German voters go to the polls on Sunday to determine the future leadership of their country – and perhaps the future of the Eurozone, as well.

With the continent’s largest economy, and the political clout to match, Germany is a central player in the Euro crisis.

Odds are good that Chancellor Angela Merkel, who has been criticized for pushing crisis-stricken governments to drastically curb their spending, will be reelected. However, her Christian Democratic party may have to form a coalition with parties whose fiscal stance is less hawkish.

Economists Robert Barbera, Olivier Jeanne, and Jonathan Wright and political scientist Nicolas Jabko recently outlined the challenges still facing the common currency. Speaking at a forum with graduate students at the Johns Hopkins Department of Economics, the scholars pointed out four hard truths the new German leadership – and all of Europe’s politicians – will have to confront to get Europe back on track. David Dagan, a graduate student in political science, wrote this summary of their discussion.

1) This crisis was not caused by government debt

The Euro crisis was touched off by the profligate fiscal policies of the Greek government, but focusing on this triggering event in isolation can be misleading. The majority of the debt that ended up going sour in Europe was privately held: Spain and Ireland, in particular, fell victim to housing bubbles in the American mould. What’s more, much of the problematic Spanish and Irish debt was originally issued by German banks, Barbera and Wright noted.

As in the U.S., the tailspin in the private credit markets posed a mortal threat to European banks, who had to be bailed out by their governments. It was these bailouts that then created giant public-sector liabilities.

“It’s only in Greece that it really was fundamentally a pure government fiscal problem, and yet the narrative of ‘Where the Eurozone crisis comes from’ seems to fit the Greek story and no other story,” Wright said.

2) Austerity was a political choice – and not just in Germany

Merkel has taken a lot of heat for her insistence that countries deeply slash government spending in exchange for aid packages. Berlin’s emphasis on austerity is often explained in almost psychological terms, as the product of the myopic economic views of German elites – particularly, a morbid fear of inflation.

Not so fast, Jabko said. Austerity won the day largely because it was a politically savvy choice. The austerity prescription grew directly out of the narrative that the Eurozone crisis had been the product of irresponsible government spending. And that narrative was useful to politicians of all stripes.

In Germany, this story allowed politicians to evade questions about how Berlin had contributed to the crisis. Otherwise, there could be uncomfortable questions about the lending practices of German bankers in southern Europe. Similiarly, it might be noted that Germany had spurred the southern-Europe bubble by dragging down Eurozone interest rates in the early 2000s, when its economy was hurting.

But don’t just blame the Germans, Jabko said. Many observers say that Germany forced austerity on its struggling EU partners – but that is not the whole story. The same narrative of profligate spending was adopted by many opposition politicians in the crisis-stricken countries, too. This move allowed them to score political points against ruling parties and ultimately to take over the levers of power. Once in government, these politicians brought the story to its logical conclusion by imposing austerity, and they were often able to evade responsibility for these painful policies by blaming incumbent governments as well as foreign creditors.

3) Either German workers do better, or southern workers do worse

Jeanne explained that the Euro’s financial crisis is rooted in a deep structural problem: Germany makes things more cheaply than southern Europe. The Germans hold that advantage for two reasons: first, they are more productive per labor-unit than most countries, and second, labor and business have cooperated to hold wages down over the last decade.

The imbalance in production costs leads directly to an imbalance in the terms of trade: southern European countries buy much more from Germany than they sell back to Germany. And such a trade imbalance is always accompanied by an increase in foreign indebtedness. In other words, the debt plaguing southern Europe is a logical result of underlying imbalances in the real economy.

For these imbalances to be corrected, the costs of production between Germany and its neighbors must even out. And there are two ways to make that happen: lower wages in southern Europe, or raise wages in Germany. Put simply, either German workers get paid more, or southern workers get paid less.

Of course, higher wages are not all good news for the Germans. They would produce higher inflation, which hurts savers – and Germany is a nation of savers. A recent paper estimates that Germany would need to experience an inflation rate of 4 percent annually for five years, coupled with zero inflation elsewhere for the same period, to close the gap with its neighbors.

4) A breakup leaves Germany on the hook, too

But before Germans refuse to swallow that bitter pill, they should consider something else. As Wright explained, the architecture of the European banking system leaves them extremely vulnerable in the worst-case scenario of a disorderly breakup of the Eurozone. At the moment, capital is flowing into Germany like beer at Octoberfest. The reason is that bank deposit insurance does not insure against the risk of currency breakup. If Spain leaves the Euro, then Spanish bank deposits will still be insured, but the payment will be in devalued pesetas.

The mechanics of these deposit transfers matter profoundly, however. In a single currency area, the deposits are transferred by the Bundesbank – Germany’s central bank – making a loan of equal value to the Spanish central bank. And that’s not good news for the Germans. Because the same risk that motivated the original depositors to shift their assets – the prospect of a Spanish exit from the Euro resulting in a devaluation of debt – now resides with the Bundesbank.