Germany's Merkel: Will she save the euro or seal its demise?

German Chancellor Angela Merkel has opposed many of the moves to stabilize the eurozone that her European colleagues favor. Is she the steady hand Europe needs now, or does she lack political courage?

German Chancellor Angela Merkel might not be the most popular person in Europe these days.The reason? Her steadfast opposition to a whole range of measures that European leaders and economic experts see as crucial to prevent Europe’s sovereign debt crisis from becoming a global financial one.

But more than ever in this two-year crisis, Ms. Merkel is seen as the sole individual who can save the common currency – or seal its demise.

At the EU summit in Brussels Friday, leaders failed to unite all 27 members on a proposed intergovernmental treaty to require greater fiscal discipline in EU member nations, though all 17 members that use the euro currency support the pact. Such a pact can be ratified more quickly than a treaty amendment. 

Merkel said the development will help stabilize the troubled eurozone. "We will achieve the new fiscal union. We will have a euro currency within a stable union, she said. "We will have stronger budget deficit regulations for eurozone members."

Merkel's firm stances are playing well at home, where 63 percent of Germans strongly support their chancellor, according to pollsters Forschungsgruppe Wahlen, saying she is doing well in steering the country through the crisis.

A member of her party says Merkel has provided a much-needed steady hand: “Throughout this crisis she has managed to maintain the all-important balance of principles that rule the European Union: solidarity with each other, responsibility for your own affairs, particularly your finances, and the freedom to chose your own way to arrive at common European goals,” says Michael Meister, deputy parliamentary leader for Merkel’s CDU party. 

But many economists see her leadership differently.

“She lacks political courage,” argues Peter Bofinger, who is one of the five-member council that advises the chancellor on economic questions – the so-called five wise men. “She is not courageous enough to explain to her country that what is needed most, and immediately, is solidarity within the eurozone. In other words, eurobonds.”

Many EU leaders, including the European Commission, agree with Mr. Bofinger. EU president Herman van Rompuy, EU commission chief Manuel Barroso, and Jean-Claude Juncker, Luxembourg's prime minister and head of the eurozone group, have been pushing for measures like eurobonds – which would replace sovereign bonds of individual eurozone members, thus having the whole of the currency union guaranteeing debts of single members. They also want to turn the future bailout fund ESM into a bank that can borrow money from the European Central Bank (ECB).

'Baffling given the recent behavior of the markets'

The unwillingness to heed the advice of many of her European peers puzzles some observers. “It is really difficult to understand what drives Merkel and her finance minister, Wolfgang Schäuble,” says Bofinger. “I think they have a very strong belief in the rationale of the markets. They believe markets will reward budget consolidation, which is baffling given the recent behavior of the markets.”

A closer look at Merkel's life will offer some insight into her actions, argues Merkel's biographer. “Merkel is a scientist, a trained physicist who entered politics at the age of 36,” says Margaret Heckel. “Unlike with most career politicians her approach to politics is [not] emotional, it is analytical.”

Ms. Heckel believes that Merkel has a long-term perspective on the eurocrisis. “Merkel uses the European Union as a vehicle to prepare Germany for the economic challenges coming from Asia and the emerging markets," she says. "Only if the EU as a whole becomes much more dynamic and competitive, it can preserve its position vis-à-vis the US and China.”

Merkel’s opponents argue that her proposals, a fiscal union that enforces strict budgetary discipline on its members and imposes automatic sanctions on those who don’t stick to the rules, can only have an impact in the medium term, and that what is needed is swift action now – if it is not too late already.

“She’s ruined us,” writes Wolfgang Münchau, columnist for the Financial Times and for Spiegel magazine, in a recent Spiegel opinion piece. “Her hesitancy and constant opposition to proposed solutions have earned her and us the opposite of what she set out to achieve: It’s going to be extremely costly for Germany. No matter what the outcome." 

Did she underestimate the crisis?

There is another possibility, some analysts say: Merkel might have underestimated the extent of the crisis. When Greece started to slide toward insolvency she acted for a long time as if it was an isolated problem that needed no outside intervention. And the ripple effect of the March 2011 nuclear power catastrophe in Fukushima, which caused a U-turn in Germany’s energy policy and led to the decision to shut down the country’s reactors by 2022, was at the top of Merkel’s priority list for several months while the eurocrisis deepened.

But biographer Heckel thinks that Merkel’s scientific background and the fact that she grew up in East Germany make her the politician Europe needs now.

“She is an incredibly fast learner," she says. "Coming from the East she looked at West Germany and quickly took in the advantages, but also the faults of the system. And as a scientist she is used to trial-and-error. For her Plan B is just as legitimate as Plan A.”