Photo Gallery: Merkel's New Adversary

Foto: Julian Stratenschulte/ dpa

Queen's Quandary Chancellor Merkel's Power Erodes in Europe

For years, German Chancellor Angela Merkel was the strongest politician in the European Union. Lately, her hold on power has become weaker -- and one of the greatest challenges is coming from within her own government.

Not long ago, German Vice Chancellor Sigmar Gabriel was traveling in southern France with a small group of other Social Democrats when they stopped off at a countryside restaurant for a bite to eat. The welcome they received was not exactly warm: "If you Germans keep going like this, you are going to ruin the EU," the restaurant owner told them.

Taken aback, Gabriel mumbled under his breath that he didn't really want to know who the woman had voted for in the recent European Parliament elections. And soon, the group was engaged in a lively discussion about the degree to which France's right-wing Front National party had benefited from the austerity policies that Germany had imposed on many euro-zone member states during the common currency crisis.

One day after the mealtime debate, Gabriel, who is also Germany's economy minister, spoke to journalists during a tour of the Airbus facility in Toulouse. European policies have to be revisited, Gabriel said. "The focus on pure austerity policies has failed," he claimed.

The reporters couldn't believe their ears. Did he really just say that? Is Gabriel in the process of turning away from the highly touted Stability Pact after years of backing German Chancellor Angela Merkel 's euro-crisis strategy? Is he trying to pick a fight with Europe's austerity queen?

Gabriel's comment was just the latest indication that Merkel's solid hold on the reins of power in Europe may slowly be weakening. After years of being the de facto leader of Europe, largely a function of Germany's relatively good economic health even as the Continent's economy crumbled around it, Merkel is now losing traction on a number of issues. Indeed, with her premature approval of lead candidate status for Jean-Claude Juncker  in the European election campaign, she may have opened the door for her own gradual loss of power.

The assault on Merkel is coming from three flanks. First off, she is facing pressure from her rivals inside of Europe. The governments in Rome and Paris have long believed that Merkel is too dominant and that she is pushing Europe in the wrong direction. But now, the chancellor is also losing the support of countries that once favored her course. Indeed, when EU leaders gather in Brussels, there is one issue that unites them all, regardless of their party affiliation: They believe that Merkel is too powerful.

Merkel's critics, secondly, will soon have an ally at the head of the European Commission. As the situation currently stands, it seems probable that Jean-Claude Juncker will become president of the EU's executive body. Officially, Merkel supports the center-right politician from Luxembourg. But when it comes to austerity in Europe and financial policy, Juncker is far to the left of the German chancellor.

A Miserly Bookkeeper

The third attack is coming from within her own government. Merkel's authority in Brussels has been partly due to her complete lack of rivals in Germany. She has, of course, always had critics in German parliament, but never a powerful adversary. Now, though, her own vice chancellor, Sigmar Gabriel -- leader of the center-left Social Democrats, her coalition partners -- seems to be turning on her. He is seeking to present himself as a man who wants to hold Europe together, and is making Merkel look like a miserly bookkeeper.

Gabriel's plan is not without risk. Merkel's team has already begun quietly accusing Gabriel of acting against Germany's best interests. And with the smooth functioning of her government dependent on a strong relationship between her and her deputy, the Merkel-Gabriel spat could ultimately become a threat to the stability of the chancellor's coalition.

Gabriel is aware of the dangers. But he believes that the advance of European right-wing populists can only be stopped if the economic situation in crisis-torn EU countries improves quickly -- and he's more than happy to help hold the queen of Europe in check. That also explains why he is prepared to form alliances with those who would like to see Merkel's reign come to an end, François Hollande above all.

The French president has undergone a shocking about-face during his two years in office, from a vociferous defender of Socialist values to an energetic supporter of economic reform. On one point, however, he has remained constant: He believes the Stability Pact, which imposes strict rules on EU member-states' budgets, is nonsense.

Internally, Hollande and his new prime minister Manuel Valls point to the reform program they have introduced, which aims to relieve French firms to the tune of €40 billion ($54 billion). But they also realize that, with the right-wing Front National having received 25 percent of the vote in the European election in May, they cannot return to business as usual. Economic growth is paramount, which is why Paris is aiming for a more "flexible" approach to the rules of the Stability Pact. Hollande finds Merkel's focus on austerity repugnant and would like to see investments in energy, research and technology excluded from the calculations that determine a country's budget deficit. Gabriel agrees.

For Socialist leader Hollande, a weakening of the Stability Pact would be a victory over "neo-liberal" Germany and it could also help him push his reform package through parliament.

Internal Debate in Berlin

Merkel has rejected the proposal out of hand, but the French have not been deterred. Government sources in Paris say they have the impression that an internal debate is underway within the German government. On Saturday, center-left leaders from a number of European countries met in Paris -- in a gathering initiated by Gabriel -- and agreed that the rules of Stability Pact should be implemented more flexibly to support growth.

Even worse for Merkel, she now faces a growing number of opponents within the EU. When the Dutch, for example, slipped into recession two years ago, they suddenly softened their focus on austerity. Holland's Finance Minister Jeroen Dijsselbloem is also the head of the Euro Group, which puts him in something of an intermediary role between pro-austerity countries such as Germany and others that would like to see the rules relaxed. Finland too has backed away from its earlier pro-austerity position.

But Merkel's most dangerous rival is Matteo Renzi. In contrast to Hollande, the Italian prime minister does not have a reputation for being an old-school Socialist. He won the European elections in Italy despite having announced his intention to push through reforms. For the moment, though, the reform package -- as is the case in France -- has yet to be passed.

