Germany is the fourth largest economy in the world and the largest economy in Europe. Because of its economic power and, *ahem* unlike certain countries in Europe, its strong trade surplus, Germany has become the de facto leader of the European Union. Thus, every time a bailout or an economic assistance package is negotiated with the fiscally troubled nations such as Greece, Portugal, or Cyprus, the European Union and the IMF must get Germany’s approval. After all, its the German taxpayers’ money that goes to those countries.
In addition to helping the heavily indebted nations of the Eurozone, the European Union is also in the process of creating a banking union. In a nutshell, the European Banking Union is a political vision for more integration with the goal of strengthening and extending the regulation of the banking sector across the EU. Because of Germany’s weight in the EU, they are a key nation in this process as well.
But, over the past 4-5 months, the EU has been in sleep mode as they were waiting for the results of the German election. Angela Merkel has been the Chancellor (the word those drunk Germans came up instead of President) of Germany since 2005. Here is the beautiful Mrs. Merkel here.
Merkel represents the Christian Democratic Party (CDU). They’re a center right party. Her main opponent in the election was Peer Steinbruck of the Social Democratic Party (SPD), which is a center left party. Here is the Steinbruck with a dashing haircut.
Merkel had many factors playing in her favor leading to an election. Firstly, Germans trust her. She has been Chancellor since 2005 and has rightfully so earned the nickname, Mutti, or Mother in German. Of course lets not forget that Germany has been performing well economically when much of the rest of Europe has stagnated. The unemployment in Germany is much lower than the troubled countries of the Eurozone as evidenced by the graph below that was generated by Eurostat. As of May 2013, German unemployment is at 5.3%. That is a dream rate not just for countries in Europe but also for the United States.
On the growth side, German GDP has increased on average at 1-2% over the last couple of years. That is not that bad considering that a majority of Germany’s European export partners are in recession.
Finally, Merkel is one of the individuals credited with saving the Eurozone from the brink of destruction. Just two years ago, some people were beginning to even doubt if the European Union would survive the economic crisis it was in. The possibility of Greece exiting the Eurozone was being discussed and many thought that if Greece exited, so too would other troubled nations. But, along with the support of the European Central Bank, Germany committed to do whatever it takes to maintain the Eurozone.
However, Merkel does have her critics. In Germany, there are those who are skeptical of bailing out country after country within the Eurozone by using German taxpayer money. In Europe, the name Merkel is frowned upon by some because of her support of continent-wide austerity (fancy word for budget tightening). To remedy the massive debt that countries such as Greece, Italy, Portugal, Ireland, Spain (PIIGS) have gotten themselves in, Merkel pushed for strong budget tightening. On paper this sounds good but it stagnates economies and effects the lives of ordinary people. Public workers get laid off, civil servant wages go down, and pension plans get reduced.
But the election came and went and Merkel’s CDU came on top, gaining 41.5% of the vote where as the SDP got only 25.7%. Germans trust Merkel and she is seen as a safe bet, especially in the economically murky times that they are in right now. Steinbruck and the SPD could not manage to run a campaign that would sway enough voters to turn on Merkel.
But that is not the end of our story. The math wizards among you might have seen that if you add the two percentages of votes, they equal to much less than 100%. What happened to the other 32.8% of the country? Well, similar to most European countries, Germany has a multi-party political system. In addition to the CDU and the SPD, there are several other prominent parties in Germany. Some of the other parties include the environmentalist Greens, the communist DIE LINKE, and the Pirate Party, which was founded through the internet. Though none of them managed to get more than 10% of the vote, since the CDU doesn’t have the majority of the vote by itself, it must form a coalition with another party. This can have a significant impact on the policies Merkel enacts as Chancellor. Prior to the election, the CDU was in coalition with the liberal Free Democrats (FDP). But the FDP managed to barely get about 2% of the vote. Right now it looks as if Merkel will either try to create a coalition with several of the smaller parties, or she will attempt to create a grand coalition with the SPD. That all depends on whether the SPD will accept Merkel’s offer and assist in the governing of country. Germans in general favor a grand coalition. But, history shows that the parties that enter a coalition with the CDU tend to do bad in the following elections. This could in effect cause votes in the next election to go away from the SPD to some extreme parties such as DIE LINKE or the Alternative for Europe Party, which is an anti Euro party.
Whether you like her or not, Merkel is queen of Germany for 4 more years. The rest of Europe seems to like it. European stocks rallied and the Euro gained in value against other currencies after her reelection was officially announced. Finally, the rest of Europe can stop twiddling their thumbs and get on with the much needed reforms to fix their economic and financial system. Right Obama?
“The euro is our common fate, and Europe is our common future”