In the European currency war, Germany has the biggest arsenal and the strongest interest in forestalling the collapse of the euro. So why is it playing Hamlet: "To lead or not to lead?"
To ponder and waver is not the old German way. Today, Germany is about as aggressive as a pussy cat, but pundits and politicos from the U.S. to Greece have blamed its dithering for rising market volatility and the mounting costs of the debt crisis. The 50% haircut on Greek bonds decreed at last week's EU summit should have been imposed a year ago. Athens was insolvent even then. So it is always too little, too late. Whenever the Berlin-backed European Union rescue brigades and the European Central Bank close one breach, the markets attack on another flank. They will do so again, and the euro will remain in peril. Greece simply cannot grow enough to service its debt.
As the euro burns, Mrs. Merkel fiddles mixed messages. In Berlin the chancellor preaches generosity, dispatching German taxpayers' funds to Athens. But in Brussels she stalls, demanding ever-more austerity and market reforms before relenting at the last minute. The euro rises, then drops again.
Mrs. Merkel's latest volley—that any Greek referendum on the terms of a rescue package by the EU and the International Monetary Fund would decide whether Greece keeps the euro at all—sent markets roiling this week.
Yet the unraveling of Euroland would hit Germany the hardest. The neue deutschemark would shoot up, while the nouveau franc and the nuova lira would nosedive. And so would Germany's exports, now an astounding 47% of its gross domestic product, two-thirds of which stay within the EU.
So why isn't Mrs. Merkel rushing forward to grab Europe's crown? The answer, of course, is history.