Italy faces a number of problems: The country's sovereign debt is a whopping 133 percent of its gross domestic product and unemployment stands at 12.6 percent. "Italy has for too long postponed much-needed structural reforms," the European Commission wrote in a March report on the country.

Renzi hopes that weakening the Stability Pact will give him the flexibility needed to rapidly address his country's many issues, but Merkel is adamant about preventing him from doing so. She believes that the Fiscal Pact -- the 2012 agreement which strengthens many of the Stability Pact provisions -- is one of the few meaningful consequences Europe has drawn from its debt and currency crisis. She only recently reiterated her standpoint to Juncker.

Merkel, no doubt, felt it was necessary to remind Juncker about where she stood. During the campaign, Juncker was careful to hew to the austerity message that guided Europe through the euro crisis, in part to avoid a conflict with Berlin. But back in 2003, when he was still prime minister of Luxembourg and able to speak freely, he said, "There are many points in which the Stability Pact goes against commons sense." It was also Juncker who helped German Chancellor Gerhard Schröder and French President Jacques Chirac weaken the Stability Pact back in 2002. Many view those years -- when both Germany and France were allowed to blithely ignore the pact's deficit rules -- as a key milepost on the path to the Continent's current problems.

'Germany Will Pay'

Merkel hasn't forgotten. Had it been up to her, the European center-right group, to which her Christian Democrats belong, would never have chosen Juncker as its lead candidate for the May elections. But when the decisive moment came, she was unable to block his appointment -- a mistake she quickly regretted. She even found fault with his campaign posters, emblazoned with the word "Solidarity." From her perspective, he might as well have written: "Germany Will Pay the Bill."

But if Merkel can't block Juncker, she at least wants to fence him as much as she can. Thus far, the European Council -- made up of the 28 EU leaders -- has merely nominated the European Commission president. The European Parliament still needs to confirm the position. But this time around, Merkel wants to have a significant say in the governing program that will guide the Commission for the next five years. She especially wants to strengthen the domestic EU market and improve competitiveness -- in a nod to southern Europeans, she is also emphasizing improved growth policies.

Yet it still isn't clear if the EU summit will be able to come up with a majority that will support of Juncker. He has plenty of opponents and they have been wary of showing their hands. Merkel's advisors believe that Hungarian Prime Minister Viktor Orbán could abstain in the end, despite having said he will vote no. British Prime Minister David Cameron , for his part, has been so vociferously opposed to Juncker that an abstention from him would be paramount to abdication. "The British would prefer to delay the decision again," said an advisor to German Foreign Minister Frank-Walter Steinmeier.

Merkel wants to avoid an open break with Cameron. To be sure, he has often played a disruptive role in Brussels. But he has also been a reliable ally when it comes to thwarting Italy and France.

And Merkel, at the moment, needs every ally she can get. Back in Berlin, Gabriel is a significant adversary when it comes to her European policies. Last Friday, her vice chancellor once again rushed to the defense of EU crisis countries. "Real reform in exchange for more time for deficit reduction -- I believe that would be a smart position," Gabriel said. "Germany's Agenda 2010 has shown that such a formula can lead to significant success," he added, in reference to the far-reaching package of labor market and welfare reforms passed by Schröder's government from 2003 to 2005.

Gabriel also believes that the European Commission is inefficient and could completely revamping the body. "One commissioner speaks of re-industrialization while another says exactly the opposite," he complains. He imagines the creation of a steering committee made up of five to six commissioners which would be responsible for synchronizing the work of the 28-member executive. "A council answerable to the president could better coordinate the Commission's work," he says.

'There Are Limits'

Gabriel has long found it objectionable that most Germans believe Merkel alone determines what happens in Brussels. He believes that the chancellor, as head of a coalition with the SPD, also has a responsibility to represent his party's positions at EU summits. That's one of the biggest reasons why he is currently trying to get more deeply involved.

Gabriel's proposals have not been well received among Merkel's conservatives. Many Christian Democrats believe that the SPD has already been far too successful in pushing through its own policy proposals in Merkel's new government. Gender quotas, a retirement age of 63, minimum wage: All three policies come from the Social Democrats. Now, CDU strategists believe that Gabriel's most recent comments are an effort to tarnish Merkel's image as the queen of austerity.

Gabriel should be careful of going too far, warns Steffen Kampeter, a CDU parliamentarian and state secretary in the Finance Ministry. "Were the SPD to demand that the CDU agree to changes to the Stability Pact, it would be akin to us withdrawing from the minimum wage compromise," he says. "There are limits."

Internally, Gabriel says that he is not interested in starting a fight with Merkel. He instead sees himself as a liaison between the chancellor and all those countries for whom austerity is an unbearable burden. But of course, if Merkel's foreign policy aura dimmed, he wouldn't have any problems with that.

Gabriel recently set up a working group in his Economy Ministry to develop a Europe strategy reflecting Social Democratic values. The focus, says one of the group members, is to find ways to promote growth in Europe. But it has also proven valuable in providing Gabriel with ammunition to counter Merkel. One slogan as already been established, insiders say: "The states cannot be allowed to save themselves to death."

By Nikolaus Blome, Veit Medick, Peter Müller, René Pfister, Christian Reiermann, Mathieu von Rohr, Gregor Peter Schmitz, Christoph Schult and Gerald Traufetter

Translated from the German by Charles Hawley