The Other Side of Angela Merkel

 The Other Side of Angela Merkel

What the world has misunderstood about the German Chancellor

By Matthias Matthijs,  R. Daniel Kelemen

July 9, 2021 

This summer, as the pandemic eases and Europe opens again for business and pleasure, the Merkel era will end. After her 16-year reign as Germany’s chancellor, Angela Merkel deserves admiration and praise on many counts. When she made history in the fall of 2005 as the first woman to be elected chancellor, unemployment stood at just over 11 percent, and Germany was widely disparaged as the “sick man of Europe.” Doctoral students on both sides of the Atlantic were writing dissertations trying to uncover the roots of Germany’s malaise and were asking what it was about the country that made it so hard to reform. Four Merkel cabinets later, German unemployment stands at 6 percent (and would be even lower if not for the pandemic), and no one doubts Germany’s political, financial, and economic leadership of the European Union.

In an era plagued by erratic and swaggering strongmen like Donald Trump, Boris Johnson, Narendra Modi, and Jair Bolsonaro, Merkel provided a model of rational, steadfast leadership. Indeed, in the early years of the Trump presidency, political observers on both sides of the Atlantic were fond of dubbing her the new “leader of the free world.” Merkel always rejected that honorific, even though she has undeniably been the de facto leader of the EU. But what kind of leadership has she provided for the European project?

Many glowing retrospectives on Merkel’s tenure depict her as Europe’s savior—the steady and reliable pair of hands that steered the EU through a series of unprecedented crises. They recount her role over the past decade along the following lines. When the eurozone debt crisis threatened to overwhelm EU institutions, Merkel overcame domestic resistance to negotiate bailouts for the hardest-hit eurozone members, provided political backing for massive European Central Bank liquidity injections, and paved the way for a myriad of new EU institutions, including a sweeping banking union. When Vladimir Putin’s Russia annexed Crimea and intervened militarily in Ukraine’s eastern Donbass region, she kept her cool and took the lead in negotiating the Minsk agreements. During the refugee crisis in the summer of 2015, she showed her humanity—at considerable political cost—by letting more than 1 million mostly Syrian refugees into Germany. Merkel also helped the EU member states maintain a united front during the Brexit negotiations. She insisted on the sanctity and indivisibility of the four freedoms of movement—in goods, services, capital, and people—that define the EU single market. And during the spring of 2020, she threw her political weight behind the launch of a 750 billion euro ($913 billion) pandemic recovery fund to be financed by joint bonds issued by the European Commission, taking a landmark step toward an EU fiscal union and economic government.

There is some truth to this flattering narrative about Merkel, but it tells only one part of the story. There has also been a darker side to Merkel’s leadership in Europe—both to the specific decision-making tactics she has relied on and to the general principles that have guided her policies.

Angela Merkel and Charles Michel

German Chancellor Angela Merkel elbow-bumps Charles Michel, president of the European Council, during a summit in Brussels on July 17, 2020. THIERRY MONASSE/GETTY IMAGES

In approaching Europe’s political crises, Merkel’s main political stratagem has been to procrastinate and dither. Merkel became so famous for this approach that German teens turned her name into a verb—merkeln—which became slang for chronic indecision and for saying or doing nothing on an issue. (“Merkeln” was an early leader in the publisher Langenscheidt’s youth word of the year competition in 2015 but ended up losing out to “Smombie,” a portmanteau for smartphone zombie.) In almost every crisis, Merkel kicked the can down the road—hesitating to take big decisions until the last possible moment and, even then, often agreeing to doing just the minimum necessary to keep things from falling apart. In many cases—from the euro crisis to the rule of law crisis in Hungary and Poland—her strategic inaction led to serious problems festering and becoming even more deeply ingrained.

“Merkantilism” can be defined as the systematic prioritizing of German commercial and geoeconomic interests over democratic and human rights values or intra-EU solidarity.

