Angela Merkel Can’t Isolate Herself From Pressure to Save Europe

(Bloomberg) -- Just across the River Spree from the quiet of Berlin’s Museum Island during lockdown, Angela Merkel sits in self-imposed quarantine in her city center apartment. The galleries at the UNESCO World Heritage Site may boast more World War II bullet holes than visitors in the time of coronavirus, but the calm eludes the German chancellor.

After more than 14 years in office, Merkel has returned to the front line of crisis fighting and is in her element again. At 65, she’s more in demand than ever as Europe’s most powerful leader steers her country through what she describes as the greatest challenge since the war. Polls show a surge in support for her party and broad public approval of her policies.

Yet history may judge her less on her custody of the region’s powerhouse economy than on what she does to help its weakest members through a public-health disaster unparalleled in peacetime.

The last crisis to undermine the European integration project was financial as Greece, Ireland, Portugal, Spain and Cyprus required bailouts between 2010 and 2015 to keep the continent’s single currency intact. This time, people are dying in their thousands and Italy, the euro region’s third-biggest economy, risks going into meltdown.

“Obviously it’s a legacy moment,” said Daniel S. Hamilton, a professor at the School of Advanced International Studies at Johns Hopkins who is currently Richard von Weizsaecker fellow at the Robert Bosch Academy in Berlin.

“The crisis is really doing a number on European unity,” and Germany above all countries has the greatest stake in maintaining a united Europe, he said. “It’s reached a stage where Germany will have to show that it is part of the solution to restoring faith in the European project.”

As the European Union’s longest serving leader, Merkel’s dilemma is whether she goes all out to help the bloc emerge intact from the pandemic, or risk it splintering along national lines.

Italian Prime Minister Giuseppe Conte warned the Covid-19 response could give succor to nationalist, anti-EU parties that have gained ground across the continent since the onslaught of the European debt crisis in late 2009.

The difference now is that every country is affected and the threat to the EU’s integrity more palpable still. As the virus spread, nations restored border controls and embarked on their own missions to tackle the outbreak while the EU stalled.

“The way in which countries help or do not help each other can shape perceptions of European integration for a long time to come,” Holger Schmieding and Kallum Pickering, economists at Berenberg Bank, wrote on Sunday. “A perceived lack of such solidarity could jeopardize the long-term cohesion of the EU and the euro zone.”

The expectations weighing on the chancellor are a result of both Germany’s status as the bloc’s dominant economic player and Merkel’s long years of experience. She is one of few world leaders still in power who recall first-hand the task of combating the fallout from the financial crisis—and indeed the pressure she was under to act.

During the euro-area crisis, the Obama administration clashed with Merkel’s government over what it saw as an insufficient willingness to use Germany’s economic might to stop the turmoil proliferating. The sense in Greece and elsewhere in Europe was that Germany had a special responsibility to help and further atone for its role as aggressor in World War II.

That narrative is again being aired during the coronavirus. Italian regional leaders and mayors took out a full page advert in the Frankfurter Allgemeine Zeitung this week reminding Germany of the debt relief it was granted in 1953 and called for the same kind of magnanimity from Berlin now.

“It is solidarity that you Germans were shown by many European countries after the war and up until reunification,” the officials said. “Dear German friends, memory helps in making the right decisions.”

Yet such appeals fail to acknowledge the domestic political reality of keeping a fractious coalition and the German public on board, something that Merkel balanced through the long years of turbulence. The exception was the migration crisis of 2015-2016, when her decision to open the borders to refugees from Syria strained German society more than at any time since reunification of east and west 25 years earlier.

Merkel has learned from her mistakes then, and is taking time to communicate her actions to the public even while in self-quarantine. In her weekly podcast on Saturday, she highlighted government efforts to bring security “in these uncertain times,” and drew attention to her “long negotiations” with fellow EU leaders last week during a six-hour video-conference.

