The events of recent months present the eurozone as a dysfunctional bourgeois family, the latter-day Buddenbrooks morphing into Karamazovs.  At the plot’s core is the loveless marriage of two incompatible, increasingly embittered partners.  Teutonius is a rich yet parsimonious workaholic who abhors mortgages and long holidays.  His much younger spouse, Meridiana, has inherited all the stereotypical traits of her Greek, Iberian, Italian, and Irish ancestors.  He accuses her of marrying him only for money, of maxing out their credit cards and depleting her 401(k), all of which is true.  She retorts that he knew full well what he was getting into but did it all the same because he is a control freak who had always wanted to dominate her, and has finally succeeded in doing so by luring her into the matrimonial trap.  She may be right, too.

There is an array of minor relatives.  A few side with the paterfamilias, while the rest try to stay out of his way by sticking to the servants’ quarters.  Then there is Aunt Marianne, well past her prime but pretending otherwise.  Her heart is with Meridiana, but she fears Teutonius and feigns being his reliable partner.  Outside the household there is Uncle Albion, who has seen better days but is nevertheless thankful to his lucky stars for deciding not to move in with the rest of the family while the going was still good.

A dispassionate marriage counselor will untangle a complex story full of ironic twists and unintended consequences.  He may well conclude that a negotiated separation—it can never be amicable—is preferable to a mutually intolerable, open-ended status quo.

Back in 1990, the euro was a French idea, the late François Mitterrand’s condition for his approval of Germany’s reunification.  In theory it was supposed to remove exchange-rate risks from the eurozone market, reduce the costs of transactions, stimulate cross-border trade, create an area of monetary stability, and force member countries to practice fiscal responsibility.  The unstated intent was to curtail the power of the Deutschmark and to bind reunited Germany more closely to Europe.  The Deutschmark was to be Chancellor Helmut Kohl’s burnt offering on the altar of European integration.  The Germans agreed after some hesitation, the symbolic name euro was duly adopted, and the new currency replaced the European Currency Unit (ECU) in January 1999.  Three years later, in January 2002, colorful new banknotes and coins replaced national currencies in the initial 11 countries of the eurozone.

In the early years the plan worked to the advantage of the periphery.  All of a sudden, it was possible to obtain loans in Athens, Madrid, and Dublin at interest rates as low as those in Berlin and Frankfurt.  The result was a period of rapid growth in the south—largely financed by northern capital chasing fresh opportunities—and German stagnation.  The “PIIGS” (Portugal, Ireland, Italy, Greece and Spain) used the cheap cash not to modernize their economies, nor to increase their competitiveness, but to finance speculative projects and to indulge in excessive public and private consumption.  Tens of billions went into Greek government bonds and building booms along the Spanish costas.  Ireland’s growth reached 4.5 percent in 2004—the highest in the eurozone—partly fueled by a great increase in property values, but not accompanied by any improvement in the country’s international competitiveness.

However seemingly disadvantageous for the Germans, the new situation proved to be a blessing in disguise.  The periphery was awash in investment funds, and German manufacturers realized that their only chance was to become ever more efficient and globally competitive.  Workers had to endure years of flat wages and high unemployment.  Social tensions were high, but the successive cabinets have stayed the course.  The fruits have been ample: Since 2007 Germany’s export-led economy has continued growing in spite of the crisis, and her supremely well-made products are successfully competing with those of the Asian Tigers.  Her budget deficit will drop to zero in 2014, and her budget will likely move into the black thereafter.

A conspiracy theorist may argue that the Germans had known all along that the euro would create a captive market for their export juggernaut.  The southern periphery could no longer protect its domestic markets from the deluge of better made, more efficiently produced German goods by resorting to occasional devaluations vis-à-vis the Deutschmark.  At the same time the German domestic market remained flat: Because of stagnant wages there has been no offsetting demand north of the Alps for southern goods (food, oil, wine, textiles, coastal real estate) or services (tourism).  The growing trade deficit was bridged by northern commercial banks supplying loans for southern purchasers of mainly German goods.  The southern periphery is now caught in a triple bind: Its exports cannot grow because they cannot be boosted by devaluation; its domestic demand cannot be stimulated because of draconian austerity measures; and its economies are additionally burdened by high interest rates on German-led, multi-hundred-billion-euro rescue packages.

