Analysis of Chancellor Merkel Euro Crisis Approach

Every morning, Berlin's Press and Information Office compiles a summary for Merkel of what the Greek press is writing about her. It often isn't very flattering. But by now Merkel finds it amusing that the proponents of austerity in Greek politics are known as "Merkelists."

On the one hand, she is of course aware that it's meant as a disparagement. On the other, though, she has no objection to her name becoming synonymous with saving money. In fact, the protests abroad benefit Merkel, because they demonstrate that she isn't simply giving away Germany's billions in aid but is instead tying them to strict conditions. She isn't losing any sleep over being regarded as the iron chancellor.

What earns Merkel's respect is discipline. When she flew to Indonesia in the summer, she lionized President Susilo Yudhoyono. He's a short, inconspicuous man, but his country has managed to reduce its deficit from 80 percent of gross domestic product to 20 percent within just a few years.

Indonesia is the kind of place she wishes Greece resembled: industrious, calm and inspired by the will to make up for the mistakes of the past. If Indonesia can get its debt crisis under control, Europe certainly should be able to do the same. That was the unspoken message of Merkel's trip.

Merkel's reality holds: Germany is strong, but not strong enough to keep a sick Europe going in the long term. "We want a European Germany, not a German Europe," author Thomas Mann said after the war. Merkel would probably subscribe to Mann's somewhat abstract statement. But in practical terms, she believes that it wouldn't hurt Europe to become a little more German, at least when it comes to incurring debt. How else is the Continent supposed to compete with the up-and-coming Asian economies?

Since becoming chancellor, Merkel has been to China six times. The only non-European country she has visited more often is the United States. She admires the efficiency with which the Chinese have managed to become the second-largest economic power on earth in the space of three decades. But she also knows how this has shifted the balance of power worldwide -- and that it doesn't look good for the Europeans.

A Trio of Factoids

The people who work for her are familiar with Merkel's favorite trio of factoids: Europe represents only 7 percent of the world's population, it accounts for about 25 percent of global economic output but also hands out half of worldwide social expenditures. You don't have to have a Ph.D. in theoretical chemistry, as does Merkel, to understand that Europe has a problem.

It's important to prevent the worst from happening, the chancellor says sometimes, and she is quick to describe what "the worst" means for her: that Europe might eventually become a place to tour the evidence of past successes, a sort of Disney World for Chinese tourists.

That's why she finds trips to China instructive. For three millennia, Chinese civilization was considered the most advanced in the world. But then poor political decisions resulted in China falling behind the rest of the world and it became irrelevant.

Merkel fears that Europe could now be at a similar historical fork in the road. The financial crisis of the last few years has clearly demonstrated that the Western model of freedom isn't nearly as firmly established as it might seem.

It is a conviction that is mirrored in her conversations with counterparts around the world, many of whom view the old continent with a mix of condescension and pity. The feeling is that Europe has completely lost all momentum. Her husband Joachim Sauer, a chemistry professor, likewise tells her how Europe is talked about at international scientific conferences. The image painted is not an optimistic one.

What, then, is to be done? Merkel has opted for a policy of pedagogical imperialism. Her exports include fiscal discipline, structural reform and bank regulation. She would never expect the Germans themselves to put up with most of it. And none of her predecessors would have dared to push through his agenda in such an uncompromising fashion, if only for historic reasons. But Merkel's dominance is of the quiet and inconspicuous sort. She isn't loud like Schröder, nor is she a massive and all-encompassing presence like Kohl. This reduces resistance.

The Philosophy of Muddling Along

In Europe, she applies the same method she has already perfected in domestic policy -- a method she essentially acknowledged two years ago when she quoted Karl Popper during her New Year's address. The actual quote, "the future is wide open," was surreptitious, but it served to demonstrate that Merkel is familiar with the social philosopher, who died in 1994. And her familiarity is telling.

Popper, after all, is the great theoretician of a policy best described as muddling along. He argued that policy should not be based on visions, but instead should move forward in small, manageable steps. Popper called this approach "piecemeal social engineering," and it holds that even far-reaching social changes can only be achieved through small steps. If they prove to be flawed or wrong, they can be corrected or reversed as necessary.

Helmut Schmidt -- who once said: "People who have visions should go see a doctor" -- was the last chancellor to publicly invoke Popper. Merkel hasn't been known to make similarly categorical statements, but Popper would nonetheless be pleased.

