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Financial Crisis Puts Merkel in Hot Seat

German Chancellor Angela Merkel was not invited to Monday's mini-summmit on stimulating the European economy. Instead, she is holding one of her own. Amid growing pressure from both home and abroad, she is summoning top ministers and advisers to a high-level meeting next Sunday.

German Chancellor Angela Merkel may not have been invited to the top-level meeting in London to discuss how Europe can beat the looming economic downturn, but she will still have her hands full preparing a summit of her own.

In what has been interpreted in Germany as a snub against Merkel, British Prime Minister Gordon Brown, French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso are holding talks with business leaders in London to discuss stimulus measures ahead of this week's EU summit. Merkel, head of the bloc's biggest economy, was pointedly not invited.

There has been withering criticism across Europe of Germany's cautious approach to the economic crisis, and Berlin's lukewarm response to the proposed EU recovery plan has not gone down well in many other European capitals. Merkel has insisted that she does not wish to see Germany join a race to spend billions on stimulus packages, while her Finance Minister Peer Steinbrück has disparaging those rushing to spend their way out of the crisis as "lemmings." Over the weekend, however, Berlin was playing down any talk of a European rift, with Merkel's office announcing that she had enjoyed a long and friendly chat with President Sarkozy on Sunday and that they had complimented each other on their economic plans.

Meanwhile the debate in Germany is heating up over what measures the government can or should take to boost the economy. With the German central bank, the Bundesbank, on Friday predicting that the economy will contract by 0.8 percent in 2009, there are a plethora of different suggestions on how to ward off a deep recession, ranging from issuing consumer checks (aimed at getting average Germans to go on economically stimulating shopping sprees), to investing in infrastructure programs or cutting taxes.

In an interview with the Bild newspaper published on Monday, Merkel said she was keeping "all options open." With pressure piling on her to do more, she has now scheduled a high-profile summit that will bring together top ministers and advisers to analyze the economic outlook. "Sunday will be about getting a general analysis and obtaining as much clarity as possible about measures." She added that she was "against speculating publicly every day about the possibilities," likely a warning to members of the uneasy grand coalition she heads who have been lining up with ideas about how to boost the economy.

Economics Minister Michael Glos, a member of the Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democrats (CDU), called on Sunday for quick tax cuts ahead of the September 2009 national election -- a step Merkel has so far ruled out. He was echoed by Jürgen Thumann, head of the Federation of German Industry (BDI), who said that such a move would have a "positive effect on growth and employment." Meanwhile, Education Minister Annette Schavan, a CDU member, has called for billions of euros to be invested in the country's schools and universities.

And executives from eight major German companies, including Volkswagen and BASF, told SPIEGEL that the government had not done enough to combat the economic slowdown. "We are facing a situation that is absolutely extraordinary -- and the traditional political and economic approaches won't suffice," said Volkswagen boss Martin Winterkorn.

On Monday, the German papers differed on whether the government's caution ought to be praised or lambasted. Most agree, however, that Merkel's reputation within Europe is severely tarnished.

The center-left Süddeutsche Zeitung writes:

"In the opinion of many politicians in the EU states, as well as in principle the rest of the developed world, the German government led by the chancellor has become a problem for international politics. This opinion is shared by German business leaders and even many members of the CDU. ... Stimulus packages are en vogue, and Germany is far too miserly in its distribution of public money."

"The financial crisis has above all revealed deep-seated, ideological and conceptual differences about the role of the state as well as the duties of the EU -- and it shows that it makes a difference in Europe whether or not a state is centralized and governed in a presidential system. Sarkozy is pushing the dirigiste engine of Parisian politics to the full and has already been derided for being a socialist. He wants to use the EU presidency to spread French state dirigisme to Brussels. In this, Commission President Barroso is assisting him. And the Ango-Saxon model with its quick and tough economic cycles and its willingness to hold high public debt does not have to be a role model for Germany in this crisis."

