The German Rescue of the Eurozone: How Germany Is Getting the Europe It Always Wanted

Abstract

THE EUROZONE CRISIS HAS CONSTITUTED THE MOST SERIOUS economic, political, and ideological challenge to the project of European integration since the founding of the European Economic Community in 1957. The European Union (EU) and the common currency have certainly been through swoons before, but the possibility of a member state giving up the euro as a result of either international economic pressure, a political backlash against the EU, or a combination of the two never looked as high as it did during several junctures between 2010 and 2012. That political forces in states with both good and bad credit ratings were threatening to exit the Eurozone was bad enough; that seemingly fundamental questions about the immediate future had no ready answers unsettled markets even further. Could a member state leave the Eurozone and stay a member of the European Union? Could such an exit be managed without catastrophic disruptions to the state's economy? Would the exit of one country—Greece, most likely, but potentially even a country such as the Netherlands—lead to a series of exits and the rapid unravelling of the common currency? Facing such uncertainty, firms invested millions in contingency planning for a reinstitution of national currencies, and think tanks sponsored contests for the best idea on managing a euro breakup. The wisdom of the crowds, or at least the wisdom of Intrade, set the odds of a state exiting the Eurozone within a year at 50 percent for much of 2012.

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