Can the rest of Europe stand up to Germany?

By Anatole Kaletsky
June 20, 2012

As financial markets slide toward disaster, scarcely pausing to celebrate the “success” of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank – has been vetoed by Germany, and this pattern looks likely to be repeated next week.

Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany’s unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbors in any political structure ruled purely by national interests. Yet it isn’t big and powerful enough to dominate its neighbors decisively, as the U.S. dominates North America or China will dominate the Far East.

Wise German politicians recognized this inherent instability after 1945 and abandoned the realpolitik of national interest in favor of the idealism of European unification. Instead of trying to create a “German Europe” the new national goal was to build a “European Germany.” Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel’s stated goal is now to create a “German Europe,” with every nation living, working and running its government according to German rules.

Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to “do their homework” and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe’s leaders must therefore start considering a previously unmentionable question, perhaps as soon as next week’s summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past.

To be specific, the euro’s only chance of survival now depends on a decisive move toward political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to “do whatever it takes to save the euro” but vetoes anything that might actually work, claiming deference to German public opinion or national interests.

Europe must now call this bluff. At next week’s summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum: Led by President Hollande, who has abandoned President Sarkozy’s Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a program that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany’s political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the euro zone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve.

Merkel would probably insist on Germany’s legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: To reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than 7 votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations.

Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualization of debts, once they realize that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster.

PHOTO: German Chancellor Angela Merkel (R) and British Prime Minister David Cameron arrive for a statement to the media before bilateral talks in Berlin, June 7, 2012. REUTERS/Tobias Schwarz


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There is a possibility that I read Merkel’s game plan wrong.

But if I read it right, then you are very short-sighted Anatole Kaletsky. The Germans are seeing at least 25 years further into the future.

Hint: The fundamental principle of some false God and his idea has been a curse exploited by the populists and become impediment to progress and advancement to Europe. Some number in Europe has to go down to at most 40%

Posted by trevorh | Report as abusive

well put.Everyone is tired of Merkel and her lack of leadership in this matter.Someone needs to stand up to her and get a commitment .Everytime there is a glimmer of hope it is dashed by this narrow minded physicist.Enough already time to s or get off the pot

Posted by mika54 | Report as abusive

Great article. Thanks.
I was wondering why Ms Merkel was acting like a wooden bird. Her lack of leadership on this issue is becoming quite apparent to all and maybe even to Germans. If Germany leaves the euro their currency will be so strong that they won’t be able to sell their goods to Europe and with German companies setting up shop in China, even Germans may start feeling the pain of the rest of Europe or the US.

Posted by ofilha | Report as abusive

what a bore

the usual prejudiced view on matters teutonic

(1) “merkel pays lip ….” – ahhh, the give-away; an obsequious bow to london;

(2) references to 1914, world wars – why not mention the treaty of versailles? even keynes was sickened by england’s treachery; why not look at the Uk’s dismal legacy in the middle-east – oil war after grisly oil war and an obsequious devotion to the house of saud ( and its money)

(3) germany doesn’t stand alone in the eurozone or the EU; england does (gleefully recounted by reuters itself)

(4) spend time persuading cameron to print more pounds to bail-out greece – or even yourselves in the Uk

remind us when you write something less embedded in the nether regions of recession-soaked brittania

Posted by scythe | Report as abusive

Check your math. Germany and allies do have a blocking 39% minority in the Governing Council of the ECB.

Posted by Rollo | Report as abusive

This article is unfounded, simplistic, and ludicrous.
Without Germany’s help and guidance, the euro would be a thing of the past, and the “Second World Recession” would be right on its tracks. Unlike England, Germany still has manufacturing powerhouses, which create jobs for the rest of Europe, as well as balances the trade gap with China.

