SPIEGEL INTERVIEW WITH CHANCELLOR ANGELA MERKEL

'No Script for the Crisis'

German Chancellor Angela Merkel, 54, discusses government bailouts for companies, her achievements during her term in office and the legacy of the East German secret police, the Stasi.

Editor's note: The following interview was conducted with Chancellor Angela Merkel prior to the government's announcement Saturday that it had reached a deal to rescue the German automaker Opel.

SPIEGEL: Chancellor Merkel, you have shaped an astonishing career for yourself since you took office three-and-a-half years ago. In addition to being head of government, you are now Germany's chief executive, as your government intervenes in the economy to an unprecedented extent. Did you ever dream this would happen?

REUTERS

German Chancellor Angela Merkel: "The crisis is an extraordinary situation for which there is no script."

Angela Merkel: I have little interest in such word games. My daily work consists of coping with the worldwide financial crisis and doing everything possible to ensure that it doesn't happen again. In recent months, we have had to devote more of our attention to government bailout programs than anyone could ever have imagined. Nevertheless, it isn't anything new for the government to be issuing loan guarantees for businesses. For example, my election district is a center for shipbuilding. Loan guarantees have played an important role in this industry for decades.

SPIEGEL: It sounds as if you believe it is completely normal for the government to be helping one company after the next.

Merkel: I mentioned two things: The existence of loan guarantees, which are not new, and the exceptional nature of the global crisis. The key moment of this crisis was the impending collapse of banks, which had to be prevented. Neither I nor many others could have imagined that the government would have to rescue banks overnight and at great expense, because otherwise the entire financial system would collapse. Nevertheless, we did not allow ourselves to be put off and we reacted appropriately to the unthinkable.

SPIEGEL: Former German Chancellor and Economics Minister Ludwig Erhard is widely regarded as the father of Germany's post-war economic miracle. But his understanding of the market economy did not include the government rescuing weak companies.

Merkel: Ludwig Erhard assigned to the state the role of custodian of the economic and social order. After the war, for example, he supported government intervention in the construction of housing when the market failed (to provide adequate housing). The current situation is being portrayed in a highly exaggerated fashion. The government today is not playing the role of entrepreneur, but it needs to intervene given its role as custodian of the economic order.

SPIEGEL: In other words, there is nothing unusual about the federal government being called upon to bail out companies like Opel, Arcandor or Schaeffler?

Merkel: As I said, the dimensions of the worldwide crisis are completely atypical, but government loan guarantee programs and low-interest loans have existed in Germany for decades, and they have proven successful. For this reason, I believe that we currently run the risk of bundling together issues which are separate. We must be careful to draw a distinction between companies that are fundamentally efficient but are in trouble because the banks are not lending them money due to the international crisis, and those that have simply been poorly managed, independent of the crisis. A requirement for government assistance is a sustainable business model. To verify this, we have a loan guarantee committee and a steering committee, each staffed with the appropriate experts. Therefore it also makes no sense for all kinds of politicians to be dispensing advice, such as what to do with Arcandor, before the committee has taken a position.

SPIEGEL: In the past, business owners came to you and gave you advice. Now they are coming to ask for help. Has your view of German business owners changed?

Merkel: A request can also come in the form of dispensing advice, in this case the advice being that we should give them a loan guarantee. Conversely, I sometimes also give advice to businesses, which certainly balances things out and makes the issue not as relevant. Besides, I should point out that the overwhelming majority of business owners and managers do effective and responsible work. Otherwise Germany would not have the strong position in the world economy that it does.

SPIEGEL: Business leaders have often looked down on the political world.

Merkel: If my view has changed, then it would be toward some representatives of the financial industry. In the past, people in that industry said that those who did not take risks were behind the times. When we called for improved supervision, we were repeatedly told that we didn't understand how the global economy works. That was an influential experience, and I don't want to experience it a second time. We have to take decisive counter measures should banks, hedge funds and international financial managers resist rules and regulations.

SPIEGEL: The crisis in Germany is currently focused on Opel. Why are you helping a manufacturer that is only in trouble because too few people find its cars attractive?

