Can Germany's Angela Merkel hold fast against Greek brinksmanship?
BERLIN – For the past few weeks, the gloomy words of the Rolling Stones's 1973 hit "Angie," German Chancellor Angela Merkel's 2005 campaign song, served as a metaphor for her country's disillusionment with the European monetary union.
Angie, Aaaaangie, when will those clouds
Angie, Aaaaangie, where will it lead us from here?
With no loving in our souls and no money in our coats,
You can't say we're satisfied.
But Angie, Aaaaangie, you can't say we never tried,
Angie, you're beautiful, but ain't it time we said goodbye?
These fears reached a crisis point this part weekend when Greece, the euro's biggest problem child, held legislative elections that promised to determine whether the country would abide by the terms of the European Union bailout package. Fortunately, the strongly pro-euro New Democracy party emerged with enough seats to form a shaky coalition, allaying fears that Athens would exit the European currency union, which could trigger a massive financial collapse across the continent.
The center-right party will likely form a majority coalition with the Socialist Pasok party and the small Democratic Left party, with a mandate to put Greece back on firmer financial footing. In contrast to the hard-left Syriza party, which calls for rejecting German austerity measures outright, New Democracy and Pasok seek to renegotiate the terms of the financial rescue plan that has kept Greek banks afloat for the past two years.
Although Syriza made an impressive showing at the ballot box, coming in only about 3 points behind New Democracy, the election results might alleviate some German jitters. In response to the news, a headline in Germany's leading business daily, Handelsblatt, blared yesterday: "Hoping for the victory of reason."
Greece still has its fair share of insanity, of course. The neo-Nazi party Gold Dawn won enough votes to earn representation with 18 seats in Parliament. Its spokesman, Ilias Kasidiaris, slapped a rival politician -- a woman, no less -- on Greek television earlier this month, and in a pre-election speech on Sunday, tried to present his shameful act as somehow a reflection of the popular will, "I have heard it said, from coffee shops to social media sites," he claimed. "'Why don't we send Kasidiaris to talk to Merkel?'"
Golden Dawn and the euroskeptics may have lost out in the weekend's voting, but all's not well yet -- not by a long shot. As part of the second bailout totaling 173 billion euros ($218.6 billion) in international rescue loans, Greece agreed in March to wide-ranging spending cuts, including slashing pensions and civil service jobs. In view of the widespread labor unrest, New Democracy (despite its jubilation at winning over the weekend) will have a rough time implementing reforms. To compound the problem of Greek compliance with the rescue plan, New Democracy leader Antonis Samaras seeks to make changes to the austerity measures.
Germans want, above all, to restore some certainty in this never-ending Greek drama. From Merkel's vantage point, if Athens wishes to stay in the euro, it must wean itself from dependency on German aid, reform its rigid labor laws, and slash its bloated bureaucracy.
If the Greeks do not take those steps, they may find German willingness to keep them in the euro has reached its limit. It was Merkel, after all, who delivered a resounding take-or-it-leave-it proposal when the crisis hit its zenith in mid-May. "The solidarity for the euro will end only if Greece just says, 'We're not keeping to the agreement,'" she declared.
Meanwhile, German politicians and even Merkel's cabinet members have urged the EU to pull the plug on Greece's membership in the eurozone. The weekend's relatively positive election results failed to silence these calls: In an interview with the Berlin's Der Tagesspiegel on Sunday, former German economic minister Rainer Brüderle, who now leads the pro-business Free Democrats in the Bundestag, said the eurozone could survive just fine with 16 members instead of 17, and called for an end to Berlin's support for Greece if the country fails to make the belt-tightening reforms to which it has agreed.
Merkel congratulated Samaras on Sunday, and noted in her post-election remarks that she expects Greece to adhere to its bailout commitments.
For her part, Merkel has done her best to maintain Greece's fraying ties with the eurozone. A day before the Greek vote, she injected herself directly into the campaign with a special appeal to voters in the country: "It is extremely important that tomorrow's Greek elections lead to a result in which those who form the government say, ‘Yes, we want to keep to our commitments.'"
But Merkel's appeal toward collective responsibility and keeping the eurozone intact hasn't won her many friends in Europe. In the debt-strapped capitals of Athens, Madrid, and Rome, Germany is seen as the slave driver behind the strict austerity measures their governments have been forced to implement. And capitals elsewhere on the continent are pressuring Germany to make its own concessions in order to maintain European economic solidarity.
Nowhere is this clearer than in France, where Merkel's old partner, former President Nicolas Sarkozy, has been replaced with François Hollande, a Socialist leader who appears to be approaching the crisis with a different playbook. On Sunday, the French Socialists sailed to victory in parliamentary elections, bolstering Hollande and pressuring Merkel to acquiesce to European pleas that she relax the demands of austerity programs.
In one of his first acts as president, Hollande reversed Sarkozy's reforms, moving promptly to lower the retirement age for many French employees from 62 years to 60. In stark contrast, in 2007, Merkel's grand coalition with the Social Democrats enacted painful reforms to bring German entitlements in line with economic realities, increasing the country's retirement age from 65 to 67. It comes as little surprise that Merkel is aghast at the course France has taken. Just last week, she issued a stinging rebuke to France's economic report card: "If you look for instance at the development of unit labor costs between Germany and France in the past 10 years, then you see that at the start of the millennium Germany looked rather worse -- or at best as good as our neighbor in a lot of factors, while the differences have now been growing a lot more strongly, also a topic that must be discussed in Europe, naturally," Merkel said.
Nonetheless, there is reason to believe that the chancellor -- a shrewd and pragmatic politician who embodies her country's consensus-driven political system -- will resist demands from Paris and Athens to make concessions toward Greece. On the one hand, she has no desire to capitulate to what's been called "Drachmail" -- Syriza head Alexis Tsipras's warnings that a Greek return to the drachma would destabilize the German market and perhaps all of Europe.
On the other, Merkel realizes that she cannot expose the German financial system to billions of dollars in high-risk Greek debt and deliver endless bailouts to a murky and unaccountable political system in Athens. Just this month, the credit rating agency Moody's downgraded six German banks because of the "increased risk of further shocks emanating from the Euro area debt crisis."
Merkel's no-free-lunch policy may not sit well with Greeks and other Europeans, but her stewardship has enabled Germany to insulate its economy from the financial jolts and high unemployment that continue to plague southern Europe -- and German voters give her credit for this accomplishment.
Germany is Europe's largest economy, and it will continue to remain the financial engine of the eurozone. Merkel's poll numbers are solid ahead of her 2013 re-election campaign, and most Germans regard her as a kind of "Mother Courage" character out of the Bertolt Brecht play.
With the Greeks shaking down Berlin, and the whole eurozone expecting it to pay up without end, the only Germans who part ways with Merkel on the fundamentals of German policy are the Left Party -- a mix of militant West German trade unionists, disillusioned ex-Social Democrats, and former East German communists now drifting into political oblivion.
But with a profligate France on one side and the alternately begging and moaning periphery nations on the other, it looks increasingly like the Germans will adopt a siege mentality, from which Merkel stands to reap domestic dividends. In the end, Athens will likely have to endure another round of austerity. But while the Greeks are losing the economic war against the Germans, they might very well extract revenge on the soccer field. The unlikely quarter-final Euro 2012 pairing of Germany and Greece on Friday in Gdansk, Poland, will be an unusually potent grudge match. Sadly, for the Greeks, the Germans are heavily favored in this match, too.
OHN THYS/AFP/Getty Images