Der Spiegel, the reliably well-informed German weekly, reports that Merkel has decided that the British will never be full-hearted partners in an integrated Europe with a common currency and common economic policy. There is therefore little point in seeking to accommodate their grumpy and grudging presence in a Europe at which they sneer and snipe.
Merkel says she believes in a German future inside a united Europe and with the euro currency. That is the priority. To make it work means recrafting the eurozone into a single federal state in all but name, with a common economic policy and financial rules, a common judicial system and a common defense and foreign policy.
Since the British won't go along with this vision, Merkel's Europe will proceed without them. That is the logic of the German position but it is reinforced by Merkel's perception that the British have made their own choice never to be fully part of her vision of an integrated Europe.
David Cameron's British government has ruled out accepting whole swathes of Europe's judicial system, including the common arrest warrant. It refuses to join in the debt bailouts (and since they aren't in the euro there is little reason why they should). And as their price for accepting Merkel's plan for economic integration for the eurozone, the British want to renegotiate their terms of membership with the European Union and bring back wide areas of supposedly lost sovereignty to Britain.
Merkel has never forgiven Cameron for taking the British Conservatives out of the European Peoples Party, the center-right grouping in the European Parliament that was founded by German Christian Democrats, on the grounds that it was too federalist.
Instead, Cameron bizarrely joined the European Alliance of Conservatives and Reformists with Czech and Polish euroskeptic parties and some rather odd and very right-wing groups like Latvia's Fatherland and Freedom Party.
Cameron was driven by Conservative Party politics, where the older generation of party leaders and activists have been replaced by Thatcher's children, a generation of euroskeptics who came of age as Margaret Thatcher was swinging her handbag and demanding "my money back" from the European Union.
The die-hard United Kingdom Independence Party, which wants to leave Europe altogether, gets 7-11 percent of the support in opinion polls, enough to keep Cameron's Conservatives out of office at the next election.
Cameron has sought to compromise, using anti-EU rhetoric to win back UKIP voters while remaining at least semi-attached to the European Union. Denis MacShane, who was minister for Europe in the Tony Blair government, reckons that Cameron is probably the last leader of the Tory party to be committed to staying in the European Union.
His resolve is due to be tested. The German insistence on new centralized powers over eurozone budget and economic policies means amending the treaties on which the European Union is founded. This change will require referendums in several countries, including Britain. It is far from certain that these votes can be won in France and the Netherlands, which have each voted "No" in previous votes. But in Britain, a "No" vote seems highly probable.
We shall see. But the dynamic is clear; while the eurozone countries see the financial crisis as forcing them to become more integrated, Britain is steadily drawing back from further European commitments. And influential Germans have had enough. Herbert Reul, the chairman of the EPP group in the European Parliament, says the sentiment the British should simply leave has become common among his colleagues.
Last month Blair warned, in an interview with Germany's Die Zeit, that the eurozone debt crisis would lead to a "powerful political change of the EU, and on this point, I am deeply worried that Britain could decide by referendum to leave the whole process."
"If more competences are transferred to the EU, then its democratic legitimacy must be built up too," he added. "Britain must play a strong role in this. Because we need a balance between European institutions and the nation states. If this is done wrongly, we could create a political crisis that could become just as a big as the euro crisis. People will not go along with the abolishment of the nation state."
It is an open question whether France would truly welcome a British departure, leaving them as a permanent subordinate to Germany inside Europe, or whether Germany really wants to lose the British as the strong voice for free market and structural reforms and for a close alliance with the United States.
The most likely outcome is a multi-speed Europe, with a German-led hard core intent on building a European federal state, while Britain, Sweden and Denmark remain semi-detached, still inside the European Union and its single market but outside the eurozone, with Norway and Switzerland even further on the fringes.
But the moods and the political dynamics are changing fast, thanks to the urgencies of the eurozone debt crisis. A Brexit, or a British exit, is becoming a serious prospect, even though losing Britain in order to keep Greece looks a very strange bargain.