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Merkel Will Condemn Europe to More Austerity Misery

She thinks it's the only way to beat the slump.

Last weekend, Angela Merkel’s Christian-Democrats (CDU) waltzed into one of the most substantial victories the party has ever seen. But the German election wasn't just about Germany; the country's dominance over the Eurozone means that the result will have direct ramifications for how things continue to play out in southern Europe's austerity-hit countries.

Forbes named Merkel as the most powerful woman in the world this year, and it's pretty evident why: It was "Mutti", as her supporters call her, who forged the new European consensus of austerity that other leaders – like Francois Hollande, for example – haven't been able to change. Standing beside her is Finance Minister Wolfgang Schauble, whose direct links with banking, industry and the various European monetary institutions have, throughout the past five years, made him the highest authority on how to solve southern Europe's debt crisis.


And his solution has been pretty straightforward; the only thing Germany has been exporting more aggressively than heavy industrial products is the doctrine that everyone in their financial grip must also have an economy based on low wages and loads of exports.

However, from what we’re seeing, the medicine isn’t really working. Granted, it worked for Germany, but it’s now looking increasingly like a one size fits all policy that doesn’t really fit anyone else. Greece’s economy has contracted by a quarter and its debt is now at an all time high of 180 percent, Spain’s banks are a mess, Italy’s economy is sinking fast and Portugal, touted as the "good student", saw its government taking further cuts in order to meet fiscal targets.

Many analysts, especially in the UK and US, believe that the Chancellor will ease her grip on Europe's southern countries in her next term. But that theory doesn’t really square with the fact that she still seems convinced of her policies; one day after her re-election, she said, "There is no need to change [Germany’s] European policy."

Greece, in particular, has been on the receiving end of Germany's pushed policies, being – as it was – perhaps in the worst state of all of southern Europe's crisis-hit countries. However, the application of those policies have seemed, at best, superficial and unhelpful, and, at worst, tragic. Merkel's desperation for a success story forced the Greek government into announcing a primary surplus that didn’t include crucial expenditure like pensions and social security, all while they prematurely declared that "Greece is turning a corner".


Merkel needed this good news to bolster her campaign effort, so Germany played along – even when allegations that the country will need an additional €77 billion in loans over the next five years started to hit the news. Funnily enough, it took all of one day after Merkel was re-elected for Greece's troika of lenders to admit that they have "doubts about Greek projections for a primary surplus this year and next, and have begun the process of discussing the contents of the 2014 budget with Athens".

So are there signals that anything at all will change for Greece in Merkel's third term? I put that question to Nick Malkoutzis, deputy editor of the Greek daily Kathimerini, who told me, "Greece's political leaders generated a lot of expectation that their country would be better off after the German elections. But whatever hope the Greek public had dissipated during a campaign that saw German politicians revert to treating Greece as a stowaway within the Eurozone.

"Greeks were not convinced that the Social Democratic Party of Germany [SDP; the German opposition] would offer a different way out of the crisis, despite the party's criticism of Angela Merkel. Having heard Francois Hollande say similar things in the French presidential campaign last year and then fail to deliver, there weren't many Greeks willing to get their hopes up a second time."

He continued, somewhat pessimistically: "The best that Greece can hope for now is that, having won re-election, Merkel won't carry on delaying crucial decisions on whether Athens will be granted more loans and debt relief and how the EU banking union will proceed. The worst-case scenario is that the eurosceptics within her party feel strengthened after this result, and this makes her even more reluctant to deal decisively with key decisions that affect Greece and the eurozone as a whole."


Unfortunately, that worst-case scenario might well be the one we see played out. Thanks to her overwhelming victory, Merkel faces no real pressure inside Germany to change her policies, and Germans don’t want any surprises in the handling of the crisis. As she said herself in an interview with the Financial Times last year, "If Europe today accounts for just over seven percent of the world’s population, produces around 25 percent of global GDP and has to finance 50 percent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life. All of us have to stop spending more than we earn every year."

So it looks like yet another round of austerity for southern Europe – something the Germans appear pretty relaxed about. The CDU has survived, despite its tough stance and the fact that every other European party that's adopted its policies has sunk. So why would they change their tune now?

It's unlikely that the Social Democrats or the Greens – Merkel's probable coalition partners – will risk their political reputation at home to stop austerity elsewhere. So it seems that the governments of southern Europe will have to continue pissing their people off by making cuts at the behest of Merkel, all while she basks in a 72 percent approval rating at home, away from the accusing finger of the once relatively well paid Greek public sector worker.


The future of Europe is in Merkel's hands. En route to surpass Margaret Thatcher as the world's longest-surviving female leader, will her legacy be one of a united Europe, or of a desolate South with the European project laying in tatters? Her actions over the next few weeks will undoubtedly begin to provide some answers to that question.

Illustration by Victoria Sin.

Follow Yiannis (@YiannisBab) and Victoria (@SinforVictory) on Twitter

More about austerity in Europe:

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The IMF's Admission That Austerity Has Failed Is Going to Make the G8 Pretty Awkward

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