As German elections approach, Merkel leaves strong but vulnerable economy


Supporters of Merkel say she has helped the German economy dodge some bullets. His keen political instincts proved invaluable during a eurozone debt crisis that began in 2010 and nearly destroyed the currency Germany shares with 18 other countries. Ms Merkel arguably kept hard-line supporters of her own Christian Democratic Union under control as the European Central Bank printed money to help affected countries like Greece, Italy and Spain.

But its longtime finance minister Wolfgang Schäuble was also a key enforcer of policies that protected German banks while imposing severe austerity on southern Europe. At the time, Germany refused to support the idea of ​​a collective European debt – a position Merkel abandoned last year, amid the fallout from a pandemic that threatened European unity.

Ms Merkel was also lucky on her side. The former communist states of East Germany largely caught up during his tenure. And Ms Merkel took advantage of reforms by her predecessor, Gerhard Schröder, which made it easier to hire and fire companies and put pressure on the unemployed to take low-paying jobs.

Mr Schröder’s economic overhaul caused unemployment to drop sharply, from over 11% when Merkel took office below 4%. But the changes were unpopular because they weakened regulations that protected Germans from layoffs. They paved the way for Mr Schröder’s defeat to Ms Merkel in 2005.

The lesson for German politicians was that it was better not to touch German privileges, and for the most part, Merkel did not. Many of the jobs created were low-paid and offered limited opportunities for upward mobility. The result has also been an increase in social disparities, with a rapidly aging population increasingly threatened by poverty.

“Over the past 15 to 16 years, we have seen a marked increase in the number of people living below the poverty line and at risk,” said Marcel Fratzscher, economist at the DIW research institute in Berlin. “Although the 2010s were very successful economically, not everyone benefited.”

Merkel’s failure to invest more in infrastructure, research and education, despite her training as a doctor of physics, also reflects German aversion to public debt. Mr. Schäuble, as Minister of Finance, imposed budgetary discipline which favored budget surpluses over investments. The German parliament, controlled by Merkel’s party, even enshrined a balanced budget, a so-called debt brake, into law.

About Norma Wade

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