July 15 (Bloomberg) -- On election night in September 2009, Angela Merkel told her Christian Democrats they achieved “something fantastic” by ousting the Social Democrats from Germany’s governing coalition for the first time since 1998.
The moment proved to be the high point of her second term as chancellor, coming less than three weeks before the outbreak of the Greek debt crisis that has hobbled her government. Merkel has alienated voters and irritated allies, squandering gains from the biggest economic boom in Germany in a generation, as she failed to contain the slump in European debt markets that has since spread to Portugal, Ireland and now Italy.
With a pair of state elections in September, Merkel’s domestic political needs may run into European Union efforts to complete a second bailout for Greece as policy makers struggle to end the 21-month increase in borrowing costs.
“In Brussels, she’s criticized for not being EU-friendly enough and at home she’s seen as being too EU-friendly,” Jan Techau, director of the Carnegie Endowment for International Peace in Brussels and former German Defense Ministry analyst, said in an interview. “The Greek crisis is eating up the economic bonus. The image of her throwing money at the crisis is stronger than her successfully steering Germany’s economy through the crisis.”
In contrast to postwar leaders like Konrad Adenauer, Willy Brandt and Helmut Kohl, whose legacies derive from efforts to unify Europe and Germany, Merkel, 56, has tried to balance her voters’ opposition to bailouts with pleas from European leaders to respond to the spreading fiscal mess.
The result has been conflicts with European Central Bank President Jean-Claude Trichet and electoral setbacks.
Merkel’s party has either lost or seen its share of the vote decline in six state ballots in the past 22 months. It also ceded control of the Bundesrat, the national parliament’s upper house, as the opposition won control in the industrial states of North Rhine-Westphalia and Baden-Wuerttemberg, which the Christian Democrats, or CDU, had controlled since 1953, and in Hamburg, Germany’s richest state.
Deepening her political woes was a decision to drop support for nuclear power after the March earthquakes in Japan, abandoning an issue that had set her apart from the Green Party.
Merkel’s Christian Democratic-led coalition has trailed the opposition Social Democrats and Greens in national polls for more than a year even as the economy grew by the most since the 1990 reunification and the jobless rate fell to the lowest since records for the combined Germany began in 1991. Germany’s next national election is due in 2013.
Germany’s economy will expand by a projected 3.4 percent this year, the most of any Group of Seven nation, the Paris-based Organization for Economic Cooperation and Development said in a May report. The jobless rate declined in June for a 24th straight month to 7 percent, wage growth is accelerating and factory orders for investment goods are rising as companies increase spending and hiring to meet surging demand.
If U.S. President Barack Obama had “this kind of an economy, nobody would be talking about any serious problems for re-election,” said Stephen Szabo, executive director of the Washington-based Transatlantic Academy.
Merkel’s office declined to comment for this story.
The Greek saga has overwhelmed all the good news at home for Merkel, who grew up in communist East Germany and gained a degree in physics from the Karl Marx University in Leipzig and a doctorate in quantum chemistry.
While Merkel prevailed with a demand last year that the International Monetary Fund play a role in Greece, her willingness to bail out the Mediterranean nation elicited scorn from her Free Democratic Party coalition partner.
“A good many Free Democrats share the view in private that something is going badly wrong and that we’re heading full speed toward creating a permanent system of transferring aid to the currency area’s periphery,” said Frank Schaeffler, an FDP lawmaker who last year called for Greece to sell islands to reduce its debt, in a May 13 interview. “A year ago I was isolated in the party, but that’s no longer the case.”
Schaeffler has attacked CDU Finance Minister Wolfgang Schaeuble for blocking tax cuts and in his blog dubbed Trichet “the Darth Vader of money” for his rejection of the so-called Greek debt re-scheduling.
Merkel retreated from calls last year for “quasi-automatic” sanctions for euro countries that breach deficit rules in a deal with France. After Germany pressed to force private investors to extend Greek bond maturities, Merkel backed off from the demand last month following an intervention by French President Nicolas Sarkozy. She also flip-flopped after opposing a restructuring of Greek debt.
As markets worsened this year, Schaeuble in a June 6 letter to Trichet and fellow euro ministers called for banks to swap Greek bonds to extend their maturity by seven years. Amid pressure from Merkel's coalition lawmakers, German banks and insurers agreed to roll over at least 2 billion euros of Greek bonds maturing through 2014, Schaeuble said on June 30.
