Euro Crisis: Should Germany Take The Blame?

Days before David Cameron's last visit to Berlin, a senior figure in Angela Merkel's CDU party made the claim that "suddenly Europe (Chicago Options: ^REURUSD - news) is speaking German".

It was a suggestion that Germany was now the dominant decision-maker in the eurozone and even the wider EU club.

It annoyed the UK government. But that annoyance was partly down to the fact that there was more than a modicum of truth in it.

Certainly Ms Merkel's working relationship (I'm not sure one could go as far to say friendship) with the former French President Nicolas Sarkozy, allowed her to speak and voice opinions publically and privately with the weight and support of the eurozone's second largest economy onside.

Such was that partnership it even had it's own portmanteau: Merkozy.

But Mr Sarkozy has now left office and in no small part because the French people disliked his approach to economic recovery, and therefore voted him out.

He's been replaced by the socialist Francois Hollande who encourages a growth strategy, not the austerity drive championed Ms Merkel.

An austerity drive so obviously hated by people in France, Greece, Spain, Italy and other countries being forced to impose such measures.

President Hollande has insisted everything is still "on the table" in a deliberate and ill-disguised reference to German opposition to eurobonds.

On Tuesday, finance ministers from the G7 group of nations (United States, UK, France, Germany, Canada, Japan (EUREX: FMJP.EX - news) and Italy) held a conference call to discuss the ongoing crisis.

As is normal, few details of the discussion were made public although the Reuters News Agency quoted an unnamed G7 source predicting, pre-call, that it would be an exercise in "German bashing". Say no more.

The point is that there is a growing and rather sudden rebellion against Germany and more specifically Angela Merkel.

The tone in Europe, indeed the world, has changed, and in no small part because, if there is a plan, then well, it isn't working. And any such failing plan has Ms Merkel's name on it.

The German publication Der Spiegel, one of the most read in Europe, published an article this week entitled "The End Of Germany's Illusions".

The article concludes that "...it is in Germany's interest to solve the life-threatening problems within the currency union both swiftly and sustainably.

"But steps more radical than Germany has been willing to take will be necessary to achieve this - and that goes for both Chancellor Angela Merkel's government and the German people at large..."

It's an honest analysis of the harsh reality Germany is now facing. Do try and read it.
Germany can no longer watch the eurozone crisis unfold on the peripheries of the continent from its safe seat in the centre of Europe.

The much-feared contagion is spreading. In April, German industrial exports fell at their fastest rate since November (Stuttgart: A0Z24E - news) 2011 as orders from abroad slowed down.

Why? Simple. Many European countries can no longer afford to buy its products in the volumes they once did. The eurozone crisis is starting to hurt Germany too.

Occasionally you get the feeling that everything is on pause until June 17 - everything except the all-important financial markets that is.

Could it be that the decision makers are waiting for Greece to make its decision in the hope that the "right" result will calm the frenzy?

Sure, the uncertainty of who will be the next leader to govern Greece is doing nothing to help the situation.

Some even blame Spain's problems to this uncertainty, but simply hoping that the Greek people will eventually vote for a pro-austerity, pro-bailout party, is a dangerous game.

And they might not. Indeed the polls, which are still on the whole too close to call, more often than not have the anti-austerity Syriza party narrowly in the lead.

So then what?

There are three possible outcomes for the eurozone and only one of them is good for Germany. Unfortunately that one is unlikely to the point of fantasy.

1. The eurozone simply sorts itself out without major intervention from Germany, the ECB or a wider European initiative. (That's the fantasy).

2. Germany takes the leads, and shoulders the burden for the long term and greater good.

3. Greece and/or other countries leave the eurozone. Debts aren't honoured, currencies are devalued, leaving contracts worth considerably less. The whole of Europe suffers falls in GDP, runs occur on banks, money flows out of the eurozone to relative safe havens. (That's the worst case scenario).

There is a growing sentiment in Germany that they are in a no-win situation.

When I was last here a few months ago, everyone I spoke to was adamant that the country should no longer pick up the tab for those countries that had neglected their economic responsibilities.

Now it isn't hard to find people who concede that something needs to be done and that something will involve further costs to the German taxpayer.

Leave the final word to Joschka Fischer, the former German foreign minister. He said recently in a newspaper article that: "Germany destroyed itself, and the European order, twice in the 20th century.

"It would be both tragic and ironic if a restored Germany, by peaceful means and with the best of intentions, brought about the ruin of the European order a third time."

Dramatic? Perhaps. But the German psyche is one built on fear. Fear of debt and inflation. Fear of a divided, disunited continent. And it's that last one that is rising to the surface and in doing so over-riding the former.