If the eurozone were to shrink, Germany's once-captive markets would become too poor to import: and the rapid appreciation of a stronger euro would make its exports much pricier
Germany last week found itself able to borrow for two years at the astonishingly low rate of 0.07%. Very nice too: but surely the real message Angela Merkel and her colleagues must take from the successful auction of those zero-coupon schatz bunds is that the single currency simply isn't working.
All the money wants to flow in one direction: towards Germany. It is only the efforts of the European Central Bank, as a giant recycler of liquidity to dry areas of the eurozone banking system, that is ensuring a stability of sorts. This position can't be sustained.
You would be hard-pressed to identify any shift in sentiment in Germany, however. Eurozone politicians had dinner in Brussels on Wednesday and most came away hungry. Mariano Rajoy in Spain is screaming that his country can't afford to keep paying 6% to borrow over 10 years. François Hollande in France and Mario Monti in Italy want to see the introduction of eurobonds, a system of joint issuance of debts. But their prayers have so far gone unanswered, because Germany is not persuaded, even after the rest of the world's most powerful leaders, led by Barack Obama, ganged up on Merkel at last weekend's G8 summit at Camp David.
Her reluctance is, of course, understandable. First, Germany's interest costs would rise, perhaps by €50bn a year, if eurozone members were to borrow collectively, instead of as individual countries. And in the event of one country suffering a crisis, stronger governments – for which read Germany – would be on the hook.
Second, eurobonds, at least in their purest incarnation, would require massively increased integration of eurozone tax and spending policies – probably far beyond even the terms of the Merkel-sponsored fiscal compact.
Third, German voters would still be likely to object: there remains a powerful myth that post-unification Germany pulled itself up by its own bootstraps and that the advantages of being part of the euro were merely coincidental.
A leaked Merkel plan to impose a package of German-style reforms on Greece – including mass privatisation of public assets, slashing employment protections and throwing open the doors to foreign investors – was a reminder last week of what Berlin believes has been at the heart of its own economic success. The proposals are based on the measures adopted in post-reunification east Germany; yet that ignores the fact that there were simultaneously massive fiscal transfers from west to east, funded through a hefty "solidarity tax".
The policy recipe imposed on the rest of Europe by the Merkozy double act over the past four years has comprehensively failed: much of the eurozone is in, or close to, recession, while the debts of Greece, Portugal, Ireland – and increasingly Spain and Italy – remain unpayable.
If the weakest economies in the eurozone were cut loose, with Greece first over the cliff, as some believe the Germans would secretly like, it's a profound mistake to think Germany's mighty economy could simply return to business as usual, even once the immediate fallout had died down.
Germany has enjoyed a large and lucrative captive market among its eurozone neighbours over the past decade, and if they plunged out of the single currency, they would suddenly become rivals with currencies far too weak to afford nearly as many BMWs and Mercedes – and potentially weak enough to compete with Germany in key export markets.
A "core" euro, made up of Germany and its strongest neighbours, would be likely to appreciate sharply on the foreign exchange markets, making German goods more expensive for consumers outside Europe, in the US and the Far East.
In other words, Germany has been quietly reaping economic dividends from its membership of the single currency over the past decade, and it will now have to decide whether it's willing to pay a solidarity tax on a euro-wide scale. With three more weeks to go until the Greek election, and opinion polls suggesting the anti-austerity Syriza party may win the popular vote, it's decision time in Berlin, just as much as in Athens.