Merkel can be ruthless when she is implementing her step-bystep strategy. And the next step was the summit on 31st January 2012, at which the fiscal compact received the final blessing of heads of government. Three weeks later, the long-planned second rescue package for Greece was concluded, for the sum of 130 billion euros, and linked to a Greek debt haircut.
So was that the end of it? Did Greece finally have enough money and breathing space to resurrect itself? There were great hopes, as is usual after such enormous efforts. But the second phase of the crisis was not over yet. The Greek election debacle created constant problems: the country was unable to form a stable government, and so there was little chance of calm. And now the genie of mistrust had been let out of the bottle, things became far more serious: there was still a great deal of anxiety, especially in Spain. The governments in Rome and Madrid were making efforts to introduce reforms, but these efforts were not acknowledged by the markets. In Spain, something had to be done about banks with bad loans of over sixty billion euros on their books, while in Italy the resolute Monti's courage failed him when it came to reforming the labour market.
By now Merkel herself had become the problem. The people of the countries worst affected by the crisis saw her as the main reason for their misery. Her picture featured on swastika flags; she was depicted as a witch, a dominatrix or a wicked stepmother; there were references to the Third and sometimes a Fourth Reich, and she was accused of planning to subjugate the entire continent. Merkel was the subject of the wildest conspiracy theories, and any part played by the indebted countries themselves was ignored. European's national prejudices suddenly reappeared, proving the truth of the saying that it takes decades to dismantle resentments but only a few weeks to revive them.
When Merkel went to Rome in the summer of 2012 for government talks, it was intended as a gesture of goodwill and support for Mario Monti. But the Italian people had quite a different opinion of their powerful visitor. A female journalist addressed her as the Empress of Europe. Merkel ignored the remark. Later in the year, when she was planning visits to crisis-hit Spain, Greece and Portugal, the centre of Athens had to be cordoned off by an army of police officers, as if it were the US President who was coming. An adviser who had accompanied her to many European Council meetings once commented with a note of resignation: “They just don't understand globalization.”
Probably the most powerful image of the crisis at the end of its second phase was Merkel herself, at about five o'clock in the morning on 29th June. Another summit in Brussels, another two days in the Belgian capital. Merkel doesn't like sleeping in hotels: she prefers to be at home in Berlin, and arranges her schedule so that she is away for as few nights as possible. Evening engagements outside Berlin usually end early so the Chancellor can fly back to Tegel airport late at night. But when the engagement is a summit, that is rarely possible: summits are for night owls, and it is part of the ritual that negotiations have to last all night.
The summit of 28th June was such an occasion. This time it was about Spanish bank debts, and Italian fears that they too might need to ask for funds from the rescue package at some point, although they didn't want to be subjected to the strict regime of reforms. As it turned out, the Italian Prime Minister did most of the talking, saying that he was going to break the “mental block” – meaning the strict rules laid down by Germany for giving money from the rescue fund to countries such as Ireland, Portugal and Greece. Monti threatened to bring the summit to a halt if he were unable to get an agreement about easier access to the rescue fund. His plan was for Italy to refuse to agree to the growth pact, an agreement to support countries in need that was of little long-term significance, but which at this point was symbolic. The summit would then have ended without any result, causing problems for Merkel, because she would return from the summit the next day to a very nervous Bundestag; firstly, MPs were waiting to go off on their summer recess, and secondly there was to be a vote on the momentous laws concerning the permanent rescue plan, the European Stability Mechanism, and the fiscal compact – Merkel's personal contribution in the battle against disaster. The SPD supported her in principle, but it wanted the growth pact that Monti was now threatening to boycott. Without it, the Social Democrats would have refused to vote in favour of the other laws. So Monti was taking advantage of the trap that Merkel had built into her own schedule.
Negotiations went on until 4.20 a.m., the official communiqué ran to only two pages, and at five in the morning Monti produced his own version of events. Merkel had already gone back to her hotel to snatch a few hours’ sleep. At that moment Monti faced the cameras and expressed his pleasure, first at Italy's victory over Germany in the World Cup the evening before, and secondly at his defeat of Merkel. Germany had given way, he said: the banks would now receive direct aid, and Italy would have easier access to the rescue fund.
It caused a sensation; the Iron Chancellor had been defeated, and the press agencies sent off the breaking news. Of course, Monti's version didn't quite coincide with the communiqué, in which a few other things had been agreed: first, a unified instrument for bank supervision was to be created, so a check could be kept on financial institutions using common guidelines. Only then would banks be able to receive money from the rescue fund – under the usual strict conditions. To put it in plain language, the whole thing would take some time, because a supervisory authority of this kind isn't created overnight. The German version went further: even when there was such an authority, the Spanish banks would not be able to offload their problems quite so easily, as the agreement did not apply to old cases, only to future problems, and the liability would not apply retrospectively. As for the Italian wish to get quick money from the rescue pot, the communiqué was equally vague, saying only that, as before, aid was linked to certain conditions, and a memorandum had to be negotiated to establish the details.
