As Greece heads toward a financial precipice, the woman who holds the purse strings for any bailout, German Chancellor Angela Merkel, is trapped between markets, which demand that she do more, and fractious politics at home, which pressure her to do less.
The physicist-turned-politician is engaged in an experiment whose outcome is unclear. Once hesitant about committing any money to troubled countries that use the euro, she now preaches that Germany profited from the currency and needs to give something back. Euro politics has consumed her life so thoroughly that she emerged from an audience with Pope Benedict XVI last week and announced that they had chatted about the financial crisis.
She may need all the help she can get.
Merkel is operating with far from a free hand after her Christian Democratic Union suffered a stinging set of state electoral defeats this year. Parliament will vote Thursday on a measure to bolster the European bailout fund, which could be embarrassing — and further restrict her ability to act — if a sizable part of her coalition goes against it.
“Through the euro, we are tightly bound to each other,” Merkel said at a news conference in Berlin before a dinner meeting with Greek Prime Minister George Papandreou on Tuesday. “The weakness of one is a weakness for all.”
It has been a long journey. Early last year, when the depth of Greece’s troubles was becoming apparent, Merkel said that “there is absolutely no question” that financial help would be given to the country. She later accused it of having joined the common currency under false pretenses.
Normally low-key, Merkel gave an impassioned speech in Parliament this month to defend her management of the crisis. Germany will have committed about $160 billion to the broader European bailout fund if the measure passes Thursday.
That scares and angers many German voters, who think they have made deep sacrifices over the past decade to promote economic stability. While salaries in Greece soared after it adopted the euro, those in Germany stayed flat. Joblessness dropped in Germany, but the economy’s growth has stalled, and the Organization for Economic Cooperation and Development projects that it could start shrinking by the last quarter of the year.
Merkel has had to combat deep dissension within her coalition and growing legal constraints on her ability to act unilaterally. Philipp Roesler, the leader of her junior coalition partner, the Free Democrats, raised the possibility this month of an “orderly bankruptcy” for Greece, unnerving markets and prompting Merkel to quietly rebuke him the following day. And Horst Seehofer, the head of Merkel’s sister party, the Bavarian Christian Socialists, has said Greece should leave the euro if it can’t make changes that satisfy its creditors.
Some pro-European members of the government say stronger voices are needed to defend the actions that have been taken.
“The European integration process has for too long been an elite process,” Deputy Foreign Minister Werner Hoyer said in an interview. “Everything that goes well in Europe is attributed to the great performance of the national governments. Everything that goes wrong is attributed to Brussels.”
Regardless of Merkel’s coalition fortunes, her options to act more decisively are narrowing. A ruling from Germany’s Constitutional Court gave a green light this month for the aid to Greece but said future rescues must be approved by a parliamentary panel, forcing Merkel to toe the line in her legislature. And the ruling appeared to forbid “eurobonds” that would be backed by all taxpayers, which some economists have said would be the fastest way to solve the debt crisis.
The political strictures accentuate Merkel’s already cautious approach to politics.
“She is not a very emotional person,” said Gerd Langguth,a political science professor and author of a Merkel biography. “Very often you do not really know what she wants, what her standpoint is on important political questions.”
Nor does her background give her the deep emotional connection that previous German leaders have had to the broader project of European unity, Langguth said. Born in 1954, she grew up in East Germany, isolated by the Iron Curtain from the development of an organization that was intended not only for economic gain but also to prevent the continent from being engulfed by another war.
“Merkel is generally pro-European, but she is not European by heart,” Langguth said.
Some factors are working in her favor. German politicians say they still have the money to fund whatever might come their way, and German banks have relatively few outstanding loans to Greece, insulating them from the immediate consequences of a Greek default.
A bruising series of local elections this year also came to an end with Berlin’s polls this month. Merkel worried that committing German money to struggling euro-zone countries would cost her party dearly — and it did, dealing the Christian Democrats historic losses. But the upside is that she has breathing room now, analysts say, with just one local election next spring before the federal elections in fall 2013 — provided she can hold her coalition together.