"Part of Merkel's problem, which is damaging her reputation abroad, has been created at home. Her grand coalition government with the center-left Social Democrats, is living under the spell of the coming election year. Political options must still be available in the spring when unemployment starts to increase. The crisis has just begun, it will go well past the parliamentary elections. Anyone who gives all their clothes away now will stand there naked in the autumn."

The business daily Handelsblatt writes:

"Merkel … should take the criticism for her inaction as praise. When the American and British stimulus packages costing billions have long since disappeared without a trace, and France's state voodoo economists have been exposed, then Germany's careful financial path will again seem attractive. There is no obligation to senselessly burn taxpayer's money -- not even in the EU."

"Nevertheless the criticism of Merkel's crisis management touches on a sore point: Berlin's entire Europe policy has become a serious problem. In truth there is hardly any area in which Berlin is not stepping on the brakes. And worse. Neither Merkel nor Foreign Minister Frank-Walter Steinmeier provide any conception of where they would like to steer the EU's biggest state."

"A clear pro-European statement by the EU's biggest state would be very important in the current disorientation. The lesson from the financial crisis is that more Europe -- not less -- is required."

The Financial Times Deutschland writes:

"It is troubling that a large part of the pressing demands coming from the (German) ministries have less to do with classical stimulus policies than with conventional economic and social policy. A downturn, however, can only be cushioned with measures that have an effect very quickly and very directly. On the other hand, the long-term steering of the economy and politics requires a steady hand."

"As attractive as the intuitive idea is to solve all sorts of other social problems with long-term investments aimed at solving the economic crisis -- that only functions in very few cases."

"There are many political projects that are long overdue. However, the gravity of the situation means that the primary criterion for evaluating every stimulus measure must be its prospect for easing the recession. As the government has little influence over whether our trading partners buy German products, the greatest hope lies in boosting weak consumer spending at home. The most promising prospects for this are either consumer checks or a temporary reduction of sales tax."

"The desperate attempt by German politicians to kill two birds with one stone is dangerous. In the end they risk not hitting either."

The left-leaning Die Tageszeitung writes:

"The financial crisis still seems somewhat virtual -- it seems to be taking place on another planet, one that is obsessed with strange bonds and black holes in bank balance sheets. The crisis has hardly entered everyday life. … For many, it seems overly hasty to pour billions into a stimulus package."

"Yet this stimulus package will come, and very soon, because the international pressure on Germany is enormous. Whether it be France, Great Britain or the USA: They cannot understand why Germany will not take recognize that it is the third biggest economy in the world -- and that it has a global responsibility."

"Perhaps Merkel could still ignore the fury of the international community -- she is pretty stoic, after all. she will not be able to ignore the downturn, however, which will soon take hold with full fury, because the bottom is falling out of German export markets around the world. As soon as unemployment figures start to rise, the chancellor will present a gigantic stimulus package, which she can then declare to be her duty as a leader. After all, she wants to win an election next September."

"Billions of government euros will rain down. And the fight for where the money will go is already being prepared. There is a huge danger that there will be a policy of clientelism. You can already see it coming, with tax breaks for the middle class. This supply-side orientated policy would be the exact opposite of a short-term package that would stimulate demand."

"The Noble laureate Joseph Stiglitz has described what a sensible stimulus package should look like: The state has to invest in infrastructure and boost the consumer potential of the lowest earners. But Finance Minister Peer Steinbrück once again probably believes that he knows better."

The conservative Die Welt writes:

"Hardly three days have gone by since parliament approved the grand coalition's stimulus package and already there are fierce debates in Berlin about a second program. ...."

"In the increasingly shrill debate, the same old demands are reappearing that have absolutely nothing to do with stimulating the economy. ... Even the chancellor cannot stay inactive in the face of this stimulus cacophony. She has called a summit at the Chancellery. The head of government has declared that she is open to all options. Her favorite option appears to be 'doing nothing.' Perhaps she realizes that German financial policy has limited means of stopping a global economic downturn. However, no government can afford to stand by and do nothing when the country faces the worst recession since World War II. At the very latest, when the new US President Obama puts together a mammoth stimulus package, then the German government will have to follow suit."

-- Siobhán Dowling, 1:15 p.m. CET