Germany: muddled, mangled Merkel

What, if anything, can the German Chancellor do to improve her poll ratings?

There comes a moment in most premierships when the political path either leads to a cul-de-sac or peters out entirely.  In Margaret Thatcher's case it hit a brick wall after the Poll Tax fiasco when cabinet colleagues called one-by-one on No.10 Downing Street to inform her the parliamentary Conservative Party had lost confidence in her leadership. Angela Merkel isn't quite there yet, but her personal poll ratings have plummeted. And she doesn't appear at this stage to know how to cope.

In August, CNN reported that "a survey by German television channel ARD earlier this month recorded a drop in Merkel's approval ratings -- just 45% of those polled said they were satisfied with her work, a slide of four points compared with the previous month. The same poll appeared to predict a grim future for Merkel's CDU/CSU, with support for the party slipping to 36%, compared to the 51% who backed likely coalition partners, the Social Democratic Party and the Greens."

A series of recent election disasters has resulted. According to Bloomberg, "German Chancellor Angela Merkel’s party suffered its fifth election loss this year after she failed to sway voters in her home state with a campaign based on her handling of the euro-area debt crisis. The Social Democrats, the main opposition party nationally, took 35.7 percent to win yesterday’s election in Mecklenburg - Western Pomerania, preliminary results show. Merkel’s Christian Democratic Union had 23.1 percent, its worst tally since voting began in the state in 1990 after reunification that year between West Germany and the former communist East Germany. The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts.'

Merkel claims to be debating the future of the euro. There's huge pressure inside Germany for a halt to the bail-outs of the Eurozone's profligate periphery. The quandary appears to involve a fundemental flaw in the way the European Union was set up. National governments have sought political consensus from the centre at Brussels, and a push for monetary union, yet there was never any true popular mandate for total integration from the Continent's peoples. So tax regimes differ from one country to the next and fiscal union is off-the-agenda. 

Try as it may, the EU strains to reign in poorly governed countries which have promoted over-generous pension regimes and failed to gather in taxes. The budgetary requirements of the porcine periphery have not been met in the past.  Greece, Italy and Spain have now all rolled out austerity programmes, yet these have often been greeted by stiff resistance from protestors.

For ages, the German economy proved to be the motor of Europe as machine tools and luxury vehicles were exported to the developing world. As China boomed so did Germany. And as Germany thrived it imported from its European neighbours. But now Germany has stalled. And Merkel doesn't appear to have answers. Engagement in a debate at home, despite clear advice from analysts and economists, is not the way forward. Determined action to either free Germany from the shackles of the EU, or to bring the Union together in fiscal harmony are the prescribed solutions.

Understandably, Angela Merkel was distracted by the untimely death of her 85-year old father. "Hands full" she's reported to have said directly afterwards, according to Bloomberg.

Her instincts appear to be for the Eurozone to be saved. But the German federal government had better act swiftly if precarious market confidence doesn't lead to debacle. I usually don't monitor the normally robust DAX Index, but was shocked to see that its level has dropped to near-par with the FTSE. On July 7 the DAX stood at 7,471.44 which was 1,417 points ahead of London's index. According to the BBC, the DAX (in line with a fillip experienced on most exchanges) rebounded 4.07% on Wednesday, and now stands at 5,405.53, just 87 points above the FTSE.

Stockmarket rebounds came after Germany's top court had ruled on Germany's appropriate response to the European debt crisis and on the back of a collective sigh of relief "that the nightmare scenario of a bail-out ban had been averted. However, the (Constitutional) court said that there could be no further eurozone rescues without the prior backing of the Bundestag (parliament), greatly limiting the ability of any German Chancellor to strike EU deals" reports The Telegraph. The paper notes that "the court's double-edged ruling closes the door on joint-debt issuance in the eurozone or any move towards fiscal union under current treaty law."

Stumped!

Update on September 10 2011

The DAX has slipped to 24.72 points below the FTSE 100 Index. And Robert Peston, Business Editor of the BBC, writes, "for the first time that I can remember, the cost of insuring loans to the UK government is a tiny bit less than the cost of insuring loans to Germany." He continues that this is a "remarkable show of faith by investors in the ability of Britain to repay its very big debts." But what does it say about investor confidence in the future trajectory of the Germany economy?

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