Merkel Re-election: Victory for Austerity

The Wall Street Journal recently reported that an Emnid institute showed Merkel’s chances of gaining a third term are very good. Much of the chancellor’s appeal is that she has catered to an electorate that became tired long ago of exporting aid to nations like Spain and Greece. As the International Monetary Fund (IMF) and European Central Bank continue to press for help that would support stimulus over austerity, Germans know that they will be taxed, one way or another, to maintain the country as “Europe’s bank.”

While a number of the countries in the European Union supported Merkel’s austerity policy, often because they had no choice, a rise in unemployment well into the double digits and double-dip recession among some nations have encouraged economists and some politicians to say that countries that have fallen apart financially can only be rebuilt with funds meant to get business and government spending to the levels needed to revive industries that export goods, as well as help for those who are jobless.

Merkel’s primary rival in the austerity debate is the IMF’s Christine Lagarde. In a recent statement from the agency, she said:

Over the past year, substantial actions at both the national and euro-wide levels have been taken to combat the crisis. But despite this progress, the economic recovery remains elusive, unemployment is rising, and uncertainty is high. Additional policy measures are required to fully restore confidence, revive growth, and create jobs.

The revival of growth will not be a byproduct of austerity, the IMF comment implies. However, in the battle with Lagarde, Merkel holds most of the cards. The IMF cannot act unilaterally, because, among other reasons, Germany’s powerful financial participation is critical to any change in policy.

In a recent speech by Merkel, covered by The Telegraph, she expressed a point of view that essentially reflects her belief in how Europe’s financial problems can be restored:

“I call it balancing the budget. Everyone else is using this term austerity. That makes it sound like something truly evil.”

Evil or not, austerity is a critical plank in Merkel’s re-election platform.