Iron Lady Merkel Bucks German Street

Media including theFrankfurter Allgemeine Zeitung, the newspaper of record in Germany’s financial hub, dub her “Europe’s Iron Lady.”

Strengthened by record-low joblessness at home, Merkel has rejected calls to either cut Greece loose from the euro area or ease her conditions for aid. By bucking the German street and steering the middle course, she is gambling that policy makers will continue to prevent a euro meltdown, helping her win re- election next year and match Thatcher’s third term.

“If Merkel were to go into elections with a collapsed euro zone she’d have a lot of difficulty winning,” Giles Merritt, head of Friends of Europe, a Brussels-based research group that promotes debate on the European Union, said in an interview. “Finally her statesman side is kicking in.”

Merkel may be homing in on her platform for the election next fall: enforcing the budget discipline that Germans want, while fending off the breakup of the euro area as too risky to contemplate for a country that has staked its post-World War II role in Europe on promoting consensus. She has quashed an anti- euro groundswell in her coalition, saying the solution is “more, not less, Europe.”

‘Doesn’t Arise’

“I don’t want Greece to leave the euro, and therefore the question doesn’t arise,” Merkel, 57, told a student audience in Berlin on Feb. 7. The costs of a crack in the euro region are “incalculable,” she said.

The balancing act is paying off. Even as Germany bankrolls bailouts from Athens to Dublin, the yield on the country’s 10- year government bond on Jan. 13 dropped to a two-month low of 1.74 percent, after reaching an all-time euro-era low of 1.67 percent on Sept. 22.

Merkel’s poll ratings have risen since December to the highest of her second term as she prodded French President Nicolas Sarkozy to forge a united front favoring spending rigor across the euro area and expanding the defense against crisis contagion. Twenty-five of the EU’s 27 states have signed up to her plan.

“She realizes that only with sticks, the European project is not going to move forward,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “She also needs carrots. And the carrot is that Germany is a pro-European country that wants to build something with the other countries in a concerted fashion.”

‘Leading With Others’

As Greeks chafe at a perceived German diktat, Merkel wants to signal that “it’s not Germany leading the others, it’s Germany leading with others,” Enderlein said. “This is the message she wants to convey to her European partners.”

That means Merkel is facing down calls for dumping Greece by business leaders such as Commerzbank AG supervisory board chairman Klaus-Peter Mueller, who said Jan. 30 that Greece should be freed of its “shackles” of the single currency. Franz Fehrenbach, chief executive officer of German auto-parts supplier Robert Bosch GmbH, told Manager Magazin on Feb. 14 that Greece should be ousted if it doesn’t quit voluntarily.

The chancellor’s unyielding stance is prompting the comparisons with Thatcher, who famously dismissed criticism of her budget cutting 18 months into her premiership, telling members of her Conservative Party in 1980 that “the lady’s not for turning.”

‘Tough as Nails’

“Thatcher and Merkel are both tough as nails,” Gary Smith, executive director of the American Academy in Berlin, a trans-Atlantic research institute, said in an interview. Both conveyed that “they’re resolute and not flip-floppers.”

Like Thatcher, who took on the miners as she sought to clamp down on Britain’s trade unions, Merkel hasn’t shied from confrontation. Unlike Thatcher, she appeals to Germans because she’s “cautious, modest and discreet,” Smith said. “With Merkel at the helm, things are calm and Germany is doing well on a global scale.”

What’s more, the two leaders’ respective attitudes to Europe couldn’t be farther apart. Almost a quarter of a century after Thatcher used a speech in the Belgian city of Bruges to warn against a “European super-state exercising a new dominance from Brussels,” Merkel is pressing for economic and political union. That drive has sidelined the U.K. as Conservative Prime MinisterDavid Cameron refuses to join the German-inspired European budget-discipline pact.

Kohl Protégée

Merkel, 57, a protégée of former Chancellor Helmut Kohl who grew up in communist East Germany, didn’t come naturally to building a united Europe, the goal of German leaders since the aftermath of World War II. At a Christian Democratic party rally last year, Merkel accused Spaniards and Portuguese of working too little.

Kohl, who reunited East and West Germany in 1990 against Thatcher’s wishes, warned in a journal article in September that Germany can’t afford to disconnect its future from Europe’s. Last July, Merkel lost her train of thought when a reporter asked her about her passion for Europe. “What was the question? Oh right, that passion,” she said.

Now, Merkel rebuffs national caricatures that pit industrious against lazy Europeans and presents austerity as the best hope of competing in the global economy for EU’s 500 million people.

‘Lazy Germans’

“There are lazy Germans and there are hard-working Germans,” Merkel said in a Sueddeutsche Zeitung newspaper interview posted on her party’s website Jan. 26. “We can bury the old stereotypes.”

Ten-year bond spreads with Italy and France have declined from the euro-era highs reached in November as Merkel has won support for her fiscal pact also championed by European Central Bank President Mario Draghi — while not standing in the way of ECB bond buying.

Merkel’s Christian Democratic Union party is benefiting from German economic data including the lowest jobless rate in two decades and business confidence at a five-year high. A Feb. 2 poll for ARD television showed Merkel’s personal popularity at 64 percent, the highest since 2009. The same poll showed 70 percent against offering more financial guarantees for Greece.

Backing for Merkel’s CDU held at 38 percent, the highest since before her reelection in September 2009, a separate weekly Forsa poll showed Feb. 15. The opposition Social Democrats dropped one percentage point to 26 percent.

State Vote Defeats

Shielding Germans from the turmoil has helped reverse Merkel’s fortunes after public anger at bailouts for Greece, Ireland and Portugal sent support for her bloc as low as 29 percent in the fall of 2010. Last year, her national coalition was defeated or lost votes in all seven German state elections.

“The Germans aren’t against the EU, but they do fear for their money,” Ulrich Deupmann, a partner at management adviser Brunswick Group Inc. in Berlin, said in an interview. “That’s why Merkel’s hard line on Greece is popular with voters.”

Markets are going Merkel’s way for now, easing political pressure. Even so, she can’t bank on an end to the turmoil and the next state election looms on March 25 in Saarland, where a Christian Democrat-led government collapsed on Jan. 6.

With Greece’s ability to shoulder its austerity in a fifth year of recession unresolved and Portugal’s debt sustainability in doubt, any resurgence of the crisis would probably revive calls for joint euro-area bonds and a bigger firewall, putting Merkel on the defensive.

Oscar Winner

“It’s a risky strategy,” Enderlein said. “Now that the crisis is calming down she can say more Europe is needed, as long as this Europe picks up the German ‘stability culture.’ If this works, it will be extremely successful.”

While Merkel attempts to follow Thatcher and win a third term on the back her debt-crisis handling, Merkel the Movie may have to wait. Oscar-winning actress Meryl Streep, in Berlin on Feb. 14 to promote her role as Thatcher in “The Iron Lady” at the Berlinale festival, said she’s not tempted to play Merkel.

All the same, “seen from a distance, she’s an extremely strong woman,” Streep told Die Welt newspaper in an interview.

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