Germany's Eurozone Plans Could Go Astray

You would have been a fool if you did not see this coming. Then again, an awful lot of foolishness in Athens, Brussels and Berlin got us into this mess in the first place.

When Greece's technocrat government negotiated its second bailout in as many years everyone knew that a general election was around the corner.

That is why Eurocrats said all of Greece's party leaders had to give promises - in writing - that they would not to try to undo the draconian spending cuts demanded by Athens' bailout masters, the EU and IMF.

Two years of broken promises by the Greek government should have been enough to show that it would never turn out that way.

The crisis that has enveloped the Eurozone has also done away with the thin veil hiding the identity of the real leader of the club and Germany is talking tough with its wayward subject.

It is telling Greeks that membership of the currency must go hand in hand with a balanced budget, however difficult that is to achieve.

But this latest chapter in the Greek saga comes at an interesting time as other voices within the Euro club are more openly and trenchantly questioning the stewardship of Germany.

Chancellor Angela Merkel has lost her chief ally in France with Nicolas Sarkozy giving way to President-elect Francois Hollande whose campaign was fought on all manner of anti-austerity platforms including turning back the clock on the French retirement age and bringing it back to 60.

The Netherlands government collapsed under the weight of public anger over its austerity measures.

All eyes will be on Ireland at the end of this month where voters, unusually, have the constitutional right to decide whether or not to sign up to 'Merkozy's' Fiscal Compact and the future of tight government spending controls it promises.

Berlin's well-laid plans look like they could very likely go astray but their rhetoric belies that reality. The strong message to Greece is: "Don't think we won't kick you out if we have to."

But although politicians, policymakers and analysts might have adopted a more blase attitude towards a Greek exit or 'Grexit' as the concept has become known, the ratings agency Fitch has done what it can to bring them back down to Earth.

"A Greek exit would break a fundamental tenet underpinning the euro - that membership of EMU is irrevocable," Fitch said in a statement.

There is no legal framework for a country to leave the Euro but if it were to happen it would set a legal precedent; a precedent that could be followed by others.

This past week has also highlighted the shaky ground on which the Spanish banking system stands.

And with almost one in four Spaniards out of work, many question if it can ever restore economic growth with an exchange rate fixed with that of the world's manufacturing and exporting heavyweight, Germany.

If Spaniards start to think that their own exit from the single currency could become a preferable reality, like Greeks they will start to transfer their euros to their mattresses in fear that they could be transformed into new age Pesetas overnight.

That is the kind of thing that could push the Spanish banking system over a cliff and repeated elsewhere in Europe it could trigger another wave of the crisis.

It is that kind of domino effect that Europe feared when the Greek crisis began and it is that kind of threat that has not gone away.