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Why Everybody Loves to Hate Angela Merkel

15 minute read
Peter Gumbel

When George Soros talks about European currencies, it’s worth listening. In 1992, the U.S. financier famously made more than $1 billion by betting against the British pound’s being able to maintain its exchange rate with the German mark. On June 26, as European Union leaders prepared to gather for yet another crisis summit to address their mounting economic and financial woes, Soros again had a strong message to send. But this time it was political, and it was aimed at German Chancellor Angela Merkel. If she continued to be unbending in her economic demands on the rest of Europe, Soros told the newsmagazine Der Spiegel, “The result will be a Europe in which Germany is seen as an imperial power that will not be loved and admired by the rest of Europe — but hated and resisted, because it will be perceived as an oppressive power.”

For once, Soros is behind the curve, because in Europe’s popular political imagination, Merkel is already the bogeyman — and worse. She’s regularly vilified in Greek newspapers and on TV as a fascist set on taking over Greece. She has been Photoshopped in a Nazi uniform on the cover of a national newspaper. And outside Greece, the idea that she is a throwback to an uglier age — and that the country she leads wields disproportionate power — is also gaining traction as Germany helps prop up ailing economies even as it demands that recipients of its largesse behave more like Germans in showing greater fiscal discipline.

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The June 25 issue of the New Statesman, a left-leaning British magazine, not only labeled Merkel “the most dangerous German leader since Hitler” — presumably including the brutal East German dictators under whose repressive rule she grew up — but also declared her a greater risk to world stability than Mahmoud Ahmadinejad and Kim Jong Un. Elsewhere she has been depicted as a bully, a latter-day Nero who fiddles while Europe burns and, on the cover of the Spanish magazine El Jueves, a sadomasochistic dominatrix whipping Spanish Prime Minister Mariano Rajoy into submission.

If she’s looking for sympathy, she’s unlikely to find it among her fellow politicians. In the Mexican resort city of Los Cabos last month, leaders of the G-20 countries spent more time trying to twist Merkel’s arm than patting it consolingly. And she didn’t exactly warm hearts at the June 28 and 29 E.U. summit in Brussels when she declared shortly beforehand that never in her lifetime would she agree to a plan to pool European debt.

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But the tough talk works: at the summit, nobody made a serious attempt to push through the issuance of joint eurobonds that would bail out countries in trouble, knowing that this would immediately meet with a German veto. Instead there was a much smaller compromise on whether emergency funds given to Italy and Spain could flow directly to those nations’ banks. Merkel, initially opposed, agreed — and immediately faced heat back home. The daily Die Welt, echoing much of the German press, harrumphed about “Merkel’s defeat.”

She has good reasons for her resistance to grand plans and acceptance of the smaller moves. To use Germany’s wealth to prop up a system that is unsustainable without radical reform — and integration — would be to risk the source of that wealth. Germany is doing better than the rest of Europe because it doesn’t behave like the rest of Europe and because, increasingly, it is looking beyond Europe. But turmoil in Europe still endangers German prosperity. And so this small, soft-spoken woman is damned if she does and damned if she doesn’t. She finds herself simultaneously blamed for global turmoil and expected to end it with a snap of her fingers; she is seen as Public Enemy No. 1 and the world’s potential savior. Neither extreme is true, but she is the most significant player in the crisis. She is no dictator, but she can dictate terms. And that, perhaps more than anything, is why so many people are mad at her.

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Nein, Nein, Nein
It’s not as if Merkel hasn’t explained herself clearly. To those who urge Germany to do more to ease the plight of struggling countries on Europe’s Southern perimeter, from Portugal to Greece, Germany’s Chancellor gives three clear but frosty answers.

The first is that her nation has already contributed massively to the various rescue packages that have been thrown together by the E.U. over the past two years, and even Germany has its limits. (The total it has put up amounts to about $500 billion, or more than two months’ wages before tax for every German.) The second is that if other Europeans get themselves into a mess through bad policy, they need to take responsibility and make some real changes, since anything else would amount to what Merkel terms a moral hazard. In other words, if countries like Greece could always count on Germany to bail them out, there would be no incentive to change their behavior. The third is that the root cause of the current crisis is an unsustainable level of debt, so the idea of borrowing more money to fund bailouts and artificial stimulus packages is fundamentally a bad one.

