Das Gift

How Angela Merkel's bold plan to save Europe may have just saved Barack Obama.

BERLIN — Barack Obama had a lot on his hands last week with attacks on U.S. embassies across the Middle East, but in Europe, a big story buried by the drama of firefights in Libya, Cairo riots, and tumult in Tunisia should have him sleeping a bit easier. In fact, he might want to send a thank-you note to Germany's top court, which on Wednesday, Sept. 12, upheld Chancellor Angela Merkel's plan to rescue the euro.

"Germany today is sending again a strong signal to Europe and beyond," declared Merkel, who Forbes magazine last month called the most powerful woman in the world. The Federal Constitutional Court -- Germany's functional equivalent to the U.S. Supreme Court -- ruled that Merkel's administration can allocate funds to the European Stability Mechanism (ESM) to help bail out fledgling eurozone countries, as well purchase bonds from Italy and Spain's struggling economies.

Had the German federal court in the southwestern city of Karlsruhe declared the ESM to be unconstitutional, the ruling would have severely jolted the European (and very likely the American) markets. Holger Schmieding, chief economist at Berenberg Bank, termed the decision "another big step towards defusing the euro crisis."

Merkel's tireless push for the European Stability Mechanism Treaty, under which Germany will contribute 190 billion euros to a 500 billion euro fund to prop up the faltering Italian, Spanish, and Greek economies, should come as welcome news to President Obama, helping to shore up his chances of winning reelection later this fall. At the very least, it won't hurt.

U.S. stock markets were upbeat on the news of the German ruling, with the Dow Jones Industrial Average rising 44 points shortly before the market opened for the day. Major U.S. stock indexes -- Dow Jones, S&P 500, and Nasdaq -- closed the week with notable gains. Yet the market indexes should be taken with a heavy dose of salt; the Federal Reserve's announcement on Thursday to inject $40 billion in mortgage-backed securities each month over an indefinite period of time surely helped as well.

But at least Obama, Federal Chairman Ben Bernanke, and Treasury Secretary Tim Geithner are putting their (well, your) money where their mouths are. The administration has long warned Germany of the costs of imposing austerity on the rest of Europe. In late July, Geithner cracked the whip like a 19th-century German schoolmaster, warning Merkel to fall in line behind stimulus packages. "If you leave Europe on the edge of the abyss as your source of leverage, your strategy's unlikely to work," said Geithner, "because you're going to raise the ultimate cost of the crisis ... and you're going to ... do a lot of damage to the politics of those countries, because the human costs of what's happening not just in Greece but across Europe now are enormously high, and you're seeing that reflected in much more political extremism."

Geithner could have added that austerity-driven policies would have affected the U.S. economy, and thus, his boss's chances of reelection.

Earlier this week, one observer quipped that European Central Bank (ECB) president Mario Draghi had done more than perhaps the president himself to secure Obama's second term in the White House. Draghi navigated the ECB to green-light purchases of short-term government bonds from indebted countries to rescue their wobbly economies. The Italian banker's move prompted the Deutsche Bundesbank and its powerful head Jens Weidmann to issue an unusually sharp dissent, noting that the ECB's decision was "tantamount to financing governments by printing banknotes."

For Germans with a salient historical memory of the hyperinflation and largely worthless currency of the Weimar Republic crisis period, Draghi seemed to be laying a foundation for a wave of dangerous inflation. Merkel had spent weeks pushing for Draghi's economic prescriptions ("whatever it takes") to save the euro, by recapitalizing struggling Spanish banks and putting the Greek economy on life support. And, though the German public may be a bit confused over all this, Merkel -- and Obama -- got what they wanted.

But Merkel's favor to Obama comes at a strange moment in U.S.-German relations, a moment in which tensions have run higher than usual. The relationship between these two leaders has had its ups and downs. And it didn't start out all that well: In 2008, Merkel remarked through a spokesman that she found it "odd" that then-candidate Obama planned to visit Berlin, and that she had "little sympathy for the Brandenburg Gate being used for electioneering and has expressed her doubts about the idea."

In the years since that inauspicious beginning, relations between Angie and Barack warmed. But they cooled dramatically in March 2011, when Merkel joined Russia and China at the U.N. Security Council in abstaining from a vote on the U.S.-led resolution to impose a no-fly zone intended to stop Muammar al-Qaddafi's forces from attacking civilians in Libya. The incident marked a low point in relations between the two leaders: Obama shot back at Merkel, declaring that "some nations may be able to turn a blind eye to atrocities in other countries" -- but the United States could not.

A little less than two weeks later, Merkel's Foreign Ministry -- led by the pro-business Free Democratic Party politician Guido Westerwelle -- frustrated Obama administration officials when it midwifed a deal under which India bought 1.5 billion euros ($2.1 billion) of Iranian crude oil through the Bundesbank. "Treasury is concerned about recent reports that the German government authorized the use of EIH [the European-Iranian trade bank in Hamburg], as a conduit for India's oil payments to Iran," noted a U.S. Treasury official.

The Bundesbank cooperated with EIH, which the European Union has since included in its sanctions list for facilitating payments to Iran's nuclear program in contravention of Washington's wishes. It may have annoyed the United States, but for Merkel, it was just another domestic political masterstroke: German's foreign and economic ministries -- both of which are run by her government's coalition partner, the Free Democrats (whose voting constituencies center around small and mid-size company owners) twisted the arm of the ostensibly independent Bundesbank to transfer the payments to the EIH.

Germany remains Iran's largest EU trade partner, with an annual bi-lateral trade volume hovering around 4 billion euros, and this robust trade relationship has been a source of great irritation for the Bush and Obama administrations. According to WikiLeaks, U.S. diplomatic cable dispatches noted before the Treasury rebuke that "Germany won't sanction German Bank EIH" because "the German business community is very powerful."

Anyway, it wasn't long before the diplomatic fissures between Washington and Berlin were repaired. A mere two months after the EIH scandal surfaced, Obama awarded Merkel the Presidential Medal of Freedom in a June ceremony at the White House. In his tribute to the physicist turned politician, Obama said that  "Chancellor Merkel has promoted liberty and prosperity in her own country, in Europe, and throughout the world."

So far, Merkel has had little problem pursuing her interests, with or without Washington's approval. She enjoys high popularity among her citizens, and looks likely to win a third term in the national elections in 2013. An Emnid poll on Sunday, Sept. 16, showed that Merkel secured a 2 point increase and has climbed 12 points ahead of her nearest rival, the Social Democratic Party (SPD). According to the weekly Die Zeit, Merkel's successful crisis management has helped boost her lead in front of the SPD to the largest since the 2009 federal election.

But the German electorate is deeply divided over the wisdom and equity of bailing out feeble southern European economies at its expense. In challenging the ESM bailout based on unconstitutionality, Germans mounted their largest-ever grassroots petition, collecting 37,000 signatures and bringing the measure all the way to the high court.

A poll commissioned by the German press agency DPA and conducted by YouGov days before the court ruling showed 53 percent of Germans oppose the shift of more power to the EU, and 54 percent of those questioned sought a legal review of the ESM and further contributions to the eurozone. Germany's largest daily, the mass-circulation Bild, which has frequently editorialized in favor of expelling Greece from the currency union, headlined the court's decision "Merkel's expensive victory."

Despite the deep-seated euro skepticism among large swaths of the German electorate, Merkel remains wedded to the common European currency project.

The Berlin daily Der Tagesspiegel and the top German business daily Handelsblatt both said the judges had saved Merkel from an ugly domestic defeat. It shows political toughness on the part of Merkel, but it still bears costs that the chancellor will be forced to assuage the public on. Think of it like this: The court's ruling is like the U.S. Supreme Court's decision in June to uphold Obama's signature piece of domestic health care legislation -- the Affordable Care Act, otherwise known as Obamacare. Had Obama lost that decision it would have hurt him politically; but even in winning he still needs to convince the public that it's the right policy.

