The Fall of Germany. There Will Be No Economic Recovery
The Fall of Germany. There Will Be No Economic Recovery
Published on Nov 14, 2014
The current state of the German economy, including government spending, runaway electricity costs, green energy scams, wildly increasing housing costs, budget deficits, cheap money policies, public sector worker pensions, collapsing GDP growth, retirement savings, educational spending, health care costs, taxes, military spending, inflation, standard of living, income distribution, unemployment and mental health.
While the mainstream media and government officials may paint the picture of economic growth and an impending financial recovery just around the corner, we'll examine the hard numbers and empirical evidence instead of making blind assertions.
With unsustainable yearly deficits, stagnant wages for decades, double digit cost of living increases - hopefully this information will help people brace themselves for the unfortunate reality that...
While the mainstream media and government officials may paint the picture of economic growth and an impending financial recovery just around the corner, we'll examine the hard numbers and empirical evidence instead of making blind assertions.
With unsustainable yearly deficits, stagnant wages for decades, double digit cost of living increases - hopefully this information will help people brace themselves for the unfortunate reality that...
There will be no economic recovery. Prepare yourself accordingly. *******
The making of Angela Merkel(unusual politician) a German enigma with Andrew Marr BBC documentary
Published on Sep 21, 2013
safThis weekend, there's an election that will influence the future of much of Europe - Britain, France, Spain, Italy, Greece and many other countries. But none of them can vote. The election is in Germany - and the woman at the centre of this political event is Angela Merkel.*******
For every country in Europe, it's all about the economy. Across the continent, people are still battling with the twists and turns of the financial crisis. And wherever you are, economic recovery depends heavily on how Angela Merkel treats the next stage of the crisis: these days, most roads lead to Berlin.
That's why it has long seemed to me that one of the most important political reporting jobs right now is to try to understand Angela Merkel better. But Mrs Merkel is an unusually private and reticent politician - there is no exhibitionism and grandstanding. Even for Germans, she's a hard woman to know.
She didn't want to do an interview ahead of the German elections, and certainly not in English - even though she speaks it quite well. But we've spoken to a range of her friends, her political allies and her critics. We've delved back into to her upbringing in the pretty East German town of Templin, some 50 miles from Berlin, and spoken to childhood friends and student mates who knew her at a time when politics was more dangerous and tricky.
For every country in Europe, it's all about the economy. Across the continent, people are still battling with the twists and turns of the financial crisis. And wherever you are, economic recovery depends heavily on how Angela Merkel treats the next stage of the crisis: these days, most roads lead to Berlin.
That's why it has long seemed to me that one of the most important political reporting jobs right now is to try to understand Angela Merkel better. But Mrs Merkel is an unusually private and reticent politician - there is no exhibitionism and grandstanding. Even for Germans, she's a hard woman to know.
She didn't want to do an interview ahead of the German elections, and certainly not in English - even though she speaks it quite well. But we've spoken to a range of her friends, her political allies and her critics. We've delved back into to her upbringing in the pretty East German town of Templin, some 50 miles from Berlin, and spoken to childhood friends and student mates who knew her at a time when politics was more dangerous and tricky.
The Quiet German
The astonishing rise of Angela Merkel, the most powerful woman in the world
By George Packer
December 1, 2014 Issue
A summer afternoon at the Reichstag. Soft Berlin light filters down through the great glass dome, past tourists ascending the spiral ramp, and into the main hall of parliament. Half the members’ seats are empty. At the lectern, a short, slightly hunched figure in a fuchsia jacket, black slacks, and a helmet of no-color hair is reading a speech from a binder. Angela Merkel, the Chancellor of the Federal Republic of Germany and the world’s most powerful woman, is making every effort not to be interesting.
“As the federal government, we have been carrying out a threefold policy since the beginning of the Ukraine crisis,” Merkel says, staring at the binder. Her delivery is toneless, as if she were trying to induce her audience into shifting its attention elsewhere. “Besides the first part of this triad, targeted support for Ukraine, is, second, the unceasing effort to find a diplomatic solution for the crisis in the dialogue with Russia.” For years, public speaking was visibly painful to Merkel, her hands a particular source of trouble; eventually, she learned to bring her fingertips together in a diamond shape over her stomach.
The Reichstag was constructed under Kaiser Wilhelm I and Chancellor Otto von Bismarck, in the eighteen-eighties, when a newly unified Germany was making its first rise to pre-eminence in Europe. Two days before the end of the First World War, with a Bolshevik revolution spreading across the country, a social-democratic politician interrupted his lunch inside the Reichstag, stood at a second-floor balcony, and declared the end of imperial Germany: “Long live the German republic!” The Reichstag was the turbulent seat of parliament through the Weimar era and into the start of Nazi rule, until, on the night of February 27, 1933, a suspicious fire broke out in the session chamber and nearly gutted the building. Germany’s new Chancellor, Adolf Hitler, rushed to the scene with his aide Joseph Goebbels and blamed the fire on the Communists, using the crisis to suspend civil liberties, crush the opposition, and consolidate all power into the Nazi Party. Parliament voted to render itself meaningless, and the Nazis never repaired the damaged building. At the end of the Second World War, the Soviets saw the Reichstag as the symbol of the Third Reich and made it a top target in the Battle for Berlin, laying heavy siege. A photograph of a Red Army soldier raising a Soviet flag amid the neoclassical statuary on the roof became the iconic image of German defeat.
During the Cold War, the Reichstag—its cupola wrecked, its walls bullet-pocked—was an abandoned relic in the no man’s land of central Berlin, just inside the British sector. The Wall, built in 1961, ran a few steps from the back of the building. A minimal renovation in the sixties kept out the elements, but the Reichstag was generally shunned until the Wall came down, in 1989. Then, at midnight on October 3, 1990, President Richard von Weizsäcker stood outside the Reichstag and announced to a crowd of a million people the reunification of Germany, in freedom and peace. Berlin became its capital.
For the next decade, until the Bundestag began convening there officially, the Reichstag was reconstructed in an earnestly debated, self-consciously symbolic manner that said as much about reunified Germany as its ruin had said about the totalitarian years. The magnificent dome, designed by Norman Foster, suggested transparency and openness. The famous words on the colonnaded entrance, “DEM DEUTSCHEN VOLKE” (“To the German People”)—fabricated out of melted-down French cannons from the Napoleonic Wars and affixed during the First World War—were preserved out of a sense of fidelity to history. But, after parliamentary argument, a German-American artist was commissioned to create a courtyard garden in which the more modest phrase “DER BEVÖLKERUNG”—“To the Populace,” without the nationalistic tone of the older motto—was laid out in white letters amid unruly plantings. During the Reichstag’s reconstruction, workers uncovered graffiti, in Cyrillic script, scrawled by Red Army soldiers on second-floor walls. After another debate, some of these were kept on display as historical reminders: soldiers’ names, “Moscow to Berlin 9/5/45,” even “I fuck Hitler in the ass.”
No other country memorializes its conquerors on the walls of its most important official building. Germany’s crimes were unique, and so is its way of reckoning with the history contained in the Reichstag. By integrating the slogans of victorious Russian soldiers into its parliament building, Germany shows that it has learned essential lessons from its past (ones that the Russians themselves missed). By confronting the twentieth century head on, Germans embrace a narrative of liberating themselves from the worst of their history. In Berlin, reminders are all around you. Get on the U-Bahn at Stadtmitte, between the Memorial to the Murdered Jews of Europe and the Topography of Terror Gestapo museum, and glance up at the train’s video news ticker: “80 years ago today PEN Club-Berlin forced into exile.” Like a dedicated analysand, Germany has brought its past to the surface, endlessly discussed it, and accepted it, and this work of many years has freed the patient to lead a successful new life.
At the lectern, Merkel continues addressing parliament, recounting a meeting, in Brussels, of the Group of Seven, which has just expelled its eighth member, Russia, over the war in Ukraine. “We will be very persistent when it comes to enforcing freedom, justice, and self-determination on the European continent,” she says. “Our task is to protect Ukraine on its self-determined way, and to meet old-fashioned thinking about spheres of influence from the nineteenth and twentieth century with answers from the global twenty-first century.” Merkel has reached her rhetorical high point—signalled by a slowing of her monotone and a subtle hand gesture, fingers extended. To the non-German speaker, she could be reading out regulatory guidelines for the national rail system.
The Chancellor finishes to sustained applause and takes a seat behind the lectern, among her cabinet ministers. Merkel has lost weight—bedridden last winter after fracturing her pelvis in a cross-country-skiing accident, she gave up sausage sandwiches for chopped carrots and took off twenty pounds—and her slimmer face, with its sunken eyes and longer jowls, betrays her fatigue. She’s been Chancellor since 2005, having won a third term last September, with no challenger in sight.
After the Chancellor, it’s the turn of the opposition to speak—such as it is. The ruling coalition of Merkel’s Christian Democrats and the Social Democrats has eighty per cent of the seats in the Bundestag. The Greens, who did poorly in last year’s election, have had trouble distinguishing their agenda from Merkel’s, and often lend her support. On this day, the role of opposition is left to Die Linke, the leftist party of mostly former East German politicians, which has just ten per cent of parliament. Sahra Wagenknecht, an orthodox Marxist in a brilliant-red suit, steps behind the lectern and berates Merkel for her economic and foreign policies, which , she says, are bringing Fascism back to Europe. “We must stop abusing a highly dangerous, half-hegemonic position that Germany slid into, in the ruthless old German style,” Wagenknecht declares. She then cites the French historian Emmanuel Todd: “Unknowingly, the Germans are on their way to again take their role as bringers of calamity for the other European peoples, and later for themselves.”
Merkel ignores her. She’s laughing about something with her economics minister, Sigmar Gabriel, and her foreign minister, Frank-Walter Steinmeier, both Social Democrats. While Wagenknecht accuses the government of supporting Fascists in Kiev, Merkel gets up to chat with her ministers in the back row. She returns to her seat and rummages in an orange-red leather handbag that clashes with her jacket. When she glances up at Wagenknecht, it’s with a mixture of boredom and contempt.
