Will the Real Angela Merkel Please Stand Up?
Looking forward to a difficult 2015.
If anything is certain about the new year, it is that much of the world’s stability and economic health will depend on what is done, or not done, in Europe. And what happens in Europe will depend, in large part, on German Chancellor Angela Merkel.
Merkel's leadership in 2014 was a curious mixture of boldness and timidity. It fell to her, more than any other European leader, to confront Russian President Vladimir Putin. And her efforts are what secured the unanimity among the European Union’s 28 fractious nations that was needed to impose meaningful economic sanctions to deter further Russian aggression in Ukraine. Regardless of whether those sanctions ultimately succeed, they have already served an important purpose by helping to hold the EU -- with its Russophile Italians and Austrians, its Russophobe Poles and Balts -- together.
As helpful as Merkel has been with Russia, however, she has so far only harmed efforts to address the faltering European economy. In 2015, as new elections in Greece bring fresh turmoil, she will need to apply some of the clarity and decisiveness she has showed in dealing with Putin to the euro zone. On both fronts, next year will be harder.
Europe’s Russia challenge will get tougher, because the pressure to repeal sanctions will rise. The current measures against Russia begin to expire in March, and many European leaders will be looking for reasons not to renew them as long as something resembling a cease-fire is in place; the reduction in lending, investment and sales to Russia has hurt the European economy as well as the Russian one. Yet until there is a more meaningful settlement that ensures Putin can’t continue his semi-covert war in Ukraine, sanctions need to stay.
As for the EU, new forces for disunion will emerge. U.K. Prime Minister David Cameron will be pushing for changes in the way the bloc works that help him persuade Britons to vote against leaving it. Merkel will need to simultaneously rein Cameron in and convince other EU leaders that it would be in their interests, too, to return some powers to national governments.
At the same time, the euro crisis threatens to heat up again. The favorite to win early elections in Greece next month, the neo-Marxist Syriza party, says it will refuse to carry out the further austerity measures required for the country's remaining bailout funds. Syriza also promises to roll back economic reforms that were put in place under the terms of the country’s 240 billion euro loan program, as well as to demand a restructuring of the country’s enormous public debt. Europe’s banking system may not be as vulnerable to a Greek default as it once was, but markets have been jittery at the revived possibility of a Greek exit from the euro.
So far, Merkel has resisted relenting on austerity policies for Greece. She has been unwilling to stimulate demand in the euro area, either by boosting investment in Germany’s own low-growth economy or by letting the European Central Bank engage in large-scale quantitative easing. She should not wait for the dawn of a new government in Greece to change course on all fronts.
Otherwise, Merkel may end next year not as the German leader who held Europe together, but as the one who put such strain on Europe’s currency and democracies that they began to break apart.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.