It wasn’t just her “Merkeling” tactics that proved problematic. Far more troubling was the substance of many of her policies, which we can simply label “Merkantilism,” defined as the systematic prioritizing of German commercial and geoeconomic interests over democratic and human rights values or intra-EU solidarity. From her coddling of Hungarian strongman Viktor Orban as he built the EU’s first autocracy to her active courting of Europe’s geostrategic rivals in Russia and China, Merkel has tended to place German profit and expediency above European principles and values. This was also the case in the eurozone crisis, when EU bailouts were cynically structured to benefit German bankers at the cost of Greek and Portuguese workers. Even at the moment of her boldest moral leadership, the 2015-16 migration crisis, she ultimately failed to convince her fellow EU leaders to craft a humane common policy, resorting instead to an unsavory “money for refugees” deal with Turkey.

Finally, in her 2020 volte-face over Eurobonds in response to the coronavirus pandemic, she made it abundantly clear that she saw it as a one-off gesture of solidarity in response to extraordinary circumstances rather than a fundamental shift toward closer EU fiscal integration. This approach seeks to perpetuate what one could call Germany’s exorbitant privilege in the eurozone, where it continues to benefit from extremely low interest rates due to its safe-haven status in financial markets and from an undervalued euro that boosts its powerful export sector. At the same time, it keeps Europe’s peripheral economies at a consistent disadvantage.

In the late 1990s and early 2000s, before Merkel entered the chancellery, the EU had taken to portraying itself as a “normative” power. EU leaders eagerly promoted the idea that while the union lacked the attributes of a traditional military superpower, it could project global leadership by promoting norms such as democracy, rule of law, human rights, and social solidarity. Sixteen years of Merkel’s leadership have made a mockery of such lofty aspirations. She has pushed the EU to appease autocrats rather than championing democracy and human rights and to impose austerity and painful reforms over embracing solidarity and promoting public investment.

Angela Merkel

Merkel reacts to a robot during the annual Girls’ Day at the Chancellery in Berlin on April 25, 2018. CARSTEN KOALL/GETTY IMAGES

In the spring of 2010, when it was clear to bond markets that Greece’s budgetary position was unsustainable, Merkel famously insisted that the eurozone rules had to be geared toward the strong rather than the weak and solemnly pledged two years later that she would not agree to systemic solutions like Eurobonds—jointly issued common debt instruments—as “long as she lived.” The choice facing Merkel and other leaders of the “core” member states was either to bail out “peripheral” members like Greece and Ireland or to allow them to default while staying in the eurozone. The latter option would have hurt Northern European creditors and once again forced Berlin to bail out German banks—a politically unpalatable option. The bailouts in effect functioned as a kind of money laundering and political blame-shifting operation. Core countries like Germany provided financial bailouts—subject to extremely harsh conditions in the form of budgetary austerity and structural reforms—to peripheral governments, which then used that money to pay back German, French, and Dutch banks.

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German Chancellor and leader of the German Christian Democrats (CDU) Angela Merkel chats with her colleague Armin Laschet, governor of North Rhine-Westphalia, at a meeting of the CDU leadership on Nov. 27, 2017 in Berlin, Germany.

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By framing the eurozone debt crisis as the result of fiscal profligacy and lagging competitiveness in Ireland and Mediterranean countries, Merkel encouraged the German population and much of the rest of Northern Europe to think of the euro crisis in terms of a morality tale of Northern saints and Southern sinners. Real leadership would have required acknowledging and addressing the structural roots of the eurozone woes—pointing out that fiscal and banking crises were inevitable in a monetary union where capital flowed freely in the absence of adequate joint mechanisms to coordinate fiscal policy, regulate financial services, or facilitate macroeconomic adjustment. Instead, Merkel’s account and her proposed solutions denied that German banks or regulators held any responsibility for the crisis due to their excessive lending to the periphery during the boom years and simply reinforced popular Northern stereotypes of profligate and lazy “Club Med” governments and populations.