Merkel: That's not what it is about. In the past, Opel was firmly integrated into GM and unable to act independently. The parent company, General Motors, is now more or less owned by the American Treasury Department. Opel can't do anything on its own unless the European governments take action. Why should the best part of the company go under, just because the parent company in the United States was mismanaged? We would also be taking action to help Opel if we didn't have the global economic crisis.

SPIEGEL: Your economy minister, Karl-Theodor zu Guttenberg, has repeatedly talked about a possible bankruptcy for Opel, and received sharp criticism from your coalition partner, the center-left Social Democratic Party, for doing so. Do you share the criticism of Guttenberg's crisis management?

Merkel: The economy minister is simply doing what he is required to do, which is to take the preservation of both jobs and taxpayers' money into account. It is his job, and it is both correct and necessary to carefully examine every investor's plan.

SPIEGEL: Do you consider bankruptcy out of the question?

Merkel: We are doing everything in our power to find a different solution. However, a direct government investment in Opel is out of the question for me.

SPIEGEL: How do you feel that the Americans are treating you in the negotiations?

Merkel: We need even more intensive cooperation to arrive at a mutually acceptable solution. In this regard, there is certainly room for improvement on the American side.

SPIEGEL: It is our impression that your vice chancellor, Frank-Walter Steinmeier, is putting you under pressure on the Opel issue. Do you have the same feeling?

Merkel: No.

SPIEGEL: In general, is the SPD having an easier time of it with the crisis? All of the instruments being used, from the nationalization of banks to loan guarantees, are less problematic, in terms of the limits of state power, for the center-left Social Democrats than for the center-right Christian Democrats.

Merkel: For everyone, the crisis is an extraordinary situation for which there is no script. And besides, in the end even the SPD can only spend as much money as the state has collected.

SPIEGEL: You wanted to be the chancellor who balanced the national budget on a long-term basis. Now you must take responsibility for the largest amount of new debt in postwar German history. Under these circumstances, do you find it difficult to be satisfied with yourself?

Merkel: I am very pleased about the way we cleaned up the budget and reduced unemployment before the crisis. I am also very satisfied with the determination with which the federal government has tackled the worst global recession in 80 years, and has spent billions to help workers and business bridge the crisis. This is the right thing to do, even though it's difficult for everyone. The alternative, namely not to react to the crisis in the way we have, thereby protecting the budget, is not a reasonable alternative. It would have led to far more serious consequences and would have been more costly in the end.

SPIEGEL: Do you ever have nightmares when you think about what you are leaving behind for future generations?

Merkel: Fortunately, I generally don't have nightmares. I am an optimist. Incidentally, this legislative period has shown that a government can achieve a balanced budget in normal times. For three years, until the eruption of the worldwide banking crisis, we made good progress in consolidating the budgets and had even reached a balanced budget for the state as a whole, that is, the federal, state and local governments and the social insurance system combined. Once the crisis has been overcome, we must and will resume this path of consolidation.

Part 2: 'It Was Common to be Approached by the Stasi'

SPIEGEL: Is debt the worst legacy of the crisis?

Merkel: It will only be possible to assess the full scope of the damage after some time, in retrospect. What counts for ordinary people -- and I can understand this -- is how we guarantee their jobs. In my opinion, one of the reasons the abrupt economic decline is so serious is that a growing number of people in Germany were able to perceive that the reforms of recent years were important and that they were worth it. Citizens were never very fond of Agenda 2010 (ed's note: a controversial package of reforms introduced by Merkel's predecessor, Gerhard Schröder) and the reforms of my term in office, but they did see that unemployment shrank from 5 million to under 3 million. Now many people worry that all of this effort may have been in vain, when they see how an external event, such as the Lehman bankruptcy and the collapse of the financial markets, threatens to destroy everything. That's the bitter part of the crisis, and we are doing everything that is feasible and responsible to fight it.

SPIEGEL: In light of the mountain of debt, who do you expect to believe you when you say that you will reduce taxes in the next legislative period?

