Most definitely, German euro.
The EFSF’s ceiling will be brought back to €440bn, the level that was agreed originally. It came down to €250bn due to commitments the EFSF had to give to obtain a triple-A rating. That will allow Merkel to claim at home that the €440bn ceiling was not raised. Wolfgang Schäuble said yesterday there is no rush to take action now, and that Germany will condition further expansion of the EFSF on rules for greater fiscal discipline in Europe—above and beyond what it necessary under the stability pact—El País reports. In other words, Germany will force a deflationary adjustment in the rest of the eurozone in exchange for a commitment to allow the EFSF to act beyond Portugal.
As for the operating rules, discussions are continuing, with no agreement in sight. Germany is not willing to accept that the EFSF purchases bonds in the secondary markets – the ceiling would simply not allow that. There may be some leeway for agreement on a lower interest rate.Back home in Germany, the anti-euro crowd (there are definitely euro-skeptics there too) are essentially drawing a line in the sand: €440 billion ceiling for the European Financial Stability Facility, and no euro-bond. And if Wolfgang Schaeuble’s words are any guide, Chancellor Angela Merkel will not cross that line, if she knows what’s good for her, politically. And she does—oh does she ever!
So the battle lines are becoming clear: Germany demands austerity, and full payment of any sovereign bond—no defaults, no extraordinary rescues.
On the other hand, if there is another panic—like in Greece last spring, like in Ireland last fall—then the country in crisis (Here’s looking at you, Spain) will have to suck it up, regardless of their domestic political cost.
All this means is, Germany is consigning the weaker economies to a deflationary collapse: If you have another sovereign bond panic, suck it up and deal with it.
This is suicidal for any nation facing such an off-the-cliff moment.
So the next crisis in the eurozone could likely be the last: If Germany continues with this foolish intransigence, mindlessly demanding fiscal austerity and no bond haircuts—much less a euro devaluation—then the next country to suffer a bond market panic and subsequent funding crisis—likely Spain—will have no choice but to exit the euro. Which could mean the start of the end of the euro.
Germany does have a habit of slicing off its nose to spite its face.