BRUSSELS (Reuters) - Trust in the European Union's ability to tackle the debt crisis is so low that its leaders are now relying on the IMF and European Central Bank to convince financial markets the rapidly deteriorating problems can be fixed.
But even when possible solutions involving the ECB and International Monetary Fund have been put on the table, internal EU disputes, often sourced to German intransigence, have scuppered the proposals -- further compounding a crisis that threatens not just the euro but the whole European project.
Markets have long questioned the EU's capacity to resolve the crisis, recognising that structural and political constraints make quick or firm EU decision-making all but impossible.
Last week's G20 summit in Cannes did nothing but reinforce that assessment and the fact policymakers are now openly questioning their own abilities underlines just how dire the situation has become.
"Europe is running dry on credibility," Swedish Finance Minister Anders Borg, one of the most straight-talking of his colleagues, said as he arrived for another crisis-fighting meeting of finance ministers in Brussels on Tuesday.
"There is a credibility problem ... the solutions that are going to be discussed here today, like the Financial Transactions Tax, are a non-starter."
For more than a year, German Chancellor Angela Merkel, French President Nicolas Sarkozy and the top EU officials, Herman Van Rompuy and Jose Manuel Barroso, have repeated the mantra that Europe "will do everything necessary" to defend the euro single currency and the region's stability.
But with the crisis approaching the end of its second year and Italy, the euro zone's third and the world's eighth largest economy, about to be sucked into the mire, the pledge sounds empty. What started as a financial and economic crunch has morphed into a political drama with little end in sight.
At the G20 summit, EU leaders forced Italy to accept tighter IMF oversight of its economy, including quarterly reports on its progress on pension and labour market reforms.
On Monday, Jean-Claude Juncker, the chairman of the Eurogroup, said the ECB would also take part in that monitoring.
The unspoken message was that the European Commission, the EU's executive, could no longer hope to retain the confidence of markets alone. The IMF and ECB have to be involved too.
"The IMF is the only institution that has experience with restructuring," said one senior European official involved in tackling the crisis. "Why should the Commission know how to handle something like that? Have they ever done it? No."
Bickering among EU leaders, with some naturally defensive about the loss of sovereignty inherent in having their economies inspected by outside authorities, has intensified the inability of EU heads of state and government to act.
In other cases, long-held resistance to an idea has forced it to be taken off the table, even when others back it. For example, Germany has ruled out using gold and currency reserves to help boost the euro zone's EFSF bailout fund and is totally opposed to the ECB acting as a lender of last resort.
One well-placed official involved in the talks in Cannes last week -- when a core group of EU leaders and senior officials dubbed the Frankfurt Group met four times on the sidelines to try to make headway -- described the atmosphere as not unlike dealing with kindergarten children.
The emerging powers that now hold increasing sway in the global economy and the G20 -- India, China, Brazil, Russia and South Korea -- at times looked on aghast at Europe's infighting and institutional wrangling, attendees said.
"First Barroso gets up and speaks, then obviously Van Rompuy feels the need to speak too, and these other G20 politicians ask: 'Who's this guy? I thought this first guy was speaking for Europe,'" said one European official, describing Cannes as a terrible performance for Europe.
U.S. President Barack Obama, who attended one of the Frankfurt Group meetings with Treasury Secretary Timothy Geithner, said he had received a crash course in European politics. Asked about his impressions, he diplomatically replied: "There are a lot of meetings here in Europe."
With the IMF now headed by Christine Lagarde, France's economy minister until five months ago, there is perhaps a natural inclination for European leaders to seek more guidance and input from the International Monetary Fund.
The euro zone is hoping the IMF will take part in a co-investment vehicle or similar scheme that could be used to scale up the 440 billion euro (376 billion pouds) EFSF, possibly increasing its capacity to 1 trillion euros.
But the problem is that the IMF is not just for Europe, it is an emergency lending institution for the world. With many countries on the brink of going back into recession, the IMF's assistance may well be needed elsewhere. And Europe, the world's largest trading bloc and wealthiest region by per capita income, was supposed to be able to take care of itself.
While issued diplomatically, that was essentially the message leaders from China, India and Brazil delivered to Europe during the two days of talks in Cannes.
Brazilian President Dilma Rousseff said Brazil was ready to help via the IMF but that Europe first needed to find "leadership, clear vision and rapidness", three attributes sorely lacking for much of the past two years.
Short of Italy or another euro zone state entering a full IMF programme, the most the IMF is likely to do for now is take part in more intensive monitoring.
The ECB will also lend its technical and financial expertise to try to ensure that Italy and others are taking the right steps to put their economies back on track. It will do so while working hard to retain its position as the most credible and independent of the European Union's institutions.
But at some point, if EU leaders cannot find a way to take the quick, aggressive steps needed to get on top of the crisis, it may be necessary for bodies such as the IMF and ECB to play a much more direct role.
"The IMF has the advantage of being the global referee," said the senior official involved in dealing with the crisis. "The EU doesn't have that kind of credibility."
(Additional reporting by Gernot Heller in Berlin; writing by Luke Baker; editing by Rex Merrifield/Mike Peacock)