WHEN it comes to speculation about German government support for Deutsche Bank, Chancellor Angela Merkel has no good answer. After years leading the push for new EU rules to contain banking crises without putting taxpayers on the hook, you might expect Merkel to rule out state aid for Deutsche Bank. She has not, even though that would be politically expedient with an election due in 2017. Confronted with ailing banks, Merkel and other EU leaders face a quandary. Markets assume they will not deploy their biggest weapon — bail-in, or imposing losses on private investors — when it comes to a giant such as Deutsche Bank because of the risk of contagion. Yet policy makers are also increasingly ambivalent about the bloc’s solution for too-big-to-fail banks, largely for the same reason. "There’s a good chance if Deutsche Bank were to go under, there would be a series of bail-ins that would affect not just the German economy and the German financial system, but the entire European financial...
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