The slow motion fracturing of the Eurozone continues as revelations surfaced that German chancellor, Angela Merkel warned the EU her country could abandon the euro.  The Guradian reports the threat took place at the EU Summit in Brussels at the end of October.  Merkel became embroiled with Greek prime minister George Papandreou, who accused her of proposing “undemocratic” solutions to the crisis.

The Guardian writes,

Merkel’s central aim, which she achieved, was to win agreement on re-opening the Lisbon treaty so a permanent system of bailout funding and investor losses could be established to deal with debt crises that have laid Greece and Ireland low and are threatening Portugal and Spain. The Germans also called for bailed-out countries to lose voting rights in EU councils…

“If this is the sort of club the euro is becoming, perhaps Germany should leave,” Merkel replied, according to non-German government figures at the dinner. It was the first time in the 10 months since the euro was plunged into a fight for its survival that Germany, the EU’s economic powerhouse and the lynchpin of the euro’s viability, had suggested that quitting the currency is an option, however unlikely.

Merkel’s spokesman Steffen Seibert would not comment on her remarks today. But the threat, he said, was “not plausible. The chancellor sees the euro as the central European project, wants to secure and defend it and the government is not at all thinking of leaving it,” he said. “Germany is unconditionally and resolutely committed to the euro.”

Despite overwhelming opposition to her calls for depriving eurozone countries of their EU votes if they need to be bailed out, Merkel stuck to her guns on the issue at the summit, while conceding that the proposal would not feature at another summit in Brussels in two weeks’ time.

She argued that under the Lisbon treaty, which came into force a year ago, EU member states can have their voting rights suspended if deemed guilty of gross human rights violations. “If this is possible for human rights infringements, the same degree of seriousness needs to be awarded to the euro,” Merkel told the summit, according to the witnesses. She shelved the demand for suspension of voting, however, but won the argument on more limited change of the treaty to enable a “permanent crisis mechanism” to be established for the currency from mid-2013. This was rechristened the European stability Mechanism at last Sunday’s emergency meeting of EU finance ministers in Brussels which decided on an €85bn (£72bn) bailout for Ireland.

It is difficult to see the Euro surviving in its current form unless some miraculous burst of sustained economic growth takes place.  Merkel has insisted the primacy of politics over financial markets has to be restored.  She just might get her wish.  The clash of politics of “adjustment fatigue” in the troubled countries and the politics of resentment in Germany and other core countries just may terminally fracture the Eurozone.  Stay tuned!

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