The speaker ends her jeremiad, and the only people to clap are the members of Die Linke, isolated in the far-left section of the chamber. One by one, Social Democratic and Green parliamentarians come forward to defend Merkel. “How can you connect us Germans to Fascists?” Katrin Göring-Eckardt, a Green leader, asks, to applause. Another woman from Die Linke throws a quote of Bertolt Brecht at Göring-Eckardt: “Who does not know the truth is simply a fool, yet who knows the truth and calls it a lie is a criminal.” Göring-Eckardt is outraged. The vice-president of the Bundestag orders the woman from Die Linke to observe protocol. Merkel keeps ignoring the exchange, at one point turning her back, at another leaving the hall. Later, German news accounts will speak of high drama in the normally drowsy Bundestag, but Merkel’s body language tells the story: the drama has been provided by an insignificant minority. Chancellor Merkel has the parliament under control.
The historian Fritz Stern calls the era of reunification “Germany’s second chance”—a fresh opportunity to be Europe’s preëminent power, after the catastrophic period of aggression that began a century ago. Merkel seems perfectly matched to the demands of this second chance. In a country where passionate rhetoric and macho strutting led to ruin, her analytical detachment and lack of apparent ego are political strengths. On a continent where the fear of Germany is hardly dead, Merkel’s air of ordinariness makes a resurgent Germany seem less threatening. “Merkel has a character that suggests she’s one of us,” Göring-Eckardt told me. Germans call the Chancellor Mutti, or Mommy. The nickname was first applied by Merkel’s rivals in the Christian Democratic Union as an insult, and she didn’t like it, but after Mutti caught on with the public Merkel embraced it.
While most of Europe stagnates, Germany is an economic juggernaut, with low unemployment and a resilient manufacturing base . The ongoing monetary crisis of the euro zone has turned Germany, Europe’s largest creditor nation, into a regional superpower—one of Merkel’s biographers calls her “the Chancellor of Europe.” While America slides into ever-deeper inequality, Germany retains its middle class and a high level of social solidarity. Angry young protesters fill the public squares of countries around the world, but German crowds gather for outdoor concerts and beery World Cup celebrations. Now almost pacifist after its history of militarism, Germany has stayed out of most of the recent wars that have proved punishing and inconclusive for other Western countries. The latest E.U. elections, in May, saw parties on the far left and the far right grow more popular around the Continent, except in Germany, where the winners were the centrists whose bland faces—evoking economics professors and H.R. managers—smiled on campaign posters, none more ubiquitous than that of Merkel, who wasn’t even on the ballot. American politics is so polarized that Congress has virtually stopped functioning; the consensus in Germany is so stable that new laws pour forth from parliament while meaningful debate has almost disappeared.
“The German self-criticism and self-loathing are part of the success story—getting strong by hating yourself,” Mariam Lau, a political correspondent for the weekly newspaper Die Zeit, told me. “And Merkel had to reëducate herself, too. She’s part of the self-reëducation of Germany.”
Among German leaders, Merkel is a triple anomaly: a woman (divorced, remarried, no children), a scientist (quantum chemistry), and an Ossi (a product of East Germany). These qualities, though making her an outsider in German politics, also helped to propel her extraordinary rise. Yet some observers, attempting to explain her success, look everywhere but to Merkel herself. “There are some who say what should not be can’t really exist—that a woman from East Germany, who doesn’t have the typical qualities a politician should have, shouldn’t be in this position,” Göring-Eckardt, another woman from East Germany, said. “They don’t want to say she’s just a very good politician.” Throughout her career, Merkel has made older and more powerful politicians, almost all of them men, pay a high price for underestimating her.
Merkel was born in Hamburg, West Germany, in 1954. Her father, Horst Kasner, was an official in the Lutheran Church, one of the few institutions that continued operating in both Germanys after the postwar division of the country. Serious and demanding, he moved the family across the frontier just a few weeks after Angela’s birth—and against his wife’s wishes—to take up ecclesiastical duties in the German Democratic Republic. That year, almost two hundred thousand East Germans fled in the other direction. Kasner’s unusual decision led West German Church officials to call him “the red minister.” Joachim Gauck, a former East German pastor and dissident, who, in 2012, was elected Germany’s largely ceremonial President, once told a colleague that people in the Lutheran Church under Communism knew to stay away from Kasner, a member of the state-controlled Federation of Evangelical Pastors. By most accounts, Kasner’s motives were as much careerist as ideological.
Angela, the oldest of three children, was raised on the outskirts of Templin, a cobblestoned town in the pine forests of Brandenburg, north of Berlin. The Kasners lived in the seminary at Waldhof, a complex of around thirty buildings, many from the nineteenth century, belonging to the Lutheran Church. Waldhof was—and remains—home to several hundred physically and mentally disabled people, who learned trades and grew crops. Ulrich Schoeneich, who managed the estate in the eighties and knew the Kasners, described Waldhof under the East Germans as a grim place, with up to sixty men crammed into a single room, and no furniture except cots. Merkel once recalled seeing some residents strapped to benches, but she also said, “To grow up in the neighborhood of handicapped people was an important experience for me. I learned back then to treat them in a very normal way.”
Merkel’s upbringing in a Communist state was as normal as she could make it. “I never felt that the G.D.R. was my home country,” she told the German photographer Herlinde Koelbl, in 1991. “I have a relatively sunny spirit, and I always had the expectation that my path through life would be relatively sunny, no matter what happened. I have never allowed myself to be bitter. I always used the free room that the G.D.R. allowed me. . . . There was no shadow over my childhood. And later I acted in such a way that I would not have to live in constant conflict with the state.” During her first campaign for Chancellor, in 2005, she described her calculations more bluntly: “I decided that if the system became too terrible, I would have to try to escape. But if it wasn’t too bad then I wouldn’t lead my life in opposition to the system, because I was scared of the damage that would do to me.”
Being the daughter of a Protestant minister from the West carried both privileges and liabilities. The Kasners had two cars: the standard East German Trabant, an underpowered little box that has become the subject of kitschy Ostalgia, and a more luxurious Wartburg, their official church car. The family received clothes and food from relatives in Hamburg, as well as money in the form of “Forum checks,” convertible from Deutsche marks and valid in shops in large East Berlin hotels that sold Western consumer items. “They were élite,” Erika Benn, Merkel’s Russian teacher in Templin, said. But the Church retained enough independence from the state that the Kasners lived under constant suspicion, and during Angela’s childhood religious organizations came to be seen as agents of Western intelligence. In 1994, an official report on repression in East Germany concluded, “The country of Martin Luther was de-Christianized by the end of the G.D.R.”
Angela’s mother, Herlind, suffered the most in the family. An English teacher who imparted her passion for learning to Angela, Herlind wrote to the education authorities every year asking for a job, and every year she was told that nothing was available, even though English teachers were in desperately short supply. “She always felt oppressed by her husband,” Schoeneich, the Waldhof manager, told me.
Angela was physically clumsy—she later called herself “a little movement idiot.” At the age of five, she could barely walk downhill without falling. “What a normal person knows automatically I had to first figure out mentally, followed by exhausting exercise,” she has said. According to Benn, as a teen-ager Merkel was never “bitchy” or flirtatious; she was uninterested in clothes, “always colorless,” and “her haircut was impossible—it looked like a pot over her head.” A former schoolmate once labelled her a member of the Club of the Unkissed. (The schoolmate, who became Templin’s police chief, nearly lost his job when the comment was published.) But Merkel was a brilliant, ferociously motivated student. A long time political associate of Merkel’s traces her drive to those early years in Templin. “She decided, ‘O.K., you don’t fuck me? I will fuck you with my weapons,’ ” the political associate told me. “And those weapons were intelligence and will and power.”
When Angela was in the eighth grade, Benn recruited her for the Russian Club and coached her to compete in East Germany’s Russian-language Olympiad. During skits that the students practiced in the teacher’s tiny parlor, Benn had to exhort her star student to look up and smile while offering another student a glass of water in Russian: “Can’t you be a little more friendly?” Merkel won at every level, from school wide to countrywide, a feat that she managed three times, to the glory of Frau Benn, a Party member with small-town ambitions. In her tidy apartment in Templin, Benn, who is seventy-six, proudly showed me a victory certificate from 1969. “I have the Lenin bust in the cellar,” she said. Not long before Horst Kasner died, in 2011, he sent a newspaper clipping to a colleague of Benn’s, with a picture of Merkel standing next to Russia’s President, Vladimir Putin. To Benn’s delight, Putin was quoted expressing his admiration for the first world leader with whom he could converse in his mother tongue.
In 1970, an incident exposed the fragile standing of the bürgerlich Kasner family. At a local Party meeting, the Russian Club’s latest triumph was announced, and Benn expected praise. Instead, the schools supervisor observed acidly, “When the children of farmers and workers win, that will be something.” Benn burst into tears.
Merkel studied physics at Leipzig University and earned a doctorate in quantum chemistry in Berlin. She was allowed to pursue graduate studies, in no small part because she never ran afoul of the ruling party. Ulrich Schoeneich, who became Templin’s mayor after reunification, expressed bitterness to me that Merkel hasn’t been challenged much on her accommodation with the East German system. Schoeneich’s father, Harro, was also a Protestant minister, but, unlike Kasner, he openly dissented from the state. Ulrich Schoeneich refused to join the Free German Youth, the blue-shirted “fighting reserve” of the ruling party which the vast majority of East German teen-agers joined, including Angela Kasner, who participated well into adulthood. “Not just as a dead person in the files but as the officer responsible for agitation and propaganda,” Schoeneich told me, referring to a revelation in a controversial recent biography, “The First Life of Angela M.” He added, “I’m convinced that she could get her doctorate only because she was active in the Free German Youth, even in her postgraduate days. Most people say it was forced, but I demonstrated that you didn’t have to join it.” Merkel herself once admitted that her participation in the Free German Youth was “seventy per cent opportunism.”
