Merkel Asserts Leadership, Seeks to Win Voters

By Leon Mangasarian and Patrick Donahue - Oct 28, 2011 3:23 PM GMT+0700

Chancellor Angela Merkel emerged from 10 hours of negotiations in Brussels with a plan to stem the debt crisis that might as well have been written in Berlin.

The German leader forced French President Nicolas Sarkozy to bend to her will on using the European rescue fund only as a last resort, ruled out an automatic crisis-fighting role for the European Central Bank and dragged banks back to the table to take greater losses on Greek debt. She even wrung further budget concessions out of Italian Prime Minister Silvio Berlusconi.

“Merkel got what she wanted,” Shada Islam, an analyst at the Friends of Europe policy-advisory group in Brussels, said by phone yesterday after the summit ended. “This has confirmed Germany’s role as the make-or-break player not only in the euro- zone crisis but in European Union affairs beyond Europe.”

Two years after the debt crisis came to light in Greece, Merkel is finally translating her status as leader of Europe’s biggest economy and biggest contributor to euro-area bailouts into international clout. It may come too late to change opinion at home, where voters punished her coalition for flip-flops over tackling the crisis at seven state elections this year.

“Confidence in this government has suffered a lot,” Peter Matuschek, an analyst at the Berlin-based Forsa polling group, said by phone. “As a voter, you look for orientation, so it’s good that she’s at least able to give the impression of being decisive.” The chancellor has “gained some breathing room.”

Bundestag Backing

Seventy-six percent of German voters in a poll taken on the eve of the summit said they were unhappy with the government’s handling of the crisis and 20 percent said they were satisfied. The Infratest poll of 1,001 voters was conducted Oct. 25-26 for ARD television and released today.

Merkel traveled to Brussels on Oct. 26 bolstered by a parliament vote in Berlin that allowed her to negotiate to raise the capacity of the 440 billion-euro ($618 billion) rescue fund. She won cross-party support after pledging that German guarantees wouldn’t be raised from the existing level of 211 billion euros and the ECB shouldn’t be relied upon to continue its bond-buying program to staunch the crisis. No mention of the ECB’s bond-purchase program was made in the summit’s 15-page statement.

Addressing lawmakers before she left Berlin, Merkel said that the summit’s main goal would be to cut Greece’s debt to 120 percent of gross domestic product by 2020, a level that international creditors said last week could be achieved if bondholders accepted voluntary 50 percent losses. Banks bowed to pressure yesterday to accept a 50 percent haircut on Greek debt after Merkel made clear it was European leaders’ “last word.”

‘German Handwriting’

Sarkozy had wanted the rescue fund to be used to bail out distressed banks. Merkel stipulated that the fund should be used only as a backstop of last resort. Taken together, the decisions clearly display “German handwriting,” Deputy Finance Minister Joerg Asmussen, who attended the summit, said later in Berlin.

Merkel’s domestic allies praised her Brussels performance. The summit was a “breakthrough” in fighting the crisis and a “great success for the chancellor,” Volker Kauder, the floor leader of her Christian Democratic Union, said in an interview with Focus magazine. Otto Fricke, budget spokesman in parliament for her Free Democratic Party coalition partner, which has flirted with an anti-bailout stance, told broadcaster Phoenix that the outcome was a “big step forward.” Even Carsten Schneider, Fricke’s opposition counterpart from the Social Democratic Party, said the 50 percent reduction in Greek debt was “okay,” though it “ought to have come far sooner.”

Bild’s Verdict

“Merkel’s euro rescue,” Germany’s best-selling Bild newspaper said on its front page today. “It was an all-night poker session -- and Chancellor Angela Merkel the winner.”

Since October 2009, when Merkel formed her second-term government and Greece’s debt burden began to emerge with the arrival of George Papandreou as Greek prime minister, the German government parties have lost ground to the opposition.

Merkel’s coalition trails the opposition Social Democrats and Greens by 34 percent to 43 percent, a Forsa poll for Stern magazine showed Oct. 26. That’s down from the 48.4 percent won by Merkel’s Christian Democrats and Free Democrats at the 2009 election. The SPD and Greens, traditional allies which governed together from 1998 to 2005, took 33.7 percent in 2009. The next federal election is due in the fall of 2013.

After a positive EU summit, Merkel “could take advantage of it to stabilize the situation,” said Forsa’s Matuschek.

At least until next week, when Merkel will press global leaders at a Group of 20 meeting in Cannes, France, on a financial transaction tax and measures to tackle banks deemed “too big to fail.” She will also present Europe’s plan to leaders including President Barack Obama, who has repeatedly prodded Merkel and her euro colleagues to stamp out the crisis.

“We’ve achieved some things,” Merkel told lawmakers on Oct. 26. “A more important step will be taken in Cannes.”

To contact the reporters on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net