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Germany and the Euro crisis

Today, if Henry Kissinger asked again which number to call to speak to Europe, he would certainly be given Angela Merkel's. Without doubt, the German Chancellor is the most important, and powerful, actor in the current Euro crisis. But the undisputed importance of Germany is also its biggest problem: while the US and some EU partners like Poland want more leadership from Merkel, others fear German dominance, most notably the British.

As for Merkel, being in the spotlight is diametrically opposed to her personal leadership style. She prefers to lead from behind and not position herself too early. Repeatedly, she has explained that there is no single, big solution for the uro crisis and that the Eurozone can only be stabilised step by step.

To observers, this often looks like trial and error. They complain that Merkel first rejects new proposals only to adopt them later because all alternatives have failed (something the leader of the opposition Frank-Walter Steinmeier dubbed "Merkel's law"). And to some extent, that's true. But with such a complex issue as the Euro crisis and a coalition partner at home who is in a state of dissolution, there is probably no alternative to her approach. And not only the Liberals, the Bavarian Conservatives, too, are becoming more and more nationalistic and populist with regard to the Euro.

Ultimately, Merkel's cure for the Euro crisis is based on three principles:

  • Austerity, not stimulus: Confidence can only be restored if states adopt a balanced budget. Investments in the economy which would stimulate growth are currently not seen as a priority.
  • Deeper integration: Despite growing Euro-scepticism, even in Germany, Merkel believes that the Euro crisis must result in ever deeper European integration. This is also the strong opinion of Finance Minister Schäuble who is one of the pillars of the German government.
  • Prevent inflation: Domestically, Merkel is adamant to keep inflation at a low rate. Germans have so far been relatively relaxed about the Euro crisis, but if inflation kicks in, the savings of millions of Germans would be at risk. Merkel is determined to prevent this in her own interest to become re-elected.

For Merkel, the key to the solution of the Euro crisis is not primarily economical. She believes that stronger guarantees for the Eurozone, the buying of government bonds by the ECB or Eurobonds will not ultimately calm the markets. In her policy speech last Friday, she stated self-critically that above all, politics has lost "almost all trust". Therefore, her response to the crisis is political rather than economical.

There is no doubt that Merkel understood the seriousness of the crisis and that she also has an idea of how to solve it. The question however is whether she will be able to convince her European partners and lead the European Union out of this crisis. Commission President Barroso, for example, is worried that the EU institutions might be weakened as a result of the crisis management of national governments, while President Sarkozy is afraid of yet another transfer of power to exactly these institutions. And the fact that she has so far not been able to present a new and positive vision for Europe (stricter budget controls is hardly something that excites people), it is easy to dismiss her proposals as a "German dictate".

Surprisingly, it was neither Sarkozy nor another member of the Euro zone who most convincingly pledged for German leadership in the Euro crisis. It was Polish Foreign Minister Radoslaw Sikorski who warned in a recent speech in Berlin: "I fear German power less than I am beginning to fear German inactivity. You have become Europe's indispensable nation. You may not fail to lead."

"Leadership", Harvard's Joseph S. Nye writes, "is more like being in the middle of the circle and attracting others than being ‘king of the mountain’ and issuing orders to subordinates down below." Merkel knows this and is currently rallying for support among her fellow EU leaders, within and outside the Euro zone. Whether she's successful, we'll see by the end of this week.

Note: This blogpost was first published on 8 December 2011 on brussels+, the policy blog of the public affairs consultancy g+ europe. To subscribe to the blog and receive regular updates on the European Union and its member states, please click here.

Foto: Nikolas Konstantin, Lizenz: CC BY 2.0

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