Posted by Dovico | Report as abusive

“Every serious proposal to resolve the euro crisis since 2009”
Increasing misallocations within the European Currency Union would be a consequence of Euro Bonds. There are a lot of risks in these countries e.g. Spain housing market similar to US-subprime crisis, Italy corruption, mafia, and so on. The markets take these risks into consideration and demand high risk premiums. That’s the market!
Ok, you want to take action, introduce Euro Bonds, so that the interest rate for high risk countries will not reflect the risks hidden in the system. Cause these are “proud countries” that accept money, but no conditions –as it is your opinion biased by irrational fear of “the bad German”- there will be no political and fiscal union. Why the U.S. don’t unite with Mexico and share everything?! Cause these are different cultures and political systems – same in Europe. The nations like each other, have things in common, but are different. They don’t speak the same language and nobody, even the Germans, don’t want some other nation to tell them what to do.
As a “financial economist” you should also be familiar with the fact that spending borrowed money for consumption and useless investments will never lead to a balanced budget. Germany’s itself struggling with a debt problem, but has taken actions towards a balanced budget. There is nothing left to share. Euro Bonds will just blow more money in inefficient systems on behalf of the German growing efficient system. These states will default sooner or later due to the lack of Credibility. Germany will also default if it accept to lent his credibility to a club of states, that are nearly bankrupt.

Posted by AdrianBaf | Report as abusive

You cannot have a common currency without one fiscal policies set by vote by population and a bankruptcy court and laws for it voted by population.

If one loans money to those who can not pay without losing necessities, one should not expect payment. Holders of Greek, Spanish and Italian dept should not expect payment.

But of cause every one would feel better if loser sent commandos to bump off the book cookers.

Posted by SamuelReich | Report as abusive

Does anyone else think scythe is German? Anatole seems to have struck a nerve with this piece. lol

Posted by mondeo8888 | Report as abusive

In the USA when a city goes bankrupt the courts sets payments based on what can be paid. Since slavery has been done away with if loan to those who cannot pay without loss of necessities, you lose.

Posted by SamuelReich | Report as abusive

Well, I suppose it;’s a new view on the matter, but it strikes me as being absolute hogwash. Forcing Germany out of the euro would do it some short term harm but nothing like the harm it would do to the southern countries (France, Italy, etc) which would be completely blocked off from the financial markets. It would result in a split up of the EZ into 2: the northern and the southern. The northern countries will have their currency appreciate and the southern ones will have theirs devalued. But the damage to southern countries will be much more severe and they will take a much longer time to recover.

One should remember that Germany was doing very well before the introduction of the euro, when it had a very high exchange rate and a less efficient economy then it has now.

The problem is that the EZ concept was fatally flawed from the beginning. I’ve no doubt that many countries, including Germany, are planning and laying the ground work for the breakup of the euro.

Posted by GivaFromOz | Report as abusive

Very well written article and articulated very succinctly. Furthermore, it cuts to the core. It’s time to stop splitting hairs about mechanisms and look at the fundamental forces at work. A unified Europe can succeed. And be exquisite. But only if Germany relinquishes its sovereignty to a democratic Europe along with each member country. As you said, they need to transition into a European Germany, without unilaterally dictating to the other European countries. Their money is only part of a thriving society. There are many ways to live and work. There are many ways to be productive. The German way is not the only one.

Posted by SeaWa | Report as abusive


“You cannot have a common currency without one fiscal policies set by vote by population and a bankruptcy court and laws for it voted by population.”
Why not?

The only problem is that there are book cookers.

If people play by the rules, they wouldn’t be able to borrow money and load other people with toxic loan in the first place.

Everybody living within their mean. The reality that too many people ignorantly, recklessly and immorally refuse to accept.

Nevertheless, I can see a lot of people here who want the world to operate by the old Testament.
“When the Shmita year ends, personal debts which are due during that year are considered nullified and forgiven”.

It seems to have entrenched in them at the sub-conscience level.

While Shmita’s basic idea is very appropriate to apply to agriculture in the bad poor desert land of the middle east so the land can recover and be protected from over cultivation. I don’t think people should apply it in other situation.

When it comes to loan and money, it creates too much incentive to be a book cooker and scammer.

We definitely don’t want a chaotic world where everybody tries to swindle, lie and scam another. Nobody trusts anybody. Too hard to do business in that primitive environment.

Posted by trevorh | Report as abusive

“But only if Germany relinquishes its sovereignty to a democratic Europe along with each member country”

Replace a few words and we have:

“But only if the capitalists relinquishes their freedom to a democratic government along with other citizen”

Das Kapital
Karl Marx – 1867


Posted by trevorh | Report as abusive

First of all, the Germans are not going to cede sovereignty to a Europe that would be a financial disaster without them. In addition, the Germans have done their homework. The boon that the euro has been to Germany’s balance of trade pales in comparison to what it would cost to subsidize the eurozone perifery for an indeterminate period. Merkel is working in the best interest of her country, as she should. It won’t be necessary to threaten Germany with expulsion from the euro. They will walk before accepting the terms discussed by the author.

