So what happens if the rest of Europe tells Germany to stick their rules where the sun doesn’t shine?

Well, Germany would be forced to make a very difficult decision, and Germany appears to making plans for that eventuality.

For example, Germany recently reinstated its Special Financial Market Stabilization Funds.  This money would be used to bail out German banks in the event of a break up of the euro.  The following is from a recent article by Graham Summers….

In short, Germany has given the SoFFIN:

1. €400 billion to be used as guarantees for German banks.
2. €80 billion to be used for the recapitalization of German banks
3. Legislation that would permit German banks to dump their euro-zone government bonds if needed.

That is correct. Any German bank, if it so chooses, will have the option to dump its EU sovereign bonds into the SoFFIN during a Crisis.

In simple terms, Germany has put a €480 billion firewall around its banks. It can literally pull out of the Euro any time it wants to.

If the rest of Europe continues to defy Germany, then at some point Germany may decide to simply pick up the ball and go home.

Germany is the strongest economy in the eurozone by far, and if Germany were to pull out the euro would absolutely collapse.  Whatever currency Germany decided to issue would be extremely valuable.  Such an event would actually have some tremendous side benefits for Germany.

Right now, the German national debt is denominated in euros.

If Germany left the euro, the value of euros would plummet and would likely keep declining as the rest of the eurozone fell apart financially and Germany would be able to pay back its debt in rapidly appreciating “marks” or whatever other currency it decided to issue.

All other debts in Germany would also be denominated in euros and would also be repaid with a much stronger currency.

Are you starting to get the picture?

Yes, Germany would likely have to bail out German banks if it left the euro, but leaving the euro could also prove to be a tremendous windfall for Germany.

If Germany chooses to say in the euro, it is going to be faced with extremely expensive bailouts of other countries for as far as the eye can see.

How expensive?

The following is from a New York Times article….

Bernard Connolly, a persistent critic of Europe, estimates it would cost Germany, as the main surplus-generating country in the euro area, about 7 percent of its annual gross domestic product over several years to transfer sufficient funds to bail out Europe’s debt-burdened countries, including France.

That amount, he has argued, would far surpass the huge reparations bill foisted upon Germany by the victorious powers after World War I, the final payment of which Germany made in 2010.

If Germany leaves the euro, that does not mean that the dream of a single currency is dead.  Germany could just let the rest of the eurozone collapse and then invite them to join the new German currency eventually after all the carnage is over.

At that point, Germany would have all the leverage and Germany would be able to dictate all the rules.

What is clear is that the status quo in Europe is becoming extremely unacceptable in Germany.  The Germans do not intend to give endless bailouts to other nations that do not appreciate them and that do not intend to follow the rules.

At some point Germany may actually decide to walk, and there are lots of whispers that Germany has been steadily preparing for that day.

For example, there are persistent rumors that Germany has ordered printing plates for the printing of new German marks.  Philippa Malmgren, a former economic adviser to President George W. Bush, says that she believes that this is already happening….

“I think they have already got the printing machines going and are bringing out the old deutschmarks they have left over from when the euro was introduced.”

Increasingly, it really is looking as if Germany is actually preparing to leave the euro.