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The wrong strategy of Angela Merkel

Publié le 28 juin 2011 par Jakob Hoeber -

The German economic performance intrigues politicians, researchers and countries worldwide. How can this country, after 10 years of poor economic achievement, reach growth rates that match those of China in some quarters, and that is well above those of its European neighbors? Intriguing indeed, but unfortunately for the Chancellor, her popularity is nothing compared to this rather good news: unemployment down, German industry booming, but still Misses Merkel is loosing ground to a strong left- wing coalition driven by the astonishing success of the Green Party.

Given this situation, it seems only logical that she wants to reinforce her much weakened coalition partner (see: The collapse of the German Liberal Party), the German Liberal Party, in order to get back on the track to a successful reelection in 2013. Finally realizing an election promise, Misses Merkel is searching for support to cut taxes, hoping to win over the voters lost during the coalition’s two years of headless government.

The risk that she’s running is tremendous. Not only does she have a growing opposition in her own ranks, including the powerful finance minister Wolfgang Schäuble, but also she’s likely to lose more ground among the voters. Indeed, cutting taxes at a moment when the Euro zone and whole Europe is heavily shaken by a debt crises, does not find the approval of the population other then high income tax payers hoping to further comfort their fortunes. The future being highly unpredictable, and heavy costs likely to arise from money dedicated to prevent Greece and other countries from bankruptcy, one does not have to be an economists to realize that such politics are insane.

Worst of all, it will cost her the last bit of credibility she had within the German population. Despite the economic recovery, most Germans are aware of the highly precarious situation Europe and the world economy is confronted with. Even if Angela Merkel is going to score some points by pushing through tax cuts, she will not gain in the field that wins elections: politics that comfort the population and make them feel that the country is on the right track to a better future. But maybe the German chancellor is all to desperate to even consider this. In one of the most difficult times that Europe has been in since 1945, its leading economy has literally lost its head.
http://www.intelligence-strategique.eu/2011/the-wrong-strategy-of-angela-merkel/

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Merkel: Euro bonds wrong solution; harmful at this stage
By Jamie Coleman || December 1, 2011 at 16:22 GMT
7 comments

* ECB is independent and must choose method for currency stability

She continues to push against the idea of a grand bargain, though I believe she will be dragged to accept it eventually. Even the ECB is showing greater willingness to play along, .. http://www.dw-world.de/dw/article/0,,15570152,00.html .. so long as the fiscal house gets tidied up.

* Update: Merkel says to protect ECB independence we must address the causes not just the symptoms of the debt crisis

The trouble I see with Merkel’s approach is that while it does attack the root causes of the debt problem it does not provide the immediate funding that may become necessary if Italy and Spain follow Greece, Ireland and Portugal down the rathole.
http://www.forexlive.com/blog/2011/12/01/merkel-euro-bonds-wrong-solution-harmful-at-this-stage/

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One problem, two visions (part I)

Dec 2nd 2011, 19:06 by Charlemagne | BRUSSELS



IT SEEMS odd, at first sight, to see the markets taking so much hope from two speeches in two days - one by France's President Nicolas Sarkozy and the other by Germany's Chancellor Angela Merkel - that revealed more differences than agreement on how to resolve the euro zone's debt crisis.

Perhaps it is the fact that both say the European Union's treaties should be changed, and any agreement on any subject is good news. Or perhaps it is the hope that, whatever they say in their opening bids, they will come up with enough of a deal at the next European summit on December 8th-9th to allow the European Central Bank to deploy its “big bazooka”.

Then again, markets have often rallied ahead of summits in the expectation of an agreement, only to be disappointed within days, or even hours, of the latest half-step being announced.

Neither Mr Sarkozy nor Mrs Merkel offered any real detail of what should be included in a revision of the treaties. But even their vague outlines reveal contrasting philosophies. I give a fuller analysis of the speeches in the next post (here). .. http://www.economist.com/blogs/charlemagne/2011/12/euro-crisis-0 .. In summary:

NOTE: that "next post" above so they can be read beneath each other i'm going to
post in full in another reply to the one i'm replying to here, it's too long for here now.

- Mr Sarkozy places the emphasis on “solidarity” among European states (ie, joint Eurobonds, and no defaults or debt-restructuring after Greece), while Mrs Merkel gives priority to budgetary discipline and rules.

- Mr Sarkozy urges the European Central Bank to act; Mrs Merkel is jealous of guarding its independence

- Mr Sarkozy wants to create a hard core of euro-zone countries within the European Union; Mr Merkel wants to include as many non-euro states as possible

- Mr Sarkozy wants to Europe to integrate through the action of leaders (reproducing France's presidential system, with lots of discretion for the executive); Mrs Merkel favours more independent institutions like the European Commission and the European Court of Justice (more akin to Germany's federal structure, which retricts politicians' leeway)

These differences should come as little surprise. It has been ever thus in the EU. The Franco-German motor is not made for harmonious co-operation, but rather to manage and contain the many disagreements between Paris and Berlin.

Still, something has changed recently. In the past year, Mrs Merkel and Mr Sarkozy (“Merkozy”, as they are known) have tried to resolve their differences behind closed doors, and then issued a joint declaration setting out their position ahead of European gatherings.

This happened at the Franco-German summit in Deauville in October last year, when they agreed that private creditors should share the pain of rescuing collapsed economies. A year later, the two leaders claimed to have found “total accord” when it was patently untrue: they soon had to postpone the EU summit in October, and then held a second one days later, in order to overcome their differences over a second Greek package and how to boost the euro zone's rescue fund.

So now, just a week before a key summit of European leaders, Merkozy chose to set out their stalls separately, before meeting at a Franco-German summit on December 5th, that may find some kind of compromise.

Mr Sarkozy's appearance was, in effect, a campaign speech, with many barbs aimed at the opposition Socialist party as well as exhortations to fellow Europeans. He spoke at a party rally in Toulon, where in 2008 he had vowed to reform capitalism. Now he says it is time to reform the European Union. Mrs Merkel, by contrast, gave a matter-of-fact speech in the Bundestag to outline her negotiating position at the forthcoming summit.

In a sense, neither of these speeches really matters. Any new treaty, even a limited one, will take month to negotiate and, probably, years to ratify. What is important, in the short term, is whether European leaders come up a sufficiently credible promise to reform, and rein in those who break budgetary rules, to allow the European Central Bank to use its “big bazooka” more freely without fear of moral hazard.

Earlier this week, the ECB president, Mario Draghi, hinted that he might be willing to do so, if euro-zone countries reached a new "fiscal compact". He did not define it, and did not say treaty change was needed. Another hopeful sign is that Germany, while rejecting permanent Eurobonds, is now floating a proposal to mutualise, probably temporarily, all excesive debt above 60% of GDP.

This is not quite joint Eurobonds, but may set a precedent for them. In any case, for the first time
Germany may be saying ja to something after months of nein. That would be something to cheer.
http://www.economist.com/blogs/charlemagne/2011/12/euro-crisis

see also .. 'No Immediate Solution' .. Merkel Pledges New Fiscal Unity for Europe ..
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=69549387 ..

Steph .. to your what if? question .. i know it doesn't help, but we'll never know .. i agree
with your drift, that faster stimulatory action was a better way to go than the austerity path ..
to a non economist it makes more sense and seems some evidence is in to support that position ..