Merkel's predecessor Gerhard Schröder was at his best when the air in the Chancellery was saturated with testosterone and a showdown was looming. He yearned for the great dramatic moment, a giant explosion or the ultimate political dispute. It's an approach that his successor finds abhorrent.

You don't solve things with grand posturing, she said this summer. She prefers to dissect problems, making them smaller and she slows things down if need by, thereby removing the tension from certain processes.

At a recent dinner at the Chancellery, Merkel reportedly worked out a simple equation: According to former Chancellor Ludwig Erhard, she said, 50 percent of the economy is psychology. Therefore, she noted, would only say nice things about Greece from then on. With regard to the remaining 50 percent, she explained there is a 50 percent chance that the right decisions have been made. Combine the two numbers and you have a 75 percent probability of success. She couldn't have put it more coolly.

Mistakes Made

"It can't be said often enough," she told delegates to the convention of her Christian Democratic Union (CDU) in Hanover last Tuesday. "The European debt crisis cannot be solved with a single stroke, a single bang, the one supposed panacea." It was a typical remark for Merkel and one that she has indeed repeated several times.

She finds visions -- and master plans -- horrifying. Who knows what the world will look like in a year? She proceeds cautiously, moving from one crisis summit to the next. If a decision proves to be a mistake, she corrects herself.

And she has made many mistakes in years gone by. For instance, it was her hesitation that led debt-ridden Greece to the brink of failure in the spring of 2010. "There are no budget resources for the Greeks," she said through her spokeswoman in March of that year, with an eye to the upcoming parliamentary elections in the western state of North Rhine-Westphalia. She knew how unpopular an aid package for the Greeks would be.

But a day before the election, the situation had evolved such that she no longer had a choice. Merkel's hesitation had exacerbated the situation in Greece to such an extent that European leaders, in a dramatic nighttime meeting, were forced to approve a European bailout package for Athens. Since then, things have only gotten worse in Greece.

It's a policy devoid of passion, one that assumes that voters should only be given the truth in homeopathic doses. She treats the Germans like children, covering their eyes when reality becomes too horrible to look at. Merkel deliberately keeps things up in the air and ambivalent, leaving room for a variety of possible outcomes.

Her opponents are clueless, not knowing how to attack Merkel and her approach. She is a moving target and therefore is rarely caught. Her Social Democratic challenger for the Chancellery in next year's general election, Peer Steinbrück, calls it a "veil dance." And it is one that completely flummoxes his Social Democratic Party. They criticize Merkel's approach to Europe only to vote in favor of it in parliament every chance they get.

A Degree in Communications?

Merkel doesn't want to alienate anyone, not the euro skeptics and certainly not the euro supporters. Everyone is taken along for the ride, and because progress only consists of small steps forward, hardly anyone knows where the journey is headed.

That's the advantage of the Merkel method. If she had announced, a year-and-a-half ago, that the Germans would soon be backing Europe to the tune of €400 billion, which is significantly more than an entire annual budget, it would likely have triggered a political earthquake. And now? Most voters have reluctantly accepted the fact that they'll eventually have to pay up, hoping merely that it might be a while longer before it happens.

Merkel spoke to the delegates for an hour at the CDU convention last week. Only after she had talked about the problems associated with the JadeWeserPort harbor project, Germany's only deep-water facility port in Wilhelmshaven, did she turn to the biggest challenge of her chancellorship. Yet only a few minutes later, she was done, having said all there was to say about Europe. What else could she have said?

Unlike her finance minister, she has no plan for Europe to announce. In an interview with SPIEGEL in June, Finance Minister Wolfgang Schäuble said that he saw the possibility of German referendum on further political integration in Europe -- and was promptly criticized by fellow CDU members.

Such a thing would never have happened to Merkel. She steers clear of sweeping ideas, knowing that they would only provoke resistance. People have supported her until now because the Germans are still the big winners in the euro crisis. They are lulled by the pleasant feeling of finally being able to set the tone in Europe. It's easy to support a Europe in which one sets the tone.

But now things are beginning to shift. Merkel has admitted, for the first time, that a debt haircut in Greece is conceivable. The crisis is about to become expensive, especially for Germany. The question will be whether the Germans will continue to support Merkel's levelheaded approach when they're being asked to fork over real money.

The chancellor senses what she could be in for. After German reunification Merkel, with her doctorate in physics, sometimes said that she wished she had studied law, because most of her counterparts in the West were lawyers. These days, though, she has changed her mind again, saying that she now wished her focus had been communications.

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• Part 1: Merkel's Dispassionate Approach to the Euro Crisis
• Part 2: Disney World for Tourists from China