With Europe's leaders scheduled to meet on 11 March, all talk will be on rescuing troubled economies and Franco-German driven competitiveness pact to ward off future crises. But politicians are keeping quiet about the true nature of the eurozone crisis: the fragility of the banks.

This should be the month decisions get made. Europe's politicians are getting ready for no less than three summits in March, starting next Friday in Brussels. Angela Merkel, Nicolas Sarkozy and the other heads of state and governments of the 17 eurozone states want to get the crisis behind them. The talk will be on the expansion of the rescue fund for euro members in difficulties and the rules the states must adopt to keep budgets in line. And of course, Merkel's pet theme, the “Competitiveness Pact”.

There’s one issue, though, that Europe's leaders aren’t talking about, and that’s the fragile situation of the banks. The impression the politicians are giving is that the crisis has for a long time been just about the states, and overwhelmingly those at the periphery of the eurozone – Greece, Portugal, Ireland and so on. But that's being somewhat economical with the truth. The crisis is also swirling around the banks, German banks too.

Crisis comes round to where it started: the banks

It’s worth looking back here to the rescue of Ireland last autumn, when Europe urged the European rescue package onto the island. Why? Chancellor Angela Merkel defended the rescue of Ireland at the time as the salvation of the euro. "To keep the euro strong, we must remedy the weaknesses."

Among economists, however, there’s a more plausible explanation making the rounds. The Irish government had been considering turning down the rescue package. That was why they wanted their banks, which were standing on the brink, to go into insolvency proceedings. But then the creditors of the Irish banks would have had to take a bath and give up at least some of their claims, and that would have reached across Europe and hit the German banks hard. No wonder, then, that the idea met with fierce opposition in the Council, and particularly from the Germans.

And so the crisis has come round again to where it started: with the banks. The banking crisis, or so we learned some time ago, blew up into a global economic crisis, and then into a crisis of state debt and currencies. Now it’s being revealed that the euro crisis is, in essence, a banking crisis, and indeed with a double meaning. Banks in countries like Ireland are the reason that the debts in these countries got so overwhelming at the end. And the weakness of the banks in countries such as Germany is hindering the states’ creditors from taking on an appropriate role in paying down the debt.

How German banks are faring is one of their best-kept secrets

"The fact that no one has yet dared to try to cut into the debt in Greece or Ireland has to do with the fact that the banking sector is not strong enough to absorb the losses," says Clemens Fuest, an economist at Oxford. Europe in crisis has decided to hold out its hat to the citizens and to let the banks scamper away scot-free. And so what were originally private debts have now become public debts. When states can no longer service them, the other states have to step in with their own pocketbooks held open. But the strong states, in turn, are only saving the weak states with money they are borrowing from their banks. An expensive vicious circle.

It only keeps going round and round because the banks have grown so incredibly large in relation to the states. “The Anglo Irish Bank in Ireland alone needed a rescue to the tune of 20 percent of the annual gross domestic product of Ireland," says Fuest. For Spain, the concern is that many savings banks loans are rated as weak. This is because the real estate that the loans financed has plunged in value. "No one knows how expensive it’s going to be," said Fuest, "but fears are ranging from five to 40 percent of annual GDP."

How German banks are faring is one of their best-kept secrets. Last Friday, preparations for new so-called stress tests got underway. Such tests expose the threats that banks will face should something dramatic happen anywhere in the world. If the tests were strict enough, they would be a good idea. However, "accurate stress tests would show that many banks still have huge hidden liabilities," says Hans-Werner Sinn, the head of the Munich Ifo Institute for Economic Research.

We Irishmen have rescued your own banks

The banks, understandably, have no interest in permitting rigorous stress tests, and they even have influence over how the tests are drawn up. In the end, the banks can threaten that, if the tests are too tough, many of them will fail them. Customers would then yank their savings, the banks would go bankrupt, and the state would have to rescue them. One scenario, above all, will probably be avoided: what happens when a country in Europe actually does declare national bankruptcy?

The Irish, in any event, want to renegotiate their rescue package. "As Ireland has come in out of the rain to huddle under the European rescue umbrella, the country has shouldered some of the responsibility of the Europeans," argues the Irish economist Edgar Morgenroth. "That's why other countries should now grant some concessions to Ireland in the negotiations for lower interest rates." We Irishmen, the thinking goes, have rescued your own banks. Now it’s time to show us some gratitude.

Translated from the German by Anton Baer