Posted by gordo53 | Report as abusive

This is basically a financial sector crisis where financial participants have been caught with their pants down and now are screaming for someone to bail them out of their peripheral EU positions.

The financial sector assumed that the Greenspan/Bernanke/Geithner doctrine would apply and that the central bankers (their favorite sugardaddies) would ride to the rescue and externalise their losses/costs on society as has happened over the last 15-20 years.

Merkel understands better than any other Anglo Saxon politician that these ongoing bailouts ultimatley lead to the destruction of societys REAL WEALTH and are unfair, morally wrong and unsustainable. Her calls for private sector involvement is actually how CAPITALISM is supposed to work and is basicallly about people taking responsibility for their own actions.

She has not vetoed everything that may work – she has been pushing for a financial transaction tax which would allow a substantial portion of peripheral debt to be pooled and paid down via the proceeds of this tax over say 20 years. This starts to impose the costs of cleaning up the crisis with those who created it (i.e. “The Polluter Pays” or the “You Break it You Own Principle”). Even the rival SPD in Germany is in favour of this.

However it is Mr Cameron and Mr Obama who have shot this proposal down as they seem beholden to vested interests in the financial sector

Posted by Maunsell | Report as abusive

Astounding. Absolutely astounding… I assume you’re a well-educated man Mr. Kaletsky, so that leaves either a lack of diligence or pure blind ignorance to explain how you could write this and expect people to take you seriously ever again. I’ll grant you it’s an opinion article, and you should express your opinion in it. What you should not do, is rest on the assumption that people will continue to read the drivel you’re putting forth as legitimate or informed opinion…. the laughable idea that germany is attempting a take-over of europe simply because they were careful and thoughtful when planning national finances, tastelessly referencing the dark chapters of 20th century history that everyone is still very aware of…. I hear Fox news is hiring……

Posted by Seriously... | Report as abusive

Germany might be the largest economy in Europe but it is just too small a country to bailout the rest of Europe. The economy of France, Italy and Spain combined is bigger than Germany.

Besides, there is no way Germany or any country will keep bailing out every failed bank in Spain or Italy.

Posted by kolyxix85 | Report as abusive

Angela Merkel is working in the best interest of her country, and the writer or this article is working in the best interest of his country too (England in this case).

Posted by the_italian_guy | Report as abusive

“Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany’s unusual geopolitical situation.”

Bull s h * t.

A lot of ire pointed towards Germany yet little focus on the disastrous economic problems that underlie the euro zone and the insolvent countries. How about we talk about the financials instead of the history of Germany? If you want to look at history, you need only go back two or so decades to the creation of the Euro to figure this out.

the_italian_guy is correct, this piece is propaganda in the interest of the UK. The UKs financials are in a disastrous state.

Posted by TheUSofA | Report as abusive

As long as Germany loans money6 to people who cannot pay, she will lose it. Unless of cause slavery or colonism (group slavery)is revived.

Greece, Italy, Spain etc. are bankrupt they have find away to export and live on cash not credit.

The EU has no bankruptcy laws so must break up when members have problems.

Posted by SamuelReich | Report as abusive

what would be the cost of a break up? would it be a one off rather than a permanent tax increase on the north to finance corrupt states in the south?(see for example french book called “ils ont achete la presse” highlighting the enormous state corruption in France- a far cry from the UK reality-. Italy is a failed state, civil servants issue new tax laws on Saturday night and Sunday they get paid 2x for overtime, etc etc etc…..)
Germany leaving the failed and corrupt states would be a cheaper solution for sure.

Posted by bobo123 | Report as abusive

Pathetic Political Pandering

Yet another attempt by London to undermine the Euro.
Not so surprising, considering Cameron being increasing alienated in Euro affairs, and London’s wish to project itself as the Knight in the shining armor.

Surprising though, is that they now recruit award-winning journalists/economists like Kaletsky for their pandering propaganda.

Posted by HA3 | Report as abusive

Everyone in the EZ sees the writing on the wall: the euro is at the beginning of its end. If you want to make a single currency, you have to tie it to a single government that can manipulate monetary policy in its own best interests. The Eurozone is a fiscal three-legged race, except the participants are all trying to go in different directions.

