Germany has much to lose in eurozone austerity standoff

BERLIN -- The cartoon ballot making the rounds on Greek social networks offers two choices for voters deciding their country's fate in Sunday's elections: A Greek man kisses Angela Merkel's foot in one box, and boots the German chancellor in her behind in the other.

European leaders are increasingly worried over the election's outcome and what it means for the future of the eurozone, the 17 nations that use the euro as their currency. None more so than Germany.

As the largest economy in the eurozone, it would fall on Germans more than any others to pay for future bailouts of nations with shaky finances. And because its economic strength is driven by its export industries, Germany has much to lose if European unemployment rises and standards of living drop.

But Germany's mantra that the solution to Europe's debt crisis is cuts in public benefits and penalties for not doing so is facing increasing rebellion, leaving it more isolated.

"It's like a game of chicken with two drivers heading for a single-lane bridge," said Matthew Lynn, chief executive at Strategy Economics in London. "It would be OK as long as one of them swerves — so either Germany will blink and swerve and relax on the austerity regime, or you'll get a smash-up."

Voters in France in May tossed out Merkel ally Nicolas Sarkozy in favor of a socialist who wants to increase taxes and spending to solve Europe's ills. Greeks may hand power Sunday to a coalition of leftists who have said they will refuse to pay off billions of dollars in loans if Germany does not relent in its demands for spending cuts.

Analysts say a solution to the standoff needs to be found quickly or the eurozone could fall apart, an event that would have repercussions for economies worldwide.

On Wednesday, José Manuel Barroso, president of the EU Commission, defended Europe's response to the crisis but said Europe also needs a plan for the long term, including coordinated budgets and banking regulation, the kinds of things Merkel has been pushing for as a condition of additional German money for bailouts.

Spain's prime minister, Mariano Rajoy, on Wednesday also called for greater European fiscal and banking integration to prevent governments from overspending. But he also called for measures to help financially weakened states that Germans have resisted, such as making all eurozone nations share in the debt of hobbled nations and guarantee their bank deposits.

Spain on Sunday was the fourth eurozone country to be forced to accept bailout money. Ireland, Greece and Portugal have already done the same. Spain needed it for banks that were at risk of going under due to a real estate crash, as did Ireland. Greece and Portugal overspent on public projects, benefits and jobs.

Pressure has been rising on Germany to keep the money taps flowing. But after several refusals to soften its stance, such as earlier this month when it stopped a European initiative to create a eurozone-wide banking union that would give shaky banks access to funds in healthy ones, Germany is signaling it might be open to more EU supervision of independent private banks.

But in return it continues to demand the eurozone bureaucracy in Brussels be handed more power to control the spending of individual nations, or what German Finance Minister Wolfgang Schaeuble calls "fiscal union." Merkel is increasingly speaking of "more Europe" as a solution.