Der Spiegel’s leak should make life easier for Angela Merkel.
Then again, it might not.
The German weekly magazine has published an internal report from the finance ministry in Berlin claiming that a break up of the euro would lead to a 10% contraction in the German economy in the first year with the number of unemployed nearly doubling.
To many Germans such an outcome would be anathema, and the finance ministry itself seems to conclude that sticking with the euro would be preferable.
For the German chancellor, who is struggling to keep her coalition partners and the German people on board efforts to prevent the currency union from falling apart, the report should prove a boon.
Now Ms. Merkel can point to an authoritative estimate of the cost of failure.
This could prove an important stick as she attempts to nudge the country towards the issuance of joint euro zone bonds that will spread the risk and essentially push euro countries towards closer fiscal union.
A major step toward this was achieved over the weekend, when the government reached agreement with the country’s 16 states to ratify the Europe’s fiscal pact and new bailout mechanism. The finance ministry’s projection of the cost of a euro failure could also provide ammunition for Merkel’s opposition, both at home and abroad.
At home, it could be argued that a swift 10% contraction in the Germany economy is a small price to pay for ending the euro, as opposed to Germany shackling itself to the weak members of the euro zone in perpetuity.
As many would argue, Germany will continue having to pay for the peripherals for many years to come and the cost could be considerably more than 10% of GDP over time.
In other words, the finance ministry would have to come up with a much scarier scenario to convince the sceptics that it’s worth Germany staying in the euro.
The report could be more effective abroad.
Those countries seeking or likely to seek concessions on the terms of their bailouts could use it to squeeze more out of Germany.
At the top of the list, of course, is Greece, where the new coalition government is trying to extend its austerity program for at least two years.
But the Spiegel report probably won’t provide any leverage for Athens, because an exit from the euro there would still be seen as positive for the single currency in the long run. The report becomes significant only if a major peripheral like Spain needs a sovereign bailout.
In that case, Madrid would doubtlessly force Berlin to take a hard look at the risks that an end to the euro zone would pose.