Published On: Tue, Sep 24th, 2013

Merkel’s dazzling win effect on Eurozone

She made it, and she can be definitely characterized as one of the most powerful women in modern politics. Chancellor Merkel achieved to bring yesterday an impressive win for her party, CDU, which is the best result since 1990s and the chancellorship of Helmut Kohl, counting for 41.5% of the electorate. Is this election triumph a solid sign for good or for bad concerning the fate of Eurozone and the European Union?

It goes without saying that the second term in office of Chancellor Merkel solidified Germany’s position in the European map. A country that was only unified in the beginning of the 1990s is after thirteen years the major power that defines developments in the Union. These last five years Germany became an island of stability and prosperity for its citizens, and a complete dominator in the European debt crisis. Merkel’s austerity politics brought Europe into one of its most daring economic situations since the end of WWII, with many countries of the Union and Eurozone facing exceptional turbulences and social turmoils. The European debt crisis was supposed to be a problem that all member-states should face together, but ended up to be a state-driven problem with sort of  “imposed sanctions” by the strongest member-states aligned with Germany.

The European partners, but also the German citizens themselves, strongly favor a grand coalition with the Socialist party, SPD, which once again was defeated mainly due to the lack of a concrete economic and political plan for Germany and Europe. The good news is that with a possible coalition with SPD, Chancellor Merkel would move on to serious efforts that could stimulate growth and tackle unemployment in Eurozone, a fact that could cease down and attenuate the economic crisis. Nonetheless, why should we be prepared for a different approach over austerity politics from Germany?

To my perspective, I believe that we should think more about the benefits of austerity politics than of the benefits of a loose euro for Germany. Politically speaking, Chancellor Merkel has built its campaign strategically on the merits of debt consolidation and the fact that Germany’s policy favors its citizens while aiming at securing the future of Eurozone. In addition to that, the well-developed notion that Germany has saved member-states from defaulting is the one that Germans can bid for when the discussion comes to the point of exerting criticism over austerity. What is more, the European banking sector owes a lot to the German-led bailout plans as the strong majority of the loans is destined to revitalize the banks rather than revitalizing the economy. From this prism, the ECB is favoring German’s austerity path.

Economically speaking, we should also take into account the long-held currency race between euro and dollar. It is important to stress out that despite US’s excessive sovereign debt, US bonds and interest rates still maintain their purchasing strength. From this perspective, it goes without saying that as long as euro’s damaged reputation remains intact, the ECB and Germany would definitely like to keep pressing for austerity in order to consolidate debt and keep interest rates in respectively low levels in order to defend the value of their currency. While the long-term implementation of such a policy might prove lacking, a short-term rally on euro might ensue. if this is not the case, and the euro keeps underweighting, there is a serious risk over the next year that the ECB, the EU and especially Germany might seek for a serious redefinition of Eurozone and, possibly, to more bailouts that would push member-states to the exit voluntarily.

From a social perspective, there is no doubt that austerity has completely exhausted the European society, and especially the people residing in debt-ridden member-states. Such a social exhaustion could seriously overlap all predictions over the German policy and press the European Union to take drastic measures, especially to the field of unemployment and growth policy. This scenario could be even more plausible with the view to the European elections of 2014 whereas in the case of Greece there is an additional risk that as far as European elections coincide with municipal elections in the country, political developments might forestall a total shift and trigger early national elections.

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