Germanys original plan was to try to secure agreement among all 27 EU countries for a limited treaty change by the end of 2012, making it possible to impose much tighter budget controls over the 17 euro zone countries a way of shoring up the regions defences against the debt crisis.
But in meetings with EU leaders in recent weeks, it has become clear to both German Chancellor Angela Merkel and French President Nicolas Sarkozy that it may not be possible to get all 27 countries on board, EU sources say.
Even if that were possible, it could take a year or more to secure the changes while market attacks on Italy, Spain and now France suggest bold measures are needed within weeks.
As a result, senior French and German civil servants have been exploring other ways of achieving the goal, one being an agreement among just the euro zone countries. The goal is for the member states of the common currency to create their own Stability Union and to concentrate on that, German finance minister Wolfgang Schaeuble said on Sunday.
Another option being explored is a separate agreement outside the EU treaty that could involve a core of around 8-10 euro zone countries, officials say.
An even more pressing decision faces euro zone finance ministers when they meet on Tuesday. Detailed operational rules for the euro zones bailout fund, the European Financial Stability Facility (EFSF), are ready for approval.
The approval of the rules will clear the way for the 440-billion euro facility to attract cash from private and public investors to its co-investment funds in coming weeks, which, depending on interest, could multiply the EFSFs resources.
With Germany rigidly opposed to the idea of the ECB providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of quickly calming markets, where yields on Spanish, Italian and French government benchmark bonds have all been pushed to euro lifetime highs.
Policymakers hope progress towards tougher fiscal rules will also assuage investors. Schaeuble said a Stability Union could be a decisive step to winning more confidence from the markets.
That means that every euro zone member has to do its homework on its budget discipline. We want to ensure that through treaty changes, he said.
French and German officials were discussing plans for a radical overhaul of the European Union to establish a more fiscally integrated and possibly smaller euro zone. The Germans have made up their minds. They want treaty change and they are doing everything they can to push for it as rapidly as possible, one senior EU official involved in the negotiations said. Senior German officials are on the phone at all hours of the day to every European capital.
While Germany and France are convinced that moving towards fiscal union which could pave the way for jointly issued euro zone bonds and may provide more leeway for the European Central Bank to act forcefully is the only way to get on top of the debt crisis, some other euro zone countries are unable or unwilling to move so rapidly towards that goal.
Not only Greece, Ireland and Portugal, which are receiving EU/IMF aid, but also Italy and Spain and some east European countries such as Slovakia, would either find it difficult under current economic conditions to meet the budget constraints Germany wants, or simply do not agree with the aim.
One is based on the Pruem Convention of 2005, also known as Schengen III, a treaty signed among seven countries outside the EU treaty but which was open to any member state to join and was later acceded to by five more EU states plus Norway.
Another option would be to have a purely Franco-German mini-agreement along the lines of the Elysee treaty of 1963 that other euro zone countries could also sign up to, officials say.
The options are being actively discussed as we speak and things are moving very, very quickly, a European Commission official briefed on the discussions said on condition of anonymity.