EVEN by Europe's cacophonous standards, German policymakers sent mixed signals on the euro this week. At her party's conference on November 14th the chancellor, Angela Merkel, left no doubt about the gravity of the euro crisis (see Charlemagne). “If the euro fails, then Europe fails,” she said.

On the same day Jens Weidmann, the president of the Bundesbank, roiled financial markets with hardline comments designed to close off options for managing the crisis. He ruled out relying on the European Central Bank (ECB) as a lender of last resort to governments, arguing it would be illegal and wrong for the bank to hold down bond yields. Even the current (limited) bond purchases needed to stop. The only way to restore investor confidence in countries such as Italy, he believes, is for their governments to introduce bold reforms.

Mr Weidmann is not a lone ideologue. Mario Draghi, the ECB's new Italian president, has ruled out acting as a lender of last resort to governments, albeit less categorically (see article). Mr Weidmann has his supporters among the Finns and the Dutch, too. But the rigidity of his argument is embedded in the solid rock that is Germany's economic establishment, which holds that big rescues are counterproductive because they both dull governments' incentives to act and create new dangers. Pooling risks through Eurobonds would tempt dodgy southern European governments to greater profligacy. Central-bank bond-buying would fuel inflation. Far better, goes the standard German line, to remain principled and just say no.

And it is true that soaring bond yields, or the fear thereof, have pushed governments, including France and Spain, to act. Were it not for pressure from the bond markets, Silvio Berlusconi might have blundered on in Italy, delaying difficult decisions on the economy. The Germans and others are also right to worry that a central bank that buys boatloads of government bonds will eventually cause inflation. The problem is that the dogmatic prescriptions of the “German orthodoxy” are pushing the single currency towards collapse. If Mrs Merkel wants to save the euro, therefore, she must challenge her country's economic establishment, and explain to voters why the revered Bundesbank's rigidity is wrong.

Drowning the euro in dogma

German orthodoxy ignores the possibility that rising bond yields are being driven by a self-fulfilling panic in financial markets. Investors who once regarded Italian bonds as a safe asset now worry about everything from the integrity of the credit-default-swap market to a possible break-up of the single currency. The result is a stampede for the exit, which cannot be stopped by Italian policy reforms alone. So by adding to the pressure on the governments of countries in crisis, the Germans and their allies succeed in forcing reform, but at the cost of making it far harder to rescue the euro.

Emerging economies which borrow in a foreign currency have long been vulnerable to these kinds of self-fulfilling crises of confidence. As the pool of euro assets deemed “safe” dwindles, more countries may face such runs. Judging by this week's leap in yields, France looks to be next in line. The big difference, however, is that average emerging-market debt is less than 40% of GDP. Italy's debt ratio is more than three times higher; France's twice as high.

The euro zone's most recent plan—to amplify the existing rescue fund with financial engineering and money from China—has failed miserably. That leaves two alternatives. Either Europe's governments will have to assume explicitly some joint liability for each other's debts. Or they will have to do so implicitly, by allowing the ECB to counter a panic with purchases of government bonds: in effect, letting it act as a lender of last resort. The danger lies in eschewing both options.

Each route has risks, but both are exaggerated by the German dogma. With demand weak and the fiscal vice tightening, it is hard to see an imminent danger of inflation. In theory, if joint liability was designed properly, errant countries would be stopped from going on a bender at other Europeans' expense. But such rules are hard to craft, and Europe's governments move slowly. For the foreseeable future, the ECB is the only institution that can staunch market panic quickly. The ECB could still keep pressure on the likes of Italy, and prevent them from backsliding on reform, by making sure that its support was at a sufficiently punitive interest rate.

Technically, there are ways around German opposition. Mr Weidmann, for instance, could be outvoted at the ECB. But, in practice, any solution must be blessed in Berlin. That is why Mrs Merkel must make the case for greater pragmatism. Otherwise Teutonic rigidity will wreck the European project.