The outcome of her approach was an abrupt reversal of the economic convergence process between North and South that had started in the mid-1990s, as standards of living between core and peripheral countries started to diverge again after 2010. As Northern economies thrived, their exports boosted by a weak euro and their fiscal accounts much relaxed by negative bond yields, Southern economies entered deep recessions that saw a whole young generation mired in record high unemployment. Southern Europe’s electorates could be forgiven for wondering whether the European integration game was still worth the candle as they flocked to populist and Euroskeptic parties that condemned the bailouts. This lack of solidarity and emphasis on austerity would come to haunt the EU in the spring of 2020, when the COVID-19 pandemic, in a cruel twist of fate, first struck Europe in Italy and Spain, two big EU member states that had been forced to cut back the most on public health expenditures during the previous decade.

Angela Merkel

Merkel attends a wreath-laying ceremony to mark the 75th anniversary of the end of World War II at the Neue Wache Memorial in Berlin on May 8, 2020. HANNIBAL HANSCHKE/POOL/AFP VIA GETTY IMAGES

As much as Merkel was reluctant to show solidarity with struggling democracies in the south of Europe, she was content to see billions of euros in EU subsidies showered on nascent autocracies in the east. Indeed, the so-called leader of the free world has kept a dirty little secret over the past decade: She has been the most important political patron of Europe’s leading far-right authoritarian: Hungary’s Viktor Orban. The primary reason Orban could gradually dismantle Hungarian democracy and replace it with what Freedom House and the V-Dem Institute rate as the EU’s first hybrid regime is that he enjoyed the political protection of Merkel and her Christian Democratic Union (CDU). Merkel protected Orban for both political and commercial reasons.

Though Merkel would never contemplate cooperating with the far-right Alternative for Germany at home, she was happy for the past decade to ally at the EU level with Orban’s right-wing, autocratic Fidesz party. Until this March, Merkel’s CDU and Orban’s Fidesz were allied as members of the European People’s Party (EPP)—the most powerful of the pan-European “Europarties.” Orban’s minions provided votes for the EPP in the European Parliament, helped elect Merkel protégée Ursula von der Leyen as European Commission president, and assisted in the EPP remaining the dominant force in EU politics. In return, she shielded him against EU censure. Though some more principled member parties long wanted Orban out of their group, the CDU and its Bavarian sister party, the Christian Social Union, repeatedly blocked his expulsion. Even when he was finally shown the door in March after escalating conflicts with other EPP leaders, Merkel never uttered a negative word about Orban’s assaults on democracy.

But Merkel’s alliance with Orban wasn’t just about party politics; it was characteristically Merkantilistic. Hungary is a major, low-wage, near-shore manufacturing center for German multinationals. Indeed, German automakers are the leading engine of economic growth in Hungary. While Orban attacks the rule of law and his crony capitalists extort small and medium-sized enterprises, his “Audiocracy” gives German car companies like Audi, Mercedes, and BMW the red-carpet treatment. Merkel recognized how good relations with the Orban regime served German commercial interests and hence used her enormous influence to shield him from EU criticism. Orban in turn implemented the autocratic playbook and then held open the door for other aspiring autocrats in the EU, such as Jaroslaw Kaczynski in Poland, another country that plays a key role as a manufacturing center for Germany’s industrial machine. Though additional factors certainly help explain the EU’s failure to stand up to democratic backsliders in its midst, much of the blame can be traced back to the original sin of Merkel’s alliance with Orban.

Angela Merkel and Vladimir Putin

Merkel meets with Russian President Vladimir Putin at a summit in Istanbul on Oct. 27, 2018. BERTRAND GUAY/AFP VIA GETTY IMAGES

Merkel not only put profit above principle when it came to pet autocrats inside the EU, but she also did so on a larger scale in her approach to Europe’s geostrategic rivals—the blatantly authoritarian regimes of Russia and China. In principle, successive Merkel governments were guided by the mantra of Wandel durch Handel (“change through trade”)—the theory that deepening economic relations would encourage progressive reforms in Moscow and Beijing. But in practice, they long ago gave up on the change part. This is nowhere more obvious than in Merkel’s determination to pursue the Nord Stream 2 gas pipeline despite strong opposition from the EU and the United States. Defenders of Merkel’s approach to the Putin regime would point to the leadership role she played after Russia invaded and annexed Crimea in putting together a sanctions package that thus far has held up remarkably well. However, Merkel has contradicted and undermined any impact of these sanctions on Putin and his associates by continuing to support Nord Stream 2, a project that hands his regime a far greater prize.