Merkel: Your question leads to the important issue of how we are to generate growth once again. The SPD, for example, says that all kindergartens should be free of charge. It's a goal that everyone is likely to applaud, but how the SPD expects to pay for it remains unclear. We, on the other hand, do not want to see all our country's top economic performers, from skilled workers to the self-employed -- namely those people who will get the economy back on track again -- facing a constantly growing tax burden through the so-called "cold progression," (ed's note: the process by which taxpayers are bumped into higher tax brackets even if their real, inflation-adjusted incomes haven't grown), in other words, through the back door. To achieve new growth, we need more motivation and a fair balance between salary and performance, and that also includes tax relief.

SPIEGEL: Why should anyone get tax relief when it's the government that seems to need money most of all at the moment?

Merkel: Because, as I said, it's also about having a prospect for growth. Otherwise, it's completely clear that we must work on paying off the debt. Most of the expenses we incur as a result of the financial crisis are -- for good reason -- temporary. The infrastructure program is for two years, the regulations regarding short-time working schemes are subject to a time limit, and so is the corporate tax relief. Once the crisis has been overcome, we will have to focus on reducing structural debt above all. In doing so, I will avoid anything that promotes feelings of envy, which merely triggers a search for scapegoats without solving any problems. Symbolic compensation, such as the SPD's proposed tax on top earners, is not a serious instrument.

GERMAN POLL BAROMETER

SPIEGEL ONLINE

SPIEGEL: In the grand coalition, you did everything differently than you had anticipated. You wanted to relieve the burden on taxpayers, but instead you raised taxes. You wanted reforms, but your weakened Agenda 2010.

Merkel: My evaluation of our performance includes different things. We agreed to a retirement age of 67. We reduced non-wage labor costs from 42 percent to less than 40 percent. We abolished the early retirement rules, and we took steps to fight illegal employment. These things, and many others, are precisely the things we had vowed to do from the start.

SPIEGEL: In other words, you continued former Chancellor Gerhard Schröder's course of reforms?

Merkel: The Schröder administration's Agenda 2010 was only possible because the Christian Democrat-controlled Bundesrat (ed's note: the upper house of the German parliament) approved it. The grand coalition has continued along the same path since 2005 with additional reforms.

SPIEGEL: Are you saying that you see yourself as a reformist chancellor?

Merkel: That's correct. In addition, we have also allocated the largest budget for education and research in 60 years.

SPIEGEL: We see things differently. You rolled back the reforms of the Schröder administration when it came to unemployment benefits and pensions.

Merkel: In that respect, let me jog your memory. It was this administration that, by raising the retirement age to 67, made one of the most courageous pension-related policy decisions in many years. In making this decision, we are reacting to demographic changes.

SPIEGEL: The truth is that you created giveaways for retirees at the expense of younger people.

Merkel: No, because the formula which is used to calculate pensions remains in effect. And we also have no plans to pursue the SPD's proposal to reintroduce early retirement in some areas.

SPIEGEL: Have you as chancellor ever made use of your power to issue directives?

Merkel: Yes, constantly. But always in different ways -- sometimes to make a decision and sometimes to consolidate (different positions).

SPIEGEL: What is the source, then, of the frequently made accusation that you aren't an effective leader?

Merkel: Everyone whose wishes are not met ends up claiming that I haven't led. According to their logic, if I had led, they would have had their way. But that, unfortunately, is not always possible.

SPIEGEL: Do you consider your vice chancellor, Frank-Walter Steinmeier, to be loyal?

Merkel: Yes, and so far Germany has not suffered as a result of the fact that we have different interests as far as the next election is concerned.

SPIEGEL: But Steinmeier is making digs at you and accusing you of weak leadership.

Merkel: He can do so if he pleases, but that has nothing to do with whether the right decisions are being made. Otherwise, perhaps you should ask him yourself and write an article about it.

GERMANY'S SUPER ELECTION YEAR

Hesse -- Jan. 18

The Christian Democrats of Roland Koch came out on top in the state parliamentary elections with 37.2 percent of the vote. Still, the result was hardly better than the 36.8 percent the CDU received in 2008, the worst result for the party in Hesse since 1966.

