The 1tr mark note – symbol of Germany’s fears

Outside the European Central Bank, Frankfurt

Forget Athens or Rome for now. The solution, if there is one to this crisis, now lies in Frankfurt.

It is seen as the silver bullet for the euro crisis. It’s unsurprising that Portugal’s president today suggested massive central bank purchases of Euro government debt as the solution to this crisis. Extraordinarily, this week David Cameron too specifically named the European Central Bank as the institution that needs to do more to solve this crisis.

Basically, this means printing money, whether in combination with the EFSF, IMF, or just straight-up purchases on a massive scale that are then maintained or “unsterilised” in the jargon – i.e. Bank of England-style quantitative easing, known here as geld drucken, or printing money.

And if you want to know why Germany hesitates over signing the cheque, launching the big bazooka to solve the euro crisis, then come here. Specifically, go to the Bundesbank, Germany’s central bank, which has an incredible museum called the Geldmuseum.

It looked like a German rite of passage to me. Schoolkids initiated into the cult of stable money: low inflation and low debt. Germany’s central bank steered its post-war economic miracle after the ravages of 1920s Weimar hyper-inflation and wheelbarrows of cash, when money became “so worthless that it was cheaper to burn it than to buy fuel”.

Germany could not even find the paper to print its worthless money on. Remarkably, in a pull-out draw, you can see German currency written on playing cards, on gift wrap, and even embroidered currency. Then there’s a real trillion mark note.

And it was the Bundesbank that permanently solved this with a strong and stable Deutsche Mark. But now the euro, run by the ECB, is in trouble, and again people are talking of trillions. Global pressure on the ECB essentially to print trillions by buying huge quantities of Italian and Spanish government debt.

So, slowly, the ECB is being backed into a corner that is forcing its German sponsors to ask serious questions. Already two senior German officials have resigned from the ECB over its limited purchase of government bonds.

Politicians want more Germans on its executive board. They fear that the ECB is losing its Bundesbank DNA. They fear that inflation is at 3 per cent, and the ECB’s new Italian president, Mario Draghi, is cutting interest rates. Martin Murtfeld, a retired 76-year-old top German banker, put his hand next to his heart as he explained to me the historical origins of the fears in Germany that the ECB was moving away from its stability role.

The ball is now in the court of paymaster Germany, because in Greece and Italy there has actually been some progress towards a solution. Lucas Papademos was sworn in as prime minister of a technocratic Greek government today, vowing to keep Greece in the euro. In Rome Mario Monti was welcomed to the Italian senate as it voted to back a new budget law.

Both moves pave the way for Mr Berlusconi’s exit this weekend at the expense of another government of technocrats led by former European commissioner Monti. In both countries elections have been averted, for now.

Yet on the streets of Frankfurt, the sense is that Germany is stuck with paying the price. And that it is willing to pay the price for Italy, but perhaps not for Greece. Chancellor Merkel’s CDU party will discuss legislation allowing a country to exit the euro next week. Pandora’s box has been opened.

Frankfurt’s glorious opera house has become an unlikely symbol of the extreme efforts to by Europe’s political elite – Sarkozy, Merkel, Brussels and Frankfurt – to keep the grand euro project going. I visited the space where the Groupe de Francfort, formed just three weeks ago as an eight-piece ensemble of the Merkozy, Juncker, Lagarde, Draghi, Viceroy Rehn, Von Rompuy, and Barroso, and now driving through euro stability with limited democratic oversight.

Of the eight, three are elected and five are selected bureaucrats. They seem to have removed Berlusconi, as I predicted on this blog before the EU Summit. They are pulling rank on the euro periphery with their allies Monti and Papademos. Democracy seems to be taking a back seat.

But what of the democratic process in Germany?

Certainly, the professor responsible for Germany’s legal challenge against sharing all of Europe’s debts says Germany’s is at its limit. Professor Markus Kerber told me it was a “myth” and “French propaganda” that Germany had benefited from the euro and should write the cheque. Germany got to its low unemployment through tough labour market reforms that are sadly lacking in southern Europe, I was told. Eurobonds: “no way,” said Kerber. ECB formal money printing: “no way,” he said.

Remember, it was the independent Bundesbank that warned Germany to veto Greece’s entry to the euro a decade ago.

The two totems of post-war German politics – an aversion to debt and a commitment to European solidarity – are in conflict in this crisis. Germany’s economic elite is turning frosty on the steps being taken to preserve the euro. Its political elite are muddling through. Its people are somewhere in the middle.

The ECB and German policy making is now under siege, not just from the tents of the global Occupy movement but from global leaders trying to get this country to forget a painful part of its history.

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