Wolf Richter: Angela Merkel’s Desperate And Risky Gamble

By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

Following the German-French council of ministers in Paris on Monday, Chancellor Angela Merkel and President Nicolas Sarkozy gave a joint press conference about the crisis in Greece, among other topics. They agreed on everything. They urged the Greek government and all political parties to implement structural reforms and meet the Troika’s demands for deeper budget cuts. Without them, the next bailout tranche would be blocked.

Then they headed to the Elysée Palace, the official residence of the French president, where they gave a joint TV interview amidst gilded splendor. Merkel berated socialist François Hollande, Sarkozy’s top challenger in the upcoming presidential election. Among her peeves: his campaign promise to renegotiate the new fiscal-union pact that 25 EU member states had already signed, and that she was pushing towards ratification. Then Sarkozy lashed out against Hollande. If a treaty signed by a head of state could simply be renegotiated by his successor, then “there would not be any treaties in the world at all,” he concluded.

Ten weeks before the election! And apparently, her next intervention in the campaign is scheduled for early March; she will stand near him on stage as he announces his official candidacy. Never before had a German chancellor campaigned so hard on French soil for a French president.

However, the most recent polls (BVA and Ipsos) gave Sarkozy little chance: he would survive the first round, but during the second round, Hollande would trounce him with 58% of the vote against 42%—and Merkel’s most cherished oeuvre would be at risk.

Merkel and her government have struggled fiercely to create a fiscally united Europe of balanced budgets and “structural reforms”—a euphemism for lowering the cost of labor, including wages and benefits. It’s her prescription for pulling the Eurozone out of the debt crisis. At the moment, her eyes are on the nightmare in Greece where even politicians are preparing for the “afterwards.” Read…. Greek Politicians Are Taking Cover.

Sarkozy has been her most powerful ally during the debt crisis. Without him, she couldn’t have pushed through her policies, which have been a resounding success, in Germany: in a recent poll, 64% of Germans have a favorable opinion of her, and 90% were satisfied with her crisis management.

But Hollande has declared war against her policies. He wants to push the ECB to aggressively buy sovereign bonds, and he wants Eurobonds so that risks can be spread, both of which Merkel has categorically rejected. He wrote: “The Eurozone must arm itself with a veritable financial force de frappe”—the term for France’s nuclear strike force. It would be used to combat the financial markets. He doesn’t want Merkel’s austerity, but stimulus. And he wants to renegotiate Merkel’s fiscal-union pact.

If he wins the election, he will find enough support among other EU states to push through at least some of his policies. But Germany is unlikely to fall in line. A handful of other countries might side with Germany and form a bloc. It might tear the Eurozone apart. To prevent that, Merkel has set out to beat him on French soil before it’s too late.

A desperate gamble. Rather than building bridges to the front runners so that a post-election continuum would be easier to achieve, she is actively fighting for the victory of Sarkozy, who has time after time abandoned his own proposals in favor of hers.

“A quid pro quo,” Harlem Désir, the number two at the Socialist Party, called it. He accused Sarkozy of having made “graves diplomatic concessions” on the role of the ECB, on Eurobonds, on austerity, and on the financial transaction tax in return for electoral support from Merkel.

With her intervention in the French election, Merkel has created the impression that preventing Hollande from becoming president has morphed into a government policy, and it doesn’t necessarily enhance Germany’s image abroad. Already, its reluctance to pay ever more to bail out the Eurozone has made it a global punching bag. Yet the amounts it has committed through a myriad of bailout programs are staggering. Read…. Germany Frets As Bailout Risks Balloon.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


      1. Jim

        Fr all her faults, at least La Pen has the wisdom to see that a transfer union is not in the best interests of the French people. In fact, both Sarkozy and his Socialist challenger would probably be too radical, at least with respect to the economy, to be national nominees of the Democratic Party.

  1. Fiver

    How did anyone, let alone most, come to believe a system based on corporate globalization (or is that global corporatism?)could produce anything other than increasingly asymmetric results absent something resembling a coherent, fair and firm set of global standards and practices?

    Is it better to design a system before you build it, or after?

    What exactly is Southern Europe supposed to do to compete when China/East Asia are spawning a spanking new Italy-sized economy every year?

    How can China think it is reasonable to attempt to sustain its pace?

    What makes people in developed countries think their assets, incomes, and skills should retain their value in a global marketplace?

    What makes anyone think Germany can support a structure 4x its size?

    Is is better to design a system before or after it’s built?

    When did politicians first realize they were no longer in control?

    Do we need full employment, or assured well-being?

    Why is everyone going back to school when a “knowledge-based economy” ensures most of them will not earn what it said in the brochure?

    Is there any chance the solution is to unwind globalization?

    Is there any chance the global corporates will seek a “solution” that is in the public interest?

    Were we really that deprived in 1975?

    Shouldn’t we have listened to all those warnings over all those decades?

    Is there anyone named Fleece in the crowd tonight?

  2. j.grmwd

    It sounds like Hollande is the last, best hope for the European project. Thank God for the French. Are they the last country in the world where the Socialist/Labour party hasn’t been taken over by third-way neoliberal wolves-in-sheeps clothing ? (Honest question. I’m by no means familiar with French politics.)

    1. okie farmer

      Even if there is a Greek “deal” today, it is apparent that it will simply be more kicking-the-can-down-the-road as Wolfgang Munchau notes: http://www.bloomberg.com/video/86004032/
      and as Yanis Varoufakis has been saying for over a year:
      and it is no secret that Hollande is a recent convert to the European social model, although he has better bonafides than, say, Papandreou, and other so-called socialists in EU, particularly Labor Party in UK.

