In a speech to parliament in Berlin before a fortnight of crucial elections and summitry in Europe, the German chancellor bluntly told the rest of Europe to get real about the crisis, dismissed calls for Berlin to share responsibility for other eurozone countries' debt, and rejected charges that Germany was not doing enough to stabilise the currency.
"Germany is strong, is the economic engine and anchor of stability in Europe," Merkel said. "Germany is deploying this strength and this power for the benefit of people not only in Germany, but also in the service of European unification and the world economy."
But she warned: "Germany's strength is not unlimited. The way out of the crisis in the eurozone can only be successful if all countries are capable of recognising the reality and realistically assessing their strengths."
With the crisis well into its third year, the German leader sounded both pessimistic and newly combative, delivering some of her toughest language to date on Europe's predicament. She is keenly aware that she is increasingly isolated in her approach to the euro drama but shows little sign of shifting.
Referring to the G20 summit opening on Monday in Mexico, she said: "Once again Germany will be the centre of attention." She argued that some of the formulas being proposed for saving the euro using German money would simply amount to illusory short-lived fixes, condemning Europe to a future of high debt and economic mediocrity.
The blunt message from Merkel came days after a new €100bn (£81bn) rescue package for Spain, the eurozone's fourth bailout in two years, and days ahead of Greece's fateful election on Sunday which could decide whether the country becomes the first to be forced out of the single currency club.
Berlin takes the firm view that, regardless of the election outcome, Athens will need to honour the stiff eurozone terms if it is to be kept solvent. It also blames the Spanish prime minister, Mariano Rajoy, for being too slow to request last weekend's bailout after he repeatedly ignored dozens of German requests for a frank analysis of the condition of Spain's banks.
The way the Spanish bailout was handled has unsettled rather than reassured the financial markets, Berlin believes. The role of the London-based European Banking Authority in the Spanish debacle has been in Berlin's view a complete and utter failure, meaning that a new European system of regulating eurozone banks should be established.
Merkel sounded bitter at the international pressure being heaped on Berlin to save the euro by, for example, agreeing to guarantee the savings of bank depositors across the eurozone or yielding to the calls for common European liability for the borrowings of eurozone governments – eurobonds.
"Seemingly simple ideas for pooling [debt] are not feasible constitutionally and totally counterproductive," Merkel declared in one of her strongest rejections to date of eurobonds. "They would turn mediocrity into Europe's yardstick. We would be abandoning our ambition of retaining our prosperity in worldwide competition."
Berlin is incensed that eurozone debtor countries are clamouring for Germany to underwrite their borrowings but are reluctant to cede sovereign powers over fiscal and budgetary policy to Brussels in return. "Liability and control belong together," said Merkel, meaning that copper-bottomed, German-scripted intervention in other countries' budgets would need to be in place before Berlin eventually committed to opening its chequebook to rescue the euro and repair others' profligacy. "All other discussion amounts to a bogus solution of our problems."
The robust talk from Merkel came as Madrid's borrowing costs broke through the affordability barrier of 7% for the first time in the history of the currency despite last weekend's eurozone agreement to bail out Spain's rotten banks.
If Berlin is frustrated with events in Spain, there are also worsening frictions with the new French regime of President François Hollande. Following talks in Rome with the Italian prime minister, Mario Monti, Hollande was expected to unveil his first euro rescue plan ahead of an EU summit in a fortnight. The plan calls for using the eurozone's bailout fund to rescue teetering banks directly and for the fund to be granted a banking licence so that it can tap more money from the European Central Bank.
The proposals are anathema in Berlin, suggesting a Franco-German clash is looming. For the first time in years the French and German leaders are approaching an EU summit with sharply conflicting positions. The convention is that they get together before a summit and draft joint proposals which are then swallowed by the rest of Europe.
But the Germans believe that Hollande, in his first moves as president, is peddling a false prospectus by, for example, reducing the retirement age. With youth unemployment in France at 25% and a widening competitiveness gap with Germany, Berlin takes the view that the markets will force Hollande to change track and conform more to German presciptions on European and national economic policy.
Ahead of the G20 summit, where the Obama administration is certain to try to pressure Merkel into more immediate action to stabilise the euro, the chancellor also sent a signal to the White House which is worried that a worsening crisis in Europe could ripple across the Atlantic and damage Obama's re-election chances in November. Germany is already doing its best, Merkel declared.
She is known to take a dim view of US calls for fiscal stimulus to try to get Europe growing. Such policies in the US are not producing a sustainable American recovery or lowering unemployment, Berlin believes.
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image: © Dirk Vorderstrasse