Schoeneich wasn’t permitted to finish high school, and he spent much of his early life in the shadow cast by his family’s principled opposition. Angela Kasner had other ideas for her future, and became, at most, a passive opponent of the regime. Evelyn Roll, one of Merkel’s biographers, discovered a Stasi document, dated 1984, that was based on information provided by a friend of Merkel’s. It described Merkel as “very critical toward our state,” and went on, “Since its foundation, she was thrilled by the demands and actions of Solidarity in Poland. Although Angela views the leading role of the Soviet Union as that of a dictatorship which all other socialist countries obey, she is fascinated by the Russian language and the culture of the Soviet Union.”
Rainer Eppelmann, a courageous dissident clergyman under Communism, who got to know Merkel soon after the fall of the Wall, refuses to criticize her. “I don’t judge the ninety-five per cent,” he told me. “Most of them were whisperers. They never said what they thought, what they felt, what they were afraid of. Even today, we’re not completely aware what this did to people.” He added, “In order to be true to your hopes, your ambitions, your beliefs, your dreams, you had to be a hero twenty-four hours a day. And nobody can do this.”
After 1989, when the chance came to participate in democratic politics, these same qualities became useful to Merkel, in a new way. Eppelmann explained , “The whisperer might find it easier to learn in this new life, to wait and see, and not just burst out at once—to think things over before speaking. The whisperer thinks, How can I say this without damaging myself? The whisperer is somebody who might be compared to a chess player. And I have the impression that she thinks things over more carefully and is always a few moves ahead of her competitor.”
In 1977, at twenty-three, Angela married a physicist, Ulrich Merkel, but the union foundered quickly, and she left him in 1981. She spent the final moribund decade of the G.D.R. as a quantum chemist at the East German Academy of Sciences, a gloomy research facility, across from a Stasi barracks, in southeastern Berlin. She co-authored a paper titled “Vibrational Properties of Surface Hydroxyls: Nonempirical Model Calculations Including Anharmonicities.” She was the only woman in the theoretical-chemistry section—a keen observer of others, intensely curious about the world.
People who have followed her career point to Merkel’s scientific habit of mind as a key to her political success. “She is about the best analyst of any given situation that I could imagine,” a senior official in her government said. “She looks at various vectors, extrapolates, and says, ‘This is where I think it’s going.’ ” Trained to see the invisible world in terms of particles and waves, Merkel learned to approach problems methodically, drawing comparisons, running scenarios, weighing risks, anticipating reactions, and then, even after making a decision, letting it sit for a while before acting. She once told a story from her childhood of standing on a diving board for the full hour of a swimming lesson until, at the bell, she finally jumped.
Scientific detachment and caution under dictatorship can be complementary traits, and in Merkel’s case they were joined by the reticence, tinged with irony, of a woman navigating a man’s world. She once joked to the tabloid Bild Zeitung, with double-edged self-deprecation, “The men in the laboratory always had their hands on all the buttons at the same time. I couldn’t keep up with this, because I was thinking. And then things suddenly went ‘poof,’ and the equipment was destroyed.” Throughout her career, Merkel has made a virtue of biding her time and keeping her mouth shut.
“She’s not a woman of strong emotions,” Bernd Ulrich, the deputy editor of Die Zeit, said. “Too much emotion disturbs your reason. She watches politics like a scientist.” He called her “a learning machine.” Volker Schlöndorff, the director of “The Tin Drum” and other films, got to know Merkel in the years just after reunification. “Before you contradict her, you would think twice—she has the authority of somebody who knows that she’s right,” he said. “Once she has an opinion, it seems to be founded, whereas I tend to have opinions that I have to revise frequently.”
Every morning, Merkel took the S-Bahn to the Academy of Sciences from her apartment in Prenzlauer Berg, a bohemian neighborhood near the city center. For several stretches, her train ran parallel to the Wall, the rooftops of West Berlin almost in reach. Sometimes she commuted with a colleague, Michael Schindhelm. “You were confronted every day, from the morning on, with the absurdity of this city,” he told me. Schindhelm found Merkel to be the most serious researcher in the theoretical-chemistry section, frustrated by her lack of access to Western publications and scientists. Whenever her colleagues left the building to cheer the motorcade of a high-profile guest from the Communist world on its way from Schönefeld Airport, she stayed behind. “She really wanted to achieve something,” Schindhelm said. “Others just liked sitting in that comfortable niche while the country went down the drain.”
In 1984, Schindhelm and Merkel began sharing an office and, over Turkish coffee that she made, became close. They both had a fairly critical view of the East German state. Schindhelm had spent five years studying in the Soviet Union, and when news of Mikhail Gorbachev’s perestroika policy seeped into East Germany, through West German television, Merkel questioned him about the potential for fundamental change. They both felt that the world on the other side of the Wall was more desirable than their own. (Years later, Schindhelm, who became a theatre and opera director, was revealed to have been coerced by the Stasi into serving as an informer, though he apparently never betrayed anyone.)
One day in 1985, Merkel showed up at the office with the text of a speech by the West German President, Richard von Weizsäcker, given on the fortieth anniversary of the end of the Second World War. Weizsäcker spoke with unprecedented honesty about Germany’s responsibility for the Holocaust and declared the country’s defeat a day of liberation. He expressed a belief that Germans, in facing their past, could redefine their identity and future. In the West, the speech became a landmark on the country’s return to civilization. But in East Germany, where ideology had twisted the history of the Third Reich beyond recognition, the speech was virtually unknown. Merkel had procured a rare copy through her connections in the Church, and she was deeply struck by it.
Being an East German meant retaining faith in the idea of Germany even though many West Germans, who needed it less, had given up on reunification. As East Germany decayed, its citizens had nothing else to hold on to, whereas Westerners had been taught to suppress feelings of nationhood. “People were really lacking identity—there was an enormous vacuum to making sense of your existence,” Schindhelm said. Merkel’s excitement about the speech showed that “she had a very particular passion for Germany as a country, its history and culture.”
The next year, Merkel was granted permission to travel to Hamburg for a cousin’s wedding. After riding the miraculously comfortable trains through West Germany, she returned to East Berlin convinced that the socialist system was doomed. “She came back very impressed, but she came back,” Schindhelm said. “She stayed not out of loyalty to the state but because she had her network there, her family.” Merkel, in her early thirties, was looking forward to 2014—when she would turn sixty, collect her state pension, and be allowed to travel to California.
Merkel’s second life began on the night of November 9, 1989. Instead of joining the delirious throngs pouring through the Wall, which had just been opened, she took her regular Thursday-evening sauna with a friend. Later, she crossed into the West with a crowd at the Bornholmer Strasse checkpoint, but instead of continuing with other Ossis to the upscale shopping district of Kurfürstendamm she returned home, in order to get up for work in the morning. Her actions on that momentous night have been ridiculed as a sign of banality and a lack of feeling. But, in the following months, no East German seized the new freedoms with more fervor than Merkel. Few irreducible principles have been evident in her political career, but one of them is the right to the pursuit of happiness. “There aren’t many feelings that she’s really into, but liberty and freedom are very important,” Göring-Eckardt, the Green leader, said. “And this is, of course, linked to the experience of growing up in a society where newspapers were censored, books were banned, travel was forbidden.”
A month after the Wall fell, Merkel visited the offices of a new political group called Democratic Awakening, which were near her apartment. “Can I help you?” she asked. She was soon put to work setting up the office computers, which had been donated by the West German government. She kept coming back, though at first hardly anyone noticed her. It was the kind of fluid moment when things happen quickly and chance and circumstance can make all the difference. In March, 1990, the leader of Democratic Awakening, Wolfgang Schnur, was exposed as a Stasi informer, and at an emergency board meeting Rainer Eppelmann, the dissident clergyman, was chosen to replace him. Merkel was asked to handle the noisy crowd of journalists outside the door, and she did it with such calm assurance that, after the East German elections that March, Eppelmann suggested Merkel as a spokesman for the country’s first and last democratically elected Prime Minister, Lothar de Maizière.
“She was fleissig—the opposite of lazy,” Eppelmann recalled. “She never put herself in the foreground. She understood that she had to do a job here and do it well, but not to be the chief. Lothar de Maizière was the chief.” De Maizière already had a spokesman, so Merkel became the deputy. “The No. 1 press speaker showed off while she did all the work,” Eppelmann said. In this way, she earned de Maizière’s trust, and he brought her with him on visits to foreign capitals. He once described Merkel as looking like “a typical G.D.R. scientist,” wearing “a baggy skirt and Jesus sandals and a cropped haircut.” After one foreign trip, he asked his office manager to take her clothes shopping.
In the early nineties, Volker Schlöndorff began attending monthly dinners with a small group that included Merkel and her partner, Joachim Sauer, another scientist. (They married in 1998.) Some participants were from the East, others from the West; at each meal, the host would narrate his or her upbringing, illuminating what life was like on one side of the divide. Schlöndorff found Merkel to be an earnest but witty conversation partner. One evening, at the extremely modest country house that Merkel and Sauer had built, near Templin, she and Schlöndorff went for a walk through the fields. “We spoke about Germany, what it is going to become,” Schlöndorff recalled. “I was trying irony and sarcasm, which didn’t take with her at all. It was as if she were saying, ‘Come on, be serious, matters not to be joked about.’ ”
Merkel’s decision to enter politics is the central mystery of an opaque life. She rarely speaks publicly about herself and has never explained her decision. It wasn’t a long-term career plan—like most Germans, she didn’t foresee the abrupt collapse of Communism and the opportunities it created. But when the moment came, and Merkel found herself single and childless in her mid-thirties—and laboring in an East German institution with no future—a woman of her ambition must have grasped that politics would be the most dynamic realm of the new Germany. And, as Schlöndorff dryly put it, “With a certain hesitation, she seized the day.”
Reunification really meant annexation of the East by the West, which required giving East Germans top government positions. Merkel’s gender and youth made her an especially appealing option. In October, 1990, she won a seat in the new Bundestag, in Bonn, the first capital of reunified Germany. She got herself introduced to Chancellor Helmut Kohl, and de Maizière suggested that Kohl bring her into his cabinet. To Merkel’s surprise, she was named minister of women and youth—a job, she admitted to a journalist, in which she had no interest. She wasn’t a feminist politician, nor was economic parity for the former East her cause. She had no political agenda at all. According to Karl Feldmeyer, the political correspondent for the Frankfurter Allgemeine Zeitung, what drove Merkel was “her perfect instinct for power, which, for me, is the main characteristic of this politician.”
Kohl, then at his height as a statesman, presented Merkel to foreign dignitaries as a curiosity, belittling her by calling her “mein Mädchen”—his girl. She had to be taught how to use a credit card. Cabinet meetings were dominated by Kohl, and though Merkel was always well prepared, she seldom spoke. But inside her ministry Merkel was respected for her efficient absorption of information, and feared for her directness and temper. According to her biographer Evelyn Roll, she acquired the nickname Angie the Snake, and a reputation for accepting little criticism. When, in 1994, Merkel was given the environment portfolio, she quickly fired the ministry’s top civil servant after he suggested that she would need his help running things.
In 1991, Herlinde Koelbl, the photographer, began taking pictures of Merkel and other German politicians for a study called “Traces of Power.” Her idea was to see how life in the public eye changed them in the course of a decade. Most of the men, such as Gerhard Schröder, a Social Democrat who became Chancellor in 1998, and Joschka Fischer, who became his foreign minister, seemed to swell with self-importance. Merkel remained herself, Koelbl told me: “in her body language, a bit awkward.” But, she added, “You could feel her strength at the beginning.” In the first portrait, she has her chin slightly lowered and looks up at the camera—not exactly shy, but watchful. Subsequent pictures display growing confidence. During the sessions, Merkel was always in a hurry, never making small talk. “Schröder and Fischer, they are vain,” Koelbl said. “Merkel is not vain—still. And that helped her, because if you’re vain you are subjective. If you’re not vain, you are more objective.”
Democratic politics was a West German game, and Merkel had to learn how to play it in the methodical way that she had learned how to command her body as a “little movement idiot” of five. She became such an assiduous student that some colleagues from the former East found it unsettling. Petra Pau, a senior member of the Bundestag from Die Linke, once caught Merkel saying “we West Germans.” But what made Merkel a potentially transformative figure in German politics was that, below the surface, she didn’t belong. She joined the Christian Democratic Union after Democratic Awakening merged with it, ahead of the 1990 elections; the C.D.U. was more hospitable than the Social Democrats were to liberal-minded East Germans. But the C.D.U. was also a stodgy patriarchy whose base was in the Catholic south. “She never became mentally a part of the C.D.U., until now,” Feldmeyer, of the Frankfurter Allgemeine Zeitung, said. “She is strange to everything in the Party. It is only a function of her power, nothing else.”
Alan Posener, of the conservative newspaper Die Welt, told me, “The things that motivate the heartland of the C.D.U. don’t mean a thing to her”—concerns about “working mothers, gay marriage, immigration, divorce.” The same was true of the transatlantic alliance with America, the cornerstone of West German security: Posener said that she studied its details in “the C.D.U. manual.” Michael Naumann, a book publisher and journalist who served as culture minister under Schröder, said, “Her attitude toward the United States is a learned attitude.” Dirk Kurbjuweit, a biographer of Merkel and a correspondent for Der Spiegel, said, “Merkel really is a friend of freedom, because she suffered under not being free in the G.D.R. But in the other way she’s a learned democrat—not a born democrat, like Americans.”
West German politicians of Merkel’s generation were shaped by the culture wars that followed the upheavals of 1968, which didn’t touch her at all. Over dinner one night in the mid-nineties, Merkel asked Schlöndorff, a former radical, to explain the violence perpetrated by the Baader-Meinhof Group. He told her that young people had needed to break with the authoritarian culture that had never been repudiated in West Germany after the defeat of the Nazis. The more he explained, the less Merkel seemed to sympathize—she wasn’t against authority, just the East German kind. What did kids in the West have to protest about? She didn’t always hide a feeling that West Germans were like spoiled children.
For all the catching up Merkel had to do in her political education, being East German gave her advantages: she had learned self-discipline, strength of will, and silence as essential tools. Feldmeyer said, “The G.D.R. shaped her in such an extreme and strong way as no one who grew up in the Federal Republic can imagine. Everything was a question of survival, and it was impossible to make errors if you wanted to succeed.”
Early in her career, Merkel hired a young C.D.U. worker named Beate Baumann to run her office. Baumann, who remains her most influential adviser, was the perfect No. 2—loyal, discreet to the vanishing point, and, according to some insiders, the only aide who addressed the boss with complete candor. “Baumann could not be a politician, and Merkel didn’t know the West,” Bernd Ulrich, of Die Zeit, who knows both women well, told me. “So Baumann was her interpreter for everything that was typically West German.” Fed up with Kohl’s smug bullying, the two women practiced a form of “invisible cruelty”: they played hardball but relished their victories privately, without celebrating in public and making unnecessary enemies. Their style, Ulrich said, is “not ‘House of Cards.’ ” On one rare occasion, Merkel bared her teeth. In 1996, during negotiations over a nuclear-waste law, Gerhard Schröder, two years away from becoming Chancellor, called her performance as environment minister “pitiful.” In her interview with Herlinde Koelbl that year, Merkel said, “I will put him in the corner, just like he did with me. I still need time, but one day the time will come for this, and I am already looking forward.” It took nine years for her to make good on the promise.
In 1998, amid a recession, Schröder defeated Kohl and became Chancellor. The next summer, Volker Schlöndorff, at a garden party outside his home, in Potsdam, introduced Merkel to a movie producer, half-jokingly calling her “Germany’s first female Chancellor.” Merkel shot Schlöndorff a look, as if he had called her bluff—How dare you?—which convinced him that she actually wanted the job. The producer, a C.D.U. member, was incredulous. Schlöndorff said, “These guys whose party had been in power forever could not imagine that a woman could be Chancellor—and from East Germany, no less.”
In November, 1999, the C.D.U. was engulfed by a campaign-finance scandal, with charges of undisclosed cash donations and secret bank accounts. Kohl and his successor as Party chairman, Wolfgang Schäuble, were both implicated, but Kohl was so revered that nobody in the Party dared to criticize him. Merkel, who had risen to secretary-general after the C.D.U.’s electoral defeat, saw opportunity. She telephoned Karl Feldmeyer. “I would like to give some comments to you in your newspaper,” she said.
“Do you know what you want to say?” Feldmeyer asked.
“I’ve written it down.”
Feldmeyer suggested that, instead of doing an interview, she publish an opinion piece. Five minutes later, a fax came through, and Feldmeyer read it with astonishment. Merkel, a relatively new figure in the C.D.U., was calling for the Party to break with its longtime leader. “The Party must learn to walk now and dare to engage in future battles with its political opponents without its old warhorse, as Kohl has often enjoyed calling himself,” Merkel wrote. “We who now have responsibility for the Party, and not so much Helmut Kohl, will decide how to approach the new era.” She published the piece without warning the tainted Schäuble, the Party chairman. In a gesture that mixed Protestant righteousness with ruthlessness, Kohl’s Mädchen was cutting herself off from her political father and gambling her career in a naked bid to supplant him. She succeeded. Within a few months, Merkel had been elected Party chairman. Kohl receded into history. “She put the knife in his back—and turned it twice,” Feldmeyer said. That was the moment when many Germans first became aware of Angela Merkel.
Years later, Michael Naumann sat next to Kohl at a dinner, and asked him, “Herr Kohl, what exactly does she want?”
“Power,” Kohl said, tersely. He told another friend that championing young Merkel had been the biggest mistake of his life. “I brought my killer,” Kohl said. “I put the snake on my arm.”
In 2002, Merkel found herself on the verge of losing a Party vote that would determine the C.D.U.’s candidate for Chancellor in elections that fall. She hastily arranged a breakfast with her rival, the Bavarian leader Edmund Stoiber, in his home town. Disciplined enough to control her own ambitions, Merkel told Stoiber that she was withdrawing in his favor. Schlöndorff sent her a note saying, in effect, “Smart move.” By averting a loss that would have damaged her future within the Party, Merkel ended up in a stronger position. Stoiber lost to Schröder, and Merkel went on to outmaneuver a series of male heavyweights from the West, waiting for them to make a mistake or eat one another up, before getting rid of each with a little shove.
John Kornblum, a former U.S. Ambassador to Germany, who still lives in Berlin, said, “If you cross her, you end up dead. There’s nothing cushy about her. There’s a whole list of alpha males who thought they would get her out of the way, and they’re all now in other walks of life.” On Merkel’s fiftieth birthday, in 2004, a conservative politician named Michael Glos published a tribute:
Careful: unpretentiousness can be a weapon! . . . One of the secrets of the success of Angela Merkel is that she knows how to deal with vain men. She knows you shoot a mountain cock best when it’s courting a hen. Angela Merkel is a patient hunter of courting mountain cocks. With the patience of an angel, she waits for her moment.
