Bloomberg.com
By James G. Neuger - Sep 23, 2013 3:27 AM CT
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.
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)
The
majority that matters, in Germany, decided otherwise yesterday, 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.
“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.
Read More Here