When Merkel left her hotel at nine o'clock, a Reuters photographer was waiting for her. The next day, his picture became a symbol of what was apparently the Chancellor's defeat. Merkel was looking out of the back window of the car – a troubled, drained, exhausted figure with rings round her eyes after a long night. People saw a vanquished Chancellor, as Monti had said. It was only when she got up that Merkel grasped the extent of this communications disaster. Any delay might transform it into a political one. At home, the Bundestag was waiting. The majority vote for the ESM and the fiscal compact was now under threat. Merkel was angry. Monti had broken the rules and gone in front of the cameras, in spite of the agreement that no head of government would give their own interpretation of events. On the flight back to Berlin the atmosphere was tense, and meanwhile bizarre reports from Parliament were arriving in the Chancellor's office. MPs were searching the Internet to find out how the outcome of the summit was being interpreted. Der Spiegel wrote of “the night Merkel lost”.
Merkel had great difficulty in explaining her own interpretation of the summit to the Bundestag. She spoke to each parliamentary party separately, made a rousing speech, but in the end she was short by twenty-six votes from her own coalition. The government could not reach a majority on its own, and the laws were only adopted thanks to votes from the SPD and the Green Party. Yet, a few days later, Monti himself was no longer sticking to his version. In an interview he played down what he had said; the reaction had obviously given him a fright. A conflict with the Bundestag – which had yet to release the aid funds – would not be good for him either. Nonetheless, the Italian Premier had brought matters to a head. The psychology of the crisis had changed; Merkel's supposed defeat had calmed the markets. They assumed that the pots of aid money would not be so well guarded, and felt reassured. In the battle for attention and opinions, facts are unimportant, at least initially. Perception is what matters. In the political fencing match, Monti's foil had struck a blow against Merkel, the great expert in facts.
A month later, Mario Draghi, the head of the European Central Bank, made the next move in this game of inte
rpretation and perception. On 2nd July, at the Global Investment Conference in London, he assured the assembled financial community that “the ECB will do all it takes to support the euro”. And then he added: “Believe me, it will be enough.” A murmur of relief ran through the ranks of financiers. “All it takes” – was this the longed-for miracle weapon that simply had to be big enough to frighten off any speculators? Not exactly, because this weapon had a safety catch. On 6th December, against the will of the president of the Bundesbank, the governing body of the ECB agreed unanimously on a programme to buy up government bonds from the countries in crisis – but on one condition: countries had to agree to make the cuts that had been laid down.
Crisis over? Everything fine? Christine Lagarde, the head of the IMF, had not been right in May that year when she gave the euro a life expectancy of three months. George Soros, the investor who predicted the collapse of the euro by 2nd September had been proved wrong. The high rates of risk for government bonds began to fall. Those who were supervising Greece could now afford to spend months arguing with Athens over the implementation of economic measures. The immediate danger of state bankruptcy seemed to have been averted. And the prospect of a European banking union managed to calm the markets and let Spain off the hook, at least for the moment. Yet Merkel's original dictum still stood: no Eurobonds and no pooling of debts, because that not only contravened the treaties, but it contradicted the logic of cause and effect. Those who wanted a solution also had to make sacrifices; those who wanted growth had to create the right conditions for it. Merkel's new Europe had to put the mistakes of the old Europe behind it once and for all. But for that to happen, drastic structural reform was required. What Europe needed was a special kind of reconstruction. It was a political task, and one that Merkel was determined to take up. And so began the third act in the European drama.
A Plan for Europe
When Merkel began her second term as Chancellor in 2009, an atmosphere of confidence reigned at the heart of government. The Lisbon Treaty was settled; Europe had a new framework for what was now a community of twenty-seven member states. In Brussels there was unconcealed euphoria: a new European age was dawning, opening up great opportunities. Berlin believed that a period of extensive law-making such as the previous one was unlikely to be repeated. That assumption proved to be wrong. The financial figures from Greece were published, and it immediately became apparent that Brussels alone was powerless to help. The institutions of the Union had neither the authority nor the money to intervene. The disease had spread to organs of state that were outside the community and which therefore couldn't be controlled from Brussels. Europe was witnessing the rebirth of nation states. Even if there was still much discussion in Germany about a United States of Europe and the new European superstate, the crisis was heading in the opposite direction.
José Manuel Barroso, the President of the Commission, wanted to set up a stimulus package in December 2009 to prove that the Commission was capable of action. But he had very little money to give away. In fact, over the next few years he would see his own importance drastically reduced. He owed his position to Merkel, but became a marginal figure in the debts drama, and if he did play a significant role it was only in a negative sense.
When the heads of government decided to increase the rescue package for Greece in the summer of 2011, for instance, and the financial markets accordingly calmed down, the President declared that the sum was insufficient. The markets reacted immediately. The good mood was completely destroyed. Merkel was furious. A year later, the heads of the four great European institutions – the President of the Commission, the President of the Council, the head of the Euro Group and the head of the Central Bank – were asked to put forward a comprehensive plan of reform for the EU. Everyone knew it was a suicide mission, and that they would only make themselves unpopular. Barroso promised to publish the results in the spring of 2014. His plan was blatantly obvious: his term of office was due to end in three months’ time, and Barroso didn't want to be damaged politically. He is a prisoner of his own ambitions, and the presidency of his native Portugal might be beckoning. It was quite some time since the President of the Commission had given Merkel anything to smile about.