German politics was entering a new era. As the country became more “normal,” it no longer needed domineering father figures as leaders. “Merkel was lucky to live in a period when macho was in decline,” Ulrich said. “The men didn’t notice and she did. She didn’t have to fight them—it was an aikido politics.” Ulrich added, “If she knows anything, she knows her macho. She has them for her cereal.” Merkel’s physical haplessness, combined with her emotional opacity, made it hard for her rivals to recognize the threat she posed. “She’s very difficult to know, and that is a reason for her success,” the long time political associate said. “It seems she is not from this world. Psychologically, she gives everybody the feeling of ‘I will take care of you.’ ”
When Schröder called early elections in 2005, Merkel became the C.D.U.’s candidate for Chancellor. In the politics of macho, Schröder and Fischer—working-class street fighters who loved political argument and expensive wine, with seven ex-wives between them—were preëminent. The two men despised Merkel, and the sentiment was reciprocated. According to Dirk Kurbjuweit, of Der Spiegel, Schröder and Fischer sometimes laughed “like boys on the playground” when Merkel gave speeches in the Bundestag. In 2001, after photographs were published of Fischer assaulting a policeman as a young militant in the seventies, Merkel denounced him, saying that he would be unfit for public life until he “atoned”—a comment that many Germans found strident. During the 2005 campaign, Fischer said in private talks that Merkel was incapable of doing the job.
At the time, Schröder’s Social Democrats ruled in a coalition with the Greens, and the public had grown weary of prolonged economic stagnation. Through most of the campaign, the C.D.U. held a large lead, but the Social Democrats closed the gap, and on Election Night the two parties were virtually tied in the popular vote. Alan Posener, of Die Welt, saw Merkel that night at Party headquarters—she seemed deflated, flanked by C.D.U. politicians she had once disposed of, who didn’t conceal their glee. Merkel had made two near-fatal mistakes. First, just before the Iraq War—unpopular in Germany, and repudiated by Schröder—she had published an op-ed in the Washington Post titled “Schroeder Doesn’t Speak for All Germans,” in which she stopped just short of supporting war. “One more sentence for Bush and against Schröder, and she would not be Chancellor today,” Ulrich said. Second, many of her advisers were free-market proponents who advocated changes to the tax code and to labor policies which went far beyond what German voters would accept. After fifteen years, she still didn’t have a fingertip feel for public opinion.
On Election Night, Merkel, Schröder, Fischer, and other party leaders gathered in a TV studio to discuss the results. Merkel, looking shell-shocked and haggard, was almost mute. Schröder, his hair colored chestnut and combed neatly back, grinned mischievously and effectively declared himself the winner. “I will continue to be Chancellor,” he said. “Do you really believe that my party would take up an offer from Merkel to talk when she says she would like to become Chancellor? I think we should leave the church in the village”—that is, quit dreaming. Many viewers thought he was drunk. As Schröder continued to boast, Merkel slowly came to life, as if amused by the Chancellor’s performance. She seemed to realize that Schröder’s bluster had just saved her the Chancellorship. With a slight smile, she put Schröder in his place. “Plain and simple—you did not win today,” she said. Indeed, the C.D.U. had a very slim lead. “With a little time to think about it, even the Social Democrats will come to accept this as a reality. And I promise we will not turn the democratic rules upside down.”
Two months later, Merkel was sworn in as Germany’s first female Chancellor.
Those who know Merkel say that she is as lively and funny in private as she is publicly soporific—a split in self-presentation that she learned as a young East German. (Through her spokesman, Merkel, who gives few interviews—almost always to German publications, and all anodyne—declined to speak to me.) In off-the-record conversations with German journalists, she replays entire conversations with other world leaders, performing wicked imitations. Among her favorite targets have been Kohl, Putin, King Abdullah of Saudi Arabia, former Pope Benedict XVI, and Al Gore. (“Ah have to teach mah people,” she mimics, in a Prussian approximation of central Tennessee.) After one meeting with Nicolas Sarkozy, the French President, during the euro crisis, she told a group of journalists that Sarkozy’s foot had been nervously jiggling the entire time.
Schlöndorff once asked Merkel what she and other leaders discuss during photo ops. The Chancellor described one such moment with Dmitri Medvedev, who briefly interrupted Putin’s fifteen-year reign as Russia’s President. She and Medvedev were posing for the cameras in Sochi when, gesturing toward the Black Sea, she said, in the Russian she had learned from Frau Benn, “President Putin told me that every morning he swims a thousand metres out there. Do you do things like that?” Medvedev replied, “I swim fifteen hundred metres.” To Schlöndorff, the story showed that, “even when she is involved, she is never so totally involved that she could not observe the way people behave and be somehow amused by it.”
“She is a master of listening,” the longtime political associate said. “In a conversation, she speaks twenty per cent, you speak eighty per cent. She gives everybody the feeling ‘I want to hear what you have to say,’ but the truth is that her judgment is made within three minutes, and sometimes she thinks another eighteen minutes are wasted time. She is like a computer—‘Is this possible, what this man proposes?’ She’s able in a very quick time to realize if it’s fantasy.”
Nor is she above embarrassing her minions. Once, in a hotel room in Vienna, in the company of Chancellery aides and foreign-ministry officials, Merkel was telling comical stories of camping trips she’d taken as a student. Her aides fell over themselves laughing, until Merkel cut them short: “I’ve told you this before.” The aides insisted that they’d never heard the stories before, but it didn’t matter: Madame Chancellor was calling them sycophants. After last year’s elections, she met with the Social Democratic leader, Sigmar Gabriel, who is now her economics minister. Gabriel introduced Merkel to one of his aides, saying, “He’s been keeping an eye on me for the past few years. He makes sure I don’t do anything stupid in public.” Merkel shot back, “And sometimes it’s worked.”
“Schadenfreude is Merkel’s way of having fun,” Kurbjuweit said.
Throughout her Chancellorship, Merkel has stayed as close as possible to German public opinion. Posener said that, after nearly losing to Schröder, she told herself, “I’m going to be all things to all people.” Critics and supporters alike describe her as a gifted tactician without a larger vision. Kornblum, the former Ambassador, once asked a Merkel adviser about her long-term view. “The Chancellor’s long-term view is about two weeks,” the adviser replied. The pejorative most often used against her is “opportunist.” When I asked Katrin Göring-Eckardt, the Green leader, whether Merkel had any principles, she paused, then said, “She has a strong value of freedom, and everything else is negotiable.” (Other Germans added firm support for Israel to the list.)
“People say there’s no project, there’s no idea,” the senior official told me. “It’s just a zigzag of smart moves for nine years.” But, he added, “She would say that the times are not conducive to great visions.” Americans don’t like to think of our leaders as having no higher principles. We want at least a suggestion of the “vision thing”—George H. W. Bush’s derisive term, for which he was derided. But Germany remains so traumatized by the grand ideologies of its past that a politics of no ideas has a comforting allure.
The most daunting challenge of Merkel’s time in office has been the euro-zone crisis, which threatened to bring down economies across southern Europe and jeopardized the integrity of the euro. To Merkel, the crisis confirmed that grand visions can be dangerous. Kohl, who thought in historical terms, had tied Germany to a European currency without a political union that could make it work. “It’s now a machine from hell,” the senior official said. “She’s still trying to repair it.”
Merkel’s decisions during the crisis reflect the calculations of a politician more mindful of her constituency than of her place in history. When Greek debt was revealed to be at critical levels, she was slow to commit German taxpayers’ money to a bailout fund, and in 2011 she blocked a French and American proposal for coördinated European action. Germany had by far the strongest economy in Europe, with a manufacturing base and robust exports that benefitted from the weakening of the euro. Under Schröder, Germany had instituted reforms in labor and welfare policies that made the country more competitive, and Merkel arrived just in time to reap the benefit. Throughout the crisis, Merkel buried herself in the economic details and refused to get out in front of what German voters—who tended to regard the Greeks as spendthrift and lazy—would accept, even if delaying prolonged the ordeal and, at key moments from late 2011 through the summer of 2012, threatened the euro itself. The novelist and journalist Peter Schneider compared her to a driver in foggy weather: “You only see five metres, not one hundred metres, so it’s better you are very careful, you don’t say too much, you act from step to step. No vision at all.”
Karl-Theodor zu Guttenberg, who was Germany’s defense minister between 2009 and 2011, said that Merkel took a “Machiavellian” approach to the crisis. She had the stamina to keep her options open as long as possible, and then veiled her decisions behind “the cloud of complexity.” Guttenberg said, “This made it easier for her to change her mind several times rather dramatically, but at the time no one noticed at all.” In the end, under pressure from other European leaders and President Obama, Merkel endorsed a plan for the European Central Bank to prevent Greek sovereign default by buying bonds—much as the Federal Reserve had done during the U.S. financial crisis. In exchange, the countries of southern Europe submitted to strict budget rules and E.U. oversight of their central banks. Merkel realized that she could not allow the euro-zone crisis to capsize the project of European unity. “If the euro falls, then Europe falls,” she declared. The euro was saved, but at the price of ruinous austerity policies and high unemployment. Across much of Europe, Merkel—that Protestant minister’s daughter—is resented as a rigid, self-righteous puritan, while support for the E.U. has fallen to historic lows.
Merkel’s commitment to a united Europe is not that of an idealist. Rather, it comes from her sense of German interest—a soft form of nationalism that reflects the country’s growing confidence and strength. The historic German problem, which Henry Kissinger described as being “too big for Europe, too small for the world,” can be overcome only by keeping Europe together. Kurbjuweit said, “She needs Europe because—this is hard to say, but it’s true—Europe makes Germany bigger.”
Yet Merkel’s austerity policies have helped make Europe weaker, and Europe’s weakness has begun affecting Germany, whose export-driven economy depends on its neighbors for markets. The German economy has slowed this year, while European growth is anemic. Nevertheless, Germany remains committed to a balanced budget in 2015, its first since 1969, and is standing in the way of a euro-zone monetary policy of stimulating growth by buying up debt. In recent weeks, with global markets falling, a divide has opened between Merkel and other European leaders.
