Derek Scally: If Greece fails and the euro fails, then Angela Merkel fails

When German chancellor Angela Merkel addressed the Bundestag last Thursday morning, she said little she hadn't said before. In her remarks on the burning issue of Greece, however, one familiar maxim was noticeably absent from her rhetorical arsenal of crisis cliches.

"If the euro fails, Europe fails" is a phrase she coined in the Bundestag on May 19th, 2010, to rally her doubtful Christian Democratic Union (CDU) into backing the European Stability Mechanism bailout fund. It's unlikely its absence from Thursday's speech was an oversight. As the Greek drama enters its endgame, Merkel knows what is at stake – for Europe and for her legacy.

If she secures a reforms-for-loans agreement with Greece, avoiding an Athens default, she will be the leader who pulled the euro back off the ledge. If she fails, triggering a Greek default and its euro exit, the euro will, by her logic, have failed as an irreversible driver of European integration. And the East German physicist once plucked from obscurity by Helmut Kohl will go into the history books as the woman who undermined her patron's political legacy.

The irony of this final act in the Greek drama is its timing: exactly a quarter century after European leaders agreed in Dublin Castle to back German unification and what became the euro.

After concluding their two-day meeting on June 28th, 1990, leaders expressed confidence that "German unification . . . will be a positive factor in the development of Europe as a whole". As a French- driven safeguard against a dominant Germany, leaders noted in two short sentences their agreement to "establish in stages an economic and monetary union".

Some 25 years on, a dangerous disconnect has developed between the Dublin agreements on German unification and currency union. Around the European Union, a growing Berlin-critical chorus believes the energy released by the former has triggered an existential crisis in the latter. The opposite view is widespread in Germany: that currency union and its errant members are placing dangerous pressure on the unified Germany that emerged four months after the Dublin summit.

Merkel Bridging this gap, between euro zone members’ expectations of Germany and Germany’s domestic debate on the euro zone, is the dilemma facing

Merkel today. If she can save just one – an intact euro zone or her political career – which will she choose?

The German leader knows that today's talks with Greece's prime minister, Alexis Tsipras, are no longer about technical details but rather about the political will to find a face-saving solution for all – including herself. She warned last Thursday that, if there's no political will in Athens to meet its creditors halfway, there's no way of helping Greece.

But striking a compromise to save Athens opens up a second challenge for Merkel: selling it at home against a toxic attitude towards Greece that is partly of her own making.

In the early days of the euro crisis, Merkel saw no need to intervene in what she viewed as others’ domestic financial difficulties. When she realised the problem’s scale, she continued to frame the problems as discrete debt crises in individual, profligate periphery states to be addressed with fiscal austerity.

Even when the scale and consequences of the respective crises for the euro zone as a whole became clear, Berlin was slow to act. Today even Merkel allies in Berlin concede that refusing to contemplate serious debt relief for Greece in the spring of 2010 was when they began rearranging debt deckchairs on the Hellenic Titanic.

German actions in Brussels have been bookended at home by two kinds of outrage. The Bild tabloid's influenced the popular portrayal of what it dubbed the "Pleitegriechen" – "broke Greeks". At the upper end of the debate, meanwhile, a stream of outraged economists and broadsheet editorials has portrayed the euro-zone crisis, like the currency bloc itself, as all pain and no gain for Germany.

The €70 billion in loans to Greece is viewed as dead money. Again and again the decision to adopt bailouts by sidestepping the “no-bailout” clause – Germany’s condition for adopting the euro – is cited as unforgivable treachery. The benefits to Germany from the euro – in particular an undervalued currency for Germany’s well-oiled export machine – are less visible and rarely mentioned. Never discussed is the role of cheap German capital in the euro periphery’s debt binges.

Berlin has been strong on highlighting the failings of others but weak on owning up to its own mistakes. Admitting Greece to the euro zone in the first place, for instance, or being first to breach the stability pact, are viewed around Europe as fatal moments of German EU policy. In Berlin, however, Merkel officials view these as regrettable errors of the previous, Schröder era, with consequences that have nothing to do with them.

Berlin adopted a narrow – “debt-crisis” – narrative of the euro crisis to force others in the EU into a tighter fiscal straitjacket. Yet now this same corset has added to the political squeeze in Germany between economist euro-zone critics and popular-media Greek obsessives. German public support for Greece remaining in the euro zone is trickling away rapidly in opinion polls, from 55 per cent in January to 41 per cent today.

Thus holding the euro zone together will require Merkel to do something she has rarely done: make a far-reaching decision at odds with German public opinion.

A supreme political analyst, she may have decided that the risks are worth taking. In her CDU, one in 10 rebelled against the second programme extension in February and a third of MPs have aired doubts about another. Selling any deal will leave her dependent on the support of finance minister Wolfgang Schäuble, increasingly sceptical that Greece can remain in the bloc.

Anything less than his unequivocal backing could force her to link further Greek aid to a confidence motion. That is usually the beginning of a chancellor’s end, though it may not come that far. Most CDU rebels can be reined in when reminded that they owe their seats to Merkel’s personal popularity and not their party’s own political strength.

What of the other political hurdles? Despite occasional squeaks of protest, her Social Democrat coalition partners have bought into her euro-crisis strategy. And, given their combined grand coalition Bundestag majority, the opposition Left and Green parties simply don’t count. Even the Eurosceptic Alternative für Deutschland, a refuge for CDU bailout sceptics, is dysfunctional at present thanks to internal feuds.

And what of Bild? With the next federal general election not due to 2017, an election Merkel may yet decide not to fight, Germany's influential tabloid can howl all it wants.

If Merkel chooses to go out on a limb to keep Greece in the euro, her motives will be more sober than those of her mentor, Kohl. Unlike him, she is not motivated primarily by the soldiers’ graveyards of Europe. She wants to avoid a post-Greek euro zone sleepwalking into the 21st century as the economic also-ran of globalisation.

Five years' ago, with an echo of Kohl rhetoric, she described the currency union as Europe's common destiny. If the euro fails, she said, the consequences for Europe – and beyond – are incalculable. Five years on, the canny German leader knows, too that if Greece fails, and the euro fails, Merkel fails. Derek Scally is Berlin Correspondent