Woe to any eurozone leader who dares to bring up Europe’s debt crisis between now and Germany’s forthcoming federal election.
With seven weeks to go before voters decide if they will give Angela Merkel a third term as chancellor, the euro crisis has all but disappeared from the domestic headlines.
Merkel very firmly wants it to stay that way. In the run-up to September 22, she does not want the German public asking questions about her management of the euro crisis. Yet there is little doubt that the crisis will return—and with a vengeance.
Many economists expect that Greece, for example, will need a debt cut soon if it is ever to get its public finances back under control. The first such “haircut” of Greek public debt, agreed to in 2012, affected only private creditors, mostly banks and insurance companies. Public creditors were spared.
As a result, Greece today owes the other eurozone countries and the IMF more than €200 billion ($265 billion)—money that financial analysts say it will never be able to pay back. Even the IMF recently began calling for a debt cut for Greece. This time around, it is public creditors who would suffer most.
But Merkel and her finance minister, Wolfgang Schäuble, are playing deaf to the IMF’s message. They say that while Greece may need further help, none of that is necessary before 2014, when the German elections are safely over.
The reason behind Germany’s stance is a curious phenomenon. So far, the euro crisis has cost Germany nearly nothing because not a cent of the huge guarantees that Berlin pledged to the indebted eurozone countries has been tapped into. On the contrary, the German state has greatly benefited from historically low interest rates on its debt.
Apart from Greece, observers expect that Cyprus too will eventually ask for more help. The situation in Ireland and Portugal is more stable, but Spain may come under increased pressure due to its underperforming banking sector. Most importantly, Italy and France have dangerously high levels of public debt.
However grim that reality is, for the next seven weeks it will get little play in Germany. Merkel’s European interlocutors know that she is likely to be reelected, and that she will not smile kindly on anybody who brings the euro crisis to the German public’s attention just now.
The 126-page joint election manifesto of the governing Christian Democratic Union and its Bavarian sister party, the Christian Social Union, sounds remarkably smug when it comes to the euro crisis.
Germany “will pledge solidarity with our European neighbors,” the program promises. But this is not a one-way street.
“Whoever needs help has to contribute with their own efforts to resolving the problems. . . . We don’t want any euro country to be able to get further into debt at the expense of its neighbors and to avoid uncomfortable reforms,” it adds.
Merkel does admit that the euro crisis isn’t over yet. “The euro debt crisis has been mitigated, but it is far from solved,” her manifesto states.
This tack—not denying the problems entirely, but keeping silent on their painful consequences—has been remarkably successful. Not even Germany’s Social Democratic Party opposition has managed to turn the euro crisis into an election topic, due to the political weakness of the party’s chancellor candidate, Peer Steinbrück.
What’s more, the new Alternative für Deutschland (AfD), the first party to advocate Germany quitting the eurozone, is crumbling in the opinion polls. While it has managed to pull in enough support to be allowed to compete in the federal election, the party now has little hope of gaining more than the minimum 5 percent of votes needed to enter the German Bundestag.
Nostalgia for the deutsche mark has plummeted from a high of 59 percent in 2004 to 35 percent in July of this year. That’s good news for Merkel, bad for the AfD.
According to the polls, the quiet on the euro front has not only benefited Merkel, it has also done a lot of good for the EU’s reputation, too. The Allensbach Institute, an opinion pollster, recently showed that public opinion in Germany has markedly shifted over the past few weeks in favor of the EU and the euro.
Trust in the idea of the EU, for example, has increased from a low of 24 percent in 2011 to 33 percent in July of this year. It was at a 49-percent high in 2002.
As for which party people consider most pro-EU, 47 percent of those surveyed opted for the governing Conservative bloc, compared with just 12 percent for the opposition Social Democrats.
This poll clearly shows that the public, so far, is very pleased with how Merkel has managed the euro crisis. On what might have been her weakest point in a difficult election campaign, Germany’s chancellor has once again shown great tactical skill.
Yet no amount of tactical skill will make the crisis go away. One morning, not too long after September 22, Germans will wake up to that fact. That will not be pleasant.
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