The arguable legacy of Angela Merkel

 Twenty years ago, the euro was seen as the lever in a new economic and political power in competition with the US. Today the eurozone is on the periphery of a new global reality, while the center of economic development is seen to be moving to the shores of the Pacific.

For the first time in the history of postwar Germany, the election results have not defined a clear winner. The SPD, the Social Democratic Party ,has obtained the most votes, just over 25 percent against 24 percent of the CDU-CSU, the coalition led by Angela Merkel. And so, for the first time, the government will possibly be the expression of three parties: SPD, Greens and Liberals.

1.   As the knots of the formation of the new government unravel, we witness the publication of essays and books on Angela Merkel's long and, in many respects, exceptional life. She didn’t enter politics until the age of 35, devoting herself to her  career in chemistry. After German unification she was called to the government by Kohl, nicknamed "Kohl girl". For nearly a decade she remained in the governments with a relatively secondary role.

When Kohl retired after 16 years, the natural candidate for succession was Wolfgang Schäuble. But politics took a different path. Kohl had been accused of having taken money from private donors, that the former chancellor had actually used for the party but whose origin he did not want to reveal. The party had sided in defense of  Kohl, and Schäuble, his close partner and proposed successor, had to withdraw his candidacy, while Gerhard Schröder, head of the SPD,  became the new chancellor.

It was in this context that the fate of Angela Merkel, distancing herself from her mentor Kohl, took an unexpected turn. Her position had been surprising and unexpected. But it proved to be a decisive turning point for her political career,  leading first to her becoming the head of the Party, then her candidacy for the chancellorship. Angela, however, in the 2002 election renounced her own candidacy in favor of a member of the party who had fought for the candidacy.

Her choice turned out to be a testimony of her political ability. Schröder, in fact, won the elections for the second time, and Angela Merkel became the natural candidate in the following elections. Elections that the CDU won  with Merkel becoming chancellor and who, along with Kohl, has been the longest serving head of government in German history after Bismarck, who had unified Germany a century and a half earlier.

2.   Up to now, Angela's choices, having passed from the role of scientist to that of political leader, have proven to be skilled and far-sighted. The following years, starting with the financial crisis of 2007-2008, were characterized by a radically changed picture throughout Europe.

The crisis had exploded in the United States with the failure of Lehman Brother in September 2011, the spark of the bankruptcy of other banks in a possible disruptive chain hitting American economic system. But, the strong intervention of the treasury minister,  Henry Paulson, had brought the US banking crisis under control. And in early 2009 the new US President, Barack Obama, took an important step by deciding to invest 800 billion dollars to sustain the recovery - a measure that, while criticized as insufficient, represented a turning point in the crisis.

Was this an example for the crisis in Europe? It could have been. But Merkel and Schäuble, her finance minister, took a different path. German banks had given large loans to foreign real estate construction companies who could pay higher interest rates. This was also seen in other countries such as Ireland, Portugal and Spain and was characterized by a construction boom. A condition similar to that which had occurred in the United States.

When the real estate crisis hit a large country like Spain, the German banks - together with the French and Dutch ones -which had speculated on interest rate differentials, favoring the abnormal growth of the sector, the creditor banks found themselves in a situation similar to the financial crisis that had occurred in America. But with one crucial difference - in the United States, a number of large banks had gone bankrupt, whereas in European countries, where the real estate crisis would have mainly hit German banks, this didn’t happen.

Under pressure from the European Commission, the Spanish government - as had happened in Ireland and Portugal - had to take on debts of foreign creditors, incurring an unbearable increase in the national public debt. The foreign creditor banks were saved despite the crisis in the sector where their loans had been invested, while the countries involved in the real estate crisis were exposed to a gigantic increase in  their public debt.

3.   Insult was added to injury. The German government led by Merkel, together with Sarkozy, president of France, imposed austerity policy on the countries, whose debt had exceeded European norms.

The European Central Bank, led by Jean-Claude Trichet, added salt to the wound, increasing interest rates and worsening the conditions of public finance even in countries like Italy that had not suffered the housing crisis, but which were subject to the financial speculation that hit all countries subjecting them to unbearable increases in interest rates.

The consequences were unavoidable. On the one hand, there was the growth of public debt in the countries hit by the crisis; on the other , the imposition by the European Commission of the containment of the deficit and the reduction of the debt through a policy of austerity based on the reduction of public spending, while private investments have been already reduced. In essence, there was a single currency, but interest rates on public debt were increasingly different, ranging between levels close to zero in Germany, and 5-7  percent in the Eurozone’s countries affected by speculation.

