Will German voters cut the cord?

Published in Business Spectator (Melbourne), 6 May 2010

The joint efforts by the European Union and the International Monetary Fund to pull Greece from the abyss of sovereign default are painful in the short term. Their long-term consequences for cooperation and stability in the region may nevertheless turn out to be far more serious.

Having provisionally saved Greece, European leaders will soon wake up to a new political crisis for the continent. The times in which German governments were willing and able to bankroll Europe’s ambitions and mediate between conflicting national interests are over. No other than German Chancellor Angela Merkel will make this break with the past.

Even after a decade at the top of her Christian Democratic Union, Angela Merkel remains an enigma to political observers even in her own country. Her core political beliefs are as hard to pin down as it is to nail a pudding to the wall.

There is one character trait to the German Chancellor, though, on which most commentators agree. Although Merkel often learns her political lessons the hard way, she never forgets them. As an astute student of her former mentor and predecessor Helmut Kohl, she knows that sometimes you can solve problems by waiting long enough. And just like Kohl, Merkel is sticking to decisions once made to the point of uncompromising stubbornness.

Before the financial crisis, Merkel’s greatest political shock was the German election of 2005 which only narrowly secured her the chancellorship. By all standards, it was a disappointment. Against an incumbent government in disarray, she failed to land a convincing victory and had to enter into an unloved coalition with her party’s arch rivals, the Social Democrats.

Merkel interpreted the result that the Germans were not willing to follow her on the reform path she had promised in the election campaign. She has stuck to this lesson ever since, completely purging herself of any reformist zeal.

Through Greece’s fiscal crisis, Angela Merkel is now learning another major lesson. Germany, once the big driver of European integration, has reached the end of its post-war pro-European consensus. Its people are tired of paying for the mistakes of others just for the sake of being ‘good Europeans’.

Not long ago there was an easy way to ascertain that the person you talked to was German. If you asked him about his nationality, he would answer ‘I am European’ without hesitation. No matter how strong his accent, the pretence of a European identity helped the Germans leave their catastrophic and embarrassing past behind.

As memories of its Nazi history become more distant, Germany is regaining some sort of normality in its relationship with itself. The soccer World Cup in 2006 was the watershed in this respect. When millions of Germans were flying their country’s flag without any signs of shame or embarrassment, it clearly marked the end of the post-war era.

What other countries at the time did not notice was the fact that Germany’s regained national self-consciousness naturally also changed its outlook. Where once it was enough to put Europe ahead of their own interests to regain respectability within the international community, the Germans of today are no longer seeing a necessity to stress their credentials. Hence the rescue efforts for Greece have been met with outrage by the German public.

Throughout the long Greek drama, observers of German politics noted how different the debate sounded from previous ones. The mass-circulation tabloid Bild-Zeitung ran stories about ‘those lazy Greeks’ that bordered on demagoguery. Backbenchers from Merkel’s coalition government publically recommended that Greece should rather sell a few of its islands than ask for German help. And Merkel herself attempted to lead the way by presenting herself as a new ‘Iron Chancellor’, a ‘Madame Nein’ against a Greek bailout.

Merkel knew how deeply unpopular Germany’s engagement in Greece would be. Her situation was not helped by the fact that there will be an election in Germany’s most populous state of North Rhine-Westphalia (NRW) on May 9. Her party currently holds this key state. Losing it would tip the balance in the upper house and consign Merkel to virtual impotence for the remainder of the electoral term.

International commentators watched with irritation as Merkel tried everything to postpone any help for Greece until after the NRW election. This clearly wasn’t the same chancellor who – just like all her predecessors – had always put European interests automatically ahead of domestic politics.

Merkel’s very first international conference as Chancellor had been a typical example. When an EU summit in December 2005 could not find an agreement over the organisation’s budget, Merkel solved the crisis by providing a few hundred million euros that mainly benefited Poland. Far from criticising her for this use of taxpayer money, the German media at the time praised Merkel’s diplomatic skills.

The situation facing Merkel today is completely different. Public opinion has turned 180 degrees. Polls show that vast majorities of between 80 and 90 per cent of the Germans reject any taxpayer involvement in the Greek crisis. But since Merkel did not succeed in holding off the rescue package until after the state election, her party is bracing for a massive backlash. Voters are furious about the prospect of paying up to €40 billion for Greece’s decades-long mistakes, and they will vent their anger at the polls.

Just as Angela Merkel had to learn the hard way that she cannot win elections by promising reforms, she is now learning that she will lose elections by being too pro-European. The state election may turn out to be traumatic to her in this respect. It will also have an impact on Germany’s future role in Europe.

No longer will the Germans, least of Angela Merkel, lead the way towards ever closer union. From now on, in Europe it is everybody for himself. The sorry state of public finances in most European countries (including Germany) puts a natural limit on their ability to rescue each other anyway.

Should other countries find themselves in difficulties like Greece, they should not even bother asking for help. Angela Merkel has learnt her lesson that German taxpayers are no longer willing to be Europe’s paymasters. Ironically, the Greek rescue package may have increased the chance of a future sovereign default in Europe – other nations struggling under massive debt burdens are likely to find there is nobody left willing to bail them out.

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