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Merkel's blunt message: Save the euro to save Europe

German Chancellor Angela Merkel gave a blunt assessment of the stakes as European leaders struggle to solve their continent's government debt crisis and save their common currency, the euro.

German Chancellor Angela Merkel gave a blunt assessment of the stakes as European leaders struggle to solve their continent's government debt crisis and save their common currency, the euro.

"No one should think that another half-century of peace and prosperity is assured" if leaders in the European Union fail in this crisis, Merkel said last week to German legislators before a key vote on the latest financial rescue package.

The comment by Merkel, who grew up in the former East Germany and, as head of Europe's biggest economy, has taken the leading political role in steering Europe through its turmoil, alluded to the European Union's fulfillment of its main goal.

That goal was to bind Germany's fortunes to those of Western Europe to pacify the nation that had dragged the continent through two devastating world wars.

Merkel's dogged leadership, especially her speech on Wednesday to her own parliament, is noteworthy. She might lead the mightiest of Europe's nations, but Germany simmers with the rest of Europe in a cultural stew spiced by bitter memories of militarism and bloodshed. It is a mix of national sensibilities, bound by an abstract cultural heritage, that can be variously described as disciplined, casual, and reckless.

Backed by the economic might of the United States, Germany evolved from its status as a nationalist trouble-maker in the first half of the 20th century to the expected, though somewhat reluctant, saviour of Europe today, though it, too, has violated financial rules meant to ensure the euro's stability.

"If the euro fails, Europe fails," Merkel has said repeatedly, trying to convince Germans that their nation's long-term success depends on the prosperity of an ever-more unified Europe, even as her government takes baby steps toward fixing the problems.

One reason for Merkel's incremental approach is the increasing resistance in Germany - which prided itself on financial conservatism, at least until state-owned banks fell hard for subprime-mortgage bonds in the last decade - to opening its wallet to bail out countries that borrowed more than they could afford.

The counter-argument, by analysts in France and elsewhere, is that Germany, as the biggest European economy and one powered by exports that drew wealth from weaker economies to the south, now has to pay.

The most recent step toward solving the debt crisis, touted as a leap by European government officials, came in a marathon effort last week in Brussels. Leaders agreed to boost the bailout fund to $1.4 trillion through leverage, agreed that private banks should voluntarily write down Greek debt 50 percent, and decided that banks would have to raise $148 billion in capital.

Financial markets reacted positively. But analysts - including one at Wells Fargo & Co. who recalled that agreements in July targeting only a 21 percent write-off of Greek debt by banks were touted as a "final package" by European leaders - expressed doubts. The critics say the package is probably too small, will be difficult to execute, and does little more than buy time.

But in the short term, the deal was a victory that Merkel could take home to Germans skeptical about paying more to save the euro.

"The public at large is not convinced, despite the clarion call by Merkel that German stability is one side of a medallion, with the other being the stability of Europe. They don't buy it," said Jackson Janes, executive director of the American Institute for Contemporary German Studies in Washington.

"They see what happened in Greece," a popular vacation spot for Germans, Janes said. "They get angry. Here, we put a country back together that was divided for 40 years, we made sacrifices. Why don't you do the same?"

A recent Eurobarometer survey found that 54 percent of Germans favored providing financial help to weaker members of the 17-member eurozone. Another survey, in the first week of October, found that 37 percent of Germans would vote for a political party that is critical of the euro.

For decades after World War II, Germany typically went along with whatever the rest of Europe decided about unification. That approach was particularly strong under former Chancellor Helmut Kohl, but "it's fraying at the moment," said Mattias Kumm, a professor of law at New York University and in Berlin.

Janes attributed the shift in part to a German exhaustion with the European unification project: "There is a sense of saying, 'How big can Europe really get?' How much more can they really absorb? How much money can the community pay for?"

But there appears to be no sensible alternative to the common currency. If Germany went back to its beloved D-Mark, its value would soar, hurting the country's exports, which enabled Germany to come out of the 2008-09 global financial crisis stronger than it went into it. The country's unemployment rate, 6.6 percent, is lower than it had been in 20 years.

The biggest test of continued European unification efforts will be the enforcement of rules, part of the 1992 Maastricht Treaty, that were supposed to keep government debts in check. Even Germany violated the rules, which limited annual budget deficits to 3 percent of GDP. Germany's was 3.3 percent last year, but this year the country is expected to return to compliance.

Merkel hopes to give those rules some teeth to prevent governments from borrowing with impunity. "We either eliminate the structural weaknesses," she said, "or rather, defects of the economic and monetary union now, or we never will."