Executive Summary

• Why the U.S. and the IMF won't act soon enough to avoid a German exit
• Why Finland will bolt from the Eurozone the moment Germany does (and how many others may soon follow?)
• What a German exit (and a new mark) would really mean
• When will Germany likely announce its departure from the Eurozone?

If you have not yet read Part I, available free to all readers, please click here to read it first.

In Part I, we covered the background to what now appears to be inevitable: Germany has to leave the Eurozone. She, along with the Netherlands and Finland, simply cannot afford to bail out the rest of the Eurozone, so she is standing in the way of a resolution to the crisis. It is therefore only a matter of time before the political classes have to face this reality.

Time is running out, and the longer Germany delays, the worse her position will be. The yields on Spanish and Italian debt will inevitably head towards and through the 7% "point-of-no-return" threshold and beyond, and Germany will get all the blame. Germany will be seen as a thorn in the side of the ECB, restricting its scope for monetary action and obstructing a solution, partly because of the Bundesbank’s stubborn conservatism and partly because Germany’s Constitutional Court frowns on monetising government debt. She will be unfairly condemned by everyone.

Let’s look at some back-of-the-envelope figures. Germany’s GDP runs at about €2.8 trillion, and its public sector amounts to about €1.2 trillion of that. Taxes account for nearly that entire amount, given a budget deficit of about 1%. We know as a result of my interview with Professor Kerber that evidence was put before the German Constitutional Court that there are hard costs of €2 trillion and another €1.7 trillion in the pipeline. This is confirmed in another interview I did with Philipp Bagus, a well-known and highly regarded German economist who is resident in Madrid and has specialist knowledge of the Eurozone’s financial position, where he estimated €4 trillion, give or take. So we have independent confirmation that the estimated cost of bailing out the countries that have requested a bail-out plus those that are reasonably expected to need one amounts to between three to four times the German government’s tax revenue, well in excess of her entire annual GDP.