Bloomberg.com
Bailed-Out Nations Get Another Four Years of Merkel
By James G. Neuger - Sep 23, 2013 3:27 AM CT
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.
German
Chancellor Angela Merkel, party leader of the Christian Democratic
Union, smiles before her speech at the CDU headquarters after the German
federal elections results were announced in Berlin, on Sept. 22, 2013.
Photographer: Krisztian Bocsi/Bloomberg
7:00
Sept.
23 (Bloomberg) -- David Owen, chief European financial economist at
Jefferies International Ltd., discusses German Chancellor Angela
Merkel's election victory, the outlook for a coalition government and
the euro-zone economy. He speaks with Anna Edwards and Mark Barton on
Bloomberg Television's "Countdown." (Source: Bloomberg)
“Crisis management is very much a continuation of the status quo,” said Mujtaba Rahman, a former European Commission official who is now director of European analysis at the Eurasia Group in New York. “The core German principles of legal certainty and conditionality will remain in place. Decision-making will still be incremental.”
Merkel, 59, will start her third term with Europe perched between crisis and recovery. The 17-nation euro zone is emerging from a record 18-month recession and Ireland is poised to become the first of five aid-dependent countries to be weaned off outside help.
Bond Spreads
While Ireland’s 10-year bonds now yield about 2 percentage points more than German debt, making it the first aid recipient to fall in line with euro interest-rate targets, progress has been spottier elsewhere. Greece, with a yield premium of about 8 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 $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 last 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.”
Coalition Building
Merkel wouldn’t speculate on the shape of her next government, most likely 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 who now teaches at the University of Leiden.
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.
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