BRUSSELS, Nov. 22 (UPI) -- It cannot be reported as fact, but rumor and logic suggest that a highly secret group of German officials is secluded in a discreet Frankfurt office suite and trying to draft a contingency plan for a return to the deutsche mark.
It would be irresponsible for Germany, and for other eurozone members, not to consider and prepare for this worst-case scenario.
The euro isn't and shouldn't be doomed. The European Union remains the world's largest economic block. Half of the world's 10 most competitive economies are European, including the powerhouse Germany. In terms of cash value, there are more euro banknotes than U.S. dollars circulating in the world.
And yet the currency carries a whiff of death. How many more rescues will it need?
Only six months ago, the eurozone countries and the International Monetary Fund launched a trillion-dollar rescue fund to shock and awe the markets into the belief that Greece wouldn't be allowed to founder and that the eurozone would stand firm.
The European governments thought this fund would never have to be used; the very knowledge that it was there would deter the speculators.
The markets were temporarily reassured but doubts persisted and now it is the Irish who are at risk, but in a rather different way.
In Greece, the threat was that the Greek government wouldn't be able to service its debts. In Ireland, the fear is that the heavily indebted banks will go bust. But the Irish government has given its banks' debtors a blanket guarantee, so a private crisis has become a public one.
Ireland's banks are too indebted to borrow any further in the capital markets, so they turned to the European Central Bank, which has lent them more than $150 billion over the past year. The Irish government has launched its own rescue, raising this year's state budget deficit to a breathtaking 32 percent of gross domestic product.
The markets understandably don't think this is sustainable. Some $600 million was withdrawn from Irish bank accounts in August and September. Then the German government, which will be most expensively liable if that trillion-dollar rescue fund has to be triggered, publicly suggested last month that maybe private investors should share the pain. That made the markets even more nervous.
The German government was under pressure from German banks, which feared losses on their $175 billion they have at risk in Ireland. The British banks have more than $200 billion at risk. The U.S. Treasury has been muttering about another Lehman-style disaster if Ireland defaults and underwriters have to start paying out on credit default swap obligations.
So the ECB and the Germans have been pressing Ireland to tap the trillion-dollar fund and use the money to restructure its banks, repay the ECB loans and reassure the German banks that they would not lose their money. Since the trillion-dollar fund would want 5 percent interest while the ECB charges just 1 percent, the Irish government (which has no immediate need of loans) resisted.
The threats intensified. The Finns suggested that Ireland might have to put up some collateral for any loan it received. The Germans and the European Union saw this as a chance to force the Irish to scrap their low 12.5 percent corporate tax rate, which attracted lots of big corporations, such as Intel, to Ireland.
So as the Irish government over the weekend negotiated the size and cost of the latest sticking plaster to be applied to its stricken economy, the country's leading newspaper spelled out the depth of the national humiliation. The Irish Times asked if the freedom fighters of 1916 had died for "a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side."
"Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund," the paper's editorial went on. "The true ignominy of our current situation is not that our sovereignty has been taken away from us, it is that we ourselves have squandered it."
So they have. After the years of easy money, Ireland has built up total debts (state plus household plus bank plus corporate) of a staggering 700 percent of GDP.
And once the sticking plaster is applied to Ireland, the markets will turn their attention back to Greece, or on to Portugal, or further on to Spain, which might be the most difficult of all. The markets have yet to factor in the dubious solvency of the decentralized Spanish regional governments.
The markets are testing whether the euro can hold together, which means whether Germany has the political will to keep bailing out the profligate smaller member. A year ago, no sane observer would have entertained such a question. And even a month ago, no one would have believed that a European leader would question whether the EU itself could survive.
But last week, EU President Herman Van Rompuy said publicly that the EU was facing a "survival crisis."
"If we don't survive with the eurozone, we will not survive with the European Union," he said in Brussels.
And so if there is no secret group of German officials preparing a contingency plan for the euro's collapse, there most certainly should be.
