This weekend, we are faced with the possibility of either a European Germany or a German Europe. It sounds stark, but there it is.

Even though Greece backed down in order to secure a bridging loan to stave off bankruptcy for another four months, the problem hasn’t gone away. That’s something the EU has to figure out in the months ahead. The question is: can it?

A unified EU maybe has a hope of solving its massive debt problem, but a divided Europe is quite a different beast. In the past few days, we’ve seen new battle lines drawn in Europe.

It comes down to the Baltic versus the Mediterranean. Which do you prefer – the cold, icy water of the Baltic or the warm waves of the Med?

On Friday night, Germany – the big fish of the Baltic – gathered around it the other Baltic nations of Finland, Estonia, Latvia and Poland to give Greece an ultimatum: pay everything or we will force a bank run on you. Now, clearly, it isn’t the Germans’ fault and there wouldn’t be a bank run if the Greeks trusted that their money was safe in their banks, but the German tactic was abrupt.

It is clear that the Germans are prepared to let the Greeks leave the euro if needs be. They obviously think it’s better to amputate the leg than let the gangrene spread. It is significant that none of the non-Baltic nations are in this new Teutonic camp. Even the parsimonious but consensual Netherlands is keeping quiet. Britain is playing the long game, knowing that this inter-European shambles plays right into the hands of its Eurosceptics. And while they might not have been explicitly saying so, the Mediterranean nations France, Italy and Spain are on Greece’s side. And even if they are not explicitly on the Greek side, the Germans seem to think they are.

An indication into the way the German delegation sees Europe was let slip by one of Mr Schaueble’s aides on Thursday when he was quoted in the Financial Times as saying:

“If we go deeper into the [debt] discount debate, there will be no more reforms in Europe. There will be joyful celebrations in the Elysée and probably in Rome, too, if we go down this path.”

This really sums up the German fears. Deep down the Germans think they are in a union, not of economic equals, but of financial delinquents, ready at any opportunity to default on their obligations. This is a bizarre way to talk about their best customers and it is historically inaccurate because France and Italy have a much better record of paying their debts than either Germany or Poland, but why let the facts get in the way of a good story.

Germany defaulted unilaterally in the 1930s and got massive debt relief in 1953 and as for plucky Poland, it was the only post-Soviet country to get its very large debts written off completely, at the urging of the US, as a “present” to make sure that the newly democratic Poland of 1989 thrived.

In fact, in the case of Germany, the first lesson is that the more unstable, threatening and irrational your government is, the better chance it has of getting debt relief. The second lesson is that the more disruptive you have been in the past, the more focused are your creditors’ minds.

Historically, one of France’s perennial problems is that it has always paid its debts even when it was destroying the economy. Successive French governments have shown willingness to turn the country into a large debt service agency when the alternative was to appear fiscally undisciplined. This sorry history stretches all the way back to the 1900s and was on display all through the First World War, the 1920s and into the Great Depression.

Did the French get rewards for this fiscal stoicism? They did in their Swiss: they got invaded! You may find it unusual to bring in these historical stories today in the 21st century when the EU is already a well-established and successful political entity.

But the national stories matter because these are the collective experiences that create nations. In the end no one cares about financial or economic targets – it’s only money.

Do you think the story of Spain, its national narrative, alludes to its debt/GDP ratio or budget deficit? Do you think when the French are singing La Marseillaise next week they will be dreaming about the French bond yield? Not at all. The national story is the sum of the politics of the nation. So, for Greece, it’s the fact that the Greek resistance beat the Nazis in 1944 – as any reader of Captain Correlli’s Mandolin could tell you!

So when Germany decides to lead a monetary crusade against others, the financial story may say one thing, but the proper politics screams something totally different. For example, everyone also knows that the reason the small fry of the Baltic have lined up behind Germany is because of their fear of Russia and Orthodox Russia’s close ties with Orthodox Greece. Everyone has their fears and prejudices.

These deep connections are above politics; they are the real heart and soul of nations.

And these stereotypes are why the Germans don’t trust the French or Italians completely (as revealed by the aide’s quote to the FT). It’s not because of what the French and Italians have actually done, it’s what they signify in the German mind.

Over these national differences, the EU institutions have managed to stretch a gossamer thin veil of common interest. No one, apart form the European political elite, really believes in the project. We go along with it because there aren’t enough hours in the day to worry about it and it doesn’t seem too onerous.

This weekend’s bridging loan won’t solve the Greek debt problem. The country is bust. It is bust not only because it borrowed too much but also because it was lent too much. There are delinquent lenders as well as delinquent borrowers. Both lenders and borrowers have to share this pain. It is called co-responsibility. In a crisis, lenders and borrowers are responsible.

France, Italy, Britain and Spain understand this. Germany (the lender), worried that acknowledging this fact would cause contagion all over Europe (including here), seems to think that it can squeeze Greece until we hear her pips squeak.

But does this policy work? Destroying a country in order to rebuild it? When Winston Churchill said, “Squeeze them until you can hear their pips squeak”?, what country do you think he was referring to? Why, Germany. Germany after the First World War. We know what happened there.

Greece, for all its faults, is a broken country. Its economy is in tatters. Its people have been humiliated and left in poverty. Greece deserves our support, not our condemnation. It is at times like this that the EU has to work for everyone, not just delinquent creditors. If it doesn’t work in a crisis, what’s it for?

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