Tuesday, June 19, 2012

Merkel faces growing pressure at home, abroad

AFP - Getty Images

German Chancellor Angela Merkel speaks with members of her delegation before a session of the G20 Summit in Los Cabos, Mexico on Monday. Increasingly isolated on the world stage, Merkel faces waning popular support at home for further German-led bailouts of other euro zone nations.

By John W. Schoen, Senior Producer

WEIMAR, Germany -- Time is running out for Angela Merkel.

The German chancellor -- Europe?s last, best hope for staving off financial and economic ruin -- is running out of options to save the euro zone?s common currency.

Sunday?s cliffhanger Greek elections may have postponed Athens? departure from the common currency, along with the risk of a wider euro zone recession that would threaten Germany?s export-reliant economy. But Athens has yet to form a new government willing to accede to Germany?s demands for continued, painful spending cuts.

"We want Europe, we want to cooperate," said Filippos Nikolopoulos, a sociology professor at Crete University. "But we do not want to be subjugated by Mrs. Merkel."?

In 18 summit meetings over two years, European leaders have tried and failed to agree on a way out of the debt crisis. Now, Greece has little time to form a new government. With a shrinking cash balance leaving Athens days away from issuing IOUs to government workers, the so-called ?troika of bailout agencies? the IMF, ?EU and European Central Banks - are refusing to send a new mission to Greece until it?s clear who they will be negotiating with.

Even if a government can be formed, the political divisions that have brought Greece to the brink of economic collapse remain deeply entrenched.

?There is significant risk that this government, if formed, will be weak and short-lived,? said David Rosenberg, chief economist at Gluskin Sheff. ?Lacking is the deep popular support needed to usher in critical legislation. Instead, we can probably look forward to policy paralysis.?

Merkel?not only faces continued resentment among Greeks but is also losing support among her own voters, especially for her plan to bind Europe more closely in a common political union that would require Germans to cede sovereignty to Brussels and turn over more power to the European Parliament.

John Schoen / msnbc.com

German student Mara Loth is opposed to proposals that would tighten the European union.

?I feel more secure living in a smaller country with its own government,? said Mara Loth, an architecture student at Bauhaus University. ?I think if Europe were like the U.S. -- if all the states were put together -- I wouldn?t even understand my president because he would talk another language. So I really, really hope this?doesn't?happen.?

German prides runs high here in the town that gave its name to a democratic regime that ruled between world wars until it was undone -- largely by economic turmoil. While cable news channels are devoting heavy coverage to Merkel?s negotiations with world leaders at the G20 summit meeting in Mexico, most TV screens stay tuned to the latest round of the Euro 2012 soccer championship, in which Germany remains a strong contender.

Merkel finds herself increasingly isolated in her quest to save Europe by prescribing harsh medicine to southern neighbors that include the kind of of spending cuts and labor reforms that helped revive Germany?s moribund economy in the first decade of this century.

For a time, Merkel enjoyed the support of her neighbor, former French President Nicolas Sarkosy, who lent the support of Europe?s second-largest economy to demands for fiscal austerity in Greece, Ireland, Portugal, Spain and Italy. But Sarkozy's recent loss to socialist Fran?ois Hollande, who campaigned on a promise to reverse the tightfisted policies of his predecessor, has left Merkel with just a handful of smaller northern European allies. Merkel?s austerity roadmap was further eroded Sunday when French voters strengthened their support for Hollande?s new government.

Burdened by the history of two world wars fought over its former leaders' imperial ambitions, Germans are deeply averse to calls that they assume an even larger role in reversing Europe's deepening political divide and widening financial crisis. Such calls have come in recent weeks President Barack Obama, Hollande, British Prime Minister David Cameron and Italian Prime Minister Mario Monti, among others.

Merkel has steadfastly resisted proposals for new measures such as a bank union to guarantee deposits, a debt repayment fund to free up frozen credit markets, and the pooling of borrowing among euro zone members with common euro bonds. Some economists warn that unless Merkel supports such measures, the unwinding of the euro zone will accelerate.

Germany is not unsympathetic to the plight of its struggling southern neighbors. The Berlin government has already contributed the bulk of the nearly 700 billion euros ($900 billion) raised for various bailout funds and guarantees. With demand for its exports already beginning to soften, many German workers clearly understand the threat of a widening recession outside German borders.?

But so far, the euro crisis, for most Germans, is still contained largely to newspaper headlines and TV reports.?Increasingly isolated on the world stage, Merkel faces waning popular support at home for further bailouts. Though Germans support the preservation of the common currency that helped boost their export economy, opinion polls show opposition to further bailouts running about two to one.

And there is little appetite for Merkel?s plan for a United Europe.

?Even though Germany has economic problems, it is one of the leading countries in Europe,? said Loth, the Bauhaus student. ?That?s why I feel like I?m in a good position living in Germany right compared to other European countries. I understand why, and I understand that countries having bigger economic problems need to be supported and I understand that they need help too. But I think uniting Europe is not going to solve that problem."

The need to outline a lasting strategy to save the euro currency and the escalating violence in Syria are on the agenda, as world leaders meet in Los Cabos, Mexico for a G20 summit. NBC's Chuck Todd reports.

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