Now German Chancellor Merkel is in deep political trouble after the election results in North Rhine-Westphalia in Western Germany. Merkel's party, the Christian Democrats, had their worst showing in NRW since World War Two ended. They received just under 26 percent of the vote, having received 35 percent two years ago.
That pretty much completes the cycle. No political leaders that stood in 2010 are going to survive the Merkel-Sarcozy bailout and austerity program, including Merkel. She is up next year and it is obvious that her political day in the sun is over. Germans aren't interested in underwriting the Greeco-Spano-Italo-Portugo-French welfare states. They won't do it and no government will survive that promises to do it.
The problem for all of Europe and really all of the western advanced economies is that they are out of chips. Some can play a few more hands before it is over, but all of them are in the same boat -- no money.
Neither side of the Eurozone crisis makes any sense: There is no reason for Germans to bail out Greeks and there is no reason for Greeks to adopt austerity. Neither position makes any sense and both Germans and Greeks will toss out any leaders that pursue such policies. Plain old-fashioned honesty is the right solution. The Greek debts cannot be paid. End of subject. It is time to face that fact.
What needs to be done is a "workout." Greece needs to sit down with its creditors and offer them 15 cents on the dollar or whatever and get this done. If that means some banks fail, they would fail anyway, since Greek debt probably isn't worth 15 cents on the dollar. Governments can nationalize their banks and deal with the resulting financial crisis by reorganizing the bank balance sheets (bank bond holders become equity holders to some extent) and then putting them back into private hands.
This solution averts the abandonment of the Euro and is simply dealing with an unpayable obligation in the only way that is possible to deal with an unpayable obligation. The politicians have been simply making things worse by pretending that there is some other solution that works. There is no other solution that works.