After that virtual meeting, EU leaders came under fire for failing to come up with a common response to the pandemic, with Merkel and Dutch Prime Minister Mark Rutte singled out for leading resistance to joint European debt sales dubbed “coronabonds.” Germany has long ruled out pooled debt on the grounds that it would mean underwriting weaker states at its own taxpayers’ expense.

Italy’s Conte called on Germany and the Netherlands to set aside their reservations and support such “extraordinary” measures, in an interview with Spain’s El Pais newspaper published Monday. Conte is one of nine EU leaders to urge the use of coronabonds to combat the crisis.

Schmieding, Berenberg’s chief economist and also a veteran of the Greek crisis, said the political logic for coronabonds is now “overwhelming.” He pointed to the contrast between the government’s decisive actions to shield the German economy with a package worth some 750 billion euros ($827 billion) and its lackluster support for a “forceful” common European response.

Germany regards the fact it is spending so much to shore up its economy as a key line of defense for Europe as a whole, according to a senior government official.

Quicktake‘Coronabonds’ Could Bail Out Europe

It has already ditched a legal requirement to adhere to balanced budgets—a focus that French President Emmanuel Macron once referred to as a “fetish”—to allow debt financing. A further stimulus program is being considered for after the pandemic to kick start recovery, Finance Minister Olaf Scholz said in a Bloomberg Television interview.

European disagreement is fanned by the “toxic debate” steered by German conservatives that southerners are now seizing the opportunity to pull Berlin into a “transfer union,” said Jana Puglierin, head of the Berlin office of the European Council on Foreign Relations.

At the same time, “it’s not helpful if you push Merkel into a corner and blame her or Germany for everything,” she said. Merkel “really is a pro-European and she wants to hold this project or club together, said Puglierin. “But don’t expect her to agree to something that is not possible.”

German polls show overwhelming support for Merkel’s government during the pandemic. Some 74% of respondents to broadcaster ZDF’s regular Politbarometer survey last week said the measures to fight the economic fallout were correct, while 79% said Merkel was doing a good job. The chancellor remains Germany’s most popular politician.

The political dividend is clear, with Merkel’s Christian Democratic Union-led bloc jumping about 10 percentage points in less than a month to its highest level since before the 2017 election. Party infighting over the candidate best placed to succeed her before next year’s election has disappeared from public view. Even just the perception of a “Germany First” approach has seen support drop for the anti-immigration Alternative for Germany, whose roots lie in opposition to euro-area bailouts.

Still, Merkel has signaled her willingness to risk a potential backlash by doing more to help as the death toll and economic hit from the pandemic increase.

She favors deploying the European Stability Mechanism, a bailout fund set up in 2012 to help euro members. Scholz, her finance minister, has said that in addition, Germany is ready to help the European Investment Bank step in to aid European companies in a liquidity crisis; that it backs the relaxation of EU deficit rules; and sees the bloc’s multi-annual budget as another tool that can be used to help. That amounts to a potent package without the use of coronabonds, Scholz said.

Germany has supplied masks and other medical aid, while using the air force to fly in a handful of seriously ill coronavirus patients from Italy and France for treatment. “Luftwaffe planes once caused fear and panic in these countries,” Der Spiegel wrote. “Today they come as friends in times of need.”

Whether it’s enough to ride out the crisis and help the EU emerge intact remains to be seen. Hamilton of Johns Hopkins compared the situation to a hurricane.

“We’ll weather the storm with great damage, but what exactly will have to happen in terms of disaster relief and recovery is still, I think, anybody’s guess,” he said.

As Merkel weighs her response, she has one important event in her diary that serves as a reminder of the need for European unity: May 8 is the 75th anniversary of the end of the war in Europe, known in Germany as the Day of Liberation.

Additional German help for Europe’s worst affected nations during the pandemic would give the commemoration special resonance, and probably mark Merkel’s last crisis act as chancellor.

“I always thought it was not about Germany first, it was about Europe when it came to Merkel,” said Puglierin at the European Council of Foreign Relations. “Who if not her?”

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