What in the world is going on? What made Ms. Merkel change her mind? And what kind of pressure did she put on the rest of her government to do so? Somehow all of the stars have lined up to enable Germany to keep underwriting the inability of Greece, Spain, and Italy to meet their sovereign debt payments with real cash flow. Perhaps Germans are now more afraid of losing their export markets than they are of losing their credit rating. Perhaps they've even forgotten what the Weimar Republic hyperinflation did to their country and its place in the world. Or perhaps, as hinted in the article about Ms. Merkel's attitude change, she got sick of U.S. meddling after too much shuttle diplomacy from Tim Geithner and friends convinced her that U.S. support from dollar swaps and other methods aren't worth the geopolitical price Germany would have paid.
I can't wonder about motives; I should now consider effects. A speedy downgrade in Germany's sovereign credit rating is now likely, which will make it more expensive to borrow sums that support further loans to deadbeat countries. The Germans are about to learn what national-level vendor financing on subprime credit terms will do to the vendor nation's economic viability.
The euro has some life left in it, only because Germany is now willing to sacrifice its own precious fiscal solvency to keep its southern export markets afloat. The crisis is delayed once again, with final resolution (and dissolution) now postponed into 2013. I've gotta hand it to these Germans. They have forestalled a short-term crash in the euro, exchanging it for a much more painful crash later and ensuring their own finances will be severely hurt. That is a very high price to pay for another year or so of strong current account inflows.