Difficult and Easy Choices Facing Germany's Angela Merkel

German chancellor Angela Merkel proclaims that “if the euro fails, Europe will fail.” It is in Germany’s best interests to keep the euro zone together “at all costs,” but, ideally, Merkel wants to minimize those costs. To that end, her government is currently pursuing “a magic triangle of goals” to prevent three outcomes: the disintegration of the euro zone, a complete “fiscal transfer union” via Eurobonds or other mutualized debt, and an “‘inflation union’ with unlimited monetization and ‘inflating away’ of sovereign debt.”

Many commentators insist that the euro zone will collapse without either Eurobonds...