Illustration by Peter Schrank

LESS than a year before the euro became the currency of 11 European countries in January 1999, a declaration signed by 155 German-speaking economists called for an “orderly”—ie, long—delay. The prospective euro members, they said, had not yet reduced their debt and deficits to suit a workable monetary union; some were using “creative accounting” to get there, and a casual attitude towards deficits would undermine confidence in the euro's stability.

Now the prediction is coming true, says Wim Kösters, of the Ruhr University in Bochum and one of the original signatories. Greece, which joined the euro two years after its inception, has concealed the dodgy state of its finances. Now it is under attack from speculators. A default could spread panic to other deficit-plagued economies, including those of Spain and Portugal, with scary consequences for Europe's already shaky banking system. But if Greece's partners bail it out, defying the euro's founding treaty, the currency will suffer. Either way, the euro is in trouble.

This dilemma is felt especially keenly in Germany. It was a wrench to surrender the Deutschmark, symbol of post-war recovery and economic success. On the eve of monetary union 55% of Germans were against it, making their nation the euro zone's most reluctant founders. When a “rescue” is mentioned, all eyes fix on Germany, Europe's biggest economy and most creditworthy borrower. Germans fear that a rescue of Greece would, in effect, extend their welfare state to the Mediterranean.

Greece's travails put Angela Merkel, the chancellor, in an uncomfortable position. German taxpayers are in no mood to save what they see as profligate Greeks, having already pledged €500 billion ($682 billion) to shore up their own banks and billions more for companies. The liberal Free Democratic Party (FDP), the junior partner in her coalition government, is against a rescue, as are many politicians from her own Christian Democratic Union (CDU). The Young Entrepreneurs' Association declared that it would be “fatal” for Germany to foot the bill for Greece's “budget chaos”.

A domestic row over welfare makes charity for foreigners a still more awkward subject. This month the constitutional court ruled that the government had erred in setting benefits for the main welfare programme, called Hartz IV. It has until the end of the year to come up with a new formula, which may cost more money. Guido Westerwelle, the FDP leader, lamented the “late Roman decadence” of a society that treats welfare beneficiaries more generously than workers. His outburst, in turn, annoyed Ms Merkel. “I can't explain to someone on Hartz IV that we can't give him a single cent more but that a Greek gets to retire at 63”, said Michael Fuchs, a CDU leader in the Bundestag.

On February 11th Mrs Merkel joined other European leaders in offering Greece vague support, while demanding concrete plans to slash its budget deficit. Since the summit, the demands have become more concrete and talk of aid even more vague. On February 15th finance ministers from the 16 euro-zone countries told Greece to take additional steps to cut its budget deficit by four percentage points of GDP to 8.7% this year. A harsh austerity plan, they hope, will be enough to deter speculators—and to reassure their voters at home that Greece is not getting off lightly. The model is Ireland, whose brutal spending cuts restored market confidence without aid from its European neighbours.

A bail-out, Mrs Merkel fears, would break the bargain Germany struck in accepting the euro: that the single currency's members would never jeopardise its stability nor ask Germans to pay for anyone else's mismanagement. That said, the currency union was hardly an act of martyrdom by Germany. In the past decade its firms have modernised and their workers have accepted miserly pay rises, boosting their competitiveness. In a euro-less Europe, its trading partners could have erased some of that advantage by devaluing their currencies. Instead, many of Europe's weaker economies failed to reform and Germany accumulated gratifyingly large current-account surpluses. Nor has the crisis been entirely bad news. The euro has weakened by about 10% against the dollar since the beginning of 2010. Under the circumstances, that was not a harbinger of inflation but a welcome tonic for European exports—especially German ones.

The path out of the crisis is unclear. Greek bonds remain under pressure (see chart). Arguments rage over which chain reaction would be more damaging: serial bail-outs or serial defaults. A legal opinion by Bundestag experts argues that help for Greece might be allowed by European treaties if the crisis can be blamed on outside forces, like speculators or the global recession. Some economists (mainly non-German ones) say Germany can contribute to a longer-term solution by stimulating domestic consumption, which would help the Mediterranean miscreants grow out of their problems. There is talk of more co-ordinated “economic government” within the euro-zone (see Charlemagne).

Mr Kösters is sceptical. “No one knows what economic government is,” he says. Europe's single market and currency set countries in competition with each other on the basis of their economies and institutions. Germany largely rose to the challenge. Now, says Mr Kösters, it is up to Greece and the others to do the same.