Sunday, November 07, 2021


So after 16 years at the helm of Germany, Angela Merkel has left office, giving the reins to Olaf Scholz of the SPD, the German socialists.

For those not following German politics too closely, it would seem that Merkel, during her time as Bundeskanzlerin, proved to be an efficient steward of the German economic locomotive. And her CDU being politically centrist - at least that being the perception - neither foreign nor domestic policies seemed to lean too far to either the left or the right.

However, the following analysis by the Brussels Report's Pieter Cleppe proves that there is more than meets the eye... and it's not exactly flattering for "das Maedchen":


"When Germany gave up its D-Mark, there was a very clear quid pro quo: whenever governments in the Eurozone would get into trouble, they would not be able to count on being bailed out by taxpayers from other countries.

In practice, that’s of course not how things went. For years already before the Eurozone bailout machinery was created in 2010, the European Central Bank had been fueling easy money to banks in Eurozone member states that would have never been able to enjoy the low interest rates offered by the ECB to obtain euro funding.

Banks in Italy, for example, used that money to buy Italian government bonds, which in turn drove down Italy’s borrowing rates. There was little incentive left for governments in excessively indebted member states like Italy or Belgium to implement the necessary structural reforms to generate tax revenue to finance government spending. Eurozone membership was sufficient to keep those bloated welfare states afloat. Similar dynamics were at play all across the Eurozone, long before Greece, one of the Eurozone governments that were being showered with easy money, was suddenly no longer able to refinance its debt. Others, like Spain and Ireland, witnessed a housing bubble and bust, caused by easy ECB cash that had been pumped by local banks into the real estate market, in turn saddling some of these local banks with excessive debt, with the ensuing financial instability ultimately forcing the Irish and Spanish government to request a Eurozone bailout.

The pressure had been building for a while until finally, in early 2010, the Greek sovereign debt crisis erupted, which was followed by three fiscal bailouts of Greece, as well as bailouts of Ireland, Portugal, Cyprus and Spain. Others, like indeed Italy and Belgium, were being bailed out by the ECB.

The German establishment, with Angela Merkel at the helm, could have blocked bailouts, but opted not to do so, despite some severe misgivings, witnessed by a number of high profile Bundesbank resignations in 2011. Apart from endorsing bailouts, Merkel also provided tacit support to the ECB to do “whatever it takes” to keep the shaky monetary union alive."


"...Most notable is Merkel’s big change of heart over energy policy. A trained physicist, she has always been a supporter of nuclear power, until she got her government to decide to phase out nuclear power, right after the public turned against it following the Fukushima nuclear disaster in March of 2011. This despite some more independent thinking greens considering this to be the ultimate stress-test for nuclear.

The result of these policies are that Germany is being plagued by sky-high energy prices for households. Also from the perspective to cut CO2 emissions, Merkel’s approach hasn’t exactly been a great success, given the persistent role of coal in Germany’s energy mix, which is apparently only possible to change by means of importing more Russian gas via the controversial new Nord Stream 2 gas pipe line between Russia and Germany."


"...As mentioned, Germany’s economy did fairly well during Merkel’s time in office. However, the reasons for that were unrelated to Merkel. For one, there were the courageous but unpopular “Agenda 2010” labour market reforms implemented by her predecessor, Gerhard Schröder. His policies managed to really restore Unit labour cost competitiveness had really by the end of 2005, when Merkel became Chancellor, and have remained stable since. This was also due to responsible wage restraint that was agreed between employers and employees.

Secondly, as a result of the ECB’s expansionist monetary policies, intended to keep interest rates as well as the euro exchange rate low, the German export sector profited from an exchange rate that was artificially weak. This helped exporters, but did hurt importers and consumers – a cost that may well be three times as big as compared to the benefits for exporters.

Under Merkel, a minimum wage was introduced, increasing the cost for employers to create jobs and reducing the flexibility that was possible under the system of sectoral agreements, while no proper reform of the pension system was undertaken – despite the massive ageing challenges the welfare state faces. Annual top-ups needed for the state pension system may well reach “well above €100bn by 2031”, compared with €67.8bn in 2018...."


"...Despite being seen as the “leader of the EU”, Merkel hasn’t made a lot of friends in the European Union. Her Eurozone bailout policies contributed to anger in the North over the request to pay for transfer as well as anger in the South over the conditions linked to those transfers. Both dynamics resulted in greater electoral support for anti-establishment parties.

Also her handling of Central and Eastern Europe leaves much to be desired for. Despite warnings from the French Interior Minister, Merkel’s government opted to push ahead with outvoting Eastern European countries and impose “mandatory refugee quotas” at the EU level in 2015..."