After 2005, Merkel had to mute her free-market thinking at home in order to preserve her political viability. Instead, she exported the ideas to the rest of the Continent, applying them with no apparent regard for macroeconomic conditions, as if the virtues of thrift and discipline constituted the mission of a resurgent Germany in Europe. Merkel is obsessed with demography and economic competitiveness. She loves reading charts. In September, one of her senior aides showed me a stack of them that the Chancellor had just been examining; they showed the relative performance of different European economies across a variety of indicators. In unit-labor costs, he pointed out, Germany lies well below the euro-zone average. But the population of Germany—the largest of any nation in Europe—is stagnant and aging. “A country like that cannot run up more and more debt,” the senior aide said.
Stefan Reinecke, of the left-wing daily Die Tageszeitung, said, “Half an hour into every speech she gives, when everyone has fallen asleep, she says three things. She says Europe has just seven per cent of the world’s people, twenty-five per cent of the economic output, but fifty per cent of the social welfare—and we have to change this.” Merkel frets that Germany has no Silicon Valley. “There’s no German Facebook, no German Amazon,” her senior aide said. “There is this German tendency, which you can see in Berlin: we’re so affluent that we assume we always will be, even though we don’t know where it will come from. Completely complacent.”
It makes Germans acutely uneasy that their country is too strong while Europe is too weak, but Merkel never discusses the problem. Joschka Fischer—who has praised Merkel on other issues—criticizes this silence. “Intellectually, it’s a big, big challenge to transform national strength into European strength,” he said. “And the majority of the political and economic élite in Germany has not a clue about that, including the Chancellor.”
The two world leaders with whom Merkel has her most important and complex relationships are Obama, who has won her reluctant respect, and Putin, who has earned her deep distrust. When the Wall fell, Putin was a K.G.B. major stationed in Dresden. He used his fluent German and a pistol to keep a crowd of East Germans from storming the K.G.B. bureau and looting secret files, which he then destroyed. Twelve years later, a far more conciliatory Putin, by then Russia’s President, addressed the Bundestag “in the language of Goethe, Schiller, and Kant,” declaring that “Russia is a friendly-minded European country” whose “main goal is a stable peace on this continent.” Putin praised democracy and denounced totalitarianism, receiving an ovation from an audience that included Merkel.
After decades of war, destruction, and occupation, German-Russian relations returned to the friendlier dynamic that had prevailed before the twentieth century. German policymakers spoke of a “strategic partnership” and a “rapprochement through economic interlocking.” In 2005, Schröder approved the construction of a gas pipeline that crossed the Baltic Sea into Russia. He and Putin developed a friendship, with Schröder calling Putin a “flawless democrat.” In the past decade, Germany has become one of Russia’s largest trading partners, and Russia now provides Germany with forty per cent of its gas. Two hundred thousand Russian citizens live in Germany, and Russia has extensive connections inside the German business community and in the Social Democratic Party.
As a Russian speaker who hitchhiked through the Soviet republics in her youth, Merkel has a feel for Russia’s aspirations and resentments which Western politicians lack. In her office, there’s a framed portrait of Catherine the Great, the Prussian-born empress who led Russia during a golden age in the eighteenth century. But, as a former East German, Merkel has few illusions about Putin. After Putin’s speech at the Bundestag, Merkel told a colleague, “This is typical K.G.B. talk. Never trust this guy.” Ulrich, of Die Zeit, said, “She’s always been skeptical of Putin, but she doesn’t detest him. Detesting would be too much emotion.”
When Putin and Merkel meet, they sometimes speak in German (he’s better in her language than she is in his), and Putin corrects his own interpreter to let Merkel know that nothing is lost on him. Putin’s brand of macho elicits in Merkel a kind of scientific empathy. In 2007, during discussions about energy supplies at the Russian President’s residence in Sochi, Putin summoned his black Lab, Koni, into the room where he and Merkel were seated. As the dog approached and sniffed her, Merkel froze, visibly frightened. She’d been bitten once, in 1995, and her fear of dogs couldn’t have escaped Putin, who sat back and enjoyed the moment, legs spread wide. “I’m sure it will behave itself,” he said. Merkel had the presence of mind to reply, in Russian, “It doesn’t eat journalists, after all.” The German press corps was furious on her behalf—“ready to hit Putin,” according to a reporter who was present. Later, Merkel interpreted Putin’s behavior. “I understand why he has to do this—to prove he’s a man,” she told a group of reporters. “He’s afraid of his own weakness. Russia has nothing, no successful politics or economy. All they have is this.”
In early 2008, when President George W. Bush sought to bring Ukraine and Georgia into NATO, Merkel blocked the move out of concern for Russia’s reaction and because it could cause destabilization along Europe’s eastern edge. Later that year, after Russia invaded two regions of Georgia, Abkhazia and South Ossetia, Merkel changed her position and expressed openness to Georgia’s joining NATO. She remained careful to balance European unity, the alliance with America, German business interests, and continued engagement with Russia. Kaiser Wilhelm I is supposed to have remarked that only Bismarck, who tied Germany to a set of countervailing alliances, could juggle four or five balls. Bismarck’s successor, Leo von Caprivi, complained that he could barely manage two, and in 1890 he ended Germany’s treaty with Russia, helping set the stage for the First World War.
When, this past March, Russia annexed Crimea and incited a separatist war in eastern Ukraine, it fell to Merkel to succeed where earlier German leaders had catastrophically failed.
The Russian aggression in Ukraine stunned the history-haunted, rule-upholding Germans. “Putin surprised everyone,” including Merkel, her senior aide told me. “The swiftness, the brutality, the coldheartedness. It’s just so twentieth century—the tanks, the propaganda, the agents provocateurs.”
Suddenly, everyone in Berlin was reading Christopher Clark’s “The Sleepwalkers,” about the origins of the First World War. The moral that many Germans drew was to tread carefully—small fires could quickly turn into conflagrations. During a discussion about the First World War with students at the German Historical Museum, Merkel said, “I am regarded as a permanent delayer sometimes, but I think it is essential and extremely important to take people along and really listen to them in political talks.”
Merkel ruled out military options, yet declared that Russia’s actions were unacceptable—territorial integrity was an inviolable part of Europe’s postwar order—and required a serious Western response. For the first time in her Chancellorship, she didn’t have the public with her. In early polls, a plurality of Germans wanted Merkel to take a middle position between the West and Russia. A substantial minority—especially in the former East—sympathized with Russia’s claim that NATO expansion had pushed Putin to act defensively, and that Ukrainian leaders in Kiev were Fascist thugs. Helmut Schmidt, the Social Democratic former Chancellor, expressed some of these views, as did Gerhard Schröder—who had become a paid lobbyist for a company controlled by the Russian state oil-and-gas giant Gazprom, and who celebrated his seventieth birthday with Putin, in St. Petersburg, a month after Russia annexed Crimea. The attitude of Schmidt and Schröder deeply embarrassed the Social Democrats.
A gap opened up between élite and popular opinion: newspapers editorializing for a hard line against Russia were inundated with critical letters. Merkel, true to form, did nothing to try to close the divide. For most Germans, the crisis inspired a combination of indifference and anxiety. Ukraine was talked about, if at all, as a far-off place, barely a part of Europe (not as the victim of huge German crimes in the Second World War). Germans resented having their beautiful sleep disturbed. “The majority want peace and to live a comfortable life,” Alexander Rahr, a Russian energy expert who advises the German oil-and-gas company Wintershall, said. “They don’t want conflict or a new Cold War. For this, they wish the U.S. would stay away from Europe. If Russia wants Ukraine, which not so many people have sympathy with, let them have it.” In a way, Germany’s historical guilt—which includes more than twenty million Soviet dead in the Second World War—adds to the country’s passivity. A sense of responsibility for the past demands that Germany do nothing in the present. Ulrich, of Die Zeit, expressed the point brutally: “We once killed so much—therefore, we can’t die today.”
Germans and Russians are bound together by such terrible memories that any suggestion of conflict leads straight to the unthinkable. Michael Naumann put the Ukraine crisis in the context of “this enormous emotional nexus between perpetrator and victim,” one that leaves Germans perpetually in the weaker position. In 1999, Naumann, at that time the culture minister under Schröder, tried to negotiate the return of five million artifacts taken out of East Germany by the Russians after the Second World War. During the negotiations, he and his Russian counterpart, Nikolai Gubenko, shared their stories. Naumann, who was born in 1941, lost his father a year later, at the Battle of Stalingrad. Gubenko was also born in 1941, and his father was also killed in action. Five months later, Gubenko’s mother was hanged by the Germans.
“Checkmate,” the Russian told the German. Both men cried.
“There was nothing to negotiate,” Naumann recalled. “He said, ‘We will not give anything back, as long as I live.’ ”
Merkel takes a characteristically unsentimental view of Russia. Alexander Lambsdorff, a German member of the European Parliament, said, “She thinks of Russia as a traditional hegemonic power that was subdued for a while and now has reëmerged.” Ukraine forced Merkel into a juggling act worthy of Bismarck, and she began spending two or three hours daily on the crisis. Publicly, she said little, waiting for Russian misbehavior to bring the German public around. She needed to keep her coalition in the Bundestag on board, including the more pro-Russian Social Democrats. And she had to hold Europe together, which meant staying in close touch with twenty-seven other leaders and understanding each one’s constraints: how sanctions on Russia would affect London’s financial markets; whether the French would agree to suspend delivery of amphibious assault ships already sold to the Russians; whether Poland and the Baltic states felt assured of NATO’s support; the influence of Russian propaganda in Greece; Bulgaria’s dependence on Russian gas. For sanctions to bite, Europe had to remain united.
