Could there be a German 'Marshall Plan' for Europe?
Bit by bit the German political elite is retreating from the position that there can be:
a) no prospect of a euro breakup;
b) no Greek default;
c) nothing but grim Maastricht-compliant orthodoxy from the European Central Bank (ECB);
d) an orderly solution to the crisis.
In fact, ever since the Greek riots of late June - which forced German Chancellor Angela Merkel to back down completely on private sector involvement in the new, permanent bailout mechanism, after she was convinced it would cause another Lehman-style event - you can see Germany's position in retreat.
Germany had good reason to be the last defender of austerity and fiscal restraint. It has the healthiest of the big economies, its banking system is broad and has withstood financial shocks. In any fiscal transfer to save the eurozone, the transfer will always be of German taxpayers' money to somewhere else.
Now its problems are threefold: one strategic; one tactical; one psychological.
The tactical problem is, can German politicians, diplomats and bankers get onto the front foot and now engage in an orderly resolution of the sovereign debt crisis? Leave aside the unpopularity this will stir inside Germany, it is a question of statecraft, not democracy.
With Juergen Stark taking his bat and ball home, the way is clear for the ECB to become a pro-active, crisis managing central bank (albeit on a wing and a prayer and with a lot of guidance, frankly, from the Fed and IMF), so does Germany continue exerting pressure against this or not?
Strategic problem: in the board rooms of the major investment banks there is only one debate going on - does the eurozone end up as a D-Mark bloc (Germany/Austria/Finland/Netherlands)?
Or a shrunken eurozone (same plus France, Slovakia, Estonia)? And on what terms are Spain and Italy "saved" to be part of what emerges?
Peripheral Europe diplomats talk darkly of a potential "crisis of democracy" - always, you understand, somewhere else, but it is a meme.
In the chancelleries of Europe, above all in Berlin, these are questions that are impossible to mention. There is a total mismatch between political expectation and what is imminent.
It reminds me - as so much of 2011 reminds me - of 1848. Metternich sneering out of the window at the irrelevant mob, a few hours before his unceremonious overthrow, Guizot unable to breathe with shock as he resigns his ministry, Thiers, prime minister for one day, suffering a bout of 19th Century Tourette's in his carriage, hounded by the masses…
Nobody can imagine what is about to happen. They keep conflating all potential solutions with the catastrophe itself (if the euro goes the single market goes, the euro and the EU are one project etc etc), just as the rulers of Europe convinced themselves in 1848 that to grant trial by jury and uncensored newspapers was tantamount to socialist revolution.
Here is the psychological problem: some German policy makers - the ones with exposure to the wider world of Anglo-Saxon and Asian capitalism - are now discussing, in the background, a German 'Marshall Plan' for Greece and southern Europe.
It flies totally in the face of the zeitgeist propagated by Bild and Der Spiegel, but, says my informant it goes like this: the Germans took millions of dollars in Marshall aid and rebuilt their country after 1945.
Could Germany, in a one-off act of expiation that puts that era behind us, do the same for southern Europe, wiping out its moral debt once and for all (for clarity here I emphasise over Marshall aid, not the war itself)?
It would need the German political class to put itself ahead of the people. If it happened it would signal Germany stepping onto the stage as a world power, eclipsing France - whose banks are in need of recapitalisation.
Centre of a maelstrom
So far Germany's instincts in this crisis have been to stick by the old rules: in a debt crisis, the lender must lose money; don't over-extend a central bank that has no tax base; bear down on inflation because that is what is says in all the treaties we have signed.
But what they stand to lose in any eurozone breakup is their market. It will be damaged cyclically and trade patterns will be restructured. The competitive advantage built into Germany's position in the eurozone will be eroded if southern Europe defaults, exits, devalues. And do they think handing large chunks of south European infrastructure to the Chinese state in some ways enhances Europe's diplomatic cohesion?
US President Barack Obama said last night the eurozone is what is dragging the rest of the world into crisis territory once again (oh, and that small matter of the US demonstrating its lack of institutional stability in the face of fiscal crisis).
What is true is that the eurozone is at the centre of a maelstrom, and that a critical event is coming, and that during that everybody's going to have to step up, do statecraft, be pro-active.
Keynes comes in for a lot of stick these days but his greatest achievement was not to design the rescue of 1930s capitalism through state intervention: it was two-fold.
It was to say:
(i) in 1919 don't punish Germany and push it into a downward economic spiral that will cause social chaos; and
(ii) in 1941: hey, fellas, what's the world going to look like when we win? Here's an idea…