Germany's federal constitutional court did place some restrictions on Merkel's mobility, however, barring her from reaching further into taxpayer coffers on behalf of weaker EU economies. Chief Justice Andreas Vosskuhle said that "No rule of the treaty must be interpreted in a way which would result in higher payment obligations by Germany, without the consent of the German representative."

In other words, if Merkel wants to contribute any more than the 190 billion euros that Germany has already budgeted for the latest bailout, she'll need the approval of parliament. But with most parties in the Bundestag lined up behind her, Merkel has political capital to spare, and she has just scored an impressive domestic victory.

The same Merkel who snubbed Obama's campaign efforts four years ago in the German capital may now make a decisive difference in his reelection four years later. If Europe's markets do not go into upheaval over the next several months, sparking a trans-Atlantic economic spillover effect in the United States, Obama might just ride Merkel's coattails to election victory.

Sean Gallup/Getty Images


Brother of Al Qaeda Leader Offers Peace Plan

Mohamed al-Zawahiri was behind the protests at the U.S. Embassy in Cairo, but what he really wants is to make peace with the West.

CAIRO — One of the main organizers of the protests at the U.S. Embassy in Cairo on Tuesday has a modest proposal. Mohamed al-Zawahiri, the younger brother of Al Qaeda leader Ayman Al Zawahiri, stood outside the diplomatic compound as demonstrators ripped down the American flag and replaced it with one that read: "There is no God but Allah and Mohammed is his messenger." He, along with other Islamists, had called for "peaceful protests" against the U.S.-made film that has since ignited riots across the Middle East, but as he watched thousands of young demonstrators scale the embassy walls, he was thinking about something else entirely.

Zawahiri wants to broker a peace agreement between al Qaeda and the West. In a three-page proposal that has not previously been published, the veteran jihadi laid out the terms for a potential treaty: If the United States and other Western powers release all Muslim prisoners, withdraw from Afghanistan, Iraq, and the Persian Gulf, and allow Muslims to establish governments based on sharia law, al Qaeda and its affiliated terrorist organizations will halt its attacks against the West and against what he described as "legitimate" Western interests in the Muslim world.

Zawahiri believes the proposal would benefit Muslims and is consistent with the principles of sharia, which he says counsel peace before war when it serves the interests of spreading God's word. "This proposal comes at a victorious time," he said in an interview at his home in an upper-class Cairo suburb. "We are reaching out for peace, but I understand there are parties out there that make billions of dollars from war and may obstruct this proposal at any cost."

Zawahiri is not used to being a free man. In March, an Egyptian court overturned a death sentence for terrorism-related activities, and turned him loose for the first time since 1999. Much has changed in the intervening years, however, and Zawahiri sometimes feels lost in Egypt's sprawling capital city. But as someone who is still committed to the idea of establishing an Islamic state governed by Islamic law, walking out of prison into a nascent democracy has been even more disorienting. "Islam has its own regulations and standards that have been successfully implemented for hundreds of years before .Western democracy and capitalism" emerged, he writes in his peace proposal. A true Islamic state would not leave matters of governance up to the masses.

A founding member of Egyptian Islamic Jihad -- the radical group headed by his brother, Ayman, until its merger with al Qaeda in 1998 -- the younger Zawahiri spent much of the late 1980s and early 1990s waging jihad in Sudan, Egypt, Yemen, and Afghanistan, where he fought against the Soviets as the organization's military commander. An engineer and architect by training, he also spent time working for the Islamic International Relief Organization (IIRO) building schools and hospitals. The IIRO, based in Saudi Arabia, was later accused of links to militant Islamist groups, including al Qaeda, and was listed as a terrorist organization by the United States.

Zawahiri claims he last saw his older brother in Azerbaijan in 1996, before Ayman traveled to Afghanistan to join forces with Osama bin Laden. At that time, al Qaeda existed mostly as an idea -- a vision of how to spread the word of Allah being discussed by less than 100 fighters. Within a few short years, however -- following the bombing of the U.S. embassies in Kenya and Tanzania in 1998 -- bin Laden was placed on the FBI's top 10 most wanted list and Western intelligence officials had begun to worry about al Qaeda. Ayman was later indicted for the 1998 bombings and the FBI has offered $25 million for his capture.

