Playing with Dynamite: Will Merkel's Coalition Hinder Euro Rescue?

In light of the crisis in the European Union, German Chancellor Angela Merkel and French President Nicolas Sarkozy would like to see further integration, including a euro-zone economic government. But it is precisely Germany that has sought to protect itself from transferring additional powers to Brussels.

German Chancellor Angela Merkel and French President Nicolas Sarkozy: Skepticism regarding the euro and the European Union's crisis management is growing in Germany.

Foto: PHILIPPE WOJAZER/ AFP

One day after Angela Merkel's meeting with Nicolas Sarkozy  in Paris, the business-friendly Free Democratic Party (FDP) with which the German chancellor shares power in government, came across as well-behaved, offering its "full support" for the leaders' efforts. The rejection of euro bonds, the introduction of a debt brake, greater competitiveness and stability -- it all looks great so far, party leaders stated after a special FDP meeting on the euro.

Shortly thereafter, the chancellor's other government coalition partner, the Christian Social Union (CSU), the Bavarian sister party to Merkel's conservative Christian Democratic Union (CDU), also registered its view. Senior CSU politician Gerda Hasselfeldt said the measures against high deficits should be welcomed.

But one didn't need to listen very closely to the demonstrative approval to sense that the euphoria among loyal Merkel supporters in the CDU, who described Tuesday's meeting in Paris as an "historic breakthrough (and) an extremely strong political result," isn't catching amongst the CDU's coalition partners. Each step on the path to saving the euro is being viewed skeptically by Merkel's partners. Politicians praise what they can live with -- and the rest they merely interpret as they please or simply choose not to comment on. Skepticism regarding the euro rescue measures is the order of the day.

This holds particularly true of the central element of Tuesday's Franco-German proposal: the joint economic government.  The term, which the French president has used with particular verve, triggers allergic reactions among many in the CSU and FDP.

"We don't need a centralized economic government," Bavarian state Finance Minister Georg Fahrenschon recently stated angrily after someone dared to mention the proposal. Meanwhile, FDP leader Philipp Rösler recently rejected the idea of a euro-zone economic government. Instead, he called for the creation of a so-called stability council, which would monitor the budgets of the 17 euro-zone member states.

Limited Enthusiasm

It is little wonder that enthusiasm in government coalition quarters in Berlin is limited over the Merkel-Sarkozy proposal. The FDP is seeking to keep Rösler's idea alive, arguing that it "complements" the Franco-German proposal. Party officials said they understand the economic government not to mean "detailed control from Brussels, but rather the coordination of the major macroeconomic issues."

For the FDP, the euro is a divisive issue, one that has the potential to deeply strain its coalition government with Merkel. Before Merkel departed for this week's meeting in Paris, Rösler made clear once again that the FDP firmly opposes the introduction of euro bonds.  The FDP fears that any common European bond, with a single interest rate, would lead crisis-stricken countries to lose their motivation to reduce their debt.

But the real danger for the FDP is if the Christian Democrats ease their position on euro bonds, as some have suggested they might do in recent days. And what if Merkel were to buckle to pressure coming from other European capitals to adopt euro bonds? Would the FDP dissolve the coalition government, as some inside the party have already suggested?

'There Are No Euro Bonds'

Christian Lindner, the FDP's general secretary, rejects such speculation. He says the debate over a possible collapse of the coalition is "not one that should be taken seriously." Besides, he said, after Tuesday's meeting the "imaginary discussion" over euro bonds had come to an end. "There are no euro bonds," he said.

But is that totally true? In Paris, Merkel didn't express permanent opposition to euro bonds, and French President Sarkozy said that "perhaps one could imagine such bonds at some point in the future," at the end of an integration process. Italy and Spain were in no way assuaged by such statements -- both countries are still calling for euro bonds. So the debate will continue to exist for both the FDP and its leader Rösler.

Recently, a handful of voices in the FDP's parliamentary group raised the possibility of an end to the coalition with Merkel, because of the billions in aid being provided to other countries during the euro crisis and the recent tensions between the FDP and Merkel's party. Admittedly, it's not top FDP politicians making these statements, but the statements still serve as a warning for the party leaders that this supposedly "imaginary" debate is in fact real. After all, backbenchers often express the kind of political sentiment that leaders are unable to voice because they want to retain discipline in the coalition government.

For its part, the Bavarian CSU, also a bastion of skepticism of euro bailouts, failed to even mention the term "economic government" in its first statement made after the Merkel-Sarkozy meeting.

Growing German Disatisfaction with Euro

But even if Merkel did try to soften the wording a bit -- indeed, her spokesman preferred to use the term economic policy "steering" -- critics are still imagining the worst. As the strongest country in the euro zone, they fear, Germany would have to forfeit some of its powers in shaping economic policy to a European central government. The federal parliament, the Bundestag, would lose one of its main functions -- that of determining the budget. On Wednesday, FDP officials said they would monitor the situation to ensure that "responsibility for finance policies in Europe remain with the individual states, that the debtor states are given incentives to reduce their debts and that the interests of German taxpayers are observed."

In typical fashion, the CSU offered up a sharper tone. For some time now, the Bavarian conservative party has sought to foment fears about the euro, using a tone not too distant from that of the euroskeptic right-wing populist parties who have recently been gaining ballot-box traction across Europe with their messages. A euro-critical brochure released by CSU party leaders warns of a creeping "shift of power to Brussels." The tone of the leaflet went so far that it angered CSU members with seats in the European Parliament. The clear message of the pamphlet is that less European Union is the answer, not more.

Voter Fear Could Further Inhibit Merkel

Of course, these messages aren't just coming out of nowhere -- they are the kind of signals many voters are waiting to hear. As the crisis draws out, many people in Germany are viewing the European project increasingly critically. Public opinion polls show that the majority of Germans believe that the euro creates more disadvantages for the country than benefits. And the repeated euro bailout packages haven't done anything to restore trust. Only 25 percent of Germans believe that the EU is doing a good job of managing the crisis. Nor does the German government fare well in such surveys. The majority believe the German government's political management of the crisis has been bad.

Voter fears will merely serve to further inhibit Merkel. The chancellor has always viewed the EU project somewhat coolly. But in the current crisis, it seems the last sparks of passion for Europe are slowing being extinguished in the CDU party, once one of the greatest proponents of European integration. Merkel is having trouble explaining to people why Europe is so important to Germany, and why unpopular decisions are necessary. Under Merkel, the vision in her party of a United States of Europe, which may only still be held by her finance minister, Wolfgang Schäuble, has become one of a Desperate States of Europe. The new mentality, it seems, gives greater emphasis to euros and cents than war and peace.

It is within that context that the idea of the economic government must be understood -- it is a new and existentially necessary attempt to stabilize the euro zone and to restore trust in the markets. According to Sarkozy's and Merkel's proposal, leaders of the 17 euro-zone states would meet twice a year under the chairmanship of a new "Mr. Euro," European Council President Herman Van Rompuy, in order to better coordinate economic policies. What exactly that economic government will do, however, remains unclear.

Reactions from other European partners have also been very cautious. "It is important that this initiative doesn't just lead to further meetings," Swedish Prime Minister Fredrik Reinfeldt told the news agency TT. In the coalition government in Berlin, however, some probably wouldn't mind if the proposal fails to lead to concrete action.

Reported by Severin Weiland and Philipp Wittrock