Bloomberg News

Merkel Resumes Crisis Fight as German President Scrutiny Grows

January 04, 2012

(For more on Europe’s debt crisis, see EXT4.)

Jan. 3 (Bloomberg) -- Chancellor Angela Merkel returns from a two-week break to the front line of the debt crisis amid a clamor over the conduct of Germany’s president that threatens to damage her own standing and detract from her efforts to defend the euro.

Merkel, whose last official engagement was on Dec. 20, will resume her public duties in two days with the public spotlight on President Christian Wulff over a loan from a friend’s wife to buy a house and vacations at the homes of business people. Scrutiny of the mainly ceremonial president intensified yesterday after Bild, Germany’s biggest-selling newspaper, said that the president had attempted to stop the editor from publishing the loan story last month.

“The president is Merkel’s creation and if he’s forced to leave in such an ignominious way it would weaken her,” Jan Techau, director of the Brussels-based European center of the Carnegie Endowment for International Peace, said by phone. “Merkel was able to push through Wulff’s election without taking much account of opposing voices. If she has to pick a new president it will become a real test of her power.”

The accusations aimed at Wulff have “damaged him and his office,” Handelsblatt newspaper said today under the headline “the shrunken president.” His remaining in the post “is in doubt.” Wulff has rejected any impropriety.

Merkel-Sarkozy Meeting

The accusations surrounding Wulff are a distraction for Merkel as she pushes for a blueprint on closer fiscal ties in Europe by the end of March to combat the crisis that has driven the euro to record lows against the yen. She is due to host French President Nicolas Sarkozy Jan. 9 for talks in Berlin with the threat of a credit-rating downgrade still hanging over the euro area.

While “the German medicine that we need to solve the problems of southern Europe” is generally accepted, there is still a debate over how to stimulate growth, Kit Juckes, head of foreign exchange research at Societe Generale SA in London, said in an interview with Maryam Nemazee on Bloomberg Television.

“The solution is there,” he said. “It’s a question of whether the political will exists to get us further down the road than we are now.”

Merkel, in her New Year’s address, pledged to defend the euro and warned of hard times to come without signaling any additional measures to combat the crisis that the Munich-based Ifo economic institute forecast will cause economic growth to plunge to 0.4 percent this year from an estimated 2.9 percent in 2011. She and Sarkozy will prepare for “upcoming European appointments,” including a Jan. 30 European summit, the government said.

Merkel hasn’t addressed Wulff’s travails since she said before her Christmas vacation departure last month that he had her “full confidence.”

Presidential Resignation

Wulff, 52, a former deputy leader of Merkel’s Christian Democratic Union party, was picked by the chancellor to replace the previous incumbent, Horst Koehler, after Koehler’s surprise resignation in May 2010. Wulff was elected by a special national assembly on June 30 of that year only after the third attempt.

The chancellor’s majority in the assembly has since narrowed to as few as two seats from 21 seats after regional election defeats throughout 2011 that she and other party officials blamed on the debt crisis, according to electoral website wahlrecht.de.

Home Loan

Wulff’s 18 months in office were largely confined to representing Germany overseas until Bild reported on Dec. 13 that he negotiated a 500,000 euro ($651,000) loan from the wife of Egon Geerkens, a businessman friend, to pay for a new home when he was Lower Saxony state premier. Wulff later apologized for failing to reveal the loan, which he said he paid back before his election to the presidency. “At no time in public office did I give anyone an improper advantage,” Wulff told reporters on Dec. 22.

Handelsblatt said that by so far refusing to come to Wulff’s rescue again, Merkel is adopting a “dangerous silence” that could backfire.

For all the media attention on the president’s future, “losing Wulff would be a distraction but it’s not going to put Merkel’s government into system overload,” said Techau at the Carnegie Endowment for International Peace. “She’s able to handle multiple crises. This government has been in crisis mode since it came into office in 2009.”

--With assistance from Leon Mangasarian and Patrick Donahue in Berlin. Editors: Leon Mangasarian, James Hertling.

To contact the reporter on this story: Alan Crawford in Berlin at acrawford6@bloomberg.net

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


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