Angela Merkel is not responsible to the voters of Europe, she is responsible to the voters of Germany, just as Cameron, Hollande, Monti, etc are responsible to their voters.

I think the countries of Europe need to untangle themselves from this unholy game of Twister they hav been playing before it all comes crashing down.

Posted by smanchwhich | Report as abusive

I am German, and I am becoming sick and tired of being thrown in with the queen of dither and her hapless crew because of it.
I find it hard to believe that we are heading toward European dissolution to an extent that the recurrence of the last century’s dismal adventures no longer seems categorically impossible (and you are lying to yourself if your think you can somnambulistically kick nations out, and their pensioners to the curb, without risking developments spiraling out of control significantly more than they are already).
That lends the current discussion an urgency on a wholly different scale.
I find it imperative that a path is found that focuses on keeping Europe whole, and ensuring that this doesn’t slip beyond being an economic nightmare.
And since we are being led by the proven dunces (can you believe that German economic discussion is still dominated by straight-up neoliberalism ; I just can’t decide if this is the new standard for intellectual laziness, or simply a zombie attack by dead econo-boffins walking) of the global meltdownlet of 2007 et seq., best keep it simple: Go to where the money is, take it, and spend it on stuff we will need soon anyway (measures to keep things ecologically sustainable once the economy does pick up again come to mind).
And in the meanwhile, start thinking like the greatest economic body on earth that we are, and centralize regulation as if we were a common market and had a common currency.
And yes, prepare for long-term subsidies from the rich parts of Europe to the poor. It has served the USA well for many a decade, with California and New York still out-earning us after all these years; it promises to be the right thing to do (quite a novelty in this crisis) while also being comfortably sustainable over time.
And since we are in the age of nobody-knows-anything-anyway (you know, in a real world sense, no reason for you university types to stop churning out them papers) – Just do it!
And boy have I had it with all that German moralizing crap argumentation – for a place whose burgeoning economy was seeded both by capital robbed from the Jews (and not paid back in full, by any measure) and then topped up substantially via the Marshall Fund (inter alia) – both recently in historical terms – this tightfistedness is not becoming.
(Ironically, German reunification is proof that we can spend a trillion (D-Marks), waste a lot of it, and still come out ahead in most respects.)
Blame seems to be the basis for so many arguments presented here in the comments, so I would like to remind everyone:
No one involved is without blame. From Greece’s entry into the Euro zone to each rotten loan in Spain – everything went through layers (and often layers and layers) of evaluation and CYA. Not a single (German, French, Dutch …) bank or entity was forced to agree to anything against their will or their rules.
Systems were in place. As ever waiting to be played by Goldman Sachs. Surprised? Oh, please.
That lazy or dumb German (and to a lesser extent French, Dutch …) bankers and politicians became victims of their own wishful thinking isn’t exactly a first (Why was “Stupid German Money” a standard term both on pre-crash Wall Street, and in the American film-funding industry?).
Plus, if you are so invested in blame, keep it clean: The division between Germans and Greeks/others is a comfortable lie. Both Greece and Germany (and everywhere else for that matter) are chock full with people who had and have nothing to do with creating this crisis whatsoever, being too busy to make ends meet (occasionally grinding their teeth when their taxes are spent on inept bankers – and yes, especially salaried Greek workers); quite in contrast to each society’s upper echelons, happy to make out like bandits (and Swabian car designers) while things lasted.
Might it be time to give them their say? At least they can teach us a thing or to two about efficient frugality.
Anyway, let Friedman and Roubini arm wrestle for an opt out, and make the other guy the boss. On with it!

Posted by wadingout | Report as abusive

Everyone finds it easy to spend German money and commit Germany to keep propping up the weaker countries in future. As a citizen of one of the weaker countries I think Merkel is right. We need to get our spending in line with what we earn and austerity is the only way that is going to happen. We have had a great time as a country using the Euro credit card and enjoying what we can’t afford. Now it’s time to pay off the debts and get back to reality.

Posted by pavlaki | Report as abusive

Everyone finds it easy to spend German money and commit Germany to keep propping up the weaker countries in future. As a citizen of one of the weaker countries I think Merkel is right. We need to get our spending in line with what we earn and austerity is the only way that is going to happen. We have had a great time as a country using the Euro credit card and enjoying what we can’t afford. Now it’s time to pay off the debts and get back to reality.

Posted by pavlaki | Report as abusive

“with a much weaker currency and higher inflation, both of which would make debts easier to resolve.”

I agree. And the results of that ‘resolve’ process will wipe out their middle-class, drive their poor to the brink, and teach their wealthy to actively resist socialism instead of trying to buy it off.

The Germans learned frugality the hard way, and they will come out of this, however it goes, bruised but intact. They would be idiots to listen to fools like Kaletsky.

Posted by ARJTurgot2 | Report as abusive

What a rubbish piece of journalism and research, let me simplify things for you Mr Analotsky, may I use your credit card indefinitely and you’re at fault for not letting me use it as I have been for the last decade. If you call the police I will drachmail you!!!

Posted by SpecialKLondon | Report as abusive

Thank you so much!

I had been recently arguing that the idea of a “US of Europe” is an absolutely insane idea that totally ignores European history.

You made my point very “eloquently”.

It’s too bad Reuters doesn’t permit sound to be transmitted with its articles, because I could distinctly hear the refrains of “Deutschland über alles” being played in the background.

Posted by Gordon2352 | Report as abusive

Anatole,you are a waste man… poorly researched article, unnecessary referral to the world war. seriously, who let u write on reuters ?

Posted by slick12 | Report as abusive

@trevorth – So your position is that Germany should rule all of Europe? What exactly is your position here? Can you articulate it?

Posted by SeaWa | Report as abusive

may I use your credit card indefinitely and you’re at fault for not letting me use it as I have been for the last decade.

Exactly, SpecialKLondon.

No-one has an answer for the mess in Europe. The commonest refrain is a version of: Just print more money.

Some people believe that’s how the mess was created.

Actually, I’m looking for the Prophet/Guru who can see a way to live without (exponential) Growth, this being an impossibility yet is assumed to be the Ideal.

Posted by seymourfrogs | Report as abusive

“Can the rest of right wing fascist Europe stand up to right wing fascist Germany”? It’s like WWII. “Will Fascist Italy Spain and Germany fight one another or will they be best buddies in the anti-’commie’ cause”? 9 out of 10 say the later now as then until the world economy really drops off the cliff after the Prophesy of 12-21-2012 kicks off with full force. ;-)

Posted by Seattle | Report as abusive

I’m surprised to see someone actually putting these ideas in writing on the internet. About time. Thanks for the article.

Posted by lhathaway | Report as abusive

Why would the other countries possibly stand up to Germany at this point? Germany is the only dude in that apartment with a job. Southern Europe naps too much.

Posted by AlkalineState | Report as abusive

It is laughable that failing to convince Germany to bail out Club Med yet again is considered a “threat”. The fact that the EU is heading for disaster only reinforces Germany’s reasonable refusal to go over the cliff with the rest. They can always bail out and throw their lot in with the faster-growing Asian economies. The rest of them can trade with each other for corn and beans.

Posted by Jim1648 | Report as abusive

Mr. Kaletsky is apparently still stuck with the last century thinking … 1914, come on, are you serious? … what a baseless and pointless anachronistic anti-German tirade … I guess the writer feels he had to kick the U.K.’s favorite punching bag to kick off his new assignment at Reuters with a splash … ah well, Europe AND Germany are much better than Kaletsky’s cat and mouse scenarios anyway …

Posted by nyeb1960 | Report as abusive

not this time

Posted by running | Report as abusive

M.Kaletsky of course is not very much interested in the correspondance between Voltaire and Frederic II. He can’t imagine a power not turning in a dictatorship and remains obsessed by the Hitler case.

Posted by meleze | Report as abusive

Mr Kaletsky’s article brings to mind the oft told anecdotes of how well meaning good samaritans in the US of A are sued for damages by the very people who they attempt to assist. Are you suggesting that we shoot the rescuer not the perpetrator?

Frankly Mr Kaletsky I read the article with interest at the start and ended astonished. You have the wherewithal to write much better than this disguised invective. Perhaps as a responsible (albeit unelected) and be-medaled journalist you could write about how Greece cooked the books with the active aid and assistance of Goldman Sachs.

A simple question for you Mr Kaletsky – what should the EU do to/about/with (take your pick) Goldman Sachs?

