Does Merkel Want the Euro to Fail?
This article has been adapted from our sister site across the pond, Fool U.K.
She is the most powerful person in Europe, and one of the most powerful people in the world. And pretty much the whole future of Europe lies in her hands.
Some have called her Germany's Iron Lady and, like Margaret Thatcher, she had an unassuming childhood and studied to be a scientist before going into politics. But while Thatcher was a unique character who reveled in being different, Angela Merkel is cautious by nature and does things by consensus.
Yet she does have an edge of steel and the ability to be bold and ruthless where necessary. Witness how she and Nicolas Sarkozy hastened the exit of Silvio Berlusconi.
She was a protege of one of the architects of monetary union, Helmut Kohl, who called her, perhaps a little disparagingly, das Madchen (the girl). But when Kohl was caught up in a party funding scandal, Merkel turned against him, writing a searing letter in a leading German newspaper calling for him to be disowned.
Nein! Nein! Nein!
Merkel has always said that she is committed to the euro, but recently it seems she has not followed up her political rhetoric with real action.
Take the example of eurobonds, which Jose Manuel Barroso, the president of the European Commission, recently trumpeted as a way of spreading sovereign debt risk across the whole of the eurozone.
Merkel was dead against the idea, calling it "extremely worrying and inappropriate" and "not the answer," so that was the end of that.
What about the idea of a "big bazooka," an emergency fund so large that it would be able to bail out large countries such as Italy and Spain as well as minnows such as Greece and Portugal?
The European Financial Stability Fund had been created with 440 billion euros, but experts said it needed to be expanded to 2 trillion euros.
But again, Merkel said no -- there would be no more money. Instead, the 250 billion euros remaining in the fund would be somehow leveraged up to make 1 trillion euros, but no one knows quite how.
And finally, another way of reducing the financial pressures in the euro area is quantitative easing. The ECB would undertake a massive programme of bond buying, thus both stimulating the economy of the eurozone and reducing dangerously high bond yields. The U.S. and the U.K. have shown it can be done, so why not use the same medicine in Europe? But again, Merkel was firmly opposed.
A consensus politician
To be fair to Frau Merkel, she is simply reflecting the prevailing German viewpoint -- after all, she is a consensus politician. Germans are fed up with constantly having to finance the rest of Europe. They resent being forced to fund bailout after bailout, throwing money into what seems like a bottomless pit.
They pride themselves on their strict control of inflation, and so massive quantitative easing would be anathema to them.
And they want a strong Germany that does not give away many of its powers to a growing European superstate.
All these things Merkel realizes, and she does her very best to keep her electorate happy. Instead of having a grand vision, she is cautious and sensible. She sits problems out rather than making great, sweeping gestures. And because of this, she remains very popular in Germany, despite the raging euro-storm.
But it is the precise same qualities that make her so popular with the Germans that make her part of the problem in Europe. To solve the current crisis, she needs a grand vision and imagination, but she lacks this. Instead, she is dithering.
Indeed, she currently seems to be dithering her way to an eventual collapse and break-up of the eurozone.
Does Angela Merkel want the euro to fail? Well, I wouldn't go as far as that, but it looks like she is unwilling to sacrifice her popularity with the German people, and the German reputation for economic and fiscal discipline, to save it.
Let's go back to the Iron Lady analogy. Margaret Thatcher had the ability to think the unthinkable. She was able to go against the grain and do things that were unpopular, because she believed in them. Although it is completely against her nature, Angela Merkel must do the same.
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