“Merkel’s leadership has been surprisingly bad throughout,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy. “We’ve seen Germany oscillating from one policy to the next and then back again. It’s been government by confusion.”
Merkel ranked as the nation’s sixth most-popular politician in a July 4 Der Spiegel magazine survey, helped by her down-to-earth style that includes wheeling her own shopping cart through a local supermarket.
She and her second husband, Joachim Sauer, don’t use the sprawling living quarters in the chancellery and instead live in a 19th century apartment building in Berlin’s central Mitte district. Merkel only uses Germany’s version of Camp David, a restored 18th century Prussian palace, for official functions and prefers spending weekends at a family cottage in the village of Hohenwalde, 80 kilometers (50 miles) northeast of the capital.
“I’m not really a city person and feel especially well in the country,” Merkel says on her website, adding that she enjoys walking around the lakes in the Uckermark region where her country home is located and likes vacationing in the Alps.
Japan’s March 11, 2011, temblor, tsunami and the Fukushima nuclear disaster rocked Merkel’s Christian Democrats and may have unleashed the Chancellor’s environmentalist bent.
Greens Defeat CDU
Riding a wave of anti-nuclear sentiment, Germany’s Greens party won March 27 elections in the state of Baden-Wuerttemberg, home of Porsche SE and Daimler AG. The vote was a double debacle for Merkel as her CDU lost control of the area it ruled for more than half a century when a Greens candidate was elected as state premier for the first time since the party’s founding in 1980.
One day after the defeat, Merkel declared she had changed her view on nuclear power and on May 30 her coalition approved shutting all German nuclear stations by 2022, with final legislation passed on June 30. This marked a turnaround of Merkel’s policy from last year when her government extended the operating life of nuclear plants, which supplied 23 percent of power in Germany in 2010.
“The fact that she switched so quickly after Fukushima really undermined a lot of Germans’ confidence in her,” Szabo said. “They expect chancellors to have a bit more backbone.”
To be sure, Merkel’s coalition isn’t suffering because of the Christian Democrats, which national polls show would win a similar share of the vote as in 2009. It’s the collapse of her FDP junior partner to as low as 4 percent in the polls from the 14.6 percent it got in the election that’s dragging her down.
“Merkel’s one chance now is to get enough votes in the next election so she can prevent an SPD coalition with the Greens,” said Ulrich Deupmann, a former German government adviser on foreign affairs who heads the Berlin-based political research firm Ideas.ag. This may allow her to set up a coalition with the SPD in 2013 or possibly with the Greens given her anti-nuclear conversion, the Carnegie Endowment’s Techau said.
The atomic-power decision, which was criticized by the French government, came as Merkel broke with France, Germany’s closest ally, on the war in Libya.
Sarkozy took the lead in calling for European and then NATO air strikes on Libya earlier this year and French jets took part in the first attacks on Libyan forces on March 19. By contrast, Merkel ordered Germany to stay out of the fight. Her government sided with Russia and China in abstaining on the United Nations Security Council resolution, backed by the U.S., France and the U.K., authorizing moves to protect Libyan civilians from Muammar Qaddafi’s forces.
This Isn’t Switzerland
“It would be OK if this was Luxembourg or a smaller country like Switzerland, but it’s not Switzerland,” said Szabo of the Transatlantic Academy.
Merkel’s Christian Democratic bloc is at 32 percent to 34 percent in the polls, compared with 33.8 percent when it won in 2009. Yet unless the FDP recovers or Merkel finds a way to tap new support, the government has little chance of being re-elected in two years.
“This 32 percent is the Christian Democratic core that will back her whatever happens,” Techau said. “It’s not good enough with the FDP’s implosion and her getting far less than the CDU used to win.”
Kohl, the former CDU chancellor, won four elections between 1983 and 1994 with his Christian Democratic bloc getting between 41 percent and 49 percent. Kohl was defeated in 1998, after winning 35 percent, by Social Democrat Gerhard Schroeder.
Schroeder, who was chancellor from 1998 to 2005, expresses a sense of amazement at Merkel’s predicament.
“It’s the first time that a booming economy hasn’t paid off for a government,” Schroeder said in a May 17 interview.
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