The FP Memo

Creating a Merkel Miracle

Germany's new leader must administer bitter economic medicine, get tough with Russia, and mend ties with the United States -- all while holding together a fragile coalition.

TO: Angela Merkel, Chancellor of Germany
FROM: William Drozdiak
RE: Getting Germany On Track

The look of dismay that crossed your face when the September 18 national election results flashed across television screens told the story. Even though the Christian Democratic Union (CDU) that you lead scraped past the ruling Social Democratic Party (SPD), with slightly more than 35 percent of the votes, it was the worst performance in any general election since 1949 by the CDU and its sister party, the Christian Social Union. Your preferred partner, the market-oriented Free Democrat Party, did better than expected with about 10 percent, but you still fell short of the parliamentary majority that you hoped would create a new center-right government in Germany, banish the old Social Democratic-Green alliance from power, and allow bold political and economic reforms. Now that you have reluctantly turned to the rival Social Democrats to build a so-called grand coalition, many pundits are predicting that ideological differences will prove so great — and your clout so diminished — that you will be lucky to lead for two years.

These naysayers underestimate your skills and tenacity. You have climbed the political ladder by constantly exceeding expectations, rising to become Germany’s first female chancellor and the first leader from the formerly communist East Germany. Like a political judo artist, you have mastered the knack of turning your vulnerabilities into strengths. With a little bit of luck, you can outfox your foes and lead an effective governing coalition that will restore the nation’s confidence and strengthen Europe’s largest economy. Here’s how to make it happen.

Tell Germans to Get Back to Work: Germany is living far beyond its means, with the world’s longest vacations, oldest students, and youngest retirees. Out of 82 million people living in Germany, only 27 million now hold full-time jobs, meaning one worker is supporting three citizens. Low birth rates, early retirement, generous welfare subsidies, and high unemployment have eroded the country’s once vaunted work ethic and economic dynamism. Even though Germany is the world’s leading exporter, its exorbitant labor expenses — it costs about $33 an hour to employ a German worker, compared with about $19 in the United States and $6 in Poland — are forcing companies to outsource jobs at an astonishing pace.

Given the growing public skepticism about immigrants in Europe, which the recent French riots only exacerbated, an influx of young foreign workers to address the demographic crisis is out of the question. Germany must recapture the spirit of the 1950s, when it recovered with remarkable speed and dynamism from the ruins of World War II.

You must help Germans understand that they cannot afford to retire at 50 and collect handsome pensions from their beach villas in Majorca. Instead, they should expect to work well into their 60s. Labor unions need to realize that it is fruitless to try to protect a shrinking number of manufacturing jobs when factory wages in neighboring states such as Poland and Slovakia are now a fraction of those in Germany. With their strong technical skills and good education, Germans can move up the economic ladder by emphasizing their most sophisticated technology and building up the service sector, instead of relying on their industrial base. You need to reinforce the message that change and economic reforms — which so many Germans equate with bitter medicine — are essential to preserving Germany’s way of life.

Put Your Critics to Work, too: Some of your CDU comrades grumble that you offered too much by giving the Social Democrats eight out of 14 cabinet posts, including the ministries of finance, health, labor, and foreign affairs. But this seeming magnanimity could turn out to be a smart move, as it will place the burdens of responsibility for the most painful reforms — such as revising the tax structure and cutting health and welfare benefits — on the Social Democrats.

You may find that when it comes to controversial initiatives, such as shifting the balance of power between the 16 states and Germany’s federal institutions, or raising the value-added tax, building consensus will be easier than you suspect. Many Germans are prepared to endorse a Churchillian appeal for "blood, toil, tears, and sweat" in adapting to the challenges posed by China and India in a new global economy. Many of the Social Democrats joining your cabinet realize that the time has come to alter Germany’s complacent work habits, by asking citizens to toil longer hours for the same or less pay and pushing back the retirement age to 67 years. If they can convince their working-class supporters to swallow these reforms, you will be able to claim credit for achieving the impossible. If your coalition partners fail to persuade their rank and file, you can go to the public and blame them for not doing their job.

