Angela Merkel and the euro/ECONOMIST

The new iron chancellor

As the euro totters, the world waits for the German chancellor to act. Will she?

Nov 26th 2011 | BERLIN | from the print edition

Is the lady for turning?

AS A schoolgirl, Angela Merkel spent an entire swimming lesson perched on a diving board. Only when the final bell sounded did she find the nerve to take the plunge. “I am not spontaneously courageous,” the German chancellor later said. “I am, I think, courageous at the right moment,” but “led too much by my head” to leap recklessly in. For Margaret Heckel, author of a book about Mrs Merkel, the story shows that “she goes to her limits and then overcomes them.” She has a “very fundamental confidence in her abilities.”

It is not widely shared. Mrs Merkel’s critics say she has reacted too little and too late to the euro crisis, which now threatens to trigger a worldwide recession as well as the single currency’s break-up. France’s prime minister, François Fillon, wants the European Central Bank (ECB) to buy bonds of shaky euro-zone governments on a grand scale. “But there’s a big problem, and that is to convince Germany.” The quip that Mrs Merkel is the only politician who can stop Barack Obama being re-elected attests both to her power and to frustration over how she wields it. Much depends on the right reading of the diving-board story.

In this section

• Mañana belongs to Mariano
• »The new iron chancellor
• Driverless, workless
• Home thoughts from abroad
• Planet Orban
• Tusk sharpens up
• The sinking euro

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The chancellor can point to a career built on breaking rules and confounding expectations. The daughter of a Protestant pastor who moved to communist East Germany during her infancy, she worked as a chemist at the Academy of Sciences and largely steered clear of politics until the Berlin Wall fell. She then joined the Christian Democratic Union led by Chancellor Helmut Kohl, but she was never going to be one of the boys. She rose to the very top in 2005 by outsmarting rivals with more impressive credentials, greater political skills and bigger power bases.

When the world economy was wobbling after the collapse of Lehman Brothers in 2008, she was lambasted for doing too little to steady it. Mrs Merkel “does not get basic economics,” declared Adam Posen, an American economist. Yet Germany emerged from the crisis stronger than any other big Western economy. On her desk sits a portrait of Russia’s Catherine the Great, another underestimated east German woman.

Many Germans who pay close attention to politics dislike her. Communication is not her thing: her supporters explain that she is a Sachführer, one who leads through mastery of policy, as opposed to an inspiring Anführer. She is given to abrupt changes of direction, suggesting a readiness to abandon principle for political gain. A longtime supporter of nuclear power, she shut down seven reactors after the Fukushima disaster this year. Commentators who cannot abide her frosty pragmatism eagerly predict her demise whenever she faces setbacks. These have been frequent, especially during her two-year-old coalition with the Free Democrats. But Mrs Merkel governs for the majority, which is not usually paying attention. Her aim is to get results, timed if possible to coincide with elections.

Now she is the chief figure, along with Mario Draghi, president of the European Central Bank, in an economic version of the Cuban missile crisis. She is said to be courting Armageddon by adhering slavishly to Germany’s sound-money dogmas and kowtowing to taxpayers who cannot see why the preservation of the euro should be worth paying something for. Hence her refusal to endorse unlimited bond buying by the ECB and her dismissal of jointly guaranteed eurobonds, an idea touted again this week by the European Commission. Surely, pray observers, she will blink before doomsday arrives.

Mrs Merkel is aware of the talk of catastrophe, but evidently not listening—even after market nerves led this week to a failed German bund auction (see article). In any case, she sees the crisis as too good to waste. No fewer than five euro-zone governments have been toppled but their successors are committed to sounder budgeting and structural reforms. Mrs Merkel wants the euro zone to be a “stability union”, but this understates her ambition. That nearly half of young Spaniards are unemployed worries her almost as much as Italy’s debt. Big Brussels initiatives to arrest Europe’s long-term economic decline have proved ineffectual. What some call foot-dragging Mrs Merkel regards as creative obstruction.

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Mrs Merkel’s closest advisers are as led by the head as she is. Nikolaus Meyer-Landrut, an historian by training, is her senior adviser on Europe, to which he has devoted his diplomatic career. Her economic adviser is Lars-Hendrik Röller, once the European Commission’s chief economist for competition. Even closer to the chancellor are Beate Baumann, head of her office, and Eva Christiansen, her media adviser, who act as sounding boards. Like their boss, both are cerebral strategists. The chancellery often has the hush of a library, not the buzz of a centre of power.

None of her close counsellors is expert in financial markets. But Mrs Merkel is hardly cut off. “She talks to many more people than your average politician,” notes Ms Heckel. She is not embarrassed to pepper them with questions in meetings at the chancellery. Her relationship with the europhile finance minister, Wolfgang Schäuble, rocky in the past, has improved during the crisis. Mrs Merkel also stays in touch with the Bundesbank’s president, Jens Weidmann, formerly her economic adviser, even though he has denounced some of the bail-outs she has backed.

As they await her final word on the euro, seasoned Merkel watchers have grounds for both hope and fear. She has no wish to be the chancellor who let the currency fall apart. But to unleash the ECB or to embrace eurobonds could precipitate a domestic crisis that would be almost as catastrophic. The measures already taken should be given a chance to work, she thinks. Meanwhile, she amasses the data needed for her next decision. She trusts her powers of calculation. If circumstances demand it, she is pragmatic enough to alter course. But she is not infallible. When the bell rings, it may be too late to dive.

from the print edition | Europe