Duncan Hamilton: Angela Merkel must share the pain or the blame for euro’s fate

YOU’RE either part of the solution, or you’re part of the problem.” We have American author and activist Eldridge Cleaver to thank for that stark analysis.

Although it was first delivered to the Black Panther Party, a revolutionary African-American socialist movement, in 1968, it encapsulates exactly the challenge for capitalist leaders in 2011 attempting to save the Eurozone from disaster.

This crisis is reaching the endgame. Germany has choices to make. They are uncomfortable choices, each carrying risk. But the dithering and the indecision must now give way to a leap of faith or an acceptance of failure. The whole euro project was essentially precisely such a leap – and in times of plenty Germany was the cheerleader of that process. The evangelical zeal for a one-size-fits-all currency was a product of modern European history – a desire to ensure that the nations of Europe would be so tightly interwoven politically and economically, that a prevailing, irresistible unity of purpose would emerge. Peace and prosperity would be guaranteed.

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But the wheels have come off, and the engine has fallen out. One by one, the nations of Europe are being broken by the market. The market senses weakness. It has no conscience, no political agenda, no preference as to which political model should prevail. When faced with uncertainty, risk and a void of leadership, the market is a cold and calculating killer.

We all know about Greece, and we thought we had seen the worst in Italy. But this week we had a sign of things to come. France has effectively lost its triple-A rating for debt, Belgium has been downgraded, Italy has been forced to pay 6.5 per cent on six-month debt and an unbelievable 8.13 per cent on three-year bonds. Let’s be clear, there is absolutely no way on earth that borrowing at that rate is remotely sustainable. The cost of borrowing for the Netherlands and Austria also rose sharply. Prepare yourself for Pudsey donning a euro-crested eye patch and appearing on a special “Countries in Need” appeal across the Eurozone.

But what of the great Germanic Sugar Daddy? Where, in the euro’s time of need do we find the Germans, the authors of much that is unfolding before us? Fiddling whilst Rome burns, it would appear. Except, of course, that now Germany is being burnt too. On Wednesday, Germany went to money markets and tried to raise ¤6 billion. “Thanks, but no thanks,” said the markets – buying only two thirds of the debt on offer. Why? Because the markets know full well that this absurd dance around the demise of the euro will inevitably land at Germany’s door. Either Germany agrees to Eurobonds (which pool the collective risk of all Euro nations under one bond and explicitly stands behind the weaker nations) or it agrees to the ECB ploughing money directly into national bonds to drive down yields. That essentially amounts to Germany paying for those bonds via a different mechanism.

But the notion that Germany can simply engage in cajoling the weaker nations into reform (which has already included regime change in Greece and Italy) and remain apart from the market carnage is not now credible. On Wednesday, yields on ten-year German bonds rose above ten-year UK bonds for the first time since 2009. That is a warning shot Germany cannot ignore.

Angela Merkel will argue that her hands are tied. Domestic politics, challenges in the Constitutional Court and the deep scars on the German psyche of Weimar inflation make the ECB printing money unacceptable. All of that is fair, but none of it should be incapable of resolution in this moment of crisis. If Italy has to accept a prime minister elected by no-one and Greece is to suffer a ferocious assault on public services, Germany has a responsibility to find a way to throw off the shackles of its history.

Germany remains the one Eurozone economic powerhouse. Pooling that capacity to allow others to borrow cheaply would offer immediate relief. That in turn might steady the Eurozone and restore order. Only then can growth start to drag the Eurozone back to safety. If I was German, would I think it unfair that I was having to pick up the tab for the failure of other nations? Yes, of course. But that is exactly what the euro was about – sharing risk and sharing reward. German refusal to accept the inevitable transfer of wealth – by whatever mechanism is ultimately favoured – simply provides another example of the triumph of national interest over multinational co-operation. If Greece is to be lambasted for fiscal anarchy and failure to stick to the rules of the euro game, Germany is now wholly open to criticism for its failure to accept that the big picture demands German sacrifice. If that is not to be forthcoming, so be it. The euro will fail. But know this – Germany will share the blame.

It is time for Germany to put a price on the euro. Merkel constantly tells us she will “do whatever is necessary”. And yet that is demonstrably untrue. Merkel will argue that she can go no further and that she is only doing what any responsible national leader would do. Maybe so, but if this is all now about protecting national self-interest at all costs, the euro dream has already died.

Greek profligacy and German intransigence – little wonder this battered currency may struggle to survive.