How Angie Got Her Groove Back

On Oct. 3, Germans from Berlin to Bavaria basked in the cool autumn air to celebrate the anniversary of German reunification, the country’s most important national holiday. For Chancellor Angela Merkel, whose future as the country’s leader was in question as little as a week ago, there is much to celebrate.

What a difference a vote makes. Last Thursday, the German Bundestag voted 523-85 with three abstentions to approve greater scope and flexibility for the EU’s bailout reserve, the European Financial Stability Facility (EFSF). While an expanded EFSF will not amend the fiscal deterioration in Greece, it might be the first step toward ring-fencing it. More than that, the vote hailed by many as the most important in the Bundestag this year, changed the arc of German politics on the Eurozone crisis and gave a glimpse into the political psychology of the European economic colossus and the leadership of its chancellor.

For all the Sturm und Drang surrounding the vote, the outcome itself was never in question. Germany’s major left-of-center parties, the Social Democrats and the Greens, support even greater European integration — including the introduction of Eurobonds, sovereign debt issuances that would be guaranteed jointly by all 17 members of the Eurozone. Both center-left parties had pledged their support for the measure long ago.

Tension ahead of the vote was driven by the question of whether or not Merkel would be able to secure a "Chancellor majority," a majority based on her governing coalition, which centers around her Christian Democratic Union (CDU) party. As such, the EFSF vote became a tacit vote of confidence in Merkel’s leadership and stability of the coalition, despite explicit statements to the contrary. 

Throughout the course of the Eurozone crisis, Merkel has been criticized for glacial decision-making, mixed political signals, and attempts to lead from behind. Her coalition has not helped. In the absence of firm leadership from the chancellery, the erratic Liberal Democrats, the Bavarian Christian Social Union (CDU’s archconservative sister party), and some within Merkel’s own party have all been dabbling in the dark arts of populist Euroscepticism and raising the specter that that the coalition could split apart on the EFSF vote.

The strategy backfired. The Liberals, the party that threw its weight most forcefully behind Euroscepticism and placed it at the center of an election platform, were wiped off the political landscape in recent Berlin elections. Currently, the Liberals are polling nationally at 3 percent, well below the 5 percent threshold necessary to enter into the German parliament. A rupture in the coalition would have put their very future in the Bundestag at risk, down from the 14.6 percent they garnered in 2009. As such, they have an existential stake in the survival of the current coalition.

In the end, Merkel was able to collect the tattered scraps of would-be Eurosceptics and push through the expanded Euro-package, with room to spare.  In the words of German Foreign Minister Guido Westerwelle, the vote was "a signal to our European partners is that you can rely on Germany." 

If 2011 has taught us anything about Germany, it’s that the public values political stability above all other attributes. After all, this is the country in which Konrad Adenauer, the architect of post-war German politics, was able to build a democracy around the political mantra "Keine Experimente" (no experiments). The notion of stability-minded policy-making has been one of the leitmotifs of conservative rule in Germany since the end of the World War II. The "no experiments" approach dovetails well with Merkel’s natural leadership style.

But, of course, Germany has already embarked on the biggest experiment of all — monetary union. Up to now, Merkel’s coalition leadership has failed to assure the public that the risk of the Euro is worth the great benefits it yields. Before the vote, the coalition’s decision-making had been dogged by inaction and infighting in the face of the Eurozone crisis. Perhaps looking to compensate, the coalition hastily negotiated quick-fixes on other major issues, such as the departure from nuclear energy and Germany’s abstention on U.N. Resolution 1973 authorizing humanitarian action in Libya. The strategy was aimed at injecting an adrenal rush of popularity into her beleaguered coalition. On both ends of the spectrum, it hasn’t worked.

Merkel and her coalition have been skewered both inside and outside of Germany, feeding the perception that German political decision-making was lurching from one side to another, blown by the political winds. In an article in the German foreign policy journal Internationale Politik, former German Chancellor Helmut Kohl ominously questioned if Germany was still a "predictable partner." These decisions have undermined Merkel’s image as a steady leader, a persona that she painstakingly built up over her first five years in office.

With the EFSF vote, Merkel has moved to chip away at the perception of German indecisiveness and put her coalition firmly on record as supporting viability of the Eurozone. In doing so, she has recast herself in the role that she is most comfortable in — the circumspect, steady-handed manager.

The timing could not be better for her political fortunes. On Oct. 17-18, the heads of the EU’s 27 member-states will gather in Brussels for a summit to decide the future of EU economic governance. Even though the EU’s coordinator-in-chief, Herman van Rompuy, has been tasked with presenting a proposal for tighter fiscal union at the summit, Germany’s handprints will be all over the document. Merkel’s negotiating position could not be stronger. The next two weeks will be the Angie show.

Despite its deep flaws (many of which are being revisited now), it was clear at the time that the French wanted the growth, the Germans wanted the stability. The European Central Bank, initially intended to be a Europeanized Bundesbank, has one mandate at its heart — price stability within the Eurozone. And in his state of the union speech this week, European Commission President Jose Manuel Barroso acknowledged as much. His attempt to rebrand Eurobonds as "stability bonds," was a not-so-subtle play to a German audience.

Now Merkel will pursue the same binding assurances on the fiscal side of the policy toolbox. Placing predictability and stability at the heart of European economic governance will be at the center of Merkel’s vision for fiscal union — this will be the "no experiments" chancellor. The EFSF debate in Berlin has made it clear that two red lines exist for the Germans: maintenance of Germany’s prized AAA rating, and the sanctity of its legislature in major decision-making. Other than that, Merkel will have everything, even amendments to the treaty of Lisbon, on the table. 

Still, the Eurozone crisis is far from over. Greece’s announcement that it will miss its deficit reduction targets for 2011 and 2012 has made the prospect of insolvency much more likely. Italy’s farcical political landscape has led markets — and many countries in the Eurozone itself — to question its commitment to long overdue reforms.

And even the expanded EFSF still needs to meet tough Finnish collateral requirements and is waiting for approval from an unpredictable Slovakian parliament, the final country to vote on the package. After that comes a dizzying array of timetables, benchmarks, bond maturations, and elections. And the tempo of decision-making is accelerating. It will be a challenge for the German government to get ahead of events.

Buoyed by the Bundestag’s approval of the EFSF and a consolidated lead over her coalition, Merkel has the opportunity to demonstrate that she is capable of measured, solution-oriented leadership of the Eurozone crisis. Even as Germany commemorates national unity, its European unity that is firmly in Germany’s hands.