Angela Merkel’s real nightmare

There Is No Alternative: This has been Angela Merkel’s mantra over the last two years; a phrase that the German chancellor frequently used to organize support within her government and in the German parliament for increasingly unpopular rescue measures helping euro countries hit by the crisis.

So far, it has worked out okay. But Angela Merkel will have to put her European policy to the German electorate in general elections next year. This should have been her biggest concern when she left Brussels for Berlin on Friday afternoon.

Part of the domestic deal so far has been the assurance that Germany is in charge of shaping the rules of the game; rules that would guarantee none of the countries receiving financial assistance happily went on spending and increasing their sovereign debt levels.

The fiscal treaty signed in March 2012 served as the proof for the Merkel government of Berlin imposing its ideas of a «stability union» on its fellow eurozone members.

When Merkel set off to Brussels for the European Council meeting on Thursday, she knew she would be confronted with another «T. I. N. A.» that she would have to put to the Bundestag the next day. But this time, it was not made in Germany.

Merkel had met with her Spanish, French and Italian counterparts in Rome last week to prepare for the Brussels summit, so of course it did not come as a surprise that Monti and Rajoy refused to leave the negotiating table without deciding on major steps. The eurozone is now set to move towards a more flexible handling of the EFSF/ESM mechanisms to stabilize bond markets, and to allow for the ESM to recapitalize banks directly.

Merkel knew that there was no alternative to soften the vulnerabilities of Spain and Italy. Losing just one, let alone both of these countries in the course of the euro rescue mission in the coming weeks would have meant that the EFSF/ESM system would collapse, and with it, the euro.

Merkel was not defeated; she knew perfectly well what she was doing.

Of course she went into the negotiations with a bit of saber -rattling («No Eurobonds in my lifetime!»). And of course she left them by insisting that her line of «no guarantees without accountability» prevailed (an independent banking supervision).

And all her fellow European colleagues did just the same when they walked out to the cameras: praising their successes. European business as usual, and nothing to waste time with.

Even the domestic context on her return was not all that messy. Merkel and her government, as well as most of the opposition parties, have come to accept over the last two years that a piecemeal approach to sorting out the euro mess is no longer an option. Maastricht needs to be fixed, and this will mean another major step in European integration.

This raises two questions: What will the details of the future economic and monetary Union look like? And how can they be implemented?

While the first question will eventually be sorted out in (perhaps fierce) battles both in Germany as well as between the eurozone members in Brussels in the next months, the second question will be what really makes Angela Merkel stay up at night: How can she possibly campaign in the 2013 general elections, telling her voters that dealing with other euro countries’ grief is no longer a question of choice for Germany, as the euro countries are already too intertwined?

When the German Chancellor came back to Berlin after a long night in Brussels, she might have smiled mildly about the headlines of the «German defeat» in the international media on the plane.

The debate in parliament, convened to vote on the ESM/EFSF package before disappearing into the summer recess, was perhaps an unpleasant strain after a long two days in Brussels, but still a rather consensual business.

But an election campaign starting to get into swing after the summer break, while Germany and fellow Eurozone governments are forced into the messy business of negotiating a new deal for the future euro governance, must be a nightmare prospect for the German chancellor.

The euro mood in other parts of the country is far away from Berlin’s political elite. Merkel knows that, and this is why she gave the order to her CDU party candidate not to campaign on the euro in recent elections in North-Rhine Westphalia, Germany’s biggest federal state.

«T.I.N.A.» is not an answer that Germans are happy to hear these days, and Merkel will now have to start fighting domestic battles.

Almut Möller is director of the Alfred von Oppenheim Centre for European Policy Studies at the German Council on Foreign Relations (DGAP). Her recent publications include Germany as Viewed by Other EU Member States covering EU members such as Greece, Poland, Spain, Italy, Finland, the United Kingdom, and France.

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