Bloomberg News

Merkel Risks Own Downfall as Odyssey to Save Greece Nears Climax

October 19, 2011

Oct. 20 (Bloomberg) -- German Chancellor Angela Merkel may be risking her 2013 bid for a third term with a bet on expanding the effort to save the euro.

Merkel may endorse policies unpopular with her Christian Democratic voters at an Oct. 23 European summit, bowing to world leaders including President Barack Obama to do more to stem the debt crisis that began in Greece and is now rattling core economies such as Italy and France.

“Merkel’s next step is to convince voters,” Giles Merritt, head of the Friends of Europe research group in Brussels, said in a telephone interview. “The German media have been hammering away in a tabloid manner on the idle Greeks and this has gone deep into the German psyche.”

Failure to make her case to the electorate means Merkel may face the political hara-kiri of her predecessor, Gerhard Schroeder. The Social Democrat alienated core supporters with his “Agenda 2010” package of tax and benefits cuts that subsequently fueled the German economy and still led to his downfall. Germany’s next election will probably be held in September 2013.

“This is very much an Agenda 2010 moment for Merkel, but it’s much bigger than what Schroeder faced,” Jan Techau, director of the Brussels-based European center of the Carnegie Endowment for International Peace, said in an interview.

Techau said that while the sluggish economy Schroeder confronted was easier to explain to voters, “it’s far harder for Merkel” to demystify the Greek and European banking crises.

“Merkel’s the target of public anger about Greece and the bailouts even though all other major German parties, including the opposition, back her on this,” Techau said.

German ‘Nein’

A total of 80 percent of Germans oppose making a personal financial contribution to help Greece, according to a Sept. 21 Forsa poll for Stern magazine. An Allensbach survey for the Frankfurter Allgemeine newspaper on Oct. 19 showed only 17 percent of Germans saying they trust the euro with 75 percent saying they don’t trust it.

The popularity of Merkel’s Christian Democratic Union bloc is suffering with the Allensbach poll putting it at 31 percent, almost neck-and-neck with the opposition Social Democrats at 30.5 percent. Merkel’s party won almost 34 percent in the 2009 election, compared with 23 percent for defeated the SPD. The poll, which didn’t give a margin of error, surveyed 1,869 people Oct. 4-16.

“The crisis in the euro zone is increasingly determining the fate” of Merkel’s government, said Renate Koecher, head of the Allensbach polling company.

“The CDU stands for European integration in the eyes of citizens,” Koecher wrote in the Frankfurter Allgemeine. “This makes European developments into a question of fate for the CDU/CSU more so than for any other party.” The CSU is the CDU’s Bavarian sister party.

East German Bailout

Germans have been bailing out failed states for two decades. The so-called Solidarity Surcharge, imposed in 1991 as a temporary tax to cover costs of rebuilding the failed East German communist economy after reunification, is still being collected. Last year it brought in 11.7 billion euros ($16 billion) and there are no plans to abolish it.

Germany’s share of European bailouts so far totals 211 billion euros in guarantees.

That may help explain Merkel’s go-slow approach to bailouts, says Carl Graf von Hohenthal, a management adviser at the Brunswick Group in Berlin.

State Election Defeat

Last year, she held out for weeks before bending to fellow European leaders to back the first Europe-led Greek aid package. She blamed her party’s May 2010 defeat in North Rhine- Westphalia, the country’s most populous state, on voter anger over the first Greek bailout.

Merkel, 57, dragged her feet again this year in the runup to a second Greek aid package, saying on May 10 that “first we need to hear what the status is; only then can I decide what, if anything, needs to be done.”

Her message has only changed in recent months after Italy and Spain, the third- and fourth-biggest euro economies, succumbed to the turmoil and required European Central Bank support through bond purchases.

“Schroeder lost his own parliamentary faction but Merkel has so far managed to keep hers,” Hohenthal said in an interview. “Merkel’s trying to buy time,” he said, adding that if her base abandons her, “a Merkel defeat in 2013 could happen.”

In 2003, Schroeder lowered taxes, reduced unemployment benefits and cut health-care services after two years of stagnation. German growth, however, remained sluggish at 0.7 percent in 2004 and 0.9 percent in 2005. It sped up to 3.6 percent in 2006, the year after his defeat.

Revolt Against Schroeder

Schroeder’s policies enraged some members of his own Social Democrats and led to a parliamentary revolt, Schroeder, 67, wrote in his memoirs. A wave of SPD members quit the party, including 80,000 who left in 2003 and 2004 before Schroeder’s defeat by Merkel in September 2005, according to Handelsblatt newspaper. The SPD had 498,616 members at the end of April, the most recent date for which party figures are available.

Merkel’s Christian Democratic bloc and Free Democratic coalition partner in parliament passed her bill on Sept. 29 expanding the euro-area rescue fund’s firepower. Her party enforcers are brutal with those who deviate. Chancellery chief of staff Ronald Pofalla was quoted by Der Spiegel magazine on Oct. 10 as publicly telling a CDU bailout opponent, Wolfgang Bosbach, “Every night I see your mug on television. I’m fed up with your mug. You’re making everybody crazy.”

Angry Voters

Yet Merkel’s ultimate problem may not be in parliament; it’s with voters who have punished her CDU and the FDP over their handling of the debt crisis.

Merkel’s party was either defeated or saw its share of the vote decline in elections held in seven of Germany’s 16 states this year. Voters ejected the FDP from five state parliaments. The SPD, the opposition in Berlin, is now in government in each of the seven states it contested. Merkel’s FDP ally is polling as low as 3 percent nationally, down from the 14.6 percent it won in the 2009 federal elections when it played a crucial role in her victory.

Merkel’s bloc has seen its share of the vote erode in German elections over the past three decades. CDU Chancellor Helmut Kohl won his first election in 1983 with almost 49 percent and three subsequent elections with as much as 44 percent before he was defeated in 1998 by Schroeder after getting 35 percent. Merkel won 33.8 percent in 2009.

CDU Membership Falls

The number of members in her CDU fell to 495,192 in September, down from almost 617,000 in 2000, party spokesman Jochen Blind said in an interview.

National polls over the past year have shown Merkel’s coalition would fail to win a majority and is trailing the SPD and Greens, which governed Germany under Schroeder from 1998 to 2005.

Techau said that Merkel is desperate to avoid “Schroeder’s all-or-nothing bid with his reforms” and that her “cautious, step-by-step approach and declarations that the euro sovereign debt crisis won’t be solved with a big bang” are aimed at being an “anti-Schroeder” to ensure survival.

Gary Smith, director of the American Academy in Berlin, a trans-Atlantic research institute, said that Merkel’s cautious approach to dealing with the crisis is “because she saw what happened to Schroeder.”

Merkel is holding back and “building majorities for things she knows are inevitable and unpopular, namely that Germany will have to pay more and give more sovereignty to Brussels,” Smith said in an interview.

To be sure, Smith said that while Merkel supporters may be “furious” at some of her policy moves, they will still vote for her “because they don’t want anyone else in power.”

“Merkel is the whipping boy now, but she also understands brinkmanship,” Smith said. “Things that were unthinkable a year ago are now being demanded, and Merkel understands that when she finally makes the right decision people will say that she was right.”

--With assistance from Tony Czuczka in Berlin and Gabi Thesing in London. Editors: James Hertling, Jennifer M. Freedman

To contact the reporter on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus