So far, those steps have fallen short, and concerns have mounted among investors that large countries such as Italy and Spain could fall victim to the crisis, unnerving world stock markets and contributing to fears of a renewed recession.
Analysts see the outcome of Merkel’s meeting Tuesday with French President Nicolas Sarkozy as a sign that no new grand solutions are in the offing. What she called “magic wand” ideas — such as the introduction of a common “eurobond” backed by all 17 nations in the currency zone — are being set aside.
Instead, Merkel is essentially waiting for budget cuts and economic reforms promised in Greece, Italy and elsewhere to take hold, and for new initiatives approved by European leaders in recent months to get up and running. That could take months, if not longer, given the pending legal challenges and required parliamentary action in the 17 member countries — not to mention the time needed for economic reforms to bear fruit.
After nearly two years of summit meetings, press pronouncements and ambitious steps to contain the crisis, “the hope was always that the next decision would calm things,” said Christoph Schmidt, a professor at the Rheinisch-Westfalisches Institut in Essen and a member of the German Council of Economic Experts. “The political elite has understood there cannot be a once-and-for-all solution. It will be a years-long process.”
This strategy carries risks. A renewed recession or slower-than-expected growth could cause countries to go further into debt and miss benchmarks set for them by the International Monetary Fund, touching off new turbulence in the markets.
For the strategy to succeed, there must be steady progress by national parliaments in overhauling economic and budget policies despite at-times violent local opposition. And it will require a reluctant European Central Bank to continue buying government bonds as needed to hold down borrowing costs for euro-zone countries.
But even as the crisis has proved more durable than many expected, the political constraints on Merkel have increased.
Europe’s largest economy
Germany, Europe’s largest and strongest economy, accounts for about one-third of the euro-zone economic output and is funding a similar share of the $600 billion program already approved to help rescue struggling neighbors such as Greece. Germany would also be on the line to help finance any increase in those emergency loans or any new initiatives.
But its economy has also slowed, and recent surveys show a sharp decline in business and consumer sentiment. In some public opinion polls, upwards of two-thirds of Germans feel Merkel’s government has done a bad job handling the euro-zone crisis. She is under fire from many sides.
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