What Will The Germans Do?

Jean Pisani-Ferry at Project Syndicate (h/t Mark Thoma):

In this context, Germany again finds itself in a situation akin to that of the late 1980’s, when the Bundesbank was setting monetary policy for the rest of the continent. At that time, German Chancellor Helmut Kohl wisely concluded that German economic dominance of Europe was not conducive to a stable equilibrium, and that a better plan for the future was to build on Germany’s weight and influence to create a permanent common monetary order. Kohl’s insight gave birth to the euro.
Today, once again, it is in Germany’s best interest to ensure lasting stability in Europe. With foreign assets worth €6 trillion ($7.9 trillion), most of which consist of claims on its eurozone partners, Germany would lose out massively if the eurozone fragments. Claims on entities within partner countries would be redenominated in weaker currencies – or the borrowers would default on them. Obviously, German exporters would be hurt by substantial currency appreciation.
German Chancellor Angela Merkel has sensibly decided to take the lead on reforming the eurozone. But many Germans feel deceived by some irresponsible eurozone partners, giving rise to the temptation to use Germany’s current strength to toughen sanctions and coerce weaker countries into adopting constitutional changes, especially concerning fiscal policy.
This is a risky attitude. To be sure, Germany has far more leverage today than it has had at any point in the last 20 years. But attempting to extract unilateral concessions from partners is a recipe for disappointment. It is one thing is to be sanctioned for breaching the rules, as with the Stability and Growth Pact; it is quite another thing to permit elected national governments and parliaments to be overruled, and national budgets censored, by an unelected higher authority.

It's time for Germany to decide what will happen.  I think the breakup of the Euro will hurt them the most.  Will their desire to punish the spendthrifts in the periphery cause them to inflict more pain on themselves than necessary?  Whatever happens, it's going to happen soon.

In the meantime, the U.S. finds itself with a little decent economic news.  I didn't anticipate that, but I wonder how much of that is related to the payroll tax cut.  With discussion about extending that tax cut going on right now, I wonder what happens when we have to give up said cut?  I don't figure on much future economic growth, because whenever we start to get ahead, we'll have to start paying back some of what we borrowed.  I anticipate a long future of slow growth followed by slowdown, followed by slow growth, etc.  That is assuming that Europe doesn't drag down global growth.