Samuel Marshall writes from Frankfurt: Frohe Weihnachten is the German for Merry Christmas. Was it so for Angela Merkel, the European Union’s real leader? The German word for that is Fűhrerin. The good news is that she was not woken from her slumbers by a phone call from José Manuel Barroso or some other Eurocrat in Brussels who had descended into panic mode. All is peaceful in Brussels right now. The hope is that the constant crises of 2012 will give way to a calm period in 2013. Reality is different. Next year may be even worse than this one.
Frau Merkel has kicked all the fancy talk about grandiose reforms of the EU and Eurozone into the long grass. Why? A German general election is looming in September 2013 and she does not want to do anything to sabotage her hopes of another term for her Christian Democratic Union (CDU) coalition. Mind you, her junior partners, the Free Democrats, are in free fall. They will struggle to cross the threshold to enter the Bundestag again. That means that perhaps Germany is looking again at a grand coalition between the CDU and the Social Democratic Party (SPD). Policy would veer between centre-right and centre-left. How does the SPD see the EU developing? The short answer is: not at Germany’s expense. After all, their support base is composed of workers and employees. Why should they bail out the fat cats in Brussels, Athens, Rome et al? Peer Steinbrűck, who will become Chancellor if the CDU are defeated, has changed his mind on Eurobonds. He no longer thinks they are a good idea. He has realised that they represent a permanent supply of IOUs to the profligate spenders in the EU. He and Merkel agree that pooled debts for the Eurozone would be like putting one’s head into the mouth of a hungry tiger. The SPD is also taking a tough line on fiscal consolidation, the euphemism for more austerity, in Greece, Spain and the other patients in the EU hospital. That is what German voters want to hear.
Mari Draghi, the ever smiling, űber optimistic head of the European Central Bank (ECB) no longer speaks of the green shoots of recovery in the first half of 2013. Instead they will appear in the second half of 2013. No doubt when June comes, he will tell everyone that growth is certain in the first half of 2014. His promise to come up with whatever sum was needed to bail out beleaguered countries has calmed the markets and saved Greece, for one, from having to leave the euro. However there is an elephant in the room. Greece is finding the austerity package forced on it by Berlin to be indigestible. Sooner or later, part of its sovereign debt will have to be written off. This is a highly sensitive subject as German banks stand to lose a package. Frau Merkel is hoping that this subject does not become a hot one before September next year. German banks losing billions could derail her plans for re-election. The social democrats might even jump in and oppose her in a bid to win the election.
We may be observing the calm before the storm.