Merkel has now tried to re-claim leadership over the continent's affairs and her own domestic popularity by proposing a ban on short-selling on European financial markets, the better to convince the public that she can still compel Europeans to follow the German lead. But the proposed ban just reinforced the belief among other Europeans that Germany is more concerned with poll numbers at home than the EU's fundamental health. France's Foreign Minister Christine Lagarde suggested that Germany "at least first get the advice of other member states."
With Merkel knocked out by the lethal combination of European and German mistrust, there are few countries, if any, able to fill Germany's role in cooperatively mediating EU disputes, and Europe is in real danger of failing as a collective body. Sarkozy would clearly like to assume the mantle of Europe's de facto leader, but countries like Britain, the Netherlands, and Finland won't be eager to subscribe to France's traditional vision of a loose-money, free-spending EU. They may feel compelled to openly oppose pushing nominating a hard-line monetarist as the head of the European Central Bank, setting up conflict and stalemate for years to come.
So how did Merkel get it so wrong? One issue may be temperament. Merkel, a trained physicist, naturally assumes the role of a disinterested observer during political debates, preferring delay over action when conditions are uncertain. Patience has largely served her well in her political career, as she's gained credit for successes that have been spearheaded by others while avoiding blowback from controversial decisions. But in financial markets, where psychology is as much of a factor as underlying fundamentals, waiting also carries its own risk. What Merkel thought of as observation, as she hesitated for months before designing a bailout for Greece, international investors saw as a losing bet.
Merkel made some stunningly bad decisions, too, displaying a striking lack of understanding about the limits of German power. It's true that Germany is the most powerful country in Europe. But Germany needs the EU just as much as the EU needs Germany: German power isn't much good if the country is constantly engaged in negative-sum relations with its many neighbors.
Because of this, previous chancellors had all sought to convince Germans that their national interests dovetailed closely with the common European interest. From Konrad Adenauer to Gerhard Schroeder, Germany's chancellors went out of their way to build and emphasize Germany's close relations with France, even if those relations occasionally had the air of deference and even if they demanded suppressing personal differences. Merkel, on the other hand, who was raised in isolated communist East Germany, prefers to defend Germany's personal interests, defensively insisting that Germany is a "normal country." But while Germans may feel liberated in the short term by thumbing their noses at their allies, Merkel's isolationism will eventually mean a less comfortable neighborhood and a weaker Germany.
Moreover, Merkel has neglected to pay attention to the ways that the European Monetary Union was designed to evolve in one direction, toward "ever closer union," in the words of 1991's Treaty of Maastricht. As historian of the euro currency David Marsh pointed out in his book, The Euro: The Politics of the New Global Currency, the founders of the euro knew it would eventually require European countries to integrate their national economies. With Germany's banks deeply leveraged in Greek debt, Merkel should have acknowledged early on just how much a Greek default would have been a German problem. And she should not have so blithely waved off repeated criticisms from France that Germany's trade surpluses were causing problems for its neighbors. These sorts of problems were predictable and correctible, but not if one chose to view them, as Merkel seemed to, as embarrassing and insulting.
What Merkel now needs is to summon words of pathos about the fate of the EU, to convince publics both domestic and foreign about the sincerity of her commitment to the continent's collective fate. One can only hope she was taking notes at the recent 80th birthday celebration of former chancellor Helmut Kohl, who openly declared that the EU's current financial crisis was a matter of "war and peace." Referring to his work creating the euro currency and its "guarantee of peace" for the continent, the ailing Kohl said, "I can honestly say that my life had a meaning." Unfortunately, Merkel has cultivated a political persona that is dispassionate and drily analytical. It's helped her stay in office, but at times like this, it hasn't made her much of a leader. And ultimately it's Europe that may suffer the greatest consequences.