Angela - the pastor's daughter who has put her faith in prudence

The criticism of Britain's high-spending approach to the economic crisis voiced by the German finance minister, Peer Steinbrüeck, in Newsweek magazine could equally have been expressed by the German Chancellor, Angela Merkel.

Her low-key, sound-money approach to the economic slowdown in Germany suggests that she would agree with every syllable he spoke. Except that she would never have said it out loud. Ms Merkel conducts her arguments discreetly, behind closed doors. She seeks neither attention nor controversy.

Her inclinations, whether as leader of her Christian Democratic Party (CDU), as Chancellor of her coalition government, or as Germany's chief representative on the international stage, are to be consensual. Disagreements – such as a celebrated exchange with Russia's President, Vladimir Putin, on media freedom at a Russia-EU summit – take place in private.

Her public utterances are expressions of agreement – as in a lengthy statement she issued jointly with the French President, Nicolas Sarkozy, after a meeting two weeks ago on the economic crisis. The two are known to be more at odds than any French president and German chancellor for many years – and they diverge on remedies for the credit crunch, too.

But they have shown they can do business with each other. Ms Merkel knows, even if M. Sarkozy does not, that the French-German relationship is not something to be held hostage to personality.

It was mooted in London in advance of this week's EU summit that Ms Merkel, and Germany, were isolated. While everyone else favoured a multibillion euro stimulus package for the eurozone economies, along the lines of the rescue of the UK economy mounted by Gordon Brown, Ms Merkel was resisting. The unstated, but presumed, criticism was that the Germans were being bad team-players, unwilling to share with others the benefits of a relatively stronger and less vulnerable economy.

It may or may not be clear, when the EU summit ends today, how far the Germans really were isolated, and how far this was advance "spin" from the British Government, which faces growing misgivings about the financial liabilities it is piling up for taxpayers.

Several countries, including Poland, are thought to be in the German camp, preferring Ms Merkel's approach. Mr Steinbrück's comments showed that the German government regards the British response as an irresponsible, panic reaction.

Even if Ms Merkel does find herself outnumbered, it is doubtful that she could be brought around to a more "British" view. Personally and politically, she epitomises the sort of fiscal "prudence" Mr Brown once personified. The daughter of a protestant pastor, she exudes thrift. She grew up and made her career in the relative deprivation of East Germany, looking across at the land of the hard currency. Germany's conditions for accepting the euro were that it would inherit the sound-money virtues of the Deutsche mark. So far, the financial crisis has vindicated the euro and punished the pound. Ms Merkel is unlikely to sign up to anything that would "soften" the euro.

Ms Merkel shares with her fellow-countrymen an aversion to inflation, born of what is now largely the folk memory of the 1920s and 1930s and Hitler's rise to power. But her policy options are also constrained in two crucial ways. Her CDU governs in coalition with the Socialists – her finance and foreign ministers are Socialists – and they will sanction nothing that would jeopardise Germany's social safety net further.

Germany faces a general election next autumn, and Ms Merkel depends on her party being the largest group in the Bundestag to stay on as chancellor. With voices agitating for a more "British" economic approach, she must stand firm to preserve her government, even if it means sacrificing any ambition she might have had to become the EU's de facto leader.

The pound in your pocket: What the fall of sterling means to you

Why is the pound falling?

The weakness of sterling, after a period of relative strength, has increased with the likelihood of a deep recession. As ever-worse technical data emerges on house prices, consumer spending, job losses and manufacturing, confidence and the pound suffer more. The economy is particularly suffering from the collapse in the credit markets, as consumers were encouraged to lift borrowing in the boom, and the Government's rising budget deficit. The Bank of England's move to slash interest rates, now down to 2 per cent, makes the UK less attractive to invest in and encourages foreign exchange traders to sell out, driving the price down.

Who benefits?

Anyone relying on tourist income in the UK will do well. Some shops near the South coast have had a rise in continental Europeans crossing the Channel for cheaper goods. Manufacturing will also be more competitive as exports become cheaper on world markets. Theoretically, a weaker sterling could also help lift us out of recession by causing an increase in overall demand.

Who loses?

Cheap foreign holidays are history and travellers will be better off staying at home. Expats living overseas on sterling incomes are also badly hit. Import-led companies, or manufacturers relying on raw materials from abroad, will suffer. Inflation is also a worry, as imports become more expensive and demand rises.

When will it stop?

Nobody knows. Either sterling will fall so low as to tempt foreign capital back in, or it will correct the imbalance between imports and exports and right itself that way. The big question is when. Anyone who manages a lucky bet can shake hands with George Soros, who made billions betting against the pound on Black Wednesday.