Archive for August 19th, 2011

Merkel’s Challenge

Europe's unlikely leader

Angela Merkel’s father Horst Kasner was a Lutheran Minister who lived in East Germany, but the family could travel to the West.  This suggests that her father had a solid relationship with the Communist party, focusing on his religious duties over political activism.  This kind of pragmatic “do what you can given the situation” attitude was passed on to his daughter.   Though she was a member of the Communist youth, she did not go through the coming of age initiation Jugendweihe that most East Germans participated in, she was confirmed in the Lutheran Church instead.

Although fluent in Russian, she was not political.   She studied science, ultimately earning a Ph.D. in quantum chemistry.   When the wall came down in 1989 the then 35 year old joined the party Democratic Awakening and won a seat in the last East German legislature.    She worked closely with Christian Democrat Lothar de Maziere who formed that last East German government, leading towards a unification agreement with the West.

She won a seat in the German Bundestag in 1990 as a Christian Democrat (CDU), and was chosen as Womens and Youth Minister in Kohl’s cabinet.   Most saw this as symbolic — Kohl wanted an “Ossi” (someone from the East), and to put a woman on what is one of the lesser cabinet positions seemed a kind of political show.   Yet in 1994 Kohl moved her to the more important post of Minister of Environment and Nuclear Safety.   Kohl jokingly referred to her as “mein Mädchen” (my little girl).    Most Germans still were skeptical, thinking Chancellor Kohl wanted to show off an East German woman in the cabinet to help the process of cultural unification (which came about at a much slower pace than political unity!)

She has been under estimated for much of her career.   She’s a scientist, not a politician, pragmatic rather than ideological, and her conservative Lutheran values seem out of place coming from the mostly atheistic former East German.   When Kohl lost in 1998 she became Secretary General of the CDU, second to the Party Chair, Wolfgang Schäuble (who is currently finance minister).   This was seen by many as simply a sop to Kohl, since she was clearly one of his favorites.   However, the CDU did very well in state elections in the coming years, and she built strong ties with the local parties.   She also distanced herself from Kohl when a party financing scandal broke out and it became apparent Kohl had an illegal slush fund.   She was elected to lead the party in 2000, a result that surprised many and was criticized by many in the CDU who thought her weak.

Normally the CDU leader challenges the SPD leader in the elections, but in 2002 the CSU, Bavaria’s sister party to the CDU (the CDU doesn’t compete in Bavaria, the CSU competes only there) put forth Edmund Stoiber as the Chancellor candidate in 2002.  He was extremely popular and she acquiesced.   In an election shocker Gerhard Schröder (SPD) held on and defeated Stoiber.   In 2005 Germany’s closest election took place (a year early due to coalition instability), with the SPD and CDU forming a “grand coalition” (usually one of the two major parties forms a coalition with a small party).   Schröder tried to hang on to the Chancellorship, but since the CDU/CSU had 0.1% more votes than the SPD, Merkel got the prize.

Because she is center-right, many likened her to Thatcher (who was also a scientist by training).   Her steely eyes and apparent immunity to political pandering seemed like that of the “iron lady.”   However, while Thatcher was a nationalist and had an ideological faith in markets, Merkel is a Europeanist and a pragmatist.   Rather than a radical program of budget cuts and privatization, she focused on reforming programs that didn’t work, and forcing Germany to try to get back to living within its means.   She not only deftly managed a very unstable grand coalition — one that lasted all four years, surprising many — but then won the 2009 election in a way that allowed a more traditional coalition with a smaller party (the FDP).   That put her clearly in charge as Germany’s leader.    People had come to appreciate her and no longer saw her as a symbolic sop to the East; Germans started calling her “Mutti” (mother), and given the recession in 2009, her ability to win the election speaks to the faith Germans had in her to guide the economy.

Now she faces her greatest challenge.   This could be seen this week as she went to her home state of Mecklenberg-Vorpommern to campaign on behalf of the battered CDU (now behind the SPD in polls) before that state’s election on September 4th (German states have elections scattered throughout the calendar, rather than the US tradition of all being on the same day).    Her goal is nothing other than to save the EU and the Euro, preserving what her mentor Helmut Kohl considered the crowning achievement of his Chancellorship after German unification.

It has not been easy.   Despite budget cuts and tax increases at home, Germany has paid a major share of bailout money to Greece and Ireland.   This has made her and her party less popular.   Ever the scientist, she puts policy ahead of politics; it may be unpopular, but its necessary (also for the German economy, given that German banks hold a lot of the questionable sovereign debt).  However she’s also rebuffed French President Nicholas Sarkozy who has suggested Euro-bonds as a way out of this crisis.

Right now every state finances its debt with its own bond — meaning countries that manage debt and their economies well get AAA ratings and low interest rates.   Countries like Greece and Italy, on the other hand, risk being forced to default.   Moving towards Euro-bonds may solve the crisis in the short term, but Merkel worries that it will weaken incentives for solid economic policies.   The EU can’t function if countries aren’t forced to deal with the consequences of their policy choices.   Good policy has to be rewarded, poor policies punished.

She tells Germans that the EU is on the right track.   The Euro is solid.  She’s instead pressuring the problem countries to pass a Schuldenbremse like Germany did in 2009 (during the Grand Coalition) — the functional equivalent of a balanced budget amendment.  That would show investors that the countries would be forced to get debt and deficits under control.     She’s kept pressure on the problem states to cut spending and raise taxes like Germany has.   In her view this is like a scientific problem — you analyze the variables, determine the proper course of action, and then implement the plan.   Political pressure, protests and unpopularity should not push you off course.

Merkel’s government should last until 2013 when the next election is scheduled.   That means she has the capacity to push ahead, despite opposition at home and abroad.   Europe is lucky that Germany has such a solid, pragmatic and fiscally conservative leader.   Despite proclamations about the death of the Euro and the fall of Europe, it’s just a few problem states that are in deep trouble, and Germany’s capacity to out perform the rest of the West makes it the central player in European politics.   As one friend quipped, “Germany may be winning in peacetime what they couldn’t win in war — dominance of Europe.”

That’s overstating it, but not by much.  If  Merkel again defies those who under estimate her and manages to guide Germany and Europe through the crisis with her steely, pragmatic and utterly rational resolve, the EU and Euro will not only be saved, but will thrive.   While Merkel’s not ideological, her Lutheran upbringing is clear in her attitude.   There is a moralism to her policy.    A united Europe is good, but individual states need to be responsible for their own budgets and policies.  Europe can only succeed if budgets are balanced, programs are rationally run, and states accept the reality of the current demographic and economic situation.

It may seem odd, but I can think of no better leader for this crisis than this 58 year old quantum chemist from just north of Berlin.   Her integrity and analytical mind suggest she won’t back down or get thrown off course by political intrigue.  She’s not blinded by ideology but grounded by core moral beliefs.   She’s one reason I think Europe will get through this crisis.

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