Nord Stream 2 will supply gas directly from Russia to Germany through the Baltic Sea, thus circumventing the existing pipeline route that passes through Ukraine and other countries in East Central Europe. The pipeline would enable Russia to cut off gas supplies to Ukraine and other countries in the region while still selling gas to Germany and Western Europe. The project would heighten the risk of a Russian invasion of Ukraine, threaten the security of energy supplies to EU member states like Poland, and undermine the EU’s overall efforts to reduce energy dependence on Russia. So why has Merkel continued to support the completion of Nord Stream 2 in the face of opposition from the United States, allies in East Central Europe, the European Parliament, and even domestic critics such as the Green party? The answer is that Nord Stream 2 promises to deliver abundant low-cost energy supplies to German industry and consumers. Given Merkel’s abrupt decision to phase out nuclear power in response to the 2011 Fukushima disaster in Japan, Germany has become more dependent on oil and natural gas—and Gazprom offers the lowest-cost source of supply. None of this suggests that Merkel sympathizes with the Russian dictator’s worldview—that she is a Putin Versteher, a Putin understander, as some critics have suggested—but she is clearly willing to look past his repeated and brazen violations of international law and human rights norms if it means cheaper energy for German factories and homes.

Merkel has pursued a similar “profits over principles” approach when it comes to dealing with Xi Jinping’s China. Certainly, she has done the bare minimum to signal interest in the country’s human rights situation. She has expressed concerns over Beijing’s assault on democracy protesters in Hong Kong and made oblique references to the Uyghur detention camps in Xinjiang, calling for the resumption of a dialogue on human rights and imploring the Chinese government to respect international norms on forced labor. This spring, her government also backed EU travel bans and asset freezes on a handful of Chinese officials in reaction to new developments in Xinjiang. However, at the same time that Merkel engaged in virtue signaling on human rights, her government used its rotating presidency of the Council of the EU late last year to rush through an EU-China investment deal that critics saw as a major gift to Beijing. The European Parliament has since frozen ratification of the deal in the wake of escalating tensions between the EU and China over Hong Kong and the repression of the Uyghurs, but Merkel—with an eye to the interests of German multinationals keen to pursue opportunities in the growing Chinese market—has continued to support the deal.

Angela Merkel

Merkel poses for a selfie with Anas Modamani, a refugee from Syria, after visiting the AWO Refugium Askanierring shelter for migrants and refugees in Berlin on Sept. 10, 2015. SEAN GALLUP/GETTY IMAGES

On two fronts—in her response to the migration crisis of 2015 and to the recent coronavirus pandemic—Merkel’s leadership was more courageous and less driven by Merkantilistic logic. Yet even on these two issues, she leaves behind a rather mixed and uncertain legacy.

During the summer of 2015, with hundreds of thousands of asylum-seekers fleeing conflict in the Middle East, crossing the Mediterranean Sea into Greece, and then moving westward, Merkel declared an open-door policy. She waived the rules of the EU’s Dublin Regulation that would have allowed Germany to return any asylum-seekers to the first EU country they had passed through and instead said Syrian refugees who made it to Germany would be allowed to stay. Though many Germans worried the country would be overwhelmed by the influx of refugees, Merkel famously declared, “We can do it!” (Wir schaffen das!) Merkel clearly wanted to avoid a humanitarian crisis. She saw that Greece could not cope with the mass inflow of refugees, especially after its highly contentious third bailout had just been approved that summer, and that tensions were escalating among the countries refugees were passing through on their journey west. Though she insisted from the outset on the need for a coordinated EU response, when faced with this crisis she acted alone in deciding that more than 1 million mostly Syrian refugees could travel on to Germany, where they would be welcomed with open arms.