As the strongest member of the community, Germany became the centre of attention, and the Chancellor the key player. The country's economic figures and low rate of unemployment set her apart from all the other heads of government and strengthened her position. Someone in the Chancellor's office at the time remarked: “It came to the point where we didn't go to Brussels. They came to Berlin. You could actually feel it. Everyone came to us.”
In 2010, when Merkel went to Bruges to address the new intake of students in the College of Europe, she brought with her a less than pleasant message for Brussels: the era of the European superstate is over, this is a time for nations. She remembered how difficult it had been to set up the Lisbon Treaty. As she noted rather bitterly: “Never again will any of us approach the making of treaties lightly. Another ten years to make one alteration to a treaty? Such a Europe will be regarded as incapable of acting, both by the international financial markets and the rest of the world.”
Merkel aimed her blows carefully, but the message was clear. She regretted that the Commission and the Parliament had set themselves up as the protectors of the European order; she even detected a certain arrogance among the Brussels elite in their view of the nation states – an arrogance based on the “community method”, a concept that Brussels guards jealously, like the eternal flame. It states that the Commission has the right to take the initiative in all its policies – a virtual sovereignty in the subjects to be discussed. This also suggests that the Council, the assembly of heads of government, represents a form of rival organization – but the true guardians of the European spirit are in Brussels.
Merkel finds this view deeply worrying, which is why she wrote in the students’ yearbook: “The member states are constituent parts of the European Union, not its opponents.” And for anyone who still hadn't understood, she had one last message about the power relationships. The question of authority, she said, was laid down quite clearly. “The Lisbon Treaty says that the member states are masters of the treaties,” she reminded her audience, “and where there is no common authority, the community method cannot be applied.” In other words: Brussels had lost nothing in the rescue of the euro. A head of government could not have pointed out the Commission's limits more clearly. She had also made it plain early on in the crisis that she had no wish to start the complicated and tedious process of creating treaties just so the Commission and its community method could get involved in the economic and fiscal crisis.
In November 2010, this clear rejection of Brussels was drowned out by the crisis. But Merkel always means what she says, and wants her own way, even if it takes years. Her Bruges speech also explains why she reacted so coldly to the image conjured up by the Minister of Labour and Social Affairs, Ursula von der Leyen, who in the midst of the crisis began talking about the “United States of Europe”. Merkel had no desire to get involved in a debate about the transfer of yet more powers. She was keeping a watchful eye on the mood in Germany, and her instincts told her that you have to be careful when it comes to people's feelings. More Brussels would not be well received.
The eighty million Germans are remarkably patient with Europe. Germany was spared the worst of the crisis, and for a long time any anti-European populism was taboo. But that can change in an instant. Merkel knows how quickly a crisis can be felt at home, how quickly a downturn in the economy can affect pensioners and the unemployed. That would be the end of her popularity and the confidence that the German people have in her. In internal meetings she has always said that her main task is to create an atmosphere of trust. Positive thinking, a hopeful approach – that is what people want to see in her, however urgent the crisis is, however many sleepless nights or panic attacks it might cause. When Merkel flew back to Berlin for the Bundestag debate on the
morning after the June summit, she didn't know whether the day would end in disaster or not. It was only a minor indication, but on that Friday her adviser on European politics, Nikolaus Meyer-Landrut, was sitting in the place reserved for civil servants behind the government bench. He is hardly ever seen there. At such moments, even Merkel seems to like having people she trusts nearby.
And yet in principle she could rely on the Bundestag during the crisis. All the parliamentary parties except the left-wing Linkspartei supported her rescue plans. Merkel can be extremely glad to have governed with the help of the SPD for four years. During the first financial crisis, a feeling of trust had built up among the various players, yet now – when it became a crisis that threatened the existence of the single currency – it was becoming a burden. Merkel set great store by keeping the opposition parties informed about the state of the latest negotiations. And the SPD showed a sense of national responsibility without which Merkel could never be secure in the Bundestag. At least not on days such as 29th June 2012.
Again and again, Merkel has been accused of not making major speeches and reminded that she must give a basic explanation of how Europe works, preferably on television, to make the dramatic situation clear to people. The Chancellor doesn't think much of this idea. In 2006, Matthias Platzeck, then Chairman of the SPD, showed her a study of how people react to too much information. A focus group was asked for its opinion on the Grand Coalition's major reforms, such as raising VAT, additional contributions towards medical insurance and retirement at sixty-seven. The results were mostly negative. The same group was then given large quantities of information, provided with facts and arguments and asked to vote again. The result was even less favourable towards the government. In view of the complexity of the reforms, people felt that nothing would come of them anyway.
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