The interesting conundrum is that Greece does not appear prepared to accept the austerity measures demanded of it, particularly since unemployment is projected to reach 20% by the end of 2010 before budget cuts have an impact.
German citizens were given a pledge by their leaders in the 1990s that loss of the D-Mark would not lead to monetary disorder, or leave them liable for Club Med debt. That is the sacred contract of EMU.
Other eurozone members, aware that a German exit would destroy the value of the euro, would be willing to make significant concessions to keep Germany inside. Such game-theoretic jockeying increases the chance that a German politician would want to threaten such a trick.
The way the media and politicians are covering the Greek bailout, is as if it actually has happened. All that is in place is a framework under which conditions must be met for it to go ahead. The most important condition is that all Euro members have to agree to it, and it is not 100% certain that Germany will. The bailout is extremely unpopular in Germany and there is an important state election in North Rhein Westfalia to contend as well.
I believe that Germany should veto the bailout, as it is a ridiculously short sighted plan, that will encourage the other member states that are in a self-made financial mess to not sort out their finances. If Greece is bailed out it will be the beginning of the end for the Euro.
The Germans no longer accept being required to be the EU’s paymasters to atone for their Nazi past. There is also an increase in euroscepticism in German public opinion. While Germany introduced austerity measures and trimmed down its welfare system, countries such as Greece refused to do so, relying on the fact that the EU (read: Germany) would bail them out when they got in trouble in order to save the euro.
Stand united, Deutschland!