at Prime Minister Silvio Berlusconi's procrastination over how Italy would curb its deficit. Failing to get a reply, their anger spilled over behind closed doors.

The Italians were now being told to go home and get a note from their boss spelling out how his Government intended to raise new income and cut spending.

When word of this reached Berlusconi, he responded withcharacteristic showmanship and jingoism.


"Nobody in the European Union can appoint themselves administrators and speak in the name of elected governments and the peoples of Europe," he thundered. "No one is in a position to be giving lessons to their partners."

Two days later, Berlusconi arrived in Brussels and meekly handed EU officials a 14-page letter, duly signed, that outlined the reforms.

Six months ago, it would have been rare indeed for a government chief to browbeat one of their peers in public. And it would have been unthinkable for them to have demanded a letter of intent, even from mini-states such as Malta or Estonia, let alone mighty Italy.

But last week's summit - the 14th in less than two years - showed just how far the EU has come. Gravely wounded by a debt crisis that began in Greece and spread to Ireland, Portugal, Spain and finally Italy, the single European currency could have bled to death if the 27 leaders failed to act with resolve.

Twisting Italy by its sensitive parts was just one of the summit's achievements.

It also agreed on a second Greek bailout, requiring banks to take a 50 per cent loss in the value of their Greek bonds to help Athens reduce its debt from 160 to 120 per cent of gross domestic product. It required banks to beef up their capital, to 9 per cent of assets, to absorb these losses, a move that will require banks to salt away an extra €100 billion ($172 billion) or more.

Meanwhile, the European Financial Stability Facility - the eurozone's heavy artillery against debt-crisis contagion - will be vastly strengthened, from €440 billion to €1 trillion. As has often been the case with the EU's response to the debt crisis, initial euphoria at the package is yielding to beady-eyed analysis.

In political terms, though, a line has been crossed. To the surprise of eurosceptics who had derided it as ponderous and weak, the EU has responded with speed and vigour.

The change can be attributed to a revival of the Franco-German alliance, the EU's traditional political locomotive, says Janis Emmanouilidi of the Brussels-based European Policy Centre think-tank.

"EU institutions and eurozone governments - led by Berlin and Paris - now seem more determined to get ahead of the crisis curve," Emmanouilidi believes. "Compared to a year ago, in Europe and beyond, there is now a strong appreciation of the fact that the euro is 'too big to fail'."

The power shift has flowed especially in favour of Merkel, whose country is Europe's biggest economy and the EU's de facto paymaster. She was the one who persuaded banks to take the big "haircut" on Greek bonds, a sacrifice that will hit French banks most of all, and insisted the EFSF be used only as an instrument of last resort.

"Since [German] reunification [in 1990], the German economy has become far bigger than France's," Philippe Moreau-Defarges, of the French Institute of International Relations, told Le Parisien. "But France and Germany need each other. They are a couple that can't divorce."

In the coming weeks, the test will be to put the flesh of detail onto the bones of top-table resolutions. National parliaments will be called on to endorse the plan just as resentment towards the EU is deepening in countries where austerity has been forced upon them. There is also emerging concern over the influence that China will exert if it becomes a big lender to the EFSF.

Beyond that, the 17-eurozone countries will have to address the euro-zone's glaring flaws of governance. Until now, governments have been able to pile up their debts, boosting the risk to all, in defiance of borrowing limits and regimes intended to punish spendthrifts. The Brussels summit named EU Affairs Commissioner Olli Rehn to manage the euro, in what some analysts say is a step towards creating a eurozone finance minister.

European Commission president Jose Manuel Barroso told French television: "What I see now is a much greater awareness in our member states about the need to integrate more of their policies. This is indispensable. If we want to have a common currency, we can't only have a monetary union, we need an economic union."

After their success in Brussels, the Franco-German alliance has to set its eyes on bold institutional change, enabling the EU to wield its clout in the world as a united bloc, the French financial daily Les Echos said. "None of the (EU) 27 accounts for more than 6 per cent of global wealth," it said in an editorial. "To go it alone, to buck the discipline of the group, is to go against one's national interests."