"Suddenly Europe is speaking German," Volker Kauder a German conservative politician claimed. He was referring to Chancellor Angela Merkel's leadership to tackle the Eurozone crisis. What are the dilemmas she faces as she leads, albeit reluctantly, a debt laden Europe?
Merkel, the chemist turned Chancellor, was a protégé of the former Chancellor Helmut Kohl. Kohl was the architect of German reunification, the European Union and the Maastricht Treaty that set up the framework for the common currency. Merkel now commands the battle to save the Euro that her mentor was instrumental in building.
One of the underlying ideas of EU has always been to lock Germany into European treaties and negate the repetition of the terrible wars. During the early attempts at integration, Germany was more than willing to let France take the lead. It did not want to be seen in a leadership role and was content with being a junior partner in the Franco-German alliance. It quietly pumped up its economic muscle based on exports and reconstruction making Germans immensely proud of their strong Deutsche Mark.
Hyperinflation is seared into the German consciousness. In the aftermath of the World War I, on 1st November 1923, 1 pound of bread cost 3 billion marks. This eventually led to National Socialism and the rest as they say is history. It is for this reason that they had a strict inflation rate criteria included for the entry of new members into Eurozone. It also explains Merkel's “Nein” to print Europe's way out of the debt crisis.
Merkel has been criticized for playing the fiddle while Euro was burning. She steadfastly refused calls for pledging more German money to bail out Greece or for common Euro bonds. The German tax payers were against giving their hard saved money to what they saw as the squandering, tax-evading and forever-holidaying Mediterranean southerners. Germans underwent lot of restructuring and pain after the dot com recession. They made productivity gains and accepted wage stagnation to turn around their economy. As a person who lived in Germany during this period, I was amazed at their “spar” (savings) ethic. A shop that accepted credit cards was very rare. The concept of spending what one did not already have was anathema. Merkel had to balance this voter disdain with the need to save the Euro.
As the crisis prolonged, France's credit rating and influence waned propelling Germany as the lender and leader of last resort. It was a chance to remodel Europe in Germany's image of fiscal prudence. Merkel preached that only strict budget controls and austerity can resolve the crisis. Germany's brinkmanship at the negotiating table has forced and enabled the ailing PIIGS to pass more cuts, which would have been otherwise not possible. This has led to a groundswell of public anger in those countries against Germany. Merkel has been blamed for promoting austerity sans growth in the Eurozone as a whole generation stare into the abyss. Germany's fears of hyperinflation tie it down from mapping a rescue path via the currency presses.
The essence of leadership is not just to follow Vox populi but to shape their voice based on a vision, a dream. Will Merkel speak to the German public about how Euro has increased their competitiveness in the export markets? Will she tie Germany's success to euro’s success? Will she be able to convince the Greek public that more austerity is good for them in the long run? Will she be hailed as the saviour of Euro and European Union or blamed for presiding over their collapse. 2012 holds the answers.
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