ANGELA MERKEL’S political credibility has not yet been downgraded to junk status, but the past few days have done it no good at all. A few weeks ago the German chancellor was basking in plaudits for taking a hard line against a European bail-out of Greece. That was before George Papandreou, the Greek prime minister, bowed to the inevitable on April 23rd and asked for the €30 billion ($40 billion) loan pledged by Greece’s euro-zone partners, of which Germany’s share is about €8 billion. A further slice, of perhaps €15 billion, may come from the IMF.
Now Mrs Merkel is under fire both from those who had praised her and from those who now blame her for dragging out the rescue, further destabilising financial markets and raising the ultimate cost of the bail-out. Reported politicians’ estimates of the whole bill have soared to €120 billion and far beyond, with a correspondingly greater contribution from Germany.
Many Germans feel they are being forced to choose between two basic principles of their post-war economic order: economic stability and integration within Europe. They gave up the D-mark in 1999 on the understanding that the euro would be equally stable and that German taxpayers would not have to pay for other members’ mistakes. The impending bail-out of Greece—and perhaps later of Portugal and even Spain—would mean the end of that bargain. A Greek bail-out would no doubt face a challenge in Germany’s constitutional court. But to withhold aid would endanger the currency and rattle the banks, some of them German, with billions of euros’ worth of Greek debt on their books.
The crisis could not have come at a politically more awkward moment. On May 9th elections will be held in North Rhine-Westphalia, Germany’s most populous state. There, a coalition of the Christian Democratic Union and the liberal Free Democratic Party, the same alliance that Mrs Merkel leads in Berlin, is fighting an uphill battle to remain in office. A loss would cost her government its majority in the Bundesrat, the upper house of the legislature. But the perception that she is dragging out the process to avoid irritating voters is also damaging her credibility both at home and abroad.
Now the process seems to have shifted into higher gear. On April 28th the chiefs of the IMF and the European Central Bank met German parliamentary leaders in Berlin. The finance minister, Wolfgang Schäuble, says the government could agree on legislation by May 3rd and get it through the parliament by May 7th. Voters in North Rhine-Westphalia will then decide whether to punish Mrs Merkel.
If Germans resent having to bail out the Greeks, the Greeks dislike the terms on which the rest of the euro zone and the IMF will come to their aid. The official jobless rate has risen to more than 11%, but that fails to take into account many women reluctant to register as unemployed.
Things are about to become more difficult. A three-year reform programme being put together by the IMF, the European Commission and the ECB aims to cut the budget deficit from 13.6% to 2.7% of GDP in just three years, an ambitious target in a shrinking economy. A new pensions law, which is due to be adopted in May, will raise the retirement age for both men and women and reduce the pensions paid by state-controlled corporations. Applications by civil servants to take early retirement under the existing scheme have already jumped by 30%.
The overstaffed public sector will be severely pruned. No one is certain how many jobs will go. But if the programme is rigorously implemented, more than 100,000 Greek public-sector workers will be put out of work by 2013—by a government that came to power promising “more social protection”.
So far, resignation not fury has marked street protests organised by trade unions and the Greek communist party. Fortunately for Mr Papandreou, his Panhellenic Socialist Movement, known as Pasok, dominates both ADEDY, the umbrella public-sector union, and GSEE, its private-sector partner. But the austerity measures the government adopted before the crisis reached boiling point—civil service pay cuts and a hiring freeze—are only just beginning to bite. Infighting in both unions is on the rise; small private-sector unions have already broken ranks and other hardliners are likely to gain ground.
Opinion polls suggest more than 60% of Greeks oppose the government’s decision to call in the fund. The IMF’s reputation for imposing harsh reforms, along with the partial surrender of sovereignty to an American-based institution, seems bound to make Greeks cross. Criticism of Germany, by comparison, is muted.
No comments:
Post a Comment