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Shortly before flying off to Los Cabos, Merkel pointed to the U.S. housing-credit boom that preceded the 2008 financial crisis as an example not to follow. “We don’t need economic models that just lead people to believe they are stronger than they really are,” she said.

That stance may infuriate her critics abroad, but it plays strongly at home, where Merkel enjoys a popularity rating that hit a record 64% earlier this year. But she’s not immune to voter discontent. Her Christian Democratic Union suffered a number of setbacks in state elections this year, and the next national elections, in 2013, are shaping up to be close. Merkel also has to deal with some important domestic constraints on her European policy, including a series of challenges to the legality of the bailouts filed in the German Federal Constitutional Court.

Merkel’s prescription for Greece, Spain and other enfeebled countries plays well with voters who over the past decade have taken some strong doses of the same medicine, including sweeping welfare cuts and a sustained policy to hold down labor costs. The results are there for everyone to see. At a time when the rest of Europe is floundering, Germany is once again humming along quite nicely, thank you. Growth is back after a brief hiatus, the national budget deficit has shrunk to 1%, consumer spending is on the rise, and the unemployment rate of 6.7% is less of an issue than a growing shortage of qualified workers to fill the positions available.

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But there are limits. Germany has been steadily reducing its dependence on the rest of Europe, but it would still be badly hurt by a collapse of the euro. And though Merkel believes that closer European integration is the way forward, many Europeans are cooling to the idea. Her compatriots have more reason than most to be suspicious.

The Making of a Lonely Powerhouse
Germany is strong today because of two key changes in the past decade. The first was a dose of harsh reality. Since the fall of the Berlin Wall, the nation has spent about $2 trillion to salvage the wrecked economy of the former East Germany. That sapped Germany’s strength and led to the realization that simply throwing money at a failing economy doesn’t work if reforms haven’t first been put in place. It also spurred the tough course of action to restore competitiveness, which, among other things, kept wage increases to a minimum.

The cure worked. A decade ago, France was more price-competitive than Germany; today it’s the other way around. That’s evident in the macro-economic numbers as well as on the ground. France used to produce as much asparagus as Germany, but these days Germany cultivates more than four times as much. Labor is the biggest cost in the asparagus business, and German seasonal workers cost half as much as their French counterparts.

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The second big change was the choice by corporate Germany over the past 10 years to seek out new customers. “The strategic thinking is ‘Move away from Europe,’ because it’s satiated. It’s not a growth market,” says Tobias Andres, an economist at the German Food Industry Association, whose members’ export share has doubled in the past decade as they have targeted China, Russia and the U.S.

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The biggest and best-known companies, like Volkswagen and BMW, have been leading this trend, but many smaller firms are now part of it too. Westfleisch, a meat-processing cooperative in the northern German city of Münster, recently announced that sales in the past year had hit a record, profits were up 20% and, for the first time in the firm’s 84-year history, it had slaughtered more than 7 million pigs. A key reason: Chinese and Russian consumers have taken a liking to Westfleisch sausage. At the annual meeting of the cooperative’s members, many of them local farmers, chief executive Helfried Giesen said, “We’ve reached new heights.”

Overall, Germany’s exports within Europe have continued to rise, but as a percentage of the total they have dropped to a 20-year low. The euro-zone countries now account for just 42% of Germany’s exports, a smaller percentage than that of France or Britain, which isn’t even a member of the currency union. While some other European countries, including Italy and France, have also benefited from growing sales to emerging markets, they haven’t had anything like the same impact as in Germany, whose trade surplus has soared while others have gone deeper into deficit.

The luxury automaker BMW started an assembly operation in China in 2003 with a joint-venture partner. Last year it sold more autos in Asia than in North America, and this April, China became the firm’s biggest market. At engineering giant Siemens, just under half of total revenue comes from the Americas or Asia. And on it goes, from the chemical industry to sausage producers. The percentage of German exports to China alone has doubled in the past five years, to 6% of the total.

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There’s an obvious risk to this strategy since, after years of heady growth, China, Brazil and other emerging economies are performing far more mundanely this year. “Germany has been more successful than other countries in tapping growth outside the euro zone, but this growth doesn’t look sustainable,” warns Paul De Grauwe, an economics professor at the University of Leuven in Belgium. Still, De Grauwe says, the euro’s weakening on international finance markets in recent weeks serves to make German goods even more competitive. The devaluation, he says, “is like a gift from heaven.”

