TCS Daily

Merkel Cure for Germany?

By Jeremy Slater - October 11, 2005 12:00 AM

This week's announcement that Germany would be ruled by a "Grand Coalition" of the Christian Democrats and Social Democrats, with the CDU's Angela Merkel as chancellor, was met with relief more than celebration. After all, neither party can claim to have won a mandate to rule, and the prospects for prolonged deadlock over much-needed economic reforms are high. Moreover, the electoral difference between the two main political parties could hardly be slighter.

In fact, the biggest gainers in last month's election were the new Left party, made up of SPD dissenters and remnants of the former East Germany's communist party. Its main campaign platform was to vigorously defend a decaying social model that makes growth in Germany nearly impossible. That result had a spillover effect in France, where various factions welcomed the success of Germany's hard left. Indeed, failure of the CDU to win a mandate for economic reform has boosted the standing of all Europeans who did not want to push through similar policies. It makes the task for economic reformers throughout the European Union much harder.

British Prime Minister Tony Blair, who currently holds the rotating EU presidency, hoped that a strong Merkel administration with a sizeable majority could push through unpopular reforms in the Budestag and Bundesrat. Likewise, European Commission President Jose Manuel Barroso, who has staked his reputation on reinvigorating the European economy over the next four years, looks increasingly forlorn when announcing new initiatives. He too must have fervently been wishing for a decisive Merkel victory.

One sign of the re-invigoration of the opponents of economic growth came when Commissioner G√ľnter Verheugen, who is in charge of industrial policy, proposed ridding the EU books of a significant number of anti-business laws. He was immediately blocked by the European Parliament. MEPs argued that it was up to them to withdraw proposals and not the Commission. Just as under the Louis XIV of France and the last Chinese emperors, a bureaucrat class is in place that more than anything is interested in preserving its privileges.

Malaise in both Berlin and Brussels can have nothing but an enervating effect on prospects for the European economy. Already suffering from low growth in the 1990s, the central economies of the eurozone have done no better recently than flirt with recession. France is now performing above its recent poor levels, but Germany -- despite being the world's biggest exporter -- lags behind and Italy lurches from crisis to crisis.

Further adding to the sense of gloom is that 2006 will not be a good year for global growth, as oil price rises take their toll on industrial production and expansion in the US slides. There are even new worries that China's massive economic gains will soon slow, thus affecting demand further. This, too, will have a knock-on effect in hurting those economies in Europe that are still performing relatively well.

At a time when Europe needs to find ways to reinvigorate itself, its leaders and electorates have retreated into a fearful cavern, not sure which way to tread in the increasing gloom. And it seems that the last few remaining candles are losing their luster.


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