The CDU will be able to form a coalition with the business-friendly Free Democrats (FDP), which increased their vote total substantially over a year ago to 16.2 percent.

The Social Democrats achieved a horrific result of just 23.7 percent. The total is the SPD's worst ever in Hesse and is fully 13 percentage points worse than a year ago. The Greens improved substantially to 13.7 percent and the far-left Left Party came out with 5.4 percent, slightly better than the 5.1 percent the party polled in Jan. 2008.

Presidential Elections -- May 23

Germany's president is a largely ceremonial position and is chosen by a body known as the Federal Assembly, made up of parliamentarians in Berlin along with representatives from state parliaments. Even if the position is non-political, the vote this year, coming just months before the general elections, has political implications.

Should current President Horst Köhler, who has the support of the CDU and the FDP, be re-elected, it could give Merkel a small boost going into September. But the SPD have also entered a candidate, Gesine Schwan. Most pundits assume that Köhler will be re-elected, particularly given that a number of Green Party members -- and some within the SPD -- have hinted that they would throw their support behind the incumbent. But the fact that the Left Party also has a candidate, the ex-television actor Peter Sodann, could open the door for Schwan. Should Köhler not receive an absolute majority in the first two rounds, only a simple majority would be necessary in the third, meaning that if the SPD, the Greens and the Left Party all opted to support Schwan, she could theoretically unseat Köhler, though it is not seen as likely.

Should that happen, however, it would put Steinmeier in a bind. After all, the SPD has said it doesn't want to work with the Left Party on the national stage.

Saarland -- Aug. 30

Currently governed by the Christian Democrats, polls indicate that the CDU likely won't be able to hold on to its leadership position. The Left Party especially has found a huge increase in support in the western German state. The party won just 2.3 percent of the vote four years ago but polls now show that over 20 percent of Saarland voters support the Left Party.

Many commentators in Germany see Saarland as the best candidate for the first SPD-Left Party alliance in western Germany. The elections are in late August, meaning such a "red-red" coalition could come just as German voters are heading to the polls for late-September general elections. That would likely hurt Steinmeier's chances.

Saxony -- Aug. 30

The eastern German state of Saxony voted strongly in favor of the Christian Democrats in 2004 and looks set to do so again this year. An early November survey found that 42 percent of voters in the state will cast their ballots for the CDU. The state has been governed together by the CDU and SPD for the last four years, but the liberal FDP has gained support, opening the door to a possible CDU/FDP alliance.

The Left Party is strong, polling 20 percent, but likely won't be strong enough to form a majority with the SPD, despite the latter party's increase in popularity since 2004. The neo-Nazi party NPD, which made international headlines in 2004 by raking in over 9 percent of the Saxony vote, appears headed for embarrassment. It is polling far below 5 percent, the minimum necessary for state parliamentary representation.

Thuringia -- Aug. 30

Polls taken last autumn showed that Christian Democratic Governor Dieter Althaus was already facing a difficult campaign challenge prior to his Jan. 1 skiing accident. On New Year's Day, he was involved in a horrific collision at a ski resort in Austria that sent him to the hospital with severe head injuries. The woman he ran into died. His political future is now uncertain, given that, even if he does return to full health, he may have to face charges of involuntary manslaughter.

Pre-accident polls indicated that Althaus' CDU, which won 43 percent of the vote in 2004, could count on only 33 percent support. Such a result could open the way to coalition of the SPD (18 percent support) and the Left Party (30 percent support), though it is unclear whether the SPD would be interested in joining such an alliance as the junior partner. The Green Party may likewise sneak into the Thuringia parliament.

General Elections -- Sept. 27

In 2004 elections, Germany seemed to take a page out of the US election handbook, with the SPD and CDU ending up nearly in a dead heat. Once all the votes were counted, it was the CDU which nosed ahead with 35.2 percent of the vote, a weak result that led to breathless speculation about all manner of different possible coalitions.

In the end, the CDU and the SPD joined forces for only the second such coalition in Germany's post-war history. Even though the Social Democrats have lost considerable traction since then, there is little to indicate that 2009 will be any different. The SPD has said it will not ally with the Left Party on the national level, and the CDU's preferred partner, the FDP, likely will not win enough votes to overcome the CDU's mediocre form. Should Merkel once again emerge at the head of a grand coalition, it will be the first time in German history that such an alliance gets re-elected.

