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  Letter from Berlin: Merkel's Lack of Resolve Poses Risks for Germany

Letter from Berlin Merkel's Lack of Resolve Poses Risks for Germany

By SPIEGEL Staff

Part 2: Silently Blocking Progress

"Merkel is to blame for the failure," Sarkozy fumed in early October after the chancellor blocked a pan-European financial rescue package at a mini-summit he had hastily convened in his capacity as current president of the European Union. "She said: Everyone should sort his own shit out, and then she got the debacle with Hypo Real Estate," the newspaper quoted Sarkozy as saying.

When Merkel vetoed the €130 billion economic program by the 27 EU member countries last Monday, a close aide of Sarkozy's complained: "Sometimes one gets the impression we're the locomotive and they're the heavy carriages."

Merkel hears and reads all this. She's handed the thick files with all the abuse. Her face is impassive, says a source who sees a lot of her these days. But he suspects that she's boiling inside. She's incensed by Sarkozy's statements, but she says nothing.

She now has to realize that in 2007, when she was feted internationally for her climate change policy, she was shining against a row of lame ducks. Jacques Chirac, Tony Blair and George W. Bush were all on their way out. Now she's dealing with men who have only just started their terms as leaders and who want to put their stamp on world politics -- Barack Obama, Gordon Brown and Nicolas Sarkozy. And suddenly Merkel looks as though she is fading in their shadows.

Whereas Chirac charmed her, Sarkozy dominates her. He pushes her into the defensive and she has no means of getting out. In the past German chancellors tended to let their French counterparts take center stage but then influenced them behind closed doors. But Merkel is being ridiculed by Sarkozy. That's unprecedented.

He's an unfeasibly vain Jack-in-the-box and Merkel has so far failed to find a way to handle him. She watched films with hyperactive French comic Louis de Funes to learn about fidgety Frenchmen, but she has nothing to counter him with apart from her eternal impassiveness. Her fist may be clenched but she keeps it in her pocket.

Sarkozy has skilfully pushed the Germans into a quandary. He is demanding a major economic stimulus program for Europe. Some countries can only finance such a program if they borrow more than the Maastricht Treaty permits. But Merkel doesn't want the Maastricht criteria on government borrowing -- a bedrock of the euro common currency -- to be softened. Sarkozy's retort is that the Germans should pay more towards the program, since they can do so without breaching the Treaty because Germany has got its budget in order over the last few years.

But Merkel doesn't want to pay more, which means she's trapped. If she rejects both a watering down of Maastricht and an increase in Germany's contribution to the EU program, Sarkozy can portray her as blocking progress on combating recession in Europe.

No Longer the European Locomotive

In this crisis Germany has lost its role as European locomotive. German leadership in Europe was always linked to its financial muscle. Successive chancellors had to pay in order to lead -- it was a strategy that worked well for Germany. A stimulus package therefore also amounts to a political investment, regardless of its economic impact. That doesn't just apply to Europe but to the whole world.

When Barack Obama takes over as US president in January, the construction of a new world order will begin. The architects of that world order will soon be determined, and a new ranking of countries will emerge from it. This competition also extends to how governments perform in crisis management. Merkel's avarice is pushing Germany into a peripheral position, almost into isolation. If she goes on like that Germany will have to find its place in a world order that is being shaped by other countries.

It's not as if Merkel is campaigning for an alternative program and telling other countries that they're handling the crisis the wrong way. She's silent. She pursues her policy quietly and lacks the courage to persuade her counterparts to change course.

Merkel has always been quiet, reticent, cautious. Her government has been one of small steps. She didn't fight to implement rigorous reforms, even though she campaigned for radical changes in the 2005 election campaign. She banged the drum for climate policies when Germany was shocked by evidence of global warming, but she changed her tune when it became clear how much green policies will cost.

Now it looks as if she won't even bother to become a determined crisis manager. Merkel has failed to lead her country through a time of uncertainty.

Her entire style of politics is geared to normalcy, not to crisis. But crisis is a time of emotion, of fear. Merkel counters such sentiments with her unshakeable calm. That doesn't help people who look to their leader for rousing words of encouragement and reassurance. Speeches in a crisis should provide guidance. Merkel provides little of that.

German Stimulus Program Half-Hearted and Misleading

Merkel says stimulus programs of the kind being undertaken by other countries are a mere flash in the pan and that experience shows they rarely provide a lasting boost. At the same time, she has been praising her government's own €31 billion program to support the domestic economy over the coming two years. In truth, however, Merkel's program is a collection of half-hearted ideas, questionable subsidies and false labeling.

For example, it includes around €4.5 billion in increased child benefit payments that had long been decided and came in response to a ruling by Germany's Constitutional Court.

The program also includes €7 billion worth of cuts in unemployment benefit insurance but makes no mention of the fact that changes in the health insurance system next year will end up costing people an aggregate €9 billion. Meanwhile the the planned extension of pay for short-time working to 18 months from 12 months won't take effect until the year after next and is also aimed at embellishing the unemployment statistics.

Small wonder then that barely an economist believes Germany's own stimulus program will do much to boost the economy. Even Bundesbank President Axel Weber, usually a fierce opponent of increased government spending, last week joined the chorus of experts calling for a more ambitious program to stave off recession. The current crisis was so threatening, Weber told Handelsblatt business daily last week, that the government should "counter it actively." He called for "rapid, targeted and time-limited" measures.

Merkel has called a meeting of her coalition for January 5 to discuss taxes and further economic stimulus measures. The meeting itself is a sign that she herself has doubts about the action she's taken so far. Her aides say that most Germans haven't yet grasped the scale of the problem and that the full impact of the crisis won't become evident to the general public until the first quarter of 2009. The government needs room for manoeuvre to be able to react at that point to reassure the public, so the thinking goes.

The question is whether it doesn't make more sense to take drastic action as soon as possible to prevent the crisis from unfolding.

Reporting by Markus Feldenkirchen, Dirk Kurbjuweit, Alexander Neubacher, Ralf Neukirch, Rene Pfister, Wolfgang Reuter, Michael Sauga, Stefan Simons, Gabor Steingart