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Analysis
Merkel’s tenuous hold on power

Merkel’s tenuous hold on power

by David Marsh

Tue 29 Mar 2011

Sunday’s regional election results in Germany – paving the way for the anti-nuclear Green ecology party to take control of the traditionally conservative industrial stronghold of Baden-Württemberg – lower further Chancellor Angela Merkel’s tenuous hold on power and will harden Germany’s bargaining line over economic and monetary union (EMU).

In particular, the fresh blow to Merkel’s standing with the German electorate may encourage the Berlin government to dig in its heels over selecting the new president of the European Central Bank during the summer. This may weaken the chances that Mario Draghi, the respected head of the Banca d’Italia, will take over from Jean-Claude Trichet in November. Draghi had been regarded as front-runner following last month’s withdrawal from the race of Axel Weber, the president of the Bundesbank.

The Green surge in Germany in the wake of the Japanese atomic disaster ended 60 years of rule of Merkel’s conservative Christian Democrat party in the key south-western bastion of iconic corporations like Daimler, Porsche and Bosch.

Over EMU, Germany’s primary tactics for dealing with the sovereign debt crisis are rapidly losing traction. Waiting until difficulties affecting the peripheral Euro members become intolerable, and then, with the utmost reluctance, agreeing credits under punitive interest rates and extreme austerity-generating conditions, is palpably not producing the right results. The collapse of the Portuguese government and the emergence of a power vacuum in Lisbon represent a further twisting of the screw. This heightens the likelihood that Lisbon will turn to the EFSF rescue fund which again would ratchet up the probability, under the domino-like effects that run through financial markets, that Spain would be next in line.

At last week’s Brussels summit, an expected deal to lower the interest rates on Ireland’s rescue loans did not materialise. Creation of a permanent €500bn fund to be put in place in 2013 to replace the EFSF was incomplete, reflecting last-minute opposition in Germany to the new fund’s structure.

Germany’s introspective mood has sparked new anxieties that German political decision-making is becoming random and unpredictable. In 1828, one of Germany’s most celebrated poets, the famously soul-searching Heinrich Heine, wrote that his countrymen found find the wide world “too wide” and wished for nothing more than to “sit between the old familiar walls”, light the stove and read the local newspaper. A strange existence for the world’s second largest exporter that profits hugely from globalization. But Heine’s words seem an apt description of the economically powerful yet curiously rudderless state of Germany today.

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