Brandenburg -- Sept. 27

The eastern German state of Brandenburg has been governed by a "grand coalition" pairing the SPD and the CDU for the last four years. Polls indicate that there is little to prevent the arrangement from continuing. But the Left Party is also very strong in Brandenburg, meaning the SPD could opt to partner with the far left. Because the election is on the same day as general elections, the Brandenburg vote will not have nationwide implications.

SPIEGEL: Your coalition partner of choice also believes that you are a weak leader. Guido Westerwelle, the head of the business friendly Free Democratic Party, said the following to you: "You have no plan A, nor do you have a plan B. You stumble from problem to problem, and in reality you lack strategies." You really want to be working with this man for the next four years?

Merkel: Yes, and I'm looking forward it, because a coalition of the Christian Democrats and the FDP can bring our country even further along.

SPIEGEL: Do you believe that the FDP can help get Germany out of the crisis more quickly?

Merkel: The grand coalition's record, both leading up to the crisis and in coping with the crisis, is nothing to sneeze at. It has done a good job. But in terms of creating more growth and jobs, a coalition with the FDP would be better.

SPIEGEL: But then you would have to fear massive opposition to your policies. The SPD would move much more to the left and would mobilize the street.

Merkel: If that was really the case, then I wouldn't be alarmed, and besides, it wouldn't be in the SPD's interests. And it knows it, which is why it wants to remain in government.

SPIEGEL: Your job could become significantly more difficult.

Merkel: Every administration has its challenges. It doesn't deter me. Otherwise one would have to be in favor of an eternal grand coalition.

SPIEGEL: Could you imagine Guido Westerwelle as foreign minister?

Merkel: Guido Westerwelle would refuse to tolerate my meddling in his party's personnel decisions. Each party in a coalition makes its own personnel decisions. I wouldn't want people to say: Merkel is already filling the FDP's positions. Anyone who wishes to form a coalition government with the FDP, as we do, must be able to imagine the party's leading figures as cabinet ministers, and I can certainly do that.

SPIEGEL: We would also like to talk to you about a discovery that has shocked many West Germans. Karl-Heinz Kurras, the police officer who shot and killed the student Benno Ohnesorg during a protest march in 1967, worked for the East German secret police, the Stasi, and was a member of the East German communist party, the SED. How did you feel when you heard the news?

Merkel: That the Stasi apparently must have had even more influence on political processes in the former West Germany than many have imagined until now. But some have also been too quick to forget that, for example, former terrorists were also given safe haven in East Germany. In other words, the Kurras case makes it abundantly clear, once again, that East Germany was naturally involved in efforts to destabilize West Germany -- otherwise it wouldn't have hired a man like that as an agent.

SPIEGEL: Do you think the proposal to cut Kurras's pension is correct?

Merkel: That's something for the Berlin state government to decide on the basis of laws governing the city's employees. Such regulations have also been applied to former citizens of East Germany. Why should it be different when someone in the West worked for the Stasi? That's only fair.

SPIEGEL: You too were approached by the Stasi. Are you ever concerned that there might be something about you hidden in the archives?

Merkel: No. I am familiar with my life, after all. Apart from that, the case of the death of Benno Ohnesorg shows that new information is still coming to light, even 20 years after the fall of the Berlin Wall. That's bound to continue.

SPIEGEL: Do you believe that all members of the lower house of the German parliament, the Bundestag, should be investigated to determine whether they worked for the Stasi?

Merkel: That's something the Bundestag will have to decide for itself. It last addressed the issue three years ago, when it decided against it. Bundestag members from the former East Germany have already been investigated at least twice, and my parliamentary group, the CDU/CSU parliamentary group, has initiated an investigation of all members.

SPIEGEL: Is it true that the Stasi also approached your father?

Merkel: Unfortunately, it was common to be approached by the Stasi. The question was how you responded.

SPIEGEL: Chancellor Merkel, thank you for this interview.