For all the posturing, politicians are bluffers and cowards
Germany would not pull out of the euro as to do so would destroy their credit rating
When the choice is: 1 - do a little more; 2 - Tear apart the euro, they will always do a little more
Outcome of the next few weeks - Do a little more
The crisis has brought about the possibility of a fiscal and political union forward about 50 years
Most are secretly happy with this
Lower interest rates, ESM banking license, banking supervision, more LTRO etc will be provided provided commitments are met
Nations not complying and too small to matter may be booted out
You missed the whole gist of the interview. Read the Landesbank bail out reference very carefully.
What this tells me is that the eventual pulling of the plug will be a purely *political* decision, driven completely by domestic political considerations. The short term economic cost is pretty much irrelevant by this stage.
Looking at the political dynamics behind reunification would be instructional at this stage. Kohl was warned in the starkest terms that any exchange rate less than 6 Ostmark to 1DM would be catastrophic for the East German economy. But Kohl had an election to win and the CDU were well set up to do well as one of the 4 collaborationist parties in the old DDR. They already had a party structure on the ground in the east. But Kohl want to make sure the easties voted CDU so he decided on an exchange rate of 1 Ostmark to 1DM. He won a landslide in the east driven by easties who thought they were now rich. Of course the East German economy promptly collapsed and the resulting financial debacle has cost the German taxapayers around 1.5 *trillion* euro in the decades since. And they will be paying the solidarity tax for decades to come.
So compared with the the complete and total financial fuck-up that was German Reunification the worst case scenario for the cost of Germany leaving the Euro is small change. A few hundred billion to temporarily nationalize some of the bigger German banks. It would be mostly monetary system money not financial system money so the kind of bail out they could live with.
But the cost to Germany of mutalization of Club Med debt over the next few decades would easily dwarf the cost of reunification. Its not just the debt incurred so far, its all those unfunded pensions in the other countries that the Germans are looking at. We are talking trillions here..
The Germans know they are facing the same demographic future as Japan, just two decades behind, so a euro bailout is a long term cost they absolutely cannot afford. They will be hard put to avoid a Japanese future without the dead weight of the Club Med hanging around their necks dragging them down too.