A Month to Go: The Lull before the German Elections
With only slightly more than a month left before Germans go to the polls to elect a new Bundestag, the mood across Europe seems to be shifting from decidedly gloomy to tentatively hopeful.
The string of recent economic data, suggesting that the worst may indeed be over, will help Chancellor Angela Merkel’s chances to retain a firm grip on power in Germany. It will also make it easier for her to make the case that the painful process of adjustment across the periphery of Europe is bearing fruit. She will no doubt stress that national governments, when acting with responsibility and coordinating at a European level, can get countries back on track.
Indeed, the rationale for transferring significant chunks of national sovereignty to supranational bodies in Brussels is waning. Admittedly, Merkel is in campaign mode and pandering to German taxpayers’ fears that they may be on the hook for the rest of Europe ad infinitum. However, she is starting to sound like a broken record when publicly stressing that more Europe does not necessarily mean more power for centralized supranational institutions. According to the German daily Frankfurter Allgemeine Zeitung, the British government is taking note. A think tank close to Prime Minister David Cameron is now even suggesting that Merkel could become an ally in London’s push to repatriate powers from Brussels to national capitals. Cameron has a mixed track record when trying to read Merkel’s true intentions. However, this time the British conservatives could be right.
In fact, European officials in Brussels are beginning to think that the next EU Commission will not be stronger than the current one. Even the banking union that will emerge at the end of current negotiations will probably fall far short of what the banking sector and euro zone member countries need to overhaul the industry and break the vicious link between sovereigns and their banks. Some senior officials are dismayed by the absence of any French attempt to inject some life into the European debate. French President Francois Hollande is often described as a serial fence-sitter—a leader even more cautious than the notoriously hyper-cautious Merkel. European central bankers are increasingly worried about France and its reluctance to use the time bought by the ECB to introduce some of the necessary structural reforms that the second biggest European economy needs in order to remain competitive.
In Italy, despite the soothing words spread across Europe by the well-meaning current Prime Minister Enrico Letta, the government is already hanging by a thread. Since his conviction, former prime minister Silvio Berlusconi is portrayed in the Italian media as an angry, frightened, and confused man. Not a good combination of factors. If Berlusconi pulls the plug on the government, Italian politics will plunge into chaos.
Better-than-expected economic data will also make it much harder for the ECB to develop and launch new, unconventional policies, tailored to address the credit crunch that is still gripping most of the continent.
The official end to the longest European postwar recession is certainly welcome, but not if it lulls policymakers into believing that slowly but surely things will get better on their own. They will most likely not.