Earlier today I posted:

I predict that there is no way that the German people will be shoehorned into picking up the bill for Greek, Portuguese, Spanish and Italian borrowing. I predict European disintegration in 2011.


Could I be desperately & tragically wrong? Zero Hedge reports:

Two weeks after Zero Hedge readers were informed about it, slowly the sell side is coming to the realization that not only will the European Financial Stabilisation Fund have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money. And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion which according to Daiwa’s Head of Economic Research, Grant Lewis, is an act which will be necessary to convince financial markets of euro area resolve to save Italy and Spain. Says Lewis: “France, Germany contribution to EFSF’s capital would increase to 80% if Spain, Italy had to drop out of guarantee structure.  France, German contingent liabilities would be > 50% of GDP if EFSF expanded; added to France and Germany current debt may trigger downgrades to both countries.” Yes… and no. As we explained when we referred to a far more accurate and complete report by Bernstein, merely a €1.5 trillion expansion in the EFSF, would mean that Germany is on the hook to the tune of €790 billion or 32% of German GDP. If France is downgraded, Germany essentially becomes the sole backstopper of the entire Eurozone, to the tune of €1.4 trillion or 56% of its GDP. Now let’s assume Daiwa is correct, and the full amount under the EFSF has to increase to €3.5 trillion. That means that Germany’s “contin[g]ent liabilities”, in the worst case scenario where France again gets downgraded, and it likely will eventually, would surge to about €3.3 trillion, or an insane 133% of German GDP!

Chancellor Merkel is increasingly being slammed in the German press, and by the German public — including even by her mentor Helmut Kohl — for her recklessness and her uncompromising push to save a political project that is slowly failing. Specifically, why should the German taxpayer, and the German government — who have run their economy well and generated a lot of wealth and prosperity — be dragged into the mud for the fiscal excess of their neighbours? Is that not collective punishment? Why should the German public take a hit — potentially totalling 133% of their GDP — to shore up the balance sheets of bond traders, hedge funds and investment bankers? Should the banks not be held responsible for lending preposterous sums of money to nations who patently could not pay them back? What about ratings agencies that failed to signal the real level of risk?

No. I predict that the only sane, dignified and conceivable course is one of European disintegration. After all, the European Union was formed to foment a Europe that was not at war, a Europe with a common purpose, and an integrated economy. Pushing on wildly and recklessly in bailing out every PIG under the sun jeopardises everything. It threatens a Europe where each nation is at each other’s throat, and eventually one where old hostilities and hatreds rise to the surface. Zero Hedge concludes:

So the ball is now basically in Germany’s court: will the German export sector be ok with leaving the country on the hook to a complete implosion once the final European house of cards implodes, or, will German practicality once again take over, and tell the ECB, the bureaucrats and every other insolvent European country to go shove it, in the process bringing back the D-Mark and returning to a life of quiet contentment without a customs, cultural or monetary union.

Oddly enough, our money is on the latter.

Amen to that!