Merkel Tested as Escalating Greek Crisis Hurts Euro

By NICHOLAS KULISH

Published: April 28, 2010

BERLIN — Chancellor Angela Merkel’s strategy for dealing with Greece’s untenable debt problem was to stall and hope the crisis did not demand action until after a critical state election in early May. On Wednesday, the clock finally ran out.

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Michele Tantussi/Bloomberg News

Chancellor Angela Merkel of Germany, Dominique Strauss-Kahn, right, managing director of the International Monetary Fund, and Robert B. Zoellick, left, president of the World Bank, took part in talks about the Greek debt crisis in Berlin on Wednesday.

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Mrs. Merkel’s hand was forced by mistrustful credit markets and the ratings agency that downgraded Spain, Portugal and Greece in a matter of just two days. As the crisis worsened, political calculations had to take a back seat to the more basic task of ensuring the stability of the euro currency that replaced Germany’s beloved mark.

Mrs. Merkel said after meeting with Dominique Strauss-Kahn, the managing director of the International Monetary Fund, that negotiations with the Greek government had to be accelerated and that Germany would do its part to safeguard the euro.

But she sounded less than happy about it. At a second news conference later the same day, Mrs. Merkel grumbled that Greece’s entry into the euro zone was not based on “sustainable factors,” making the present crisis particularly difficult to deal with. She went on to say that “we cannot allow the same situation with countries as with Lehman Brothers.”

Opinion surveys in Germany have for months shown a sizable majority of the population here opposed to any bailout for Greece, with a constant drumbeat of news media coverage about Greek profligacy helping fuel the discontent.

“If Merkel said, ‘Today we give the money to Greece,’ this would be the first domino against Europe in Germany,” said Wolfgang Nowak, a former senior adviser to Mrs. Merkel’s predecessor, Gerhard Schröder, and head of Deutsche Bank’s International Forum. “It would invite populists from all sides to attack.”

But the costs of not acting have also grown, and the potential risk of the instability’s spreading to the rest of Europe have become clearer as well. “Why the fire department has been scratching its head for weeks instead of operating the pumps, I don’t understand,” said the former German foreign minister, Joschka Fischer, on Wednesday, according to the German news agency DPA.

According to Jürgen Trittin, one of the Green Party’s parliamentary leaders who sat in on a meeting with Mr. Strauss-Kahn on Wednesday, the cost of the Greek bailout could reach $160 billion over three years, with Germany’s share up to $32 billion. DPA quoted Economics Minister Rainer Brüderle as saying that the overall cost could be even higher, about $180 billion.

Asked about the sum cited by Mr. Brüderle, a minister in her own government, a clearly displeased Mrs. Merkel responded, “I have asked over and over again in the past days that figures not be named, as long as figures are not in conjunction with a completed program.”

Throughout the crisis, which broke out earlier this year, Mrs. Merkel has acted with an eye to the crucial local election in North Rhine-Westphalia on May 9.

The North Rhine-Westphalia election has the potential to upset the existing balance of power. At stake is not only the state legislature, but also control for Mrs. Merkel’s coalition over the little-watched upper house of Parliament, the Bundesrat, which has to sign off on legislation.

Billions of dollars in assistance for Greece may not play well with voters in a state with its own financial problems. “There’s currently a debate on the finances and budgets of local communities,” said Andreas Blätte, a political science professor at the University of Duisburg-Essen in the state of North Rhine-Westphalia. “There’s a sense that money is really scarce.

“In many local communities, fountains are not switched on and flowers are not planted in the public parks because of a lack of money,” Mr. Blätte said. “Bridges that need reconstruction work are not renewed.”

From the very start of Mrs. Merkel’s second term, strategists from all the major parties were concerned about the spring vote in North Rhine-Westphalia. The state has more eligible voters than Greece’s entire population and produces nearly a quarter of Germany’s economic output.

It would not escape the attention of a master tactician like Mrs. Merkel that it was defeat in North Rhine-Westphalia, with its 18 million residents, that led to the special parliamentary election that cost her predecessor his job and cleared the way for her to take power.

For months Mrs. Merkel played for time, talking tough on Greek debt and the need for Athens to institute strict austerity measures while hoping to stave off a bailout decision that many believe is inevitable until after voters in North Rhine-Westphalia go to the polls.

But some analysts say that the German people’s desire for stability, and particularly a stable currency, will ultimately outweigh their distaste at bailing out the Greeks.

Gerd Langguth, professor of political science at the University of Bonn, said the political fallout from joining in the rescue of Greece, including on the election in the state of North Rhine-Westphalia, would be less than many had predicted.

“The people in Germany know that if this operation doesn’t work, the whole euro would be damaged and this is damage for Germany,” he said.