Eurozone owes debt of gratitude to Merkel

German Chancellor Angela Merkel confounded her critics and turned weakness into strength as she helped to prop up the ailing euro currency and protect the continent's financial system, writes NICHOLAS KULISH

 THE chancellor from communist East Germany did not understand financial markets, critics whispered. The compulsive poll-watcher wouldn't risk offending voters, analysts declared. Angela Merkel is German first and European second, fellow politicians complained.

On Thursday morning,  Merkel appeared to defy her detractors as she helped lead the nations of the euro currency zone to the most comprehensive deal yet to prop up the ailing shared currency, defend heavily-indebted member states and protect the continent's shaky financial system.

"She is not the kind of person who leads Europe because she believes that she is meant to lead like some of her predecessors," said Kurt Kister, editor-in-chief of the daily Sueddeutsche Zeitung. "She takes responsibility when she sees that the others are not in a position and she believes that she has to."

Throughout the slow-moving financial crisis, it is safe to say that no one has been more fascinating, and more vexing, than Merkel, who has frequently come under fire on both sides of the Atlantic for what critics assailed as her plodding, reactive, inadequate style of leadership.

   But something changed in the weeks ahead of last Wednesday's critical meeting.

The treacherous sands of German politics firmed up, giving Merkel the base of support at home to push for a more comprehensive rescue plan.

Merkel may not always move quickly, said Kister, "but at the decisive moments, she doesn't hesitate".

Europeans understand the debt crisis has not been solved once and for all by the latest steps.

   But given the relative success of the latest agreement, supporters offer an alternate narrative of the chancellor, painting her as a consummate poker player using the pressure of the market to extract previously inconceivable cutbacks and reforms from the Greek government even in the face of rioting Athenians, while, at the same, time forcing banks to accept 50 per cent losses on their holdings of Greek debt.

Merkel has persevered through a difficult year that saw her party, the Christian Democrats, suffer one setback after another in key German state elections, while her coalition partners, the pro-business Free Democrats, saw their support among voters nearly collapse.

  But she turned weakness into strength, reminding her coalition that a break in the ranks could spell new elections and defeat.

Two days before the crucial vote last month to expand the size of the bailout fund, she  flashed the wit she keeps largely under wraps, warning lawmakers from her conservative bloc that she could not have "an orgy of abstentions".

"I'm too fond of you," she told the parliamentarians, "and have  too many plans for you anyway."

A  vote last month to expand the bailout fund passed the Bundestag by a wide margin, as did a second vote last Wednesday that helped empower Merkel as she entered the gruelling but, ultimately, successful night of negotiations in Brussels.

Political analysts describe a sharp learning curve for Merkel on economic and monetary issues since the very beginning of the financial crisis.

   The slightly patronising view had been that she had difficulty understanding the financial markets.

   Rather, those close to her say, if she had any trouble understanding, it was because as a trained physicist -- a rational scientist -- she was initially perplexed by the emotional and at times irrational nature of market swings.

"She didn't quite understand why 10 small steps didn't have the impact on the market that one big step did, even if the little steps actually added up to more," said a senior lawmaker from Merkel's Christian Democratic Union.

Merkel has come a long way since those days before the September vote, when the German capital was abuzz with speculation that her parliamentary coalition would crack and her government might fall.

To build domestic support, Merkel had to face down her own right wing, tackling anti-Europe politicians head on while absorbing and even redirecting the attacks of strict monetary policy hardliners.

As the debate over how best to handle the heavily-indebted Greek economy sharpened, Merkel found herself trapped between two sides.

   There were powerful voices from the Free Democrats and among leading German economists calling for a Greek default and, in extreme cases, for the country to be thrown out of the eurozone.

The resignation from the European Central Bank in September of Juergen Stark, a German who was the central bank's de facto chief economist and also a member of its policy-setting governing council, underscored the mounting concerns in Germany and elsewhere that the central bank had overstepped its bounds in trying to fight the  crisis by buying up Italian and Spanish bonds to prevent those countries from sliding closer towards insolvency.

At the same time, Merkel came under critique from the staunchly European wing of her party, including indirectly by her political mentor, former chancellor Helmut Kohl, for not doing enough to live up to Germany's historic responsibility to European unity.

   Among those calling for deeper European integration was her finance minister, Wolfgang Schaeuble. At times, Germany's two most important officials appeared to be at odds over their policy towards the eurozone.

"It reflects the seriousness of the crisis that people are ready to discuss things they weren't very keen to discuss before," a  Finance Ministry official said.

    It also reflects public opinion, the official said, because "Germans may not like the euro very much but they hate the crisis and want to see it solved".

Merkel received a much-needed boost for her support of bailout efforts when the  influential Constitutional Court handed down a surprisingly supportive decision recently,  interpreted by many as a tacit endorsement of her policies.

   That decision helped set up the monumental September victory in the Bundestag, where not only a majority of her coalition voted for the expansion of the bailout fund's size and powers, but also a majority of the opposition.

The victory in the Bundestag dispelled questions about her leadership and, therefore, the  government's ability to react to the crisis.

"Without Germany, nothing goes," Gerd Langguth, a political scientist at the University of Bonn and biographer of Merkel, said. "Against Germany, nothing goes either." -- NYT

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