In the financial markets, Germany’s success is begetting more success, often at the expense of its European neighbors. As the primary recipient of money flowing out of Spain, Greece and other troubled euro-zone countries, it is able to attract financing on spectacular terms. In May the Finance Ministry for the first time issued 4.6 billion euros in two-year bonds with an interest rate of 0%. In other words, taking inflation into account, investors were actually paying the German government to take their money. The issue quickly sold out.

Politically, some tectonic plates are shifting. The integrationist fervor in Germany that was critical in forging the E.U. and the single currency is now being openly questioned. A YouGov poll in the weekly Die Zeit before June’s Greek elections showed that 69% of Germans think Greece should leave the euro, and public opinion is also against Germany’s underwriting bigger bailouts of Spain and others.

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Then there’s Thilo Sarrazin. He’s a former member of the German central bank’s ruling council turned controversial author. His latest book, which shot to the top of the best-seller list when it was published in May and has stayed there since, is called Europe Doesn’t Need the Euro. Sarrazin argues vigorously that Germany shouldn’t be bailing out the rest of Europe and has been lending a hand only because of guilt over its wartime past. The pressure, he writes, “is being driven by that very German reflex, that the Holocaust and World War II will only finally be atoned when all our interests, including our money, are in Europe’s hands.”

That’s an extreme view, of course, one that has set off a fierce debate in Germany. What’s incontestable is that Germany, both mentally and economically, is increasingly out of sync with its traditional European partners.

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The Limits of Patience
It’s déjà vu all over again. In the 1980s, when West Germany’s economy was going from strength to strength while others struggled, Washington, Paris and London regularly implored it to do more to stimulate the world economy by boosting consumption and lowering interest rates. West Germany politely declined, arguing that its economy was a machine that didn’t work well if overheated.

Then the Berlin Wall came down in 1989, and Chancellor Helmut Kohl went out of his way to calm nerves about a resurgent, strong Germany by insisting that it would be firmly anchored in the heart of Europe. The E.U.’s 1992 Maastricht Treaty provided new substance for that German commitment to Europe: it paved the way for the creation of the single European currency, which was designed to bind Germany irrevocably to its partners.

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Two decades later, the E.U. has grown from a barely manageable 16 members to an unwieldy 27, and Germany has moved on. Kohl was Merkel’s political mentor, and echoes of his Germany-anchored-in-Europe discourse are still to be found in her position statements. Yet she’s a lot blunter about stating German interests. At the family-business conference, evidently irritated by continuing criticism from French President François Hollande and his new government, she remarked that Germany had caught up and overtaken France in the past decade in terms of competitiveness and that “these are circumstances that need to be discussed in Europe.” In Paris, Arnaud Montebourg, France’s new Industrial Renewal Minister, who once compared Merkel to Otto von Bismarck (for the French, the father of German unification is a historical bogeyman because he led the Prussians to victory in the 1870-to-1871 war with France), shot back by accusing the German Chancellor of “ideological blindness.”

This is more than just an ill-tempered spat. In Paris and Berlin, government officials acknowledge serious differences in approach to the current crisis that may be unbridgeable: Merkel sees the way forward as a new push toward a truly federal system in Germany’s image, including with a Europe-wide banking union. In highly centralized France, where suspicion of European federalism has grown rapidly in the past decade, that goes over about as well as suggestions to restore the monarchy.

Before the euro was introduced, Germany had to worry about rival producers in Italy, Spain and elsewhere gaining an edge through devaluations of their currencies, which happened with regularity. Merkel says that without the euro and the exchange-rate stability that it has brought, Germany would have had a much harder time weathering the financial crisis of 2008 and 2009.

Many German businesses agree, but polls show that Germans have never warmed to the single currency in the same way as they loved their deutsche mark. In a survey conducted for German TV in May, 49% of Germans said switching was a mistake. As for German industry, it has shown time and again that it can continue to outperform its international rivals regardless of exchange-rate fluctuations.

Germany needs Europe far less than Europe needs Germany, and Merkel certainly can do without her daily vilification. The German government “is fully committed to doing everything it can to strengthen the economic and currency union together with our European partners,” she reiterated recently.

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But the fact that Germans are asking tough questions about their role in Europe is a sign of just how times have changed. If Germany’s European partners — and Washington — want Merkel to maintain the careful balance that keeps her country committed, perhaps it’s time for them to stop throwing insults and show a little respect.

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