The German dilemma
As each day passes the scale of the eurozone debt crisis only seems to deepen. Comfortable illusions of the euro having been saved are swept aside. The list of those who might need rescuing only lengthens.
All eyes were on Spain and Portugal, but then
Conditions may ease and confidence may return but, on the other hand, they may not. Further bail-outs will bring closer the day when Germany will have to make a big
decision. Is it prepared to bankroll Europe - not just now but for the foreseeable future?
Will the country that carried the burden of reunification - put at more than a trillion euros to date - be ready to take on the debt of a string of battered economies?
Germany accounts for a third of the eurozone's economic output. It expects growth this year of 3.4%. The German Economy Minister, Rainer Bruederle, says he believes growth will be strong for the next four to five years. Germany's influence has never been stronger within the European Union. It may be resented, but it alone has the financial muscle to count in the face of the debt crisis.
Recently the head of the Eurogroup, Jean-Claude Juncker, mused that Berlin was "slowly losing sight of the common European good".
To date it has made the largest contribution to the 110bn-euro (£92bn; $144bn) Greek bail-out. The same is true with the Irish rescue. The funds earmarked for those countries are in loans, but there is a significant risk that down the road those countries will not be able to make their repayments.
If other larger countries needed helping Germany's exposure could be huge. For a start there is no point bailed-out countries contributing to any rescue fund, so Germany's share would only grow.
At some point a great debate would begin as to whether Germans were prepared to accept the EU being, in effect, a transfer union.
It is worth recalling that the German Constitutional Court only endorsed monetary union on the basis of a no bail-out clause. That was the condition on which the Deutschmark was surrendered. Already that clause has been as good as ditched.
The German strategy has been to talk tough and then to retreat. It held out against helping Greece, only to back down in the face of EU pressure. Greece was considered a one-off but then, in a late-night meeting in Brussels, Germany agreed to . The German public was told that it was unlikely this fund would ever be tapped. It was there to shock and awe, to show the markets that you couldn't bet against the euro.
The German government wanted tough action against those governments that ran up excessive debts in the future. Chancellor Merkel at one point suggested that serial offenders could be forced out of the eurozone. That idea was quietly dropped. She wanted sanctions and proposed a withdrawal of voting rights, but met fierce resistance from other leaders. She wanted sanctions to be automatic. They almost certainly won't be.
Then more recently Mrs Merkel raised the idea that private investors should share in some of the losses. Many agreed with her, but it spooked the markets. At the G20 there was a clarification. Such a measure would only apply after 2013.
And then, when last weekend a permanent rescue facility was discussed, the line was weakened further. Investors would only take a hair-cut if a country was declared insolvent. That, for instance, would exclude Greece at present.
The German finance minister said the question of increasing the size of the rescue fund had not arisen, but Germany is now committed to a new permanent mechanism beyond 2013 which, of course, will have to be funded.
Germany, like the rest of Europe, is being driven by events. Chancellor Merkel is under pressure. She knows that many Germans did not want to help the Greeks. The newspaper Bild declared it was "scandalous" bailing out the Irish, with their low corporate tax rates.
Yet at the same time she is committed to saving the euro. She has tried to rally support at home by saying that if the euro fails then the whole European project is at risk. The political class in Germany is strongly committed to the euro's survival.
It is frequently pointed out that Germany has benefited from being in the euro; the rate at which it entered has favoured its exports. Its banks are heavily exposed in countries like Ireland. So there is self-interest in fighting for the single currency
But there would come a point when that consensus would crack. The German economy was recently It is a source of immense pride. It has world-class manufacturing brands. It has preserved the Mittelstand - those middle-sized, family-owned businesses that are the rock on which the economy is built.
After having so painstakingly built their economy there would be huge resentment at seeing their money flowing to shore up less efficient and less hard-working parts of Europe.
Ulrike Guerot from the European Council on Foreign Relations says that Germany has "fallen out of love with Europe", which has become too tiresome and too expensive. "For most of Europe, Germany is the big winner of the euro," she writes, "whereas many Germans today believe that they have always had to pay for the others and have always been cheated."
Germany's State Minister for European Affairs, Werner Hoyer, told Der Spiegel that he is frequently asked by his colleagues "do you still stand by Europe?"
The answer, for the moment, is "yes". This year I have met many Germans who still believe in European solidarity. But future rescues will place that under strain and pose a challenge to Germany's political leadership.
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