Being the brother of one of America's most wanted has haunted Zawahiri ever since. In1999, security forces picked him up in the United Arab Emirates (UAE), where he had settled with his family and was working as an engineer for a construction company. He claims UAE authorities tortured him for four months -- at the behest of the CIA -- in an attempt to extract information about his brother. During that time, Zawahiri says, he offered to mediate between his brother and the West, something he believes could have prevented the Sept.11 attacks, but his overtures were rebuffed by UAE officials. In 1999, he was extradited to Egypt to face terrorism charges related to Sadat's assassination and conspiracy to topple the regime -- charges he denies and from which he was later acquitted upon appeal.

Zawahiri spent the following five years in solitary confinement in Egypt's notorious underground prisons. There, in a 6-by-6-foot cell with no access to sunlight, he says, he was repeatedly waterboarded, electrocuted, and subjected to sleep deprivation. His family had no idea where he was, or even if he was alive, until it emerged that the United States wanted his DNA to compare it to a skull found in a cave in Afghanistan -- one that might belong to his brother Ayman.

Today, following his release from prison, Al Zawahiri revisits his call for peace in a written proposal for a 10-year truce between the broader "Islamic movement" -- which he says encompasses Al Qaeda and its affiliates -- and the United States and other Western powers in order to end what he calls the "war on Islam in the name of war on terror." Nonetheless, the veteran jihadist is skeptical of Western journalists and blames the media for distorting his family's image and convictions for decades. For that reason, he insisted on recording the interviews I conducted with him over the last few months; he was deeply concerned that his "peace proposal" might be misrepresented.

Dealing with his siblings and inner-circle of friends, one gets the feeling that they have suffered immensely as a result of Zawahiri's dark past -- repeatedly voicing their concern that speaking to the press could unleash another wave of controversy. When asked if his proposal might endanger him, Zawahiri responded, "I am only acting as a mediator to end the bloodshed. I am reaching out to my brother through the media, if there is good feedback and the U.S. authorities allow me, then I can convince him through people in Pakistan."

Zawahiri has already coordinated with an unannounced committee of veteran jihadists in Egypt and abroad who are willing to act as mediators in order to move forward with the proposal should the United States -- which he views as the leading power in the West -- respond positively to his call for peace. Similar proposals by Osama bin Laden and his brother Ayman were rejected in 2004, but Zawahiri thinks times have changed and wiser men are at the helm in the United States.

When asked why Western leaders would listen to him, Zawahiri responded: "The Americans know my hands are not stained in blood, and the proof is that I have been acquitted of two death sentences when they did not find a shred of evidence against me."

Zawahiri also says he has a proven track record, having been tapped by President Mohamed Morsy to conduct secret meetings with jihadists in Sinai, where he says he helped establish direct dialogue and attempted to negotiate an end to the ongoing military operation there.

The conflict between Islamist movements and the West, he believes, could be resolved through similar negotiations. The fact that the United States and other Western powers have shown no indication that they would budge on any of his proposed concessions does not appear to faze him.

Zawahiri thinks that militant Islamist movements pose a big enough threat that the United States will ultimately yield to his demands. "Hundreds or thousands of attempts may fail, but one can succeed and destroy the Western civilization," he writes in his proposal, citing al Qaeda's attempts to obtain weapons of mass destruction and the escalation of violence in Iraq. "The next hit or string of attacks cannot be anticipated. No single group or persons can force themselves to control the situation or prevent it."

The would-be diplomat has taken the unusual step of attacking his prospective negotiating partner, however, by calling for demonstrations in front of the U.S. Embassy in Cairo this week. "We the Islamic Jihad, the Hazem Abu Ismael movement, and other Islamic groups called for the peaceful protest," he said. "How would the U.S. feel if a prominent Christian figure like the Pope or a historical figure like Abraham Lincoln were portrayed in such an ugly manner in a film? This is not freedom of speech; this is a breach of the law."

AFP/ Getty Images