By design or by default, Germany appears to have created a new European order.  Decisions made in Berlin and Frankfurt are affecting the economies of some half-dozen peripheral countries inhabited by a hundred million people.  The trouble is that the financial and political burden of the euro project is becoming almost as cumbersome for Germany as the price of running a global empire continues to be for the United States.  Germany has contributed one third of recent rescue packages and emergency reserves, but the possibility of resistance movements arising along the periphery is real.  Spain’s interest payments will rise to 4.5 percent of her GDP in 2016, Ireland’s will be 5.5 percent, and Greece will have to pass a crippling 6 percent on to foreign creditors.  At the same time those countries’ projected growth will be at best half of that, between two and three percent per annum.

Sooner or later the Germans and their northern associates will face three unpleasant choices.  They may need to write off a significant portion of southern debt, but this would set a precedent that would undermine the credibility of the eurozone.  An even less palatable alternative is to accept higher inflation rates all over the zone.  The next option is to continue making large net transfers and putting together ad hoc rescue packages when crises erupt, but the will of the German political and financial establishments to continue doing so is wearing thin.  Chancellor Angela Merkel is under growing pressure from public opinion and from the parties forming her ruling coalition to stop equating the survival of the euro with the future of the European Union itself and to allow the possibility of some restructuring of the zone.  “Greece will not be able to service its debt,” leading German economist Hans-Werner Sinn says.  “The sooner that is recognized the better it will be for all parties involved.”  Lars Field, one of Chancellor Merkel’s advisors, said on January 19 that Greek debt would have to be “rescheduled or restructured” (coded Eurospeak for de facto sovereign default) and that Germany would find it difficult to increase the euro rescue fund.

Doing so might also be illegal.  The Federal Constitutional Court in Karlsruhe is set to rule in May on whether last year’s aid package for Greece and subsequent agreement to establish the European stabilization fund have violated Germany’s constitution.  One of the suits was filed by five venerable legal and financial experts, including the influential former CEO of Thyssen, Dieter Spethmann.  The use of E.U. money to support rescue packages is illegal, they assert, not only under German law but under Article 122 of the Lisbon Treaty.  They warn that the erosion of German state finances “strikes a blow at the constitutional foundations of our state and our society.”  Furthermore, it “trifles with the future of our children and grandchildren.”  To fight this travesty does not signal a return to outdated nationalism, they wrote, but the right of German citizens to demand that their government abide by its sworn oath to protect the nation against threats.  “No currency reflects Europe’s highest values,” the five signatories concluded.

Maintenance of the eurozone is now effectively limited to European public treasuries acting to protect private bank creditors.  The bureaucrats in Brussels are in a state of denial, but they cannot continue for long.  The Greek crisis last May and the Irish crisis last November will be followed by further contagious defaults.  Portugal may well be managed, but Spain would be a rescue too far.  The process will continue until the euro is taken apart, or until the four PIGS—and perhaps Italy, too—are expelled from the eurozone.  Since this outcome can hardly be avoided, it is better to act sooner rather than later.

“The end of the euro would be the end of Europe,” French President Nicolas Sarkozy declared in his New Year’s address.  “I oppose with all my strength this backward step which would make a mockery of 60 years of European construction which has brought peace and fraternity to our continent.”  This is nonsense.  The euro is currently the major cause of both discord in Europe and a wave of Germanophobia not seen since 1945.  The Greeks joke grimly that, for every extra percentage point of their debt, the Germans will shoot a hundred hostages, and Deputy Prime Minister Theodoros Pangalos declared that the descendants of World War II occupiers had no right to issue orders to Greeks.

Contrary to Sarkozy’s rhetoric, trying to keep the eurozone afloat at any price is the biggest threat to the European Union.  As long as the euro is upheld, the European Central Bank will be forced to try to square the circle of operating a single monetary policy and uniform interest rates for a widely different group of countries.  The results will be periodic emergencies all along the periphery.  They will take different forms at different times—a fiscal crisis here, a banking collapse there, a property slump everywhere—but like the erupting lava finding its way through the Earth’s crust, the crises will never stop and can never be resolved.

Only on the ruins of the eurozone, or perhaps after it is reduced to its northern, hard-currency, inflation-free core, will it be possible to recreate a self-adjusting exchange-rate mechanism that reflects different countries’ economic efficiencies and fiscal policies.  Once it is accepted that the euro has always been a political project not justified by economic considerations, Teutonius will no longer be obliged to go on paying Meridiana’s creditors, and the depressing, long soap opera will finally be over.