Or is, in your opinion, the abetment of a “crime” not criminal at all?

Awaiting in anticipation …

Posted by Calibration | Report as abusive

I read mr. Kaletsky’s article with a mixed sense of relief and dread. Relief because at least some people are willing to overlook numbers and sterile logic to think outside the box and offer a view of the euro mess that some are either too timid or too “politically correct” to express. If his opinion reflects his political agenda is not the problem here. The euro experiment was indeed flawed from the beginning. But to believe that Greece’s and Spain’s financial woes were somehow unknown to the Germans in 2001 is to put it mildly naive. Which means that they were very well aware of the fiscal troubles that would ensue. Maybe Germany hoped it would even out in the end, or maybe the benefits outweighed the risks. And it doesn’t take an economist to realize the benefits of a common currency for an industrial economy. So the “holier than thou” Germans should at least consider that they’re partly responsible for the result.
The dread came from something that I hoped I would never consider in my youthful optimism. And that is that history repeats itself. Names and conditions might change, but people in general do not. No, it’s not a fourth Reich, like some Greeks like to call it, but one would be at least blind to overlook historical recurrencies and not pose the uneasy question: “what does Germany want if not a Europe of little Germans?”. Big ideas don’t necessarily have to be born out of malice. And that’s what the author of this article suggests.

Posted by Megasthenes | Report as abusive

Don’t forget, when Germany ruins out of money, the U.S. will have to bail them.

Posted by urownexperience | Report as abusive

Don’t these Germans understand that the One World Socialist E-Utopia is here? They knew they would have to starve the Americans for a few months before they got on board….but the Germans? Merkle will have to be replaced with a more sympathetic and “reasonable” player.

Posted by Farkel44 | Report as abusive

The real threat to the Euro is the Euro itself. The funny thing about socialism is eventually you run out of other people’s money.

Posted by GuyManningham | Report as abusive

The more important question is; can/will Germany stand up to the rest of Europe?

Germany should turn off the money tap NOW. Why should Germany fund the freeloaders of Europe?

Grow a backbone Germany and tell the EU, especially France, to cut spending or go it alone.

Censorship is evil.

Posted by ALLSOLUTIONS | Report as abusive

Aha…..the inevitable argument for Lowered Standards. Unless Merkel and her team have totally lost the plot, I would hope that they are working feverishly to ditch the Euro and by so doing leave Greece, Italy, Spain, France and the United Kingdom to clean up their own mess.

When the German people opposed the Euro way back when, they were right

Posted by akleinschmidt | Report as abusive

Well written article, unlike some of the comments which show a complete lack of knowledge and understanding of economics and the situation in European economies.

Posted by Rich_ie | Report as abusive

Good piece! I believe you are correct; markets will force the Latin bloc to confront Germany on the fomation of a banking union and ECB bond purchases.

However, will Germany retreat to middle ground and propose the notion of a redemption fund? This is rumored to be on the Summit agenda.

The European redemption fund would exchange all EMU member debt beyond 60% of an individual member’s GDP, the Maastricht limit, and for debt of a much longer term, 25 years. Countries participating would be responsible for their pro-rata share of the new debt, and would pledge tax revenues to service this. The fund would sell bonds to fund the exchange.

The redemption fund, essentially, re-finances a significant portion of EMU member debt. Debt mutualization is avoided. Asset values on shakey bank balance sheets rise, while pressure on individual budgets drops as a result of lower debt carrying costs.

This is a stall. It buys time to work out the details of various options, (1.) the creation of an effective banking oversight authority, (2.) pursuit of fiscal union, or (3.) Germany’s withdrawal, if that’s what eventuates.

Posted by billbradbrooke | Report as abusive

“And yes, prepare for long-term subsidies from the rich parts of Europe to the poor. It has served the USA well for many a decade, with California and New York still out-earning us after all these years; it promises to be the right thing to do (quite a novelty in this crisis) while also being comfortably sustainable over time.”

Speaking as a Californian…. The state is broke (15B deficit next fiscal year) and a governor that only solution is higher taxes. Oh yeah, about that, the people that have to pay those higher taxes are leaving the state to eat it’s own vomit. Bottom line, not so sustainable while you are at least still pretending to be a democracy.

Posted by mregl | Report as abusive