Merkel in Washington for Plaudits as She Struggles at Home

Photographer: Saul Loeb/AFP/Getty Images

U.S. President Barack Obama waves alongside German Chancellor Angela Merkel as they leave the 1789 Restaurant following dinner in Washington, DC. Close

U.S. President Barack Obama waves alongside German Chancellor Angela Merkel as they... Read More

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Photographer: Saul Loeb/AFP/Getty Images

U.S. President Barack Obama waves alongside German Chancellor Angela Merkel as they leave the 1789 Restaurant following dinner in Washington, DC.

German Chancellor Angela Merkel will receive the highest U.S. civilian honor from President Barack Obama in Washington today in the kind of reception she can’t get closer to home.

Even with the fastest-growing economy among the Group of Seven nations, Merkel’s political standing and clout are waning, weighed down by the European debt crisis, a reversal on nuclear power and her refusal to back air strikes on Libya.

“On both economic and security issues, Germany has been missing in action,” said Charles Kupchan, a Europe analyst at the Council on Foreign Relations in Washington who was director of European affairs on the White House National Security Council in 1993 and 1994. “The U.S.-German relationship has been particularly wobbly of late because Merkel has been so besieged by domestic weaknesses and her reluctance to do what’s necessary to stabilize the euro.”

Merkel’s struggles mean Obama may not get the answers he wants as he presses his allies to do more to stabilize the world economy. After lecturing Europeans on the urgency of reducing debt, Merkel, as leader of Europe’s biggest economy, is about to deliver the same message to Obama. In his weekly radio and Internet address on June 4, Obama cited “unease about the European fiscal situation” for hindering the U.S. recovery.

Merkel told Obama last night during dinner at 1789 restaurant in Washington shortly after she arrived that the euro region will “emerge strengthened” from the debt crisis, Steffen Seibert, Merkel’s chief spokesman, told reporters.

‘Strongest Allies’

“Germany, at the heart of Europe, is one of our strongest allies,” Obama said at a welcoming ceremony on the White House South Lawn, calling Merkel “one of my closest global partners.” The U.S. relationship with Germany, Obama said, shows that “wars can end, adversaries can become allies, walls can come down.”

Merkel, through a translator, said Germans know that “America has always been a true friend to us.”

With the White House and congressional Republicans deadlocked over raising the debt ceiling, the U.S. received a warning from Moody’s Investors Service last week that it risked having its Aaa rating reviewed if it failed to make progress on raising the limit. Merkel, too, will push debt curbs that Germany wrote into the constitution on her watch in 2009, a German official told reporters before the trip on condition of anonymity because the talks with Obama will be private.

Voters Turn Away

Merkel’s focus is winning over investors as voters turn away from her coalition with the pro-business Free Democrats. The DAX is the best performing stock index in the euro region after neighboring Austria in the past 12 months. The DAX has returned 19.3 percent in the period, against 13.1 percent for the Euro Stoxx 50.

Germany’s strategy of embedding debt and deficit cuts in law is “the right path,” Merkel said in a speech to parliament on May 26. Debt reduction is needed “not just for us now but for coming generations and we must always have that in mind.”

Writing the biggest checks to rescue Greece, Ireland and Portugal, Merkel has struggled to balance domestic opposition to bailouts with appeals from her counterparts to stake out a role that could persuade investors the euro region can solve the crisis. That it’s still roiling markets after 18 months shows the problem “is more one of governance and leadership” than a sovereign-debt crisis, Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a May 22 note.

‘The Anchor’

“The last thing America needs is for Europe to be having major economic problems when the U.S. is trying to get out of their own,” O’Neill said in a June 1 phone interview. Germany “is the anchor,” yet “to make it work requires bold leadership. It looks to me like Merkel makes decisions based on what she can get away with.”

Germany’s strongest growth in two decades and unemployment at a 19-year low haven’t increased Merkel’s maneuvering room as she lost clout in the upper house of parliament, where state governments are represented.

Her Christian Democratic Union has lost support in all five state elections this year and, with two more regional ballots in September, her coalition trails the opposition Social Democrats and Greens by as many as 16 percentage points in national polls.

She has also alienated allies in the euro region. At a May 17 rally, she said southern Europeans should take fewer vacations and retire later. The slap prompted protests by Portuguese, Greek and Spanish politicians.

Political Will

“That definitely was not a very helpful remark,” Peter Bofinger, a member of Merkel’s council of economic advisers, told Bloomberg Television on June 1. The real problem is that European leaders “lack the political will for a really bold solution” to the debt crisis, he said.

Even former Chancellor Helmut Kohl, 81, who gave Merkel her first Cabinet post in 1991, has indirectly rebuked her handling of the euro-area crisis. “Germany must not become a country that always waits for the others,” the wheelchair-bound Kohl said in a rare speech at the American Academy in Berlin on May 16. “Rather, we have to be there for the others.”

Merkel, 56, who gained a degree in physics from the Karl Marx University in Leipzig and then a doctorate in quantum chemistry from the Academy of Sciences in East Berlin, where she worked until 1990, rebuffs the critics. She says she refuses to be rushed into decisions. She argues that she has to minimize the risk to German taxpayers from euro-area bailouts and that the rest of the euro zone is embracing debt and deficit reduction because of her pressure.

Parting Ways

Merkel, who won a second term in 2009 and is up for re- election in 2013, has parted ways with allies on other fronts.

By putting bills through Cabinet yesterday to ditch nuclear power by 2022 in the aftermath of the meltdowns in Japan, she’s seeking to repeal a law she pushed through just seven months earlier to extend the use of reactors. Earlier, she declined to back an allied push at the United Nations to help Libyan rebels, siding with Brazil, China, India and Russia in abstaining.

“One has to ask, what is Germany offering its friends and allies?” said Ulrich Deupmann, a former German government adviser on foreign affairs who heads the Berlin-based political consulting firm ideas.ag. “Germany hasn’t led on much in the past few years.”

‘Sidestepping Germany?’

Illustrating the point, Bild, Germany’s top-selling newspaper, showed a photo of Merkel walking behind Obama and French President Nicolas Sarkozy at a summit in France last month and noted that Obama hasn’t visited Berlin since he became president. “Why is Obama sidestepping Germany?” said the headline.

That contrasts with President George W. Bush, who toured the Baltic Sea city of Stralsund in Merkel’s electoral district in 2006 and shared a barbecued pig with the chancellor in a former East German collective farming town.

Merkel, the Lutheran pastor’s daughter, says she was “excited about the American Dream” while growing up under communism in East Germany.

At an official dinner today, Obama will present her the Presidential Medal of Freedom, the highest civilian U.S. honor, to celebrate Merkel’s rise as the first woman chancellor and the first from the formerly communist east after reunification in 1990.

The trip “underscores the fundamental importance of the U.S.-German alliance” and the “depth of the friendship between our people,” with shared interests in Afghanistan, the Middle East and on bolstering the global economy, the White House said in an April 4 statement.

Reaching Out

Merkel has reached out to Obama by saying she was “pleased” at Osama bin Laden’s death at the hands of U.S. special forces, a statement that drew criticism in Germany and was clearly aimed at Washington, according to Gerd Langguth, a political scientist at Bonn University and Merkel biographer.

“She has to offer him something -- she has to respond positively to any request by Obama for more leadership on her behalf,” said Langguth. Ultimately, however, “she knows that her success or failure depends on the question of Greece.”

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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