Greek showdown puts Merkel in Euro hot seat

It didn’t have to get this bad. For much of this self-fulfilling anxiety,Europe can blame German Chancellor Angela Merkel and her decision to publicly drag out her resistance to a euro-based solution to Greece’s woes. It was a high-risk move,uncharacteristic of a low-key politician. It shook currency and bond markets,but it suited German public opinion,which is not only hostile to a Greek bailout,but increasingly fed up with the euro in general.

It was not surprising to see Merkel insist on greater accountability within the 16-nation euro area: that’s what German leaders do. But by standing up for national interests and values,she let Europe down. Ahead of this week’s EU summit,she badmouthed any euro-based aid package for Greece,saying a ‘superficial’ show of solidarity could end up hurting everyone. She kept hinting at a role for the IMF—despite strong objections by the ECB,and even from her own finance minister,Wolfgang Schaeuble.

If the IMF does play a financial role in the final aid package,it will be Merkel’s doing. She may be right to challenge the imbalances within the euro area,between,say,Germany and Greece. Many argue that this is the 11-year-old currency’s fatal flaw. But if she wants to take on this task,she must show the leadership demonstrated by her mentor,former German Chancellor Helmut Kohl,when he led his European partners into launching the common currency more than 10 years ago. So far,she hasn’t.

It’s clear that saving the euro will now take money—German money,in particular. Extending loan guarantees to the euro’s weakest member may be the price the EU’s biggest economy has to pay if it wants to continue to play a decisive role in the region’s future. Leadership doesn’t come cheap.

It’s worth recalling that the Marshall Plan,launched by the US after World War II to help its allies get back on their feet,cost 2% of America’s GDP every year for four years. In time,the political and economic benefits outweighed the cost.

Merkel has floated other solutions to the euro crisis,but they aren’t realistic. She has called for a change in EU rules that would exact greater budget discipline on member governments,and an amendment to allow the expulsion of egregious violators from the euro area. It’s highly unlikely that the EU’s 27 members would reopen the long-contested Lisbon Treaty,which changed the rules governing the EU as of December 2009,in order to subject themselves to such harsh medicine. It’s not just the euro that is at risk. The escalating crisis has revealed new strains in the French-German partnership,a pillar of the EU,fuelling old grievances and stereotypes.

French finance minister Christine Lagarde was the first to take the offensive early last week,challenging Germany to ‘harmonise’ its hefty trade surplus with the rest of the euro area—in other words,to share the benefits it has reaped from being the EU’s major exporter. “Those with surpluses could do a little something,” she suggested. “It cannot just be about enforcing deficit principles.”

This could be the crisis that will propel the EU to reach for the political and economic integration it needs to strengthen and stabilise its monetary union. It would be a pity to let it go to waste. But such a goal requires time,and a political vision that rises above purely national concerns. The question is whether Merkel,and Germany,can set that example.