Merkel Regains Some `Sparkle' as EU Gambit, German Budget Cuts Win Through

Chancellor Angela Merkel’s policy victories in Berlin and Brussels offer her a boost as she bids to reverse a decline in her Christian Democrat party’s fortunes before elections next year in six of Germany’s 16 states.

Merkel, trailing the opposition in polls since May amid policy drift and coalition bickering, won lower-house backing yesterday for a nuclear-power extension, budget cuts and tougher rules for banks bailed out by state funds during the crisis. She went on to secure the support of fellow European Union leaders for her plan to create a permanent debt-crisis mechanism.

“She’s pleased because this is a good result for Germany and Europe,” Steffen Seibert, Merkel’s chief spokesman, said in a text message from Brussels. “She’s already concentrating on the next tasks at hand.”

Merkel must rally her coalition before regional votes involving 25 percent of the population beginning in March, or face what Uwe Andersen, a politics professor at the University of Bochum, has said will be a “nuclear meltdown” in her party. Policy triumphs and a buoyant economy, Europe’s biggest, may give her the springboard she needs.

‘Gone Broke’

“A lot of people have gone broke underestimating Frau Merkel,” Irwin Collier, a professor of political economy at the John F. Kennedy Institute of the Free University in Berlin, said by phone. “There’s a bonus lurking in sustained economic growth that will eventually feel itself in her party’s poll scores.”

German unemployment dropped below the 3 million mark this month to the lowest since 1992, as the government raised its forecast for economic growth to 3.4 percent, the fastest pace since 1991. The benchmark DAX Index is up 10 percent this year, more than double the 4.4 percent advance for the U.K.’s FTSE 100 Index and the 4.3 percent gain for the Stoxx Europe 600 Index.

“It’s normal that the sparkle of a new government rubs off after a year and poll tallies dip but we should see some stability there now in Merkel’s score card -- and we are,” said Peter Matuschek, chief political analyst with pollster Forsa. Even so, “she needs to identify far more closely with Germany’s recovery.”

Merkel’s personal and party ratings plummeted in May during her flip-flop over aiding Greece and were compounded as she granted the biggest portion of the EU’s 440 billion-euro ($608 billion) rescue fund. She went in to the summit yesterday refusing to extend the fund beyond its three-year mandate, winning agreement to rewrite EU treaties to prevent a repeat of the debt crisis that put the euro at threat.

‘Learned the Lessons’

“We have achieved some important things that show we’ve learned the lessons of the euro crisis,” Merkel told reporters in Brussels today. The changes approved by EU leaders mean “the euro will strengthen.”

The euro is up 16 percent against the dollar from June’s four-year low. The single currency was down 0.5 percent at $1.3860 as of 1:03 p.m. in Berlin.

“Merkel is one of the most successful heads of government right now in terms of being able to deliver,” Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy, said by phone. “Compared with other leaders she’s determined in what she wants to do and also has a strategy on how to push it through.”

Latest Polls

That resolve has yet to translate into voter support. Merkel’s Christian Democratic bloc and her Free Democratic Party coalition partner have 35-37 percent backing, according to three polls published on Oct. 27. That compares with the 48.4 percent that won her re-election in September last year.

The opposition Social Democrats and Greens, which governed in a coalition from 1998 to 2005, have 47-48 percent in the three polls, up from a combined 33.7 percent at the election.

Protests are meanwhile gathering pace over the chancellor’s policy of prolonging the operating lifespan of Germany’s 17 nuclear plants by as many as 14 years. Opposition parties yesterday said they’ll challenge government plans to bypass the upper house of parliament and would overturn the extension if they regain power in 2013.

The outlook is similarly bleak in Baden-Wuerttemberg, the biggest state to vote next year, where protests over a high- speed rail link in Stuttgart may lose Merkel’s CDU control of the regional administration for the first time in more than 50 years.

“For sure, some erosion can be expected at the edges in next year’s six state elections but by then her fortunes could have brightened,” said Collier of the Free University. “She may seem charisma-challenged to foreigners, but Germans appreciate her quiet confidence -- and that was no better exemplified than this week in Brussels.”

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Tony Czuczka in Brussels via aczuczka@bloomberg.net.

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

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