      The neo-liberal virus has pretty much completely infected every western govt; so finance capitalism, now in control of all of them, intends to destroy labor while they “own the place”.

      1. j.grmwd

        It is truly an astonishing world when even socialist governments commit to balanced budgets and government cuts in the face of 10, 20, 30, 40% unemployment.

    2. Nathanael

      The Spanish Socialists were pretty much blackmailed into the cuts they made and did it under loud protest. They should have refused to submit to the blackmail, but I believe the party isn’t hopeless.

  3. pws

    She should have sent Hans Landa, that guy is a charmer! Especially if he got his old uniform out of storage.

  4. JTFaraday

    It seems to me that if Germany/France allow the ECB to take charge of the crisis by “printing” money like the US Federal Reserve, then Germany/France effectively LOSE their national sovereignty to (probably global) financial elites in the same way that the American public has already lost ITS national sovereignty to the Fed networked financial institutions.

    It seems to me that the promise of–in all likelihood entirely temporary– bailouts of (ostensibly) the Greek, etc public is being dangled in exchange for the surrender of everyone’s national sovereignty, including that of Germany and France.

    If I lived in Germany or France, I’m not sure I’d want to take that appalling deal and the moralistic notion that Germany should take it due to its export economy of the past years is no reason at all.

    The ECB doesn’t have any more incentive than the Fed networked financial institutions to reform any of the financial practices that got us all into this mess in the first place. An ECB led EU polity is not going to reform itself.

    Are we sure that having Europe follow the US in this–under political duress no less–is really the right thing to do?

    1. j.grmwd

      You can keep your sovereignty or you can enter a currency union. You simply can’t do both.
      Giving the ECB fiscal powers is an economic win-win for everyone including Germany. Politically and culturally not so much.

    2. Fiver

      It is certainly NOT the right thing to do. But truly, there is no possibility for Europe to even attempt to resolve this absent equal determination on the part of the US to take on the criminals. Of course, Wall Street selected Obama in order to ensure that would not happen by neutralizing the only bases for serious organized resistance when it mattered back in late 2008/2009 – had McCain been elected and done precisely the same stuff, he would’ve run into a seething mass of public outrage orders of magnitude greater than that which appeared (then was instantly co-opted)with the Tea Party.

      History is replete with examples of times when peoples faced with crisis do not rise to the occasion. This appears to be one of those times.

      1. JTFaraday

        I agree “we’re” the key piece of the puzzle, and given that, I’m starting to feel like the Merkel/Germany bashing is a bit of deflection of attention off the true center of the problem.

        I’m sure that Merkel, like Obama, is still trying to put the squeeze on the less powerful in order to continue to get along with the captains of banking and industry she feels necessary for her nation’s economic health. We all agree that ultimately this isn’t going to get her anywhere.

        But I’m starting to wonder why independent *analysts* are not turning this back onto the criminal cabal, and the MIA US government? Why does the buck stop with her?

    3. Jim

      If I were Germany, I would cede to a fiscal union if (i) a United States of Europe comes in to being, headquarted in Berlin, (ii) the Legislative Branch of the US of E will have two houses, with the upper one disproportionately representing Northern countries, like the Senate in the US overrepresenting smaller states. But the ratio would be much more pronounced in favor of the North than in favor of smaller states in the senate, and (iii) German is the official language of the US of E, and will be immediately taught in all schools. If every nation agrees to i, ii, and iii, I would cede to a fiscal/transfer union. Otherwise,……

      1. JTFaraday

        I’ll have to think about that. I’m still not convinced that they wouldn’t just end up in the same situation we’re in, in which we are for all intents and purposes, non-sovereign in our own nation.

        Pilkington would take that, because in Ireland they’re scrounging after their next nut. I think being subordinated to a KNOWN criminal cabal is always going to be a bad deal.

        I say break the finance cabal and restore national sovereignty and the rule of law. Then Europe can think about whether or not a broader, ostensibly permanent fiscal union is something they want. Right now, it just looks like a trap to me.

        1. Fiver

          “Trap” is the word for Germany. We quite clearly already see the benefits to the cartel of using Germany as both the only “credible” backstop financially (where this comes from exactly, I really don’t know – they are not that wealthy) while taking ALL the heat politically. This totally handcuffs Germany using their own money – not unlike a typical corporate move of the KKR variety.

      2. JTFaraday

        In other words, you want to build the US constitution without the revolution. And I want the revolution, and then the constitution.

        Which is how God and Sam Adams intended it. :)

  5. b.

    “64% of Germans have a favorable opinion of her, and 90% were satisfied with her crisis management.”

    The fools didn’t elect and re-elect the likes of Kohl, Schroeder and Merkel by accident. Truth in representative democracy!

    1. Nathanael

      But will she still be popular when the 2014 election arrives and Germany’s economy is starting to crash hard?

      (Which it will, unless Hollande manages to rescue it.)

  6. Jesper

    Supporting ones ally is a ‘desperate and risky gamble’?

    Sounds more like an act of a reliable ally who others might see as a future reliable ally. A desperate act would have been to abandon her ally while trying to support the enemy of her previous ally.

  7. Nathanael

    The interesting part of that is that this proves the EU is well and truly unified now.

    Merkel and Sarkozy are part of the same pan-European party grouping (look at Europarl). It is clear that the party groupings are now simply political parties, with the national differences being insignificant; being of the same political party, it’s no surprise that they’re campaigning for each other.

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