December 7, 2013
Bailed-out nations braced for more of the same
By James G. Neuger
BRUSSELS — Southern Europeans are facing four more years of Angela Merkel — whether they like it or not.
Majorities of 82 percent in Spain, 65 percent in Portugal and 58 percent in Italy repudiate the German leader’s handling of the euro area’s debt crisis, blaming her for drastic cuts in social services, recession and record unemployment, according to a German Marshall Fund poll released last week.
The majority that matters, in Germany, decided otherwise Sunday, putting Merkel back in charge and saluting policies that have kept the currency union intact while at times veering close to letting it unravel. Any concessions now are likely to come on the margins: a little more money for Greece here, a little less austerity there, without altering her determination at most to drip-feed aid to countries that embrace tight budgets, wage restraint and export-oriented industry.
Merkel will start her third term with Europe perched between crisis and recovery. The 17-nation eurozone is emerging from an 18-month recession and Ireland is poised to become the first of five aid-dependent countries to be weaned off outside help.
While Ireland’s 10-year bonds now yield about two percentage points more than German debt, making it the first aid recipient to fall in line with interest-rate targets, progress has been spottier elsewhere. Greece, with a yield premium of about eight percentage points, needs further relief; Portugal, with a 5.1 percentage-point premium, might also need a top-up.
Germany’s 28 percent weight in the US$12.7-trillion euro-area economy, top credit rating and pre-eminent role in the creation of the euro enabled it to dominate the crisis response. German views may gain more clout, now that two crisis-management allies — the Netherlands and Finland — face fiscal and economic problems of their own.
“We cannot prematurely drop the pressure to reform,” Merkel said on German television Sunday night. Defending her habit of feeling her way into problem-solving instead of laying out grand visions, she said that “once I know that something will cost something, I'll say so.”
Her next government will most likely be a rerun of her 2005-2009 coalition with the Social Democrats, her party’s traditional rivals. The Christian Democratic bloc won 311 seats in the Bundestag, five short of an absolute majority, forcing Merkel to share power with the Social Democrats or Greens.
“The German SPD is much more in sync with other countries, also in the south,” said Laurens Jan Brinkhorst, a former Dutch deputy prime minister.
Defections from her own ranks have already compelled her to enlist the Social Democrats as de facto crisis-management partners. On at least four occasions, including this year’s aid package for Cyprus, Merkel relied on opposition votes to pass save-the-euro measures in the Bundestag.
Merkel, who grew up on the wrong side of the Cold War divide, is grappling with a north-south one that was at least temporarily deepened by her austerity-first prescriptions. The 5.3 percent unemployment rate in Germany that smoothed her re-election contrasts with a eurozone average of 12.1 percent. Joblessness is 16.5 percent in Portugal, 26.3 percent in Spain and 27.6 percent in Greece, where the debt crisis broke out just as Merkel started her second term in late 2009.
As Germans counted votes, officials from the troika of European Commission, ECB and International Monetary Fund headed to Greece to map out the next steps in a rescue package for the country that drove the eurozone to the brink of breakup.
Greece is drawing on 240 billion euros (US$324 billion) of pledged aid and needs more, either in the form of fresh loans, a writedown of existing ones, or both. Prime Minister Antonis Samaras said he will hold creditors to a commitment to “consider further measures and assistance” once Greece posts a surplus on its operating budget.
As that date draws closer, the Greek and German sides are replaying familiar arguments over conditionality. In Brussels last week, Samaras said Greece doesn’t need to make further budget cuts. Merkel’s acolytes accused Greece of a something-for-nothing mentality.
One country appealing for a more lenient German stance is Cyprus, where the economy is expected to shrink 8.7 percent this year.
“Germans too realize through the policy of more Europe, more unification, that there is a need for measures not just of austerity, or harsh austerity, but measures to boost growth,” Cypriot President Nicos Anastasiades said in an interview earlier this month.