Crisis confirms the German way, Merkel says (News Feature)

By Jeff Black Jul 21, 2010, 16:51 GMT

Berlin - Amongst Europeans it is a commonplace that, for understandable reasons given their turbulent recent history, Germans set a lot of store by stability.

Which may explain why, according to opinion polls published Wednesday, Angela Merkel's at-times riotous centre-right coalition is at a record low in the opinion polls.

Only 34 per cent of the population would vote for the Christian Democrat-Free Democrat team if they were to vote now, an apparent consequence of the bickering that has characterised the coalition since it was elected in September.

Chancellor Merkel, however, in a ritual summer meeting with the press Wednesday, presented a surprisingly sunny countenance.

'As always I am looking forward to my holiday,' she beamed, 'and after that I'll be seeing you again' - a dry reference to the fact that in recent weeks speculation about the end of her government has been rife.

The simple reason for the Chancellor's optimism is that since the beginning of the year, despite domestic turmoil, her government seems to have wrought quite a remarkable economic turnaround, both at home and abroad, and is now claiming the credit.

'In this crisis ... we have shown the stability and solidarity that we had to show in order to bring back trust in the euro,' Merkel said.

As bond sales by Greece and other debt stricken euro nations in the past week met with relative success, signs emerged that the single currency's first existential crisis was beginning to ebb.

The Greek debt crisis did not, however, pass without at times furious criticism from European partners over the perceived reluctance of Germany, which represents more than a quarter of the eurozone's gross domestic product (GDP), to come to Athens' rescue.

Facing an important regional election in May, Berlin appeared to want to delay an unpopular payout for Athens' profligacy.

The Greek debt crisis was an issue that went to the heart of German so-called 'Stability Culture,' a deep-seated desire to keep the country's accounts in the black and inflation in check.

'As time progresses, it becomes clearer and clearer that our course on the Greek decision was the right one,' Merkel said.

The German government's pivotal involvement in the 110-billion- euro (141 billion dollars) bailout and the 750-billion EU rescue shield plans was bookended by two acts of fiscal mastery that now seem to be returning Berlin to its position of economic primacy within the EU.

The first was the series of economic stimulus measures capped by the December 2009 'growth acceleration law' that spent freely in an attempt to kickstart turbid growth. The second was the sharp application of the brakes enacted just six months later, in an 80-billion, 4-year budget consolidation program.

Smooth driving it wasn't, but Merkel seems confident that the German economic juggernaut is back on the right route. According to some predictions, GDP could grow by as much as 2 per cent in 2010. Unemployment has fallen for 12 straight months, and exports in May were up 28 per cent year-on-year.

'We're in the situation now where the economy is robustly recovering ... and it is a small wonder that the labour market is in a better situation now than it was before the crisis,' the Chancellor said.

Merkel added that, at the G20 meeting in Canada in June, Germany's approach to budgetary discipline 'found broad agreement ... a lot of international support,' despite Washington's fears that a budget- slashing Berlin would drag Europe into a double-dip recession.

In short, far from Merkel's chancellorship being on the edge of collapse - as it had been feared in June when a string of high-level party resignations began to look like rats deserting a sinking ship - the 56-year-old is now playing the part of the vindicated.

'Internationally, Germany's approach to the (financial and economic crisis) has won it a lot of recognition,' the Chancellor said.