Accessibility links

Breaking News

As Crisis Continues, Euro's Future Hinges On Merkel

Many believe German Chancellor Angela Merkel has been reluctant to act decisively partly because her governing coalition has suffered a string of defeats in key regional elections this year.
Many believe German Chancellor Angela Merkel has been reluctant to act decisively partly because her governing coalition has suffered a string of defeats in key regional elections this year.
Lights flash as musicians play onstage at this week's international auto show in Frankfurt, where Mercedes-Benz unveiled a sleek new hydrogen-powered concept car. German companies such as Mercedes are leading the development of new technologies, helping the economy thrive at a time of global decline.

But that success has placed a huge burden on Germany, whose leader, Chancellor Angela Merkel, will soon have to decide whether to lead the way to stronger European Union fiscal integration instead of continuing to muddle along with partial bailouts of countries such as Greece and Portugal -- limited measures that are clearly failing.

Dieter Zetsche, CEO of Daimler, Mercedes' parent company, said that although business had been good this year, the looming crisis was threatening Germany's economic boom.

"We see the clouds in the sky based on foreign debt, the sovereign debt crisis based on increasing tension in financial markets," Zetsche said. "We hope that politicians can finally send some signals of confidence, some solutions to these challenges so that the real economy does not get affected."

Fears over the worsening debt crisis sent European stock markets plunging this week, including the German DAX, where Robert Halver, a trader with Baader Bank AG, echoed growing calls to reverse European integration by urging Greece to drop the euro.

"I guess the reality is dawning in Berlin, even in the ruling coalition, that Greece cannot be a member of the eurozone any longer," Halver said. "That's why, let's send them out, please. Because it's good for them and for us."

Enlightened Self-Interest

Chancellor Merkel sought to suppress such talk on September 13, urging politicians to speak more cautiously in a bid to calm the markets. She said the 17-country eurozone had to stick together to avoid an "uncontrolled insolvency."

"That would not just affect Greece," she told Germany's RBB radio. "The danger that it hits everyone -- or at least several countries -- is very big." If Greece abandons the euro, many fear other countries would soon follow, striking a serious blow to the decades-long project of European integration.

The September 12 market drop raised worries that other countries in danger of debt default, such as Italy and Spain, would no longer be able to refinance their debt in the markets, says Thomas Klau of the European Council on Foreign Relations.

"It's another degree of pressure that has been added to a situation where Merkel was already under considerable pressure to act, and under considerable strain domestically," Klau says.

Many believe Merkel has been reluctant to act decisively partly because her governing coalition, led by her center-right Christian Democratic Union (CDU), has suffered a string of defeats in key regional elections this year.

Although many Germans say they're reluctant to bail out insolvent EU members, economists are quick to point out saving the eurozone is not a matter of altruism as much as saving German and other banks holding much of the bad debt. Germans are also well aware their country has benefitted from its membership in the euro.

A Victim Of Coalition Politics

Klau questions the conventional wisdom that Germans are reluctant to countenance more measures to keep the eurozone together, saying the parties that benefitted the most from the CDU's defeats this year -- the Social Democratic Party (SPD) and the Green Party -- back stronger fiscal integration and the issuing of Eurobonds, common debt that any eurozone member would be able to access.

He says a majority of CDU members, including probably even Merkel herself, no longer rules out the creation of new eurozone structures and possibly Eurobonds -- in private.

"There is a disconnect between some of Angela Merkel's public statements and the evolution of the thinking which has been going on behind closed doors in the CDU in Berlin," Klau says.

Still, a number of important CDU members oppose Merkel's "new openness" to deeper political and fiscal integration, Klau says. More important is that the CDU's coalition partners -- the pro-market Free Democratic Party and the Christian Social Union, the CDU's Bavarian sister party -- are also largely opposed.

The mounting talk of Eurobonds and fiscal union is splitting the coalition, "which could ultimately lead to a situation that endangers her chancellorship," Klau says.

A key test will emerge in coming weeks, when the Bundestag will vote on ratifying measures agreed in July to increase funds for the European Financial Stability Facility, along with boosting its powers. Although support from the SPD and Greens means the measure is almost certain to pass, it's not clear whether Merkel will be able to muster enough votes from her own coalition for it to pass without opposition support.

The CDU leadership is engaged in an "all out political battle" to secure backing, Klau says. Successful or not, that fight would pale in comparison to the monumental task of convincing other EU member countries to pass EU institutional reform if Merkel goes on to back a greater fiscal union.

with Reuters material

RFE/RL has been declared an "undesirable organization" by the Russian government.

If you are in Russia and hold a Russian passport or are a stateless person residing permanently in Russia, please note that you could face fines or imprisonment for sharing, liking, commenting on, or saving our content, or for contacting us.

To find out more, click here.