Merkel under siege

Spare a sympathetic thought for German Chancellor Angela Merkel, leader of the most powerful country in the euro zone, and the one whose decisions will have a consequential effect not just on citizens of Germany, but the rest of the continent. “When Angela Merkel goes into a room at a summit meeting, it’s as if the headmistress has arrived,” says William Paterson, honorary professor of German and European politics at Aston University in Britain.

This is all well and good when the school—or a monetary union of 17 member states and 300 million people—is running well. But when half the students are wasting or hiding their lunch money, the teachers are overspending and asking the headmistress to cover for them, and—to stretch the metaphor—the headmistress’s own family doesn’t see why she should do so, it becomes a much more trying job.

This is roughly the position in which Merkel finds herself as the popularity of her Christian Democratic Union (CDU) party crumbles, and the governing coalition it leads shows signs of imploding. The eurozone is facing a financial crisis, driven by soaring sovereign debts of member states such as Greece, Portugal, Italy, Ireland and Spain. Greece’s situation is the most serious, with some observers predicting that a default on its debts is inevitable. Such an event would hurt all the economies in the union (not sparing those outside it) and dramatically weaken the euro. And so, multi-billion-dollar bailout packages have been pledged, with more on the way.

“Germany has deeper pockets than anyone else,” notes Paterson, and this means the bailouts hit German taxpayers hardest. Persuading voters they must send their money abroad to countries that didn’t spend their own money wisely is not an easy task, and Merkel hasn’t done it well. She made the case late, and not convincingly. A recent opinion poll showed two-thirds of Germans think their parliament should block any more demands for bailouts of the euro. They don’t see why German taxpayers should pay for other counties’ financial mismanagement.

“There is a pro-Europeanness. People like the idea of being integrated in Europe. They even like the idea of a common currency, in a way,” says Timm Beichelt, a professor of European studies at European University Viadrina in Frankfurt (Oder). “But on the other hand, public opinion is quite critical, especially of Greece. It’s the kind of argument that they should clean their house first, and then we might think of helping them.”

The unfortunate irony for Merkel is that until now her inability, or disinclination, to rally and inspire people served her well. “People find it hard to really love her, but they have a strong respect for her,” says Jan Techau, director of Carnegie Europe, the European centre of the Carnegie Endowment for International Peace. “People in Germany have a knack for uncharismatic leadership. They find charismatic leaders slightly preposterous.” Most Germans wouldn’t march off to battle behind Angela Merkel, but they’d probably buy a used car from her.

But Merkel needed a different set of skills to deal with the euro crisis. “This sort of calm deliberator style doesn’t work when you’re dealing with financial markets. What she isn’t good at is mobilizing people, and she’s not been good at mobilizing the German people to say, ‘Look, you’re not going to like this, but if you want to continue this standard of living, this is what you’re going to have to do,’ ” says Paterson.

“I think the only mistake she made was more on the psychological side,” adds Techau. “Too late she sent the signals of solidarity, that we Germans are on board, that we will stand up for this. She’s now saying that very firmly, but it took her a while to actually embrace the message. And this is something that not only the markets recognized, people all over Europe noticed. So I think she lost a bit of political capital there. She was maybe too careful on that front and should have been more decisive in her leadership. Like everybody else in Europe, from the beginning she underestimated the size of the crisis.”

Few European politicians downplay the crisis’s severity anymore. But a lot of Germans remain unconvinced that they should do more to help Germany’s struggling eurozone partners. With the next German federal election not scheduled until 2013, voters can demonstrate their anger at Merkel’s CDU in regional elections, and they have. The CDU has suffered losses, but harder hit has been the junior partner in Merkel’s coalition government, the libertarian-leaning Free Democratic Party (FDP). In regional elections this year, it has repeatedly failed to earn even the five per cent needed to hold seats in parliament.

“They’re really an endangered species at the moment,” says Techau. “Increasingly, they find it difficult to define what they stand for. They’re a pretty hollow construct. You don’t know what their philosophy is and what they stand for, except for lowering taxes. And this has damaged them severely over the last few years. There are no signs they can recover.”

The silver lining for Merkel, notes Beichelt, is that the Free Democrats are unlikely to abandon her coalition when they have been so decimated. They have too much to lose were they to force early elections. On the other hand, they’re also desperate and therefore unpredictable. “One scenario is that the Free Democrats, because they realize that they are being suffocated to death in this coalition, decide to call it quits and walk out,” says Techau.

But even within the coalition, a crippled FDP makes Merkel’s CDU look weak by association. And Merkel is facing problems from those opposed to bailouts within her own party.

“There is a conservative fringe that feels that Germans shouldn’t be the paymaster,” says Techau. “It is a very small but audible section of the party. And it reflects, to a certain extent, popular sentiment. The population is very much against bailouts and very much against the kind of solidarity that Merkel is trying to exercise. These fringe people are now smelling that they may be in accord with a larger majority in the population, and so they become more bold within the political discourse. There is a lingering sentiment that this can’t go on, and in the end it might not be worth it.”

Angela Merkel’s basic political challenge is to pull off what Jan Techau describes as “a high-wire act between European solidarity and domestic politics.”

Germany, as the economic powerhouse in the European Union, and especially the eurozone (which excludes the United Kingdom, among other EU members), has enormous influence over the economies of other countries, whose voters can’t punish or reward her. Only German voters can, and they are quite naturally more concerned with Germany’s economy than that of Greece.

“She’s in a double bind,” says Techau. “If she completely and totally wanted to embrace the role of international woman of mystery for the euro, her domestic politics would still put substantial brakes on her. This is what makes the situation very tricky for her.”

In truth, Germany’s economy cannot be protected from what happens in the rest of the eurozone. The union’s economy is simply too integrated. And should the eurozone break up and Germany revert back to the Deutschmark, its export market would suffer from Germany’s appreciating currency.

There’s no way for Germany out of the European financial crisis, in other words, that isn’t going to hurt. Bailouts are bitter pills to swallow, but they’ll likely only get bigger and more difficult to stomach the longer it takes before they’re instituted. “The question is: do you want a horrible end, or horror without end,” says Thorsten Koeppl, an associate professor of economics at Queen’s University. “The answer is, a horrible end is better than horror without end.”

That’s probably true. But pity the politician who has to woo voters with such a slogan.