The pressure on the hapless euro continues to build in 2010.
Germany now has the choice of bailing out Greece and probably another couple of Club Med basket cases - or stepping out of the euro itself, probably along with the Benelux countries and one or two others - and leaving the Club Med countries within a rump euro able to devalue to a more suitable exchange rate.
The shambles in the Greek economy is now making daily news. One day there is speculation that the Chinese will come to their rescue by buying Greek bonds, the next that the story was untrue. Another day there is a story that the Greeks will manage to borrow via a joint euro-zone bond, presumably guaranteed by all the euro-zone governments. Then the Greek prime minister George Papandreou tries to play down the speculation.
The spread of Greek 10-year bonds over German ones and the cost of credit default swaps reached around 4%pa.
And today comes news that Spain's unemployment claims have topped 4 million, up by over 700,000 in a year and now 18.8% of the workforce. Spain's prime minister, José Luis Rodríguez Zapatero has trashed Spain's economy in less than six years. Just yesterday, state television in Spain reported that Barack Obama had no plans to visit the EU-US summit hosted later this year by Zapatero.
Obama can just leave Zapatero and the EU to wallow. But what should Germany do?
German goods are flooding the Club Med countries. In the 12 months to November, Germany and Benelux had a current account surplus of $211 billion. Spain had a deficit of $82 billion, Italy $74 billion, France $57 billion and Greece $37 billion.
Why should Germany collect all this cash just to be expected to funnel them back into these countries in rescue loans that may never be repaid?
"Politically," said Bundesbank chief Axel Weber, "it's not possible to tell voters that they are bailing out another country so that it can avoid painful austerity measures that they themselves have gone through. Such aid, whether conditional, or – even worse – unconditional, is counterproductive."
And if the German central bank is voicing its unwillingness to bail out the Club Med then could Angela Merkel decide to go ahead anyway? The failing euro experiment does look as if it is coming to an end in less than a decade. But it is still not clear whether Germany will jump out from the top or whether Greece and other Club Med countries will collapse through the bottom.
Now that Barack Obama is not planning to be at the EU-US summit the EU leaders could usefully show up in Madrid and use their time without him to plan the most painless termination of the euro experiment.