"...Much has been said over Merkel’s handling over the 2015-2016 migration crisis. To be fair, the “gates of Europe” were wide open long before Merkel made the assertion “Wir schaffen das“, meaning “we can manage this”, going against many in her own party.

The episode reveals another spectacular and panicky u-turn by Merkel. In August 2015, her government was using television adverts to warn people in Albania not to come to Germany as their chances of getting asylum were close to zero. And then, that same month, her government decided to suspend the so-called Dublin rules. This meant that it would stop returning Syrian asylum seekers to their first port of entry in the EU. Suddenly, the “hard line” vanished.

Merkel made the assertion “Wir schaffen das“, meaning “we can manage this”, going against many in her own party. Maybe it had something to do with the fact that a few months earlier Merkel had been sharply criticised for her insensitive response to a sobbing Palestinian refugee girl who begged to be allowed to stay in Germany.

Perhaps her approach after that of taking selfies with refugees to humanise them deserved praise, but the overall effect of her policy was not positive. Again, the suspension of the Dublin rules wasn’t the key factor leading to the great influx, which really began in March 2015. More important was Europe’s failure to close the Balkan route. This only happened in March 2016, which stopped the flow from people from Turkey to Greece and led to a large drop in drownings-at-sea. Many people, both genuine refugees and others, no longer tried to cross from Turkey, which had given shelter to more than 3.5 million refugees..."


"...Last but not least, Merkel also took steps away from Germany’s transatlantic foreign policy attitudes.

In a profile of Merkel, the Wall Street Journal notes:

“As she is preparing to leave office after her fourth term—having interacted with four U.S. presidents—she has overseen a dramatic increase of her country’s economic dependence on China, pushed through a far-reaching energy deal with Russia, joined France in challenging U.S. political influence in Europe and rejected American demands in areas such as economic policy and Berlin’s openness to Chinese technology(…)

The shift also has roots in the chancellor’s changing views. As a leader, Ms. Merkel gradually became disillusioned with the U.S., a development triggered by the 2008 financial crisis, which she blamed in part on America’s loose financial regulation. Since then, she developed a fascination with China that mixed concern about its totalitarian drift with admiration at its rapid growth and technological progress, according to aides, confidants and her own statements.”

Surely, Merkel is merely following trade flows, which happen to have increased with China, one could object. Then Merkel did actively override concerns of other EU governments on signing an EU investment pact with China at the end of last year, when Germany was chairing the EU Council and in this capacity in the driving seat.

One could also retort that the U.S. are the ones to have distances themselves from Europe and Germany, most certainly under Trump. Then, the WSJ describes how it is “emblematic of the cooling U.S.-German relationship” that “Angela Merkel declined the offer of being Joe Biden’s first call as president. She would be at her cottage, gardening”.

This indicates how it goes deeper than an aversion of Trump....

If after this damning analysis, you still are of the opinion that Frau Merkel was an efficient Bundeskanzlerin who did well for her country, you might want to consider that she was actually VERY LUCKY that her 'subjects' were Germans. If Germany still gives the impression that its economic powerhouse runs smoothly - it's NOT because of Merkels policies but because of the average German, who staunchly wakes up every morning and marches to his or her job. There is no social unrest in Germany like in France (les gilets jaunes), and yet large swaths of the population are worse off than their French counterparts and have every reason to air their concerns loudly. Incredibly, home ownership is the lowest in the entire EU. Scores of employees have to make ends meet with pitiful wages - a LIDL or ALDI caissière sometimes earning as little as 600EUR (or less!) a month. Truck drivers and their handlers delivering goods to my company regularly prove to be far into their sixties - and I assure you that it's hard work. People of that age doing backbreaking work are basically nowhere to be seen in Belgium. But in Germany, it's normal. When about five years ago the age to be eligible for pension was raised to 67 overnight, Germans did not give a peep. In France, Italy or even Belgium it might have caused a revolution. Any success das Maedchen has had in keeping the German locomotive going can be attributed directly to a staunch workforce still adhering to a no questions asked, 'Befehl ist Befehl' spirit.

But perhaps the shine of the Merkel era will lose its brightness sooner than expected. Angela 'Wir schaffen das' Merkel imported close to two million 'refugees'. However, violent welfare seekers from the Hindu Kush are another matter than Belgians arriving in Great Britain in 1914. The BKA (Bundeskriminalamt) just released its annual report and the conclusions are appalling. Far from importing rocket scientists and brain surgeons in 2015 and the years since, Germany let in specialist in completely different disciplines: