In the European currency war, Germany has the biggest arsenal and the strongest interest in forestalling the collapse of the euro. So why is it playing Hamlet: “To lead or not to lead?”

To ponder and waver is not the old German way. Today, Germany is about as aggressive as a pussy cat, but pundits and politicos from the U.S. to Greece have blamed its dithering for rising market volatility and the mounting costs of the debt crisis. The 50% haircut on Greek bonds decreed at last week’s EU summit should have been imposed a year ago. Athens was insolvent even then. So it is always too little, too late. Whenever the Berlin-backed European Union rescue brigades and the European Central Bank close one breach, the markets attack on another flank. They will do so again, and the euro will remain in peril. Greece simply cannot grow enough to service its debt.

As the euro burns, Mrs. Merkel fiddles mixed messages. In Berlin the chancellor preaches generosity, dispatching German taxpayers’ funds to Athens. But in Brussels she stalls, demanding ever-more austerity and market reforms before relenting at the last minute. The euro rises, then drops again.

Mrs. Merkel’s latest volley—that any Greek referendum on the terms of a rescue package by the EU and the International Monetary Fund would decide whether Greece keeps the euro at all—sent markets roiling this week.

Yet the unraveling of Euroland would hit Germany the hardest. The neue deutschemark would shoot up, while the nouveau franc and the nuova lira would nosedive. And so would Germany’s exports, now an astounding 47% of its gross domestic product, two-thirds of which stay within the EU.

So why isn’t Mrs. Merkel rushing forward to grab Europe’s crown? The answer, of course, is history. Germans have learned two things in the last century: When they went it alone, as in two world wars, they failed miserably, and worse each time. When they shifted into pussy cat mode and chose alliance and community with the West, they flourished.

While the U.S., Britain and France spilled their blood and treasure from Indochina to Iraq, the Germans saved and invested, reaping a wondrous “peace dividend”—not just fabulous riches, but also trust where fear and hatred once raged. When history dictates humility, and modesty proves so profitable, reticence endures. If the Germans did go to war after Hitler, it was only behind other nations, as in the Balkans or in Afghanistan. In Libya, they stayed out completely. Mrs. Merkel knows full well that old fears never die, and so she leaves the big stick under lock and key.

Today Germany is among the most liked and respected nations on Earth. And so anti-Europeanism remains a mighty taboo in Germany, as does chest-thumping nationalism. When the Bundestag votes on propping up Greece or injecting capital into Europe’s shaky banks, the chancellor sweeps the house with 80% of the total, as she did again last week. On matters European, Mrs. Merkel’s is practically a national-unity government that is supported by the two largest opposition parties, the Social Democrats and the Greens.

Moreover, Mrs. Merkel’s uncertain trumpet in the Great Euro War is not just a morality play about German guilt and repentance. It is about a new politics of the entire West, which is nowhere kind to leadership.

President Obama’s trumpet sounds a lot like Mrs. Merkel’s. Try this, try that. Play to the Occupy crowd, but don’t lose Wall Street, Mr. Obama’s money machine in 2008. Mrs. Merkel’s to-and-fro also recalls Bill Clinton’s “triangulation”: Ignore left and right, and sail right through the middle. Except that Mrs. Merkel has to triangulate by the hour, at a pace the markets dictate. Tacking is the way of the entire West as old party loyalties evaporate and fickle independents make and break majorities.

Add an economic crisis that will not subside, no matter how many trillions we throw at it. In this war, we don’t know who the enemy is. He goes by strange names: “credit default swaps,” “collateralized debt obligations” and “asset-backed securities.” We don’t really know how many there are or what these spooky papers are worth. Or who holds them as they zoom around the world at the speed of electrons.

So we are all in the same boat. In Tolstoy’s “Anna Karenina,” all unhappy families are said to be miserable in their own way. Today, all Western nations are unhappy in the same way. Except that Germany has the biggest pile of chips and the biggest stake in a game where a wrong bet will clean out all the players and then burn down the casino.

Germans tell the pollsters they fear for their money—and then add that they like both Europe and the euro. They sense that it is cheaper to throw up firewalls than to pay for the devastation of the blaze. They bridle at rewarding the vices of the “Club Med” countries. But their real horror is to be left alone in Europe once more. Hence Mrs. Merkel will continue to crack the whip with one hand and pay with the other.

Let’s end with a bet. In September, the Bundestag voted with a four-fifths majority for a European Financial Stability Facility with €440 billion ($610 billion) in lending power. Last week it approved more EFSF authority by the same margin. Again, this may be too little too late. The Greeks owed €350 billion before the haircut, but that is play money when compared to the external public and private debts of Italy and Spain, with $2.2 trillion each. If the arsenal of the EFSF will have to be doubled or tripled, if the ECB has to be turned, Fed-like, into a lender of last resort, the Germans will flail, but not flinch. Why not? Because it’s worth it.

Mr. Joffe is editor of the German weekly Die Zeit as well as senior fellow at the Freeman-Spogli Institute for International Studies and fellow at the Hoover Institution, both at Stanford.