The future of the euro does not depend on Italy. Nor does it depend on Spain, Portugal, Ireland, Cyprus or even Greece. How and whether the common currency survives will be decided in Germany and nowhere else: Berlin is now at the heart of the crisis.

The Treasury and the Federal Bank are surely aware of this, but the issue is a long way from being debated publicly with the necessary frankness. Only Germany can bear most of the burdens associated with saving the euro. The question is whether the Germans want to bear those burdens, and how long they still can.

In the lead-up to another bruising EU summit, German politicians and the German public have a breathing space for some sober reflections: what will the rescue of the euro still cost us, economically and politically? And what would be the price of failure — i.e., the disintegration of the eurozone — in whatever form? In either event, what risks would end up on the balance sheets of the banks and the Bundesbank? What would failure mean for Germany’s position in Europe? On the other hand, can and should the Chancellor continue to act as taskmaster of Europe?

Global depression difficult to avoid

Observers from outside Germany notice that the German debate about the euro is, to a surprising degree, a moral debate: "How did we come to such a pass that we pay the Greeks their pension at 45?" Such questions are quick to be asked, but irrelevant – not one euro has yet flowed from Germany into the Greek pension system. It is therefore time to raise the debate to an economic and a constitutional level.

The federal government must explore options for what it can and may do to rescue the currency. The boundaries of those actions are marked out by the Basic Law as much as they are by Germany’s economic power and by a German public that fears for its money and is coming increasingly to perceive the various rescue packages as a threat.

Angela Merkel’s current strategy has clearly failed in one important respect. Since 2010 she has always been just sufficiently behind the euro rescue to keep the currency, somehow, afloat. In the very understandable effort to keep her hand on the wheel, to force the partners to reform, she has bought time.

But more time has not put an end to the crisis: on the contrary, the costs have gone up, and the fear of a new and this time much more severe global financial crisis is growing. The downgrading by the Moody's rating agency of 15 globally operating banks, some by more than one notch, has sent out an alarm signal. The end-game of the Euro has already been underway for some time.

The break-up of the monetary union is now an option that has to be reckoned on – literally. From the German point of view, the consequences would not only mean that the price of the northern euro or the new D-mark, whatever the breakaway currency might be called, would skyrocket uncontrollably; it could also mean that a global depression would be difficult to avoid – and we can only speculate on the future of the EU as a whole. These days, some may wish the euro a dreadful end. It is questionable, though, whether they have any idea of just how dreadful this demise would be.

European banking policy with teeth

The rescue of the euro would also be very costly for Germany, and for France, Italy and other countries. The proposals of the IMF, the G-20 countries and many economists essentially amount to the same thing: the eurozone states have to bear at least partly in common the risks of their banking systems and their government bonds. German and Dutch depositors would be liable for Spanish accounts, German and French taxpayers for households in Rome, Madrid and elsewhere.

Without at least a limited collective European liability, the euro can no longer be defended credibly. This includes a European banking policy with teeth. Why are so many European banks undercapitalised – in contrast to the American competition? Because there is no European body that could force them to build up adequate reserves.

When to comes to the euro, the Germans are stuck between a bad choice and a disastrous choice. They should choose the bad one, and very quickly.