Germany: Grappling with the Euro, and with Its Own Complicated History

Updated: Sept. 28, 2011 at 3.45am ET

If it's the big picture you're after, Frankfurt is the only destination in Germany. Most German cities are low-rise, fashioned from timber, stone and brick, though concrete and steel have been widely deployed to plug gaps left by Allied bombing raids. But the city on the Main didn't just repair and restore. It reached for the sky, and in the process helped to power the Wirtschaftswunder, Germany's postwar economic miracle. "Bankfurt" or "Mainhattan," nicknames coined as shining towers rose up to accommodate the core of Germany's financial services industry, is home to the world's fifth largest stock exchange, the national or European headquarters of 218 banks, a thicket of hedge funds and major insurance companies and the Deutsche Bundesbank, Germany's central bank.

It was also the natural choice for the location of the headquarters of the European Central Bank (ECB), responsible for monetary policy in the euro zone and now struggling after emergency bailouts of Greece, Ireland and Portugal and amid fears over Italy and Spain and of Greek default — an economic pileup that threatens the existence of the European currency itself, and one which ECB president Jean-Claude Trichet has called "the worst crisis since World War II." Like that war, the crisis threatens havoc on a global scale, visiting destructive forces not only on Germany itself and the 16 other countries signed up to the euro but on the rest of Europe and Europe's largest trading partners, including the U.S. and China.

Now as then, Germany is at the epicenter. "The euro is much, much more than a currency. The euro is the guarantee of a united Europe. If the euro fails, then Europe fails," Chancellor Angela Merkel told her parliament on Sept. 7. But what Merkel has been more reluctant to acknowledge is that Germany, as the biggest player in the euro zone, has no choice but to determine the fate of the euro zone, whether by doing a lot or doing not very much at all. On Sept. 29, parliament will vote on expanding the bailout fund, raising Germany's contribution from $168 billion to $287 billion, almost half the total. The measure is expected to squeak through, but won't be enough to restore confidence and stability. That requires a fundamental change in the way the euro zone operates.

And Germany is in the hot seat. After two world wars in the first half of the 20th century, the European project tamed German national ambitions. Saving the project appears to require Germany to do the very things the E.U.'s creators aimed to prevent: take a dominant role in Europe and stamp out many remaining national quirks. For the euro to survive, the thinking goes, the profligate peoples of the weaker euro zone countries have to be made to behave like sensible Germans. "It was expected with the start of European Monetary Union that peer pressure would work, but it has not worked," says Jürgen Stark, the ECB's former chief economist, who spoke to TIME just hours after abruptly resigning his post on Sept. 9, panicking already jittery markets. Stark, Germany's top representative at the bank, cited personal reasons but the move was widely interpreted as a protest against the bank's policy of buying sovereign debt to prop up ailing euro zone economies.

The sickest of these economies is Greece, a favored holiday destination among Germans, which has become something of a pariah among Frankfurters. "I'm fed up with working hard so the Greeks can sit in cafes and drink coffee with brandy all day," grumbles Uli, who hawks traditional beer steins to business-minded Frankfurt's rare tourists. "We're slaving while Greece parties," agrees Jens, a sausage vendor whose stand proclaims his product as "the best Wurst in town." He advocates letting the euro — and even the European Union — dissolve like fat on a griddle. At 28, he feels Germany "worries too much about history and too little about the future."

On the upper floors of Frankfurt's highrises, Germany's central bankers, financial chiefs and corporate masters understand how alluring that point of view can be, and why that means it's even more vital that Germany remain anchored in Europe. "The viewpoint from a German taxpayer's perspective is 'Why should I write a check to Greece if I don't know if the money will ever come back?'" says Martin Blessing, CEO of Commerzbank, Germany's second largest financial institution. "Germany underwent significant restructuring efforts over the last 10 years, which was tough. All our labor costs basically stayed the same, but in Greece they increased." Yet Blessing says this overlooks Germany's role as Greece's eager enabler. "We exported a lot of products to Greece. In effect we as an economy gave them a vendor loan. The exporter gives credit to the importer hoping that it will be repaid later."

A Greek default would put an end to those hopes for repayment — and has raised fears over the entire future of the euro. The common currency faces a dual threat: from weaker countries, who could choose to exit rather than undergo the painful, radical restructuring demanded of them, and from stronger nations such as Germany, who may opt out because the cost of staying in the currency threatens to outweigh the benefits of membership. But while the euro zone bailouts are onerous, membership still has great benefits in the form of a substantially weaker currency, which is essential to an exporting nation, and Germany's relatively robust economy is built on its exports, more than 40% of which go to other euro zone countries. The last thing Germany wants is to be lumbered with a strong currency, which it would undoubtedly get if the country tried to go it alone. "We have to think about what it would mean to exit the euro. What would happen in a scenario in which a reintroduced Deutschmark appreciated for example 30% within three months?," says Blessing. "How would that affect German exports and the country's workforce?"

That concern is shared by Isabel and Tobias Hahn, cousins who jointly run the family-owned Glasbau Hahn, a glassworks in the suburbs of Frankfurt. As an example of Germany's traditional small and medium-sized Mittelstand companies, it reflects the nation's economic strengths — and its vulnerabilities. The company makes display cases for museums — commissions have included the vitrines covering Tutankhamun's mummy in Luxor, Egypt and Abraham Lincoln's hair at Chicago's Museum of Science and Industry — as well as louvered windows and specialist glasswork. Only the third, and lowest-volume, group of products and services is aimed at the local market. Demand for museum glass has been up and down; after the doldrums of the 2008 financial crisis, a profitable 2010 has been practically erased by the Japanese tsunami and the revolution in Egypt, which caused the cancellations of substantial projects in both countries.