Merkel also needed to keep open her channel to Putin. Even after the E.U. passed its first round of sanctions, in March, it was not German policy to isolate Russia—the two countries are too enmeshed. Merkel is Putin’s most important interlocutor in the West; they talk every week, if not more often. “She’s talked to Putin more than Obama, Hollande, and Cameron combined have over these past months,” the senior official said. “She has a way of talking to him that nobody has. Cameron and Hollande call him to be able to say they’re world leaders and had the conversation.” Merkel can be tough to the point of unpleasantness, while offering Putin ways out of his own mess. Above all, she tries to understand how he thinks. “With Russia now, when one feels very angry I force myself to talk regardless of my feelings,” she said at the German Historical Museum. “And every time I do this I am surprised at how many other views you can have on a matter which I find totally clear. Then I have to deal with those views, and this can also trigger something new.” Soon after the annexation of Crimea, Merkel reportedly told Obama that Putin was living “in another world.” She set about bringing him back to reality.
A German official told me, “The Chancellor thinks Putin believes that we’re decadent, we’re gay, we have women with beards”—a reference to Conchita Wurst, an Austrian drag queen who won the 2014 Eurovision song contest. “That it’s a strong Russia of real men versus the decadent West that’s too pampered, too spoiled, to stand up for their beliefs if it costs them one per cent of their standard of living. That’s his wager. We have to prove it’s not true.” It’s true enough that, if Merkel were to make a ringing call to defend Western values against Russian aggression, her domestic support would evaporate. When eight members of a European observer group, including four Germans, were taken hostage by pro-Russian separatists in April—practically a casus belli, had they been Americans—the German government simply asked Putin to work for their release. Merkel was playing the game that had been successful for her in German politics: waiting for her adversary to self-destruct.
On at least one phone call, Putin lied to Merkel, something that he hadn’t done in the past. In May, after Ukrainian separatists organized a widely denounced referendum, the official Russian statement was more positive than the stance that Merkel believed she and Putin had agreed on in advance. She cancelled their call for the following week—she had been misled, and wanted him to sense her anger. “The Russians were stunned,” the senior official said. “How could she cut the link?” Germany was the one country that Russia could not afford to lose. Karl-Georg Wellmann, a member of parliament from Merkel’s party, who sits on the foreign-affairs committee, said that, as the crisis deepened and Germans began pulling capital out of Russia, Kremlin officials privately told their German counterparts that they wanted a way out: “We went too far—what can we do?” In Moscow restaurants, after the third vodka, the Russians would raise the ghosts of 1939: “If we got together, Germany and Russia, we would be the strongest power in the world.”
On June 6th, in Normandy, Merkel and Putin met for the first time since the crisis began, along with Obama, Hollande, Cameron, and Petro Poroshenko, the newly elected President of Ukraine, to commemorate the seventieth anniversary of D Day. News photographs showed Merkel greeting Putin like a disapproving hostess—lips pursed, eyebrows arched—while Putin’s hard features came as close to ingratiation as is physically possible. In the optics of power, she was winning. “This political isolation hurts him,” her senior aide said. “He doesn’t like to be left out.” (Russia had just been suspended from the Group of Eight.) Later, before lunch, Merkel orchestrated a brief conversation between Putin and Poroshenko. On the anniversary of D Day, Germany’s leader was at the center of everything. As Kurbjuweit put it, “That was astonishing, to see all the winners of the Second World War, and to see the loser and the country which was responsible for all this—and she’s the leader, everyone wants to talk to her! That is very, very strange. And this is only possible, I think, because it’s Merkel—because she’s so nice and quiet.”
The final ball Merkel has to keep in the air is the American one. Her opinion of Barack Obama has risen as his popularity has declined. In July, 2008, as a Presidential candidate, Obama wanted to speak at the Brandenburg Gate, in Berlin—the historic heart of the city, a location reserved for heads of state and government, not U.S. senators. Merkel rebuffed the request, so instead Obama spoke about European-American unity at the Victory Column, in the Tiergarten, before two hundred thousand delirious fans—a crowd Merkel could never have mustered, let alone mesmerized. “What puts her off about Obama is his high-flying rhetoric,” the senior official said. “She distrusts it, and she’s no good at it. She says, ‘I want to see if he can deliver.’ If you want to sum up her philosophy, it’s ‘under-promise and over-deliver.’ ”
In Obama’s first years in office, Merkel was frequently and unfavorably compared with him, and the criticism annoyed her. According to Stern, her favorite joke ends with Obama walking on water. “She does not really think Obama is a helpful partner,” Torsten Krauel, a senior writer for Die Welt, said. “She thinks he is a professor, a loner, unable to build coalitions.” Merkel’s relationship with Bush was much warmer than hers with Obama, the long time political associate said. A demonstrative man like Bush sparks a response, whereas Obama and Merkel are like “two hit men in the same room. They don’t have to talk—both are quiet, both are killers.” For weeks in 2011 and 2012, amid American criticism of German policy during the euro-zone crisis, there was no contact between Merkel and Obama—she would ask for a conversation, but the phone call from the White House never came.
As she got to know Obama better, though, she came to appreciate more the ways in which they were alike—analytical, cautious, dry-humored, remote. Benjamin Rhodes, Obama’s deputy national-security adviser, told me that “the President thinks there’s not another leader he’s worked closer with than her.” He added, “They’re so different publicly, but they’re actually quite similar.” (Ulrich joked, “Obama is Merkel in a better suit.”) During the Ukraine crisis, the two have consulted frequently on the timing of announcements and been careful to keep the American and the European positions close. Obama is the antithesis of the swaggering leaders whom Merkel specializes in eating for breakfast. On a trip to Washington, she met with a number of senators, including the Republicans John McCain, of Arizona, and Jeff Sessions, of Alabama. She found them more preoccupied with the need to display toughness against America’s former Cold War adversary than with events in Ukraine themselves. (McCain called Merkel’s approach “milquetoast.”) To Merkel, Ukraine was a practical problem to be solved. This mirrored Obama’s view.
On the day I spoke with Rhodes, July 17th, the TV in his office, in the White House basement, showed the debris of Malaysia Airlines Flight 17 strewn across a field in eastern Ukraine. The cause of the crash wasn’t yet clear, but Rhodes said, “If it was a Russian shoot-down, and Americans and Europeans were on board, that’s going to change everything.” In Germany, the change happened immediately. The sight of separatist fighters looting the belongings of dead passengers who had been shot out of the sky hit Germans more personally than months of ugly fighting among Ukrainians had. A civilian airliner, Dutch victims: “People realized that the sentimental attitude toward Putin and Russia was based on false assumptions,” a German diplomat said. The idea of maintaining equidistance between Russia and the West on Ukraine vanished. Though the crisis was beginning to hurt the German economy, Merkel now had three-quarters of the public behind her. In late July, the E.U. agreed on a sweeping new round of financial and energy sanctions.
Since then, Russian troops and weapons have crossed the border in large numbers, and the war has grown worse. In a speech in Australia last week, Merkel warned that Russian aggression was in danger of spreading, and she called for patience in a long struggle: “Who would’ve thought that twenty-five years after the fall of the Wall . . . something like that can happen right at the heart of Europe?” But, on the day she spoke, the E.U. failed to pass a new round of sanctions against Russia. Guttenberg, the former defense minister, said, “We are content with keeping the status quo, and kicking the can up the road—not down—and it keeps falling back on our feet.”
The close cooperation behind the scenes between Washington and Berlin coincides with a period of public estrangement. Germans told me that anti-Americanism in Germany is more potent now than at any time since the cruise-missile controversy of the early eighties. The proximate cause is the revelation, last fall, based on documents leaked by Edward Snowden to Der Spiegel, that the National Security Agency had been recording Merkel’s cell-phone calls for a decade. Merkel, ever impassive, expressed more annoyance than outrage, but with the German public the sense of betrayal was deep. It hasn’t subsided—N.S.A. transgressions came up in almost every conversation I had in Berlin—particularly because Obama, while promising that the eavesdropping had stopped, never publicly apologized. (He conveyed his regret to Merkel privately.) “Tapping her phone is more than impolite,” Rainer Eppelmann, the former East German dissident, said. “It’s something you just don’t do. Friends don’t spy on friends.” (American officials I spoke with, though troubled by the effects of the breach, rolled their eyes over German naïveté and hypocrisy, since the spying goes both ways.)
German officials approached the Americans for a no-spy agreement, and were refused. The U.S. has no such arrangement with any country, including those in the so-called Five Eyes—the English-speaking allies that share virtually all intelligence. German officials claimed that the U.S. offered membership in the Five Eyes, then withdrew the offer. The Americans denied it. “It was never seriously discussed,” a senior Administration official said. “Five Eyes isn’t just an agreement. It’s an infrastructure developed over sixty years.”
“I tend to believe them,” the German diplomat said. “The Germans didn’t want Five Eyes when we learned about it. We’re not in a position, legally, to join, because our intelligence is so limited in scope.”
In July, officials of the German Federal Intelligence Service, or B.N.D., arrested a bureaucrat in their Munich office on suspicion of spying for the U.S. He had been caught soliciting business from the Russians via Gmail, and, when the Germans asked their American counterparts for information on the man, his account was suddenly shut down. Brought in for questioning, he admitted having passed documents (apparently innocuous) to a C.I.A. agent in Austria for two years, for which he was paid twenty-five thousand euros. The Germans retaliated, in unprecedented fashion, by expelling the C.I.A. station chief in Berlin. Coming soon after the N.S.A. revelations, this second scandal was worse than a crime—it was a blunder. Merkel was beside herself with exasperation. No U.S. official, in Washington or Berlin, seemed to have weighed the intelligence benefits against the potential political costs. The President didn’t know about the spy. “It’s fair to say the President should expect people would take into account political dynamics in making judgments about what we do and don’t do in Germany,” Rhodes said.
The spying scandals have undermined German public support for the NATO alliance just when it’s needed most in the standoff with Russia. Lambsdorff, the E.U. parliamentarian, told me, “When I stand before constituents and say, ‘We need a strong relationship with the U.S.,’ they say, ‘What’s the point? They lie to us.’ ” Germany’s rise to preëminence in Europe has made Merkel a committed transatlanticist, but “that’s useless now,” Lambsdorff said. “It deducts from her capital. Rebuffing Washington is good now in Germany.”
