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Leading or hiding? Germany and the euro crisis

Today, if Henry Kissinger asked again which number to call to speak to Europe, he would certainly be given Angela Merkel's. The German Chancellor is the most powerful actor in the current euro crisis. But the undisputed importance of Germany is also its biggest problem: while the US and some EU partners like Poland want more leadership from Merkel, others fear German dominance, most notably the British.

So what is Merkel like? Being in the spotlight is diametrically opposed to her personal style. She prefers to lead from behind and not reveal her hand too early. Repeatedly, she has explained that there is no silver bullet to solve the euro crisis and that the Eurozone can only be stabilised step by step.

To observers this can look like policy-making trial and error. They complain that Merkel first rejects new proposals only to adopt them later because all alternatives have failed (something Opposition leader Frank-Walter Steinmeier dubbed "Merkel's law"). To some extent, that is true. But with such a complex issue as the Euro crisis, and with a coalition partner at home in a state of dissolution, there is probably no alternative to her approach. And not only the Liberals, but the Bavarian Conservatives too are adopting an ever more populist, nationalistic line on the euro.

Merkel's cure for the euro is based on three principles:

* Austerity, not stimulus: confidence can only be restored if EU states adopt a balanced budget.  Growth-stimulating investments are lower down the pecking order.

* Deeper integration: despite growing Euro-scepticism, even in Germany, Merkel believes the euro crisis must lead to ever-deeper European integration. This is also the opinion of Finance Minister Schäuble, one of the pillars of the German government. 

* Prevent inflation: domestically, Merkel is adamant to keep inflation down. Germans have so far been relatively relaxed about the euro crisis, but if inflation kicks in, the savings of millions of Germans would be at risk.  In her desire for re-election, she is  determined to prevent this.

For Merkel, the key to the resolution of the euro crisis is not primarily economical. She believes that stronger guarantees for eurozone countries, the buying of government bonds by the ECB, or even the issuance of Eurobonds, will not calm the markets. In her policy speech on December 2, she stated self-critically that above all, people have lost trust in politics.  Her response to the crisis is thus political rather than economical.

There is no doubt Merkel has grasped the seriousness of the crisis.  She also has her own ideas on how to solve it. The question is whether she can convince her European partners and lead the European Union out of the mire. Commission President Barroso, for example, fears the EU institutions might be weakened as a result of the crisis management of national governments, while President Sarkozy is afraid of yet another transfer of power to Brussels. And the fact that she has so far failed to present a clear new vision for Europe - stricter budget controls don’t do it for most people – makes it easy to dismiss her proposals as a German diktat. 

Surprisingly, it was Polish Foreign Minister Radoslaw Sikorski who warned in a recent speech in Berlin: "I fear German power less than I am beginning to fear German inactivity. You have become Europe's indispensable nation. You may not fail to lead."

"Leadership", Harvard's Joseph S. Nye writes, "is more like being in the middle of the circle and attracting others than being ‘king of the mountain’ and issuing orders to subordinates down below." Merkel knows this and is currently rallying for support among her fellow EU leaders, within and outside the eurozone. Whether she is successful, we will see by the end of this week.