Tags: merkel | growth | europe

Merkel Increasingly Isolated as Austerity Falls from Favor

Sunday, 20 May 2012 02:32 PM EDT

There are weeks in the political life of Angela Merkel that were surely more pleasant than the last one.

Last Sunday, the German chancellor's party suffered a big loss in the regional election of North Rhine-Westphalia. On Wednesday, she sacked one of her cabinet ministers, a rare move for her, after he led the party to the election defeat.

On Saturday, she looked isolated with her insistence on fiscal austerity - also known as "consolidation" - for the ailing euro zone at the G8 summit hosted by President Barack Obama at Camp David in Maryland.

And she might have been upstaged by the new man at the top table, French President Francois Hollande, who defeated her close ally, Nicholas Sarkozy, just weeks ago and ended the so-called "Merkozy" era in Europe.

To top off an already long list of unpleasant events, the German football club Bayern Munich lost the Champions League final against Chelsea from London on penalties, a match Merkel watched on the G8 summit sidelines.

Pundits may view the coming week as the first chapter of decline not only for the mightiest woman in Europe, but also for the German way of managing Europe's debt crisis in recent years.

A grand coalition of leaders including President Barack Obama, Hollande, Italy's Mario Monti and Spain's Mariano Rajoy want to press her into a more flexible approach to buttress Spanish banks, tackle the Italian deficit and save a rapidly crumbling Greece.

But Merkel and her allies have quite a different view. The stress on "growth" as well as spending restraint is something she has been pushing for weeks, they say. Ultimately, cold fiscal realities could bring Hollande and his allies back down to earth.

"It is a great success, that all agree now that we should have both growth and fiscal consolidation", Merkel stressed on Saturday with a look of satisfaction.

"Merkel pushes through fiscal consolidation", the popular German Internet site "Spiegel online" said after the G8-summit.

The chancellor fiercely denies being isolated around the table of leaders at the U.S. presidential retreat.

She did get an endorsement from British Prime Minister David Cameron, and other leaders praised her emphasis on fiscal rectitude.

"I think the German chancellor is absolutely right that every country needs to have in place strong plans for dealing with their deficits," Cameron told the BBC. "Growth and austerity aren't alternatives. You need a deficit reduction plan in order to get growth."



Hollande told reporters he "didn't feel" Merkel was isolated. But her name was conspicuously absent when he said: "It's true that growth was widely discussed and desired not just by myself, President Obama, but others like Mario Monti."

Since the chancellor noticed her policy approach was increasingly attacked domestically and abroad as a cold "austerity policy," she has chosen to use the words "growth" and "employment" much more often in public. She also stresses that it was she who pressed the EU-partners in 2011 to adopt a "euro plus pact" on competitiveness and growth.

But the harsh public reaction only changes the wording, not so much the policy.

One reason is that Merkel has got something most of the critics don't have - a successful economic model. Germany boasts strong economic growth that has mounting weight in the European Union and an industrial sector now exporting more to countries outside the euro zone than to those within.

"Both Obama and Hollande know very well that the Western democracies simply don't have the resources anymore for a spending policy", a German government source said.

In Berlin, there is a certain conviction that Hollande will quickly wake up to reality and the limited room for maneuver, especially after parliamentary elections in June. In Merkel's view, that should bring a more balanced approach.

As Merkel found out last year, the financial markets and the rating agencies can be her best friends in pushing for solid fiscal policy. Any dreams of a spending spree in a euro-zone country will be met by higher spreads.

Even if she was at times left standing alone at Camp David, Merkel did have the company of Obama, Cameron and others as she watched the loss of Bayern Munich in one of the cabins. "There was trash talk - and sympathy for Chancellor Merkel," the White House told reporters.

© 2024 Thomson/Reuters. All rights reserved.

Sunday, 20 May 2012 02:32 PM
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