Snap Europe’s Malaise: Germany’s fate is now inextricably bound with the European Union’s (EU); indeed, 70 percent of all laws passed by the Bundestag originate directly or indirectly in Brussels. So the union’s current crisis — sparked by the failure of the constitution — is your crisis. As the 25-nation union contemplates further enlargement, embracing Bulgaria and Romania in the next couple of years and perhaps Turkey and the Balkan states in the next decade or two, European integration will require a new political vision to build enthusiasm among a younger generation that takes peace and prosperity for granted. As Europe’s most important strategic player — in terms of political clout, economic might, and geographic location — Germany must take the lead in energizing the EU, or risk jeopardizing such accomplishments as the single continental market and the euro. Although you favor imposing boundaries on Europe’s growth and keeping Turkey outside, remember that the world may change dramatically in the span of a decade. Keeping open the doors to Europe is a sensible way to encourage Turkey, Ukraine, and the Balkan states to pursue democratic reforms and stabilize the continent’s periphery. Slamming the doors shut would only feed ethnic resentments that could spill across borders and possibly plunge Europe into the kind of destructive nationalism it knows all too well.

Lean on Your Foreign Minister: With so many challenges on the foreign front, you will need a steady hand at the Foreign Ministry. Fortunately, it looks like you’ll have one. Social Democrat Frank-Walter Steinmeier, who is widely respected as an effective administrator, may turn out to be your secret weapon. Even though he served loyally as Schröder’s chief of staff, he is a pragmatic problem solver and knows that politics has no place in foreign policy — especially in a grand coalition of two rival political movements. Give him prominent assignments and, whenever possible, use him as a bridge to pacify factions within the SPD that are more skeptical of cooperation. The bruising effort to negotiate the legislative program of the grand coalition has exposed the huge rift between moderates and left-wingers among the Social Democrats. You will need to cultivate key allies like him to keep the SPD — and thus your ruling coalition — from breaking apart.

Talk Tough to Putin: Reassuring Germany’s eastern neighbors will be a key task for your foreign-policy team. In cultivating what he called a special strategic partnership with France and Russia, first by opposing the Iraq war and later by calling for an alternative axis to thwart American power, Schröder alienated British Prime Minister Tony Blair and Germany’s eastern neighbors. You must now soothe the bruised feelings of Poland and other eastern countries that fear being crushed in a German-Russian bear hug. They were alarmed by Schröder’s close rapport with Russia’s President Vladimir Putin, whose fluency in German was honed during his years as a KGB officer in Dresden, as well as Schröder’s decision to adopt a child from Putin’s hometown. The decision to build a pipeline under the Baltic Sea to bring Russian oil and gas to Germany, bypassing its eastern neighbors, only fueled their paranoia.

Part of a policy of reassurance will be expressing alarm about Putin’s autocratic tendencies, whether in curbing a free press, tampering with the judicial system, or tolerating human rights abuses in Chechnya. You might consider reciprocating Putin’s recent trip to Berlin, where he spoke in German to the Bundestag, by making an early visit to Moscow and delivering, in your flawless Russian, a tough message to the Duma about human rights and democracy.

Repair the Breach with the United States: The other mission that you must embrace with fervor is repairing relations with Washington. President Bush and Schröder, by the end, were barely on speaking terms. Neither concealed his contempt for the other; Schröder by disparaging Bush’s rush to war in Iraq, and Bush by privately sneering that Schröder was untrustworthy. You are already finding a much more welcoming attitude at the White House. President Bush respects your deep understanding of freedom born from your personal experience of living under communist rule. Even though there will be clear differences of opinion between your government and the Bush administration, such as over your reluctance to grant full EU membership to Turkey or to send troops to Iraq, you are getting a warm embrace in Washington and encountering genuine gratitude for your help in Afghanistan, where Germany now deploys more troops than any country other than the United States. You can help seal this embrace by expanding Germany’s efforts to train Iraqi security forces and help Bush achieve one of his most pressing goals in 2006 — extricating U.S. forces from Iraq without causing its disintegration.

U.S. Secretary of State Condoleezza Rice has assembled a coterie of advisors who believe that America’s strategic interests are best served by working in close harmony with Germany and other European democracies. Whether fighting international terrorism, coping with the rising influence of China and India, spreading the message of democracy to the Middle East, or pursuing a more effective Western energy strategy, Bush’s team is sending conciliatory signals to its European allies.

One visit to Washington won’t be enough to cement stronger ties. You need to make sure your entire government knows that the days of sneering across the Atlantic are gone. At a time when European leaders are preoccupied with internal crises, it would be a tragedy if you failed to reciprocate those efforts to invigorate a German-American partnership that has served as the foundation of the Atlantic alliance for the past half century.

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