June 12 (Bloomberg) -- Chancellor Angela Merkel’s response to an election-year threat from Germany’s anti-euro party is simple: pretend it isn’t there.
Merkel, who decided to keep the euro area whole at the peak of Europe’s debt crisis in 2011 and 2012 in return for austerity measures in highly indebted countries, is signaling she will stick to that bargain if Germans re-elect her on Sept. 22. That’s anathema to Alternative for Germany, which wants southern countries such as Greece to quit the currency union and says Germans could one day return to the deutsche mark.
Snubbing the party founded in April by economics professor Bernd Lucke, a former member of her Christian Democratic Union, may be Merkel’s best bet to avoid derailing her bid for a third term. Her policy of balancing Germany’s pro-European tradition with austerity demands helps make her the nation’s most popular politician, suggesting the election is Merkel’s to lose.
“At the moment, we think that the best strategy is to neglect them,” Michael Fuchs, a deputy CDU chairman, said of the euro breakup activists, known by the acronym AfD in German. “They’re not really known to anyone. It’s not clever if we help them to be more popular.” Merkel shares that view, he said by phone, though “we shouldn’t take it too easy.”
Alternative for Germany enlisted more than 10,000 members and rose to as much as 5 percent in polls after its founding convention. Support has declined to as little as 2 percent since then, below the 5 percent minimum to win seats in parliament.
Four of the latest polls put the party at 3 percent, while the AfD declined one percentage point to 2 percent in the weekly Forsa survey published today. The opposition Greens and Social Democrats held at a combined 37 percent, with Merkel’s CDU declining one point to 40 percent and her Free Democratic Party ally gaining one point to 5 percent.
Even so, AfD is a wild card that could foil a rerun of Merkel’s coalition with the Free Democrats, her preferred ally, if enough disaffected voters defect from the governing parties. Merkel’s Christian Democratic bloc leads the opposition Social Democrats by between 12 and 16 percentage points in the six regular voter polls, yet none shows her current coalition with enough support to return to power.
Alternative for Germany is “a danger in that they could tip the balance,” even though the election debate “hasn’t become a euro discussion,” Carsten Brzeski, senior economist at ING Groep NV in Brussels, said by telephone.
While past anti-euro movements failed to gain traction in Europe’s largest economy, AfD has fodder in the 222 billion euros ($295 billion) in loans and guarantees that Merkel committed as Germany’s share of rescues for Greece, Ireland, Portugal and Spain. The risk of losing voters fed up with bailouts extends beyond Merkel to the Social Democrats and their Green party allies, who backed the rescues and say they are more pro-European than the chancellor. The AfD says it is actively pursuing voters from all parties.
Merkel sidestepped questions about the AfD during a call-in session with CDU voters on May 28 and in an interview with Der Spiegel. “I focus on making the right decisions for our country and my experience is that this is what’s convincing for people,” she told the magazine when asked whether she takes the anti-euro party seriously.
Not everyone in Merkel’s party agrees with the hands-off approach. Three Christian Democratic regional legislative leaders published a paper in May saying the AfD “should be taken seriously” and the CDU “shouldn’t shy away from this confrontation.” That prompted a reprimand from Merkel behind closed doors at a CDU national executive meeting, Die Welt newspaper reported.
Little more than three months before Election Day, Merkel isn’t cutting the euro area any slack. Countries must follow Germany’s lead by overhauling labor markets and tightening budgets, she says. She’s also rehearsed key campaign arguments, including that Germany benefits from the euro and that a revived D-mark would appreciate against other currencies, undermining German exports.
The benefits include her drive to lower Germany’s deficit. Merkel’s government has saved about 80 billion euros during the financial crisis from 2009 to 2013 as bond yields declined because investors consider the country a safe haven, the Kiel-based Institute for the World Economy said on June 11.
As she gears up into campaign mode, Merkel is betting that voters will view her as best-suited to make other euro-area governments keep economic overhauls on track and so defend Europe’s prosperity against competitors such as China.
A draft outline of the CDU’s election platform obtained by Bloomberg News reflects Merkel’s stance, saying the 17-nation euro has “overwhelming importance” for Europe’s economy and the answer to the debt crisis is greater competitiveness.
Merkel is also running on an economy that makes mobilizing fears of inflation and deficits “an uphill struggle,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a research note. Germany’s inflation rate was 1.5 percent in May and Germany will run a budget surplus this year and in 2014, the Finance Ministry said on April 17.
“As long as Merkel gives the impression she’s the guardian of German taxpayers’ money, that’s best way of dealing with the AfD,” said ING’s Brzeski.
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