They Hated Angela Merkel. Now They’ll Miss Her.

(Bloomberg Opinion) -- When Angela Merkel announced her planned retirement on Monday, few tears were shed in southern Europe. From Greece to Italy, the German chancellor has embodied the cold-heartedness of the rest of Europe to the plight of those in crisis.

At the height of the euro-zone sovereign debt crisis in 2012, Italy’s right-wing press saluted the national soccer team’s win against Germany by insulting Merkel on their front pages. In Greece, anti-austerity protesters have often depicted her with a Hitler mustache or wearing a Nazi uniform.

Yet, when Merkel finally steps down, southern Europe may have cause for regret.

True, her dithering was a decisive factor in prolonging the crisis, and she was never brave enough to address all the failures at the heart of the monetary union. But her slowness to act was almost certainly the product of the reluctance of German voters rather than of her famous cautiousness. Merkel always stood by the single currency and even shepherded important reforms that have helped its resilience. It isn’t clear that whoever follows her will be brave enough to do the same.

To Merkel’s critics, her faults are obvious: She acted too late during the Greek sovereign debt crisis, pretending Athens’ debt was sustainable when it wasn’t. While she supported three rescue packages, these imposed excessive austerity on Greece, triggering a never-ending spiral of recession and further indebtedness.

More broadly, she failed to take action on many of the structural faults at the heart of the currency union. The euro zone still lacks a Treasury to help countries in difficulty mitigate economic shocks. As chancellor, she insisted on a policy of wage moderation and fiscal restraint, a combination that helped to build a gargantuan external surplus that contributed to the crisis and did little to help other countries recover from its consequences.

Still, one should not forget the enormous progress the euro zone has made over the past decade. The rescues in Greece — but also Portugal, Spain, Ireland and Cyprus — marked a gradual breaking from the principle that countries in Europe shouldn’t bail each other out. Not only is this a clause in the European Treaties, it is also one of the dearest principles to parts of the German establishment. Merkel didn’t care: she backed the creation of the European Stability Mechanism, a permanent rescue fund which can deploy its multibillion-euro firepower in exchange for an adjustment program of fiscal restraint and structural reforms.

The other area where Merkel’s open-mindedness was visible is monetary policy. Over the last seven years, the European Central Bank has shifted gear: Firstly, it established a backstop for countries in crisis, through the Outright Monetary Transactions program. Secondly, it started quantitative easing to avert a deflationary spiral.

Of course, these innovations were the brainchild of the ECB’s president, Mario Draghi, and governing council. But Merkel’s support opened the door to Draghi’s appointment. The German chancellor also respected the independence of the ECB — unlike her finance minister, Wolfgang Schaeuble, who went as far as criticizing it for the rise of extremist parties in Germany.

It is possible that a different German leader would have acted more decisively in supporting euro-zone reform or in explaining to voters why a stronger monetary union is in their interest. In the last year, Merkel paid lip service to French president Emmanuel Macron’s grand plan to reform Europe, but has done little to support him.

But in German politics, there’s little evidence that pushing for greater European federalism pays off. Martin Schulz, a former president of the European Parliament and a well-known federalist, lost the 2017 elections badly, with the Social Democratic Party slumping to a post-war low. Conversely, the right-wing, euroskeptic Alternative for Germany party has made considerable gains — limiting the scope for Merkel’s Christian Democrats to press for euro-zone reform.

The one notable exception is the Green Party, which is open to the idea of Eurobonds, something that could entail some form of debt mutualization. But, for now, their recent electoral successes appear to be linked more to their domestic agenda than to their vision for Europe.

So there is some hope for the euro zone after Merkel. But with Italy on collision course with Brussels, and Macron looking increasingly weak at home, the stars aren’t aligning for a federalist leap in Germany. A more selfish and insular Germany is a distinct possibility. Many in southern Europe could come to regret the woman they despised.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

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