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The Merkel Miracle

Paris is licking its wounds while Rome is still coming to terms with the settling chaos following the election results. Berlin is about to reveal the Holocaust archives after relentless pressure from researchers prised open one of the most comprehensive sources of information about Jews killed or lost in the pogrom, testifying to the Nazi obsession with documentary detail.

Down in Hanover, India’s Prime Minister Dr Manmohan Singh has joined hands with German chancellor Angela Merkel in lauding the can-do spirit of India’s industrial might and called for stronger co-operation on all fronts, while opening the annual technological show window of the industrial world, the Hanover Fair. India is preening its feathers as ‘partner country’ for the second time here, after a gap of 22 years.

‘But wait. Wasn’t it Germany that was known as the ‘sick man of Europe’ —awash with high unemployment, rigid labour market norms, and a recurring haemorrhage through a lifeline for its languishing eastern cousins? And one that had resisted change with dogged fervour? But in the six months since Angela Merkel, after a lacklustre campaign, took the reins of a grand coalition government, Germany has pleasantly surprised cynics with a slow but swift turnaround from the unnerving traits of "Old Europe" to a more respectable position at the top of the heap on the Continent.

The economic figures pouring in are somewhat heady by old standards. They have shown economic growth rising, inflation falling and business confidence recovering. Consumer spending has surged, trade union militancy has softened, and painful economic rationalisation, the bedrock against which the previous government floundered, has begun to be gradually, even if cajolingly, implemented.

Stroll down Berlin’s bustling Kurfuerstendamm and one begins to sense a new vitality among the people, with shoppers crowding restaurants with overpriced menus, boutiques, jewellers and upmarket retail outlets. The Berlin cityscape now dazzles with shiny, metallic sculptures that boast of Germany’s greatest inventions, ranging from oversized aspirins to huge Adidas football boots. After 13 years of public wrangling, Berlin will be going ahead with a swanky new airport capable of handling some 20 million passengers a year, competing with Heathrow and Schiphol, and reflecting a commitment to the future that was lacking since the early days of German unification.

Chancellor Merkel has been able to benefit from the groundwork laid by her predecessor Gerhard Schroeder, whose hapless efforts towards overhauling the welfare state exacted a heavy political price. As a result, Ms. Merkel is enjoying almost unprecedented popularity. She is often compared to Margaret Thatcher, the ‘Iron Lady’ with the ‘swinging handbag’, a label that Ms. Merkel has consistently rejected. The comparison is misleading. Merkel is a consensus politician, avoiding high-profile clashes and provocative statements. Last week, for instance, she refused to take legal action against a publication that ran an unflattering holiday picture of her taken during her Italian vacation, opting instead for the overwhelming verdict of public opinion in her favour as enough recompense.

Time is a healer, they say. It can also be a great teacher. By last autumn, almost everyone in Germany realised that Germany had to enact bold reforms if it were to create jobs and avoid the punishing strictures of a globalising order. Corporate Germany has also reflected managerial confidence in endorsing Ms. Merkel’s policies and has contributed to the mellowing of the trade unions. It is now enough for a company to threaten to move a factory to Eastern Europe for German workers to abandon a wage dispute.

So productivity is up and the work ethic is back on track. As more and more companies hire workers on fixed-term contracts, trade unions have realised their inability to dictate terms anymore. The effect is both liberating and exhilarating. Youngsters are setting up Internet cafes and taking up second jobs, usually as free-lance events organisers. People are pushing themselves harder to get themselves employed.

Over-enthusiastic Germans are calling this revival of national self-confidence the Merkel Miracle. This has come partly from the reforms already implemented although the real challenges have to be continually faced. It has come also from an adroit foreign policy that has mended fences with Washington, maintained relations with Russia and shown statesmanship over the European budget. And you can be sure that a German Pope and the impending excitement of a possible German World Cup win (don’t bet on it) have also had a role to play.

Ms. Merkel has promised to accelerate reforms at a juncture where Germany has decisively moved ahead of France and Italy in the reform process. And with the Blair era in Britain slowly drawing to a close, critics are almost unanimous in dubbing Germany as ‘the rising star of Europe’. But if anyone should be given credit for giving the erstwhile laggard a push, then the lady with the quiet, steady, low-key but effective political leadership can take a bow. Ms. Merkel has already far outstripped expectations.

In the meanwhile, a crisis of sorts is slowly brewing in the European Union. Gazprom, Russia’s state-controlled gas monopoly, has stirred a hornet’s nest by threatening to divert its supplies to fast-growing markets elsewhere if plans to expand in Europe were thwarted. Interestingly, Russia has signed an initial agreement to supply the Chinese market with gas from western Siberia, which is also the main source of gas for Europe. The crux of the matter is that Gazprom’s ambitions to move into downstream gas distribution in Europe has met with stiff opposition by the EU.

The latest move by Gazprom has only underscored the EU’s need to get its act together in diversifying the origin of European supplies as well as the supply routes, to say nothing of reducing its dependence on foreign energy sources as a whole. There is always the risk of politics vitiating economics, as when Gazprom sparked an international crisis earlier this year while it briefly cut supplies to the EU in a dispute with Ukraine.

M. N. Hebbar is a Berlin-based commentator