Merkel's caution in euro crisis weakens Germany in EU
BERLIN (Reuters) - Angela Merkel has exposed her shortcomings as a crisis manager in the last few weeks and her growing weakness both at home and in Europe could undermine her efforts to impose the economic reforms Germany wants in the EU. The German chancellor, whose reputation has mutated from the bloc's most skilled deal-broker to "Madame Non" in a matter of months, looks to have been browbeaten into agreeing a $1 trillion (672 billion pound) weekend deal to save the euro, the biggest burden of which falls on Germany.
On top of that came Sunday's drubbing at the ballot box in a regional vote which has undermined her domestic authority. That result, which her conservatives blamed on the Greek debt crisis, may make her even more reluctant to show leadership in the EU.
"We cannot push through our culture of stability in Europe," wrote Die Welt, a centre-right daily. "The euro zone is dominated by countries for whom currency stability is not so important. And leading the opposition is President Nicolas Sarkozy, whom the weakened chancellor could little oppose."
In the last few months, Merkel's stance on the debt crisis has zigzagged as she has sought to balance national interests -- protecting German taxpayers from bailing out Greece -- and saving the credibility of the euro.
First, she refused to consider a bailout, then she shifted to a half-hearted agreement. Then she went into reverse and played for time before eventually bowing to intense market pressure and the threat of contagion to take urgent action.
At Friday's summit of EU leaders, Merkel arrived to a "fait accompli" rescue package trumpeted by Sarkozy, say EU diplomats.
She resisted the package due to worries about the legal basis of aid and the role of the European Central Bank. Germany has always been adamant the ECB's independence is paramount.
That the package went through with a loophole that allows the euro zone's central banks to buy euro zone government debt and private debt on the ECB's behalf is an indication of the ground Merkel had to cede.
Germany's weakness seemed to take physical form when Finance Minister Wolfgang Schaeuble was sent to hospital after reacting to antibiotics in Brussels and had to abandon the crucial finance ministers' meeting on Sunday that finalised the deal.
Frustration with Merkel is palpable in Europe.
"It would have been much more preferable if Germany could have acted quicker," Mario Monti, a former EU Commissioner, told a television interviewer.
Merkel's prevarication, which the opposition Social Democrats argue has cost Germany respect in Europe, should be no surprise to observers of German domestic politics.
Since taking office in 2005, the low-key East German pastor's daughter has let others argue in public and refrained from committing herself until the last moment.
But that is not what is called for now, say critics, who fear Germany's priorities of stability, budget discipline and ECB independence are losing out because of Merkel's hesitant approach.
"Germany has the fattest cheque book so the EU can't act without Berlin, but the impression has arisen that Merkel is not the main driver," Peter Becker, an EU expert at the German Institute for International and Security Affairs, told Reuters.
"Sarkozy seems to be taking on that role," he said, adding it was unclear whether Merkel would be able to push through her agenda of stability and forcing weaker euro zone members to implement tough economic reforms.
Merkel is constrained by three factors: public opinion, her Free Democrat (FDP) coalition partners who are fiercely opposed to bailing out euro zone states and the Constitutional Court.
The Court last year granted the German parliament more powers of scrutiny of EU business, and in her handling of the debt crisis Merkel has been driven partly by fears of a legal challenge to aid.
Indeed, a group of academics filed a case against Germany's 22.4 billion euro loan to Greece but the Constitutional Court has said it will not block the release of aid.
The most formidable force, however, is public opinion.
"We are the fools of Europe," top-selling Bild daily splashed on its front page.
Faced with a barrage of such comments, Merkel had to take the blame for her conservative Christian Democrats' (CDU) humiliating losses in Sunday's vote in North Rhine-Westphalia. The party scored its worst result since World War Two in the state, Germany's most populous.
"The outcome is a warning for Merkel," IHS Global Insight political analyst Grace Amerly Annan said in a research note.
"Europe's Paymaster," as bitter Germans call their country in the wake of the bailout of Greece, is at risk of paying a significant price for voter discontent in the near future."
Merkel has already had to abandon one of her coalition's flagship policies -- tax cuts -- and grumblings about her leadership style are growing from within her party.
One veteran CDU member, Willy Wimmer, has already called for her resignation and the Sueddeutsche Zeitung quoted one state premier as saying her lack of leadership would not be tolerated.
This could bode ill for the EU as Merkel may feel she has to push even harder in Europe for budget consolidation.
Yet Merkel's more defensive stance on the EU is consistent with a deeper shift in Germany's European politics, say experts.
"Germans no longer automatically assume their national interest coincides with that of the EU," Katinka Barysch, deputy director of the Centre for European Reform, told Reuters.
(Editing by Sonya Hepinstall)
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