Basically, there was, on the one hand, the consolidation of the wealth owned in euro with a stable value and with increasing interest rates; on the other , the impoverishment of the social strata linked  to dependent  work in a context of decreasing and  precarious employment. The single currency, in fact,  defended the wealth , while, at the same time, the policy of deflation  reduced the employment and wages of the working class along with  the power of trade unions in the wage  and working conditions bargaining.

The 2011 economic crisis had particularly hit the Mediterranean countries and the euro was in turmoil. But Mario Draghi, despite having supported the policy of Trichet, former head of the ECB, as his successor,  promoted in the summer of 2012  a strong defense of the euro. “Within our mandate – famously affirmed Draghi - the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”. In any case, the  austerity measures, meant, particularly for the Mediterranean countries, a following long period of recession and high unemployment.

The 2011 economic crisis had also become a political crisis in many eurozone countries, causing the fall of governments, as it happened in Portugal, Spain, Greece and Italy. Paradoxically, in the following years the political crisis also hit France, when the socialist François Hollande had been elected to the Elysée Palace.  After some first attempts to improve the economy, Hollande had to adapt to the austerity policy imposed by Germany. The result was a growing economic and social crisis also in France. In 2017,after the first mandate, Hollande not only could not be re-elected, but the Socialist party, hair of the leftwing movements, recorded the worst political result in French history after the birth of the Third Republic a century and a half earlier.

4. The outbreak of the coronavirus pandemic in 2020 was a new difficult challenge for the European Union and, in particular, for the Eurozone.

It is useful to draw some parallels between the two situations to understand the European economic crisis. In the United States, after an initial intervention of $ 4.9 trillion to deal with the economic consequences of the pandemic, growth has resumed and unemployment has fallen from the initial 15 percent to less than  5 percent. And, according to Jerome Powell, president of the Federal Reserve, the expansive monetary policy with the low interest rate and the injection of $ 120 billion a month must continue in the coming months until unemployment reaches less than 4%.

At the same time, Congress is debating an  additional intervention, the introduction of which is still uncertain due to the opposition of the Republicans, but which in the end could reach a figure of around three trillion dollars for new public investment in the infrastructures and aid to the families, while the return to the pre-pandemic GDP is expected during the first months of 2022.

The comparison with the countries of the European Community is impressive. Germany and France on the initiative mainly of Angela Merkel will distribute 750 billion euros to the 27 countries of the European Union over the next five years, of which about 190 billion could go to Italy and 140 billion to Spain. The economic elite, which along with governments, will have substantial control of these resources to be used fundamentally for the development of green sectors and new technologies, are more than happy.

But, unfortunately, at the same time, unemployment is around 10% in Italy and 15% in Spain, while the deficit and debt have risen sharply in the aftermath of the pandemic.  It is not surprising that during the 20 years of the changeover with the passage to the euro, we have witnessed a growing level of poverty in southern Europe . And in Italy, after the return of growth in 2023, GDP will still be below that recorded in 2007, before the “Great recession”..

France,  Germany's privileged ally, has also exceeded 120 per cent of the debt - against the 75 percent of Germany -while the old European rule prescribes a maximum public level of 60 per cent in relation to GDP. Furthermore, Germany benefits from an average trade balance surplus at 8 per cent of GDP, while France has a permanent huge trade deficit. In this context, it is not surprising that, even after Merkel, Germany maintains an undisputed leadership in the euro area, also keeping  the role of the fourth largest economic power in the world.

However, the European picture has changed profoundly. Twenty years ago, monetary unification with the euro as the new currency, was seen as the lever in a new economic and political power in competition with the US. Today the eurozone is on the periphery of a new global reality, while the center of economic development is seen to be moving to the shores of the Pacific.

Regardless of the stability of governments, the new post-pandemic world is increasingly clearly centered on the coasts of the Pacific bordered by China and the United States. Countries which, in turn, are linked by a collaboration pact with Japan, India and Australia, as further evidence of the shift of the economic and political center of gravity into a new intercontinental geography.

Even in this deeply changed framework, Angela Merkel has contributed significantly, through her long governance, unparalleled in the Western world, to placing the Eurozone under German rule at the center of the European continent. But, unfortunately, a deeply divided continent, and on the periphery of the new world scenario.

Antonio Lettieri

Editor of Insight and President of CISS - Center for International Social Studies (Roma). He was National Secretary of CGIL; Member of ILO Governing Body and Advisor for European policy of Labour Minister. (

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