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Analysis
Poor economic data strengthen Merkel’s hand

Poor economic data strengthen Merkel’s hand

Irish banking tapes enter German election campaign

Only way to rescue Steinbrück is through a euro crisis – which no one wants

by David Marsh

Tue 2 Jul 2013

Bad news can sometimes be good news. The electoral arithmetic, tussles with partner countries and poor economic data across Europe are helping Chancellor Angela Merkel consolidate her position in Germany ahead of the 22 September parliamentary elections. This leaves her hapless-looking challenger Peer Steinbrück with no other chance but to make a dash for the jugular in a last desperate lunge for power. Only a euro crisis ahead of the September polls, which no one wants, can save him now. It is hardly helpful for Steinbrück that Merkel and her allies will do everything they can to avoid one.

Curiously, widespread publicity given in the last few days to the foul-mouthed tirades of former senior officials at Anglo Irish Bank, the failed Irish mortgage lender, has entered the German election campaign - and is helping the incumbent.

The leaked Anglo Irish recordings, made shortly after the Irish authorities agreed a blanket guarantee in September 2008 amounting to 250% of Irish FDP for six Irish banks, were published last week by the Irish Independent newspaper. Revelations of expletive-studded conversations in which Anglo's then chief executive David Drumm threatened to let his bank go bust unless it was bailed out by the financial regulator has sparked a tide of opprobrium in Ireland and further afield.

A mocking rendition on the tapes of the German national anthem by Anglo's treasury chief, apparently aimed at the bank's German creditors, may be another factor helping extend Christian Democrat Merkel's lead over her Social Democrat opponent Steinbrück. For the tapes solidify the notion, much centred on Merkel's own resolute personality, that Germany must stand firm against feckless foreigners damaged by the euro yet persistently asking for German funding.

Like the weekend allegations of US spying against European diplomats, which have attracted criticism from the French and German governments and the European authorities, the Anglo Irish affair will harden belief in Germany that Merkel is the best person to defend taxpayers' interests.

At the European summit meeting in Brussels last week, Chancellor Merkel complained in unusually strong terms about the Anglo executives' leaked remarks decrying Germans and making jokes about the financial crisis, saying they damaged democracy. 'I have nothing but contempt for this. The tone seems to be similar across all the banks.... It is for us a huge challenge to convince people who get up every day and every day do their work and always pay their taxes, do everything, even show solidarity with other people who are weaker.' German finance minister Wolfgang Schäuble made similar comments over the weekend and said misbehaving bankers had to be brought to book.

The tarnishing of Ireland's image over the tapes could hurt Irish efforts to obtain further debt relief from its EU partners as it prepares to leave the programme of formal surveillance under the country's 64bn euro international bailout package agreed three years ago. With the Irish economy now back in recession according to government figures last week, this is bad news for hard-pressed Irish consumers and borrowers who still face great sacrifices caused by the pain of repaying the huge government debt built up by Dublin's moves to prevent its leading banks from collapsing five years ago.

All this has an effect in Germany too. Latest opinion polls from ZDF, the second German TV channel, show Merkel extending her lead over Steinbrück, with more than twice as many Germans favouring her as chancellor. The Christian Democrats together with their Bavarian CSU allies are given 43% of the vote, the highest since Mrs Merkel became Chancellor in 2005. Support for the SPD is estimated at only 26%, with their Greens allies holding 13% of the vote. The only element of uncertainty that could impede her ability to form a new government is that Merkel's Free Democrat coalition allies may still not obtain sufficient votes to enter parliament. But at this stage in the running that looks increasingly unlikely to be a major factor.

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