Her unilateral move was compassionate, but it became clear rather quickly that Merkel could not convince her fellow leaders to take a joint approach to the migration crisis. By the spring of 2016, Merkel flew to Ankara to negotiate a deal that would pay Turkey an additional 3 billion euros ($3.69 billion) and offer other incentives in exchange for the country preventing refugees from crossing into the EU. Similar deals were later cut with Libya and Morocco, hardly exemplars of “safe third countries.” While many praise Merkel’s initial burst of magnanimity on refugees, far fewer recognize that she quickly gave up on pressing for a humane common EU migration policy and instead greenlighted an approach in which the EU essentially pays transit countries to hold refugees—often in profoundly inhumane conditions—to prevent them from entering Europe. The EU is no closer today to agreeing on reforms of the asylum rules, including a more equitable distribution of refugees across EU member states, than it was when Merkel called for this back in the summer of 2015. Meanwhile, the tragic reality is that since then, more than 14,000 migrant deaths have been recorded in the Mediterranean Sea.

Merkel once again acted boldly in the spring of 2020, when she saw the rapidly mounting death toll from the coronavirus in Italy and Spain. She decided to join efforts with French President Emmanuel Macron to set up a European recovery fund that would distribute EU grants directly to the member states and would be financed by Eurobonds, or “coronabonds,” issued by the European Commission and jointly guaranteed by all member states. She also agreed to suspend EU fiscal rules, and her government provided a record amount of public support to German companies. As the COVID-19 pandemic laid bare the structural shortcomings in Germany’s economy, from a chronic lack of public investment in infrastructure to severe deficiencies in digitization in its education and health care systems, her government put aside its obsession with maintaining the “black zero” (schwarze Null) for the country’s fiscal accounts by avoiding any deficit spending. Merkel’s Social Democratic finance minister, Olaf Scholz, was given permission to provide Europe’s largest fiscal stimulus to keep the German economy from falling off a cliff.

While some analysts hailed Merkel’s U-turn on Eurobonds as the “Hamiltonian moment” the EU had been waiting for, it is far from clear whether the scale of the fund, called Next Generation EU, will be adequate to meet the post-pandemic challenges at hand, much less whether it will become permanent. Merkel herself was careful to present Next Generation EU to German voters as a one-off injection of EU money, justified only given the once-in-a-century pandemic that hit certain EU member states much harder than others. On top of that, as with previous EU bailouts, the new recovery funds are tied to economic reforms in the countries receiving them as well as subject to oversight by the European Commission, with a so-called “handbrake” that can freeze the funding if a country is not making enough progress with its reforms. This logic maintains the toxic “sinners and saints” dynamic that proved so damaging for the European project during the eurozone crisis of 2010 and could once again trigger a serious backlash if pushed too far. Hence, the future of fiscal solidarity in the EU will depend to a large extent on who takes over from Merkel in the fall of 2021.

Most analysts agree that Merkel would probably have been reelected if she had chosen to run for an unprecedented fifth term in office. She remains Germany’s most popular politician by quite some distance, above all because of her steady economic leadership at home, whatever the consequences abroad. Her CDU successor, Armin Laschet, lacks both charisma and fresh ideas but remains closely aligned with her Merkantilist approach.

If one is looking for a real change in leadership, both in Germany and in Europe, one has to hope that the Greens—now led by the 40-year-old Annalena Baerbock—come to power this fall. If the Greens play a major role in the next coalition, and particularly if Baerbock becomes Germany’s new chancellor, a substantial policy shift on Eurobonds—and a shift away from Merkantilism more generally—is definitely in the cards. Germany’s Greens want to push the country away from its fiscal orthodoxy, stand up to Europe’s nascent autocrats, scrap Nord Stream 2, and take a tougher stance on human rights in China. Ironically, we may one day look back and judge that one of Merkel’s greatest legacies for the EU was to open the door to women’s political leadership in Germany—so that a new leader could emerge who would reverse many of her policies. Though Merkel may not be the savior of Europe some have made her out to be, she may have paved the path for a new leader who could be.

This article appears in the Summer 2021 print issue.

Matthias Matthijs is an associate professor of international political economy at Johns Hopkins University’s School of Advanced International Studies and a senior fellow at the Council on Foreign Relations in Washington.

R. Daniel Kelemen is Professor of Political Science and Law and Jean Monnet Chair in European Union Politics at Rutgers University