Berlin's bailout dilemma a defining Merkel moment

ANALYSIS:She who hesitates may be lost, but that hasn't prevented the German chancellor using the 'Merkel method' to query EU rescue plans

IF GERMAN chancellor Angela Merkel still reads the German newspapers, this was a good week to stop.

The bad reviews she has picked up around Europe in the first year of the euro zone crisis have finally begun to appear in the domestic media. “A boss without a vision” was the headline on a particularly bruising critique suggesting that, under Merkel, “Europe’s largest and most economically successful country is afraid of a leadership role”.

Perhaps the the most striking headline of the week was Kanzlerdämmerung – twilight of the chancellor – sure to strike a chord with Germany’s Wagner-loving leader.

The euro zone crisis has tested to the limits Merkel’s unique approach to power. Dubbed the “Merkel method”, the German leader describes it as decision-making not coloured by ego or grand gestures but “small steps”.

The “Merkel method”, first spotted by a maths teacher in school, means that the German leader likes to work backwards through a problem from possible solutions. Before she acts, however, she wants all facts and figures on the table or else freezes up in fear of making a bad decision.

Therein lies the problem for all of us: in a complex, unfolding financial crisis, with no clear end-point in sight, the “Merkel method” has brought the German leader far beyond her comfort zone.

As the largest contributor to euro zone rescue funds, the German leader has to push for a deal that balances German voter mood with market expectations – and all under the watchful eye of Germany’s constitutional court in Karlsruhe, now examining challenges to EU bailout programmes.

The German leader is, in effect, taking time to examine the EU Bill being put before her, querying some of the items as she goes. Not because she refuses to pay, but because she knows she has to pay the lion’s share.

“While her critics say that waiting makes the crisis more expensive,” says Prof Gerd Langguth, a political scientist and Merkel biographer, “Merkel knows a wrong decision – one overturned by Karlsruhe, for instance – would be the knockout blow for her career”. Her fear of making a bad decision appears more serious because on her watch, for the first time in its postwar history, Germany appears to be driving by sight on European affairs.

“Don’t ask Merkel where she sees the EU in five years because she doesn’t know, she doesn’t think that way,” said one senior government official who asked not to be named.

This is crucial because, at the heart of the euro zone crisis, lies a core question: does the solution lie in further European integration or less? That chancellor Merkel seems to be playing for time on the answer shows just how far German attitudes on Europe have shifted in the last decade.

“We have to follow our path with the Greeks, too, even if it costs us something,” argued Dr Helmut Kohl last week in Berlin, an observation as self-evident as it is out of place in the era of his political protege.

Traditional political structures in Germany are dissolving, including in Dr Merkel’s Christian Democrats (CDU). The traditional importance of European affairs, which began sliding after unification, has vanished almost entirely from the political landscape here. In the traditionally pro-EU Christian Democrats (CDU), the only convincing European politician left is finance minister Wolfgang Schäuble, a holdover from the Kohl era.

This wasn’t a problem as long as German politicians could take for granted that voters would aways take for granted the inherent good of Germany being in the EU. The crisis, and fears about its cost, has flattened that consensus. There is a rhetorical vacuum on Europe which populist economists and half-cocked analysts are happy to fill, feeding a growing resentment towards the euro zone.

Alarmed, the German old guard, from philosopher Jürgen Habermas to ex-chancellor Helmut Schmidt, have come back into the fray to explain Germany’s place in Europe and its role in the crisis. With the passion of life-long Europeans, they try to explain the potential cost of loans to Greece, Portugal or Ireland against the certain cost to Germany of not providing loans, namely a collapse of the euro zone as we know it.

"We are making mistakes without even realising it," wrote Schmidt in the Die Zeitweekly. "Our huge trade surplus happened unintentionally but it annoys our neighbours . . . In addition, we behaved very badly in the Greek debt crisis and Libya crisis."

It may be too late. Germany’s relationship with the EU has deteriorated to such an extent that, among Berlin watchers, a popular parlour game is guessing who will try to scoop up Germany’s new EU critical voters in the 2013 general election. A year into the euro zone crisis, the feeling around the continent is that Germany is falling out of love with Europe. But what if we are dealing with a problem of perception? Merkel has picked up the nickname “Madame Non” for her habit of stalling on bailout deals. At home critics could dub her “Frau Ja” for talking tough ahead of EU meetings and, in their eyes, returning home after apparently caving on every point.

She is trapped between accusations of a “German diktat” and claims that Berlin is dragging its heels. Another perceived problem lies in how, from the outside looking in, Germany is a wealthy country with a booming economy that, motivated by selfish arrogance, is delaying rescues and the revision of bailout terms. But what seems like arrogance from the outside is, in fact, prickly vulnerability.

After two decades of financing German unification, greying German voters are smarting at the idea of another money pit, underwriting the rescue of a single currency they never wanted to begin with. The Bildtabloid has channelled this put-upon, self-pitying mood into a feeling of righteous indignation. It will take a brave politician to challenge this view and tell a few unpleasant truths about the role played by Germany, its banks and its trade surplus.

Five years ago, Merkel dispelled EU despair and restarted the stalled union’s engine by committing European leaders to a “Berlin Declaration” summarising the “why” of Europe. “I believe that responsible politicians in Germany have every reason to muster up passion for Europe,” she said.

It’s time she took herself at her own word, reaffirming Germany’s old EU vows but in a new narrative and fresh language that younger generations will understand. Until then the energy Europe urgently needs to rescue the euro zone will be squandered on petty European squabbles.