As the European Union debt crisis moves towards an ostensible resolution on December 9th, complications arise. Ratings agency Standard & Poor’s has warned that the failure to reach an agreement may result in an unprecedented downgrade of as many as 15 EU countries simultaneously. “Systemic stresses in the euro zone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the euro zone as a whole,” S&P said in a statement. Cutting through the economic jargon, a “resolution” of the crisis comes down to a single choice: there will either be a European Union, or individual countries will retain some semblance of national sovereignty.

As has become routine, the focus of the crisis centers around two European leaders, German Chancellor Angela Merkel and French President Nicolas Sarkozy. They are attempting to hammer out a plan that calls for more cooperation among the 17 countries that use the euro, most of which centers around tighter fiscal controls to prevent member states from overspending.

Yet the fundamental differences in each leader’s approach seem irreconcilable. Merkel would like to change the EU treaty itself, making rules regarding borrowing and spending stricter, and imposing penalties on countries that persistently engage in fiscal irresponsibility. Sarkozy agrees – sort of. He likes the basic concepts, but resists ceding more power to the bureaucrats in Brussels.

The reason? Unlike Merkel, Sarkozy is facing a difficult re-election in April. It is an election in which upstart challenger Marie Le Pen is currently ahead of Sarkozy 23 to 21 percent, according to a survey by Ifop for France Soir and a poll taken by the Harris Institute. Why does she resonate? Part of the reason is her contention that “France sacrificed to the EU basically all it had – the national currency, sovereignty over its territory, and independence in political and economic decision-making, eventually losing the status of a nation and accepting the role of a vassal of the EU and the dying Euro.”

It is a sentiment that resonates far beyond the borders of France. And that sentiment is largely triggered by a single concept: austerity. Austerity packages reveal the divide between what Europe’s socialist governments have promised and what they can actually deliver. Moreover, they reveal the unrealistic expectations of people long immersed in the cradle-to-grave entitlement mindset that is no longer sustainable.

Portugal offers some insight into the disconnect. Its parliament put together an austerity package that includes salary cuts, tax hikes and an increase in working hours for a country already enduring a recession. The package was necessary in order to secure a $104 billion loan in May of 2010. Yet Portugal is expected to remain in recession, and unemployment is expected to reach a record 13.4 percent in 2012. As a result, the country endured a union-organized strike on November 24th that shut down Portugal’s transport system, and triggered massive discontent throughout the nation.

Parliament reacted by reinstating previously suspended 13th and 14th month salary payments for civil servants earning less than 1,100 euros a month instead 1,000 euros. In other words, Portuguese civil servants have come to expect two extra months of salary every year. Anything less is an effrontery. One that rankles even more when it is presented as a necessity to save the European Union, as opposed to Portugal itself.

Italy offers another example. The new government, run by technocrat Prime Minister Mario Monti, has put together an austerity packed called “Save Italy.” It aims to raise more than $13.4 billion from a property tax, a new levy on luxury items, an increase in the value added tax (VAT), a crack down on tax evasion, and an increase in the pension age to 66. As with Portugal, unions have expressed opposition, and two of them announced a two-hour strike against the measures scheduled for December 12th. Also like Portugal, recession is almost inevitable, if not occurring already.

Why is recession inevitable? Two reasons. First, nothing in either of these austerity packages, or those of other EU nations involved in the same process, does anything to boost economic growth. As is pointed out here, four-out-of-five of Italy’s reforms involved raising taxes. Higher taxes are inimical to growth.

Second – and this is a four-star cautionary tale for the United States – the size and scope of government has become so large that cutting it down to manageable levels requires layoffs and spending cuts that will lead to recession. This paradox could have been avoided before the socialist parasite became big enough to devour the national host. Now some measure of pain is inevitable.

Yet it is resistance to that pain, at virtually all costs, that drives both the Keynesian-inspired stimulus machinations in America and the bailout mentality in Europe. Nobody, from the governments who engaged in reckless spending and financial institutions that underwrote it, to the people who benefited from unsustainable “goodies” bestowed as a result, want to bite the fiscal bullet. Everyone wants the grand unwinding of trillions of dollars of debt to be as painless as possible.

Yet such painlessness has its limits. The longer the EU (and the United States for that matter) “kick the debt can down the road” by underwriting debt with more debt, the more such debt accumulates. So do interest payments that consume ever-greater shares of government budgets. Greater expenditures dedicated solely to making interest payments mean less money for government programs, absent massive tax hikes – or further austerity measures that eventually become unsustainable in and of themselves.

In Europe, the urgency of the crisis stems from the fact that private investors, represented by the European bond market, want higher interest rates to protect themselves against losses. Higher interest rates, or more specifically any yields over seven percent, are seen as the border line above which paring down national debt becomes unsustainable. It is precisely this reality that drove European Central Bank policymaker Christian Noyer to accuse S&P of “becoming a motor” in the current crisis. “When you look at the way S&P formulated its argument, you can see that they have changed their methods,” Noyer contended. “The methodology has become much more political and less linked to economic fundamentals." This is the same "shoot the messenger" reaction that occurred when America’s credit rating was lowered, despite $15 trillion of debt and no respite from deficit spending.

As of now the EU supra-nationalists retain the upper hand. In the latest effort to placate bondholders, Germany is reportedly ready to "soften the language" in the statutes of the European Stability Mechanism (ESM), the new bailout system scheduled to replace the current European Financial Stability Facility (EFSF) in 2013. It can only happen if the 17 member nations agree to stricter budget oversight, and sanctions for those who miss EU-mandated budget targets. It may even include a procedure for taking fiscally irresponsible nations to court.

Tellingly, it seeks to reduce the liability of private bondholders who got a haircut in the restructuring of Greek debt. Bondholders who feared a precedent had been set where they would be expected to eat substantial losses every time an EU member faced a crisis. This makes them hesitant to purchase more debt – which drives interest rates up.

Nicolas Sarkozy was even more emphatic. "It must be clear that what has been done for Greece, in a very particular context, will not happen again, that no other state in the euro zone will be put into default,” he said. “It must be absolutely clear that in the future no saver will lose a cent on the reimbursement of a loan to a euro zone country.”

So who would replace these so-called savers when they are rendered immune from the consequences of their own behavior? Taxpayers, once again reminding the “little people” that their “betters” are still determined to privatize profits and socialize losses. And it is exactly that attitude that makes any austerity packages, no matter how heartily deserved and/or necessary, an even more bitter pill to swallow than it already is.

The siren song? On April 17th, the True Finns party, who ran on a platform in part opposing taxpayer bailouts of debtor EU nations, became the biggest party in the country despite highly questionable policies in other areas. The equally questionable Marie Le Pen has made abandoning the euro one of the centerpieces of her presidential campaign. Investment advisor and financial columnist Mike Shedlock offers an educated guess as to where such indications are leading. “Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the'bail out’ debt foisted on their country to be null and void. That person will be elected.”

European leaders have until Friday to come up with their latest package, one that will placate national interests, even as it renders them moot. The other alternative? An orderly breakup of the EU, devaluation of national currencies to promote growth, and the restoration of national sovereignty. Either choice will engender significant amounts of pain. The only remaining question becomes whether that pain is endured in a future where each country will eventually be rendered immune to the consequences of another nation’s reckless behavior, or whether the threat of “too big to fail” will be the odious glue that binds the EU – and ultimately the rest of the world as well – together.