Obama was concerned enough to dispatch his chief of staff, Denis McDonough, to Berlin in late July, to mollify German officials. During a four-hour meeting, they agreed to create a framework for clearer rules about spying and intelligence sharing. But the details remain to be worked out, and barely half the German public now expresses a favorable view of the U.S.—the lowest level in Europe, other than in perpetually hostile Greece.
In a sense, German anti-Americanism is always waiting to be tapped. There’s a left-wing, anti-capitalist strain going back to the sixties, and a right-wing, anti-democratic version that’s even older. In the broad middle, where German politics plays out today, many Germans, especially older ones, once regarded the U.S. as the father of their democracy—a role that sets America up to disappoint. Peter Schneider, the novelist and journalist, expressed the attitude this way: “You have created a model of a savior, and now we find by looking at you that you are not perfect at all—much less, you are actually corrupt, you are terrible businessmen, you have no ideals anymore.” With the Iraq War, Guantánamo, drones, the unmet expectations of the Obama Presidency, and now spying, “you actually have acted against your own promises, and so we feel very deceived.”
Beneath the rise in anti-Americanism and the German sympathy with Russia, something deeper might be at work. During the First World War, Thomas Mann put aside writing “The Magic Mountain” and began composing a strange, passionate series of essays about Germany and the war. They were published in 1918, just before the Armistice, as “Reflections of a Nonpolitical Man.” In it, Mann embraced the German cause in terms of national character and philosophy. He allied himself, as an artist, with Germany—“culture, soul, freedom, art”—against the liberal civilization of France and England that his older brother Heinrich supported, where intellect was always politicized. German tradition was authoritarian, conservative, and “nonpolitical”—closer to the Russian spirit than to the shallow materialism of democratic Europe. The war represented Germany’s age-old rebellion against the West. Imperial Germany refused to accept at gunpoint the universal principles of equality and human rights. Though Mann became a vocal supporter of democratic values in exile during the Nazi years, he never repudiated “Reflections.”
Several people in Berlin suggested that this difficult, forgotten book had something to say about Germany in the age of Merkel. The country’s peaceful reunification and its strength through the euro crisis might be returning Germany to an identity that’s older than the postwar Federal Republic, whose Basic Law was written under heavy American influence. “West Germany was a good country,” Georg Diez, a columnist and author, told me. “It was young, sexy, daring, Western—American. But maybe it was only a skin. Germany is becoming more German, less Western. Germany has discovered its national roots.”
Diez didn’t mean that this was a good thing. He meant that Germany is becoming less democratic, because what Germans fundamentally want is stability, security, economic growth—above all, to be left in peace while someone else watches their money and keeps their country out of wars. They have exactly the Chancellor they want. “Merkel took the politics out of politics,” Diez said.
Merkel, at sixty, is the most successful politician in modern German history. Her popularity floats around seventy-five per cent—unheard of in an era of resentment toward elected leaders. Plainness remains her political signature, with inflections of Protestant virtue and Prussian uprightness. Once, with a group of journalists at a hotel bar in the Middle East, she said, “Can you believe it? Here I am, the Chancellor! What am I doing here? When I was growing up in the G.D.R., we imagined capitalists with long black cloaks and top hats and cigars and big feet, like cartoons. And now here I am, and they have to listen to me!” Of course, there’s something calculated about her public image. “She’s so careful not to show any pretensions—which is a kind of pretension,” the senior official said.
Merkel still lives in central Berlin, in a rent-controlled apartment across a canal from the Pergamon, the great neoclassical antiquities museum. The name on the brass buzzer is her husband’s—“PROF. DR. SAUER”—and a solitary policeman stands outside. Dwarfed by her vast office in the massive concrete-and-glass Chancellery, Merkel works at an ordinary writing table just inside the door, preferring it to the thirteen-foot black slab that Schröder installed at the far end of the room. “This woman is neurotically busy,” the longtime political associate said. “She sleeps never more than five hours. I can call her at one o’clock at night. She’s awake reading bureaucratic papers, not literature.”
Merkel entertains guests at the Chancellery with German comfort food—potato soup and stuffed cabbage. When she eats at her favorite Italian restaurant, it’s with just a few friends, and she doesn’t look up from the conversation to greet her public, who know to leave her alone. When her husband calls the Philharmoniker for tickets (Merkel and Sauer are music lovers, with a passion for Wagner and Webern) and is offered comps, he insists on giving his credit-card number, and the couple take their seats almost unnoticed. A friend of mine once sat next to Merkel at the salon she frequents, off Kurfürstendamm, and they chatted about hair. “Color is the most important thing for a woman,” the Chancellor, whose hair style is no longer the object of ridicule, offered.
Earlier this year, President Joachim Gauck made headlines when he called on Germany to take its global responsibilities more seriously, including its role in military affairs. It was the kind of speech that Merkel (who had no comment) would never give, especially after a poll commissioned by the foreign ministry in May showed that sixty per cent of the public was skeptical of greater German involvement in the world. German journalists find Merkel nearly impossible to cover. “We have to look for topics in the pudding,” Ulrich Schulte, who reports on the Chancellor for Die Tageszeitung, said. The private Merkel they admire and enjoy but are forbidden to quote disappears in public. Any aide or friend who betrays the smallest confidence is cast out. The German media, reflecting the times, are increasingly centrist, preoccupied with “wellness” and other life-style issues. Almost every political reporter I spoke with voted for Merkel, despite the sense that she’s making their work irrelevant. There was no reason not to.
Meanwhile, Merkel has neutralized the opposition, in large part by stealing its issues. She has embraced labor unions, lowered the retirement age for certain workers, and increased state payments to mothers and the old. (She told Dirk Kurbjuweit, of Der Spiegel, that, as Germany aged, she depended more on elderly voters.) In 2011, the Fukushima nuclear disaster, in Japan, shocked Merkel, and she reversed her position on nuclear power: Germany would phase it out through the next decade, while continuing to lead the world’s large industrial economies in solar and wind energy. (A quarter of the country’s energy now comes from renewable sources.) Meanwhile, she’s tried to rid her party of intolerant ideas—for example, by speaking out for the need to be more welcoming to immigrants. Supporters of the Social Democrats and the Greens have fewer and fewer reasons to vote at all, and turnout has declined. Schneider, a leading member of the generation of ’68, said, “This is the genius of Angela Merkel: she has actually made party lines senseless.”
This fall, in elections held in three states of the former East Germany, a new right-wing party, Alternative for Germany (AfD), showed strength, capturing as much as ten per cent of the vote. AfD wants Germany to withdraw from the euro zone and opposes Merkel’s liberal policies on gay marriage and immigration. In moving her own party to the center, Merkel has created a space in German politics for a populist equivalent to France’s Front National and the United Kingdom Independence Party. If the German economy continues to slow, Merkel will find it hard to float unchallenged above party politics as Mutti, the World Cup-winning soccer team’s biggest fan.
For now, the most pressing political question in Berlin is whether she’ll stand for a fourth term, in 2017. Joschka Fischer described Germany under Merkel as returning to the Biedermeier period, the years between the end of the Napoleonic Wars, in 1815, and the liberal revolutions of 1848, when Central Europe was at peace and the middle class focussed on its growing wealth and decorative style. “She is governing Germany in a period where the sun is shining every day, and that’s the dream of every democratically elected politician,” Fischer said—but “there is no intellectual debate.” I suggested that every Biedermeier has to end. “Yes,” he said. “Mostly in a clash.”
A political consensus founded on economic success, with a complacent citizenry, a compliant press, and a vastly popular leader who rarely deviates from public opinion—Merkel’s Germany is reminiscent of Eisenhower’s America. But what Americans today might envy, with our intimations of national decline, makes thoughtful Germans uneasy. Their democracy is not old enough to be given a rest.
“We got democracy from you, as a gift I would say, in the forties and fifties,” Kurbjuweit told me. “But I’m not sure if these democratic attitudes are very well established in my country. We Germans always have to practice democracy—we’re still on the training program.” Kurbjuweit has just published a book called “There Is No Alternative.” It’s a phrase that Merkel coined for her euro policy, but Kurbjuweit uses it to describe the Chancellor’s success in draining all the blood out of German politics. “I don’t say democracy will disappear if Merkel is Chancellor for twenty years,” he said. “But I think democracy is on the retreat in the world, and there is a problem with democracy in our country. You have to keep the people used to the fact that democracy is a pain in the ass, and that they have to fight, and that everyone is a politician—not only Merkel.” ♦
The Ticking Euro Bomb: How a Good Idea Became a Tragedy
The Greek crisis has revealed why the euro is the world's most dangerous currency. The euro was built on a foundation of debt and trickery, where economic principles were sacrificed to romantic political visions. The history of the common currency is the story of a good idea that turned into a tragedy of epic proportions.
By Spiegel Staff.
October 05, 2011
Before Germany's Horst Reichenbach had even stepped off the plane in Athens, the Greeks knew who was coming. He had already been given various unflattering nicknames in the Greek media, including "Third Reichenbach" and "Horst Wessel" -- a reference to the Nazi activist of that name who was posthumously elevated to martyr status. The members of his 30-strong team, meanwhile, had been compared to Nazi regional leaders.
The taxi drivers at the airport were on strike, while hundreds stood in front of the parliament building, chanting their slogans. One protestor was wearing a T-shirt that read: "I don't need sex. The government fucks me every day." Within the first few hours, Horst Reichenbach realized that he had landed in a disaster area.
Reichenbach is the head of the task force the European Commission sent to Athens to provide what Brussels officials call "technical assistance" in the implementation of necessary reforms. For the Greek media, the task force is the advance guard of an invasion force, the bureaucrats that have arrived to transform beautiful Greece into a German colony.
Reichenbach describes his tasks as follows: restructure the tax system, streamline the administration, accelerate privatization, strengthen legal certainty, open up access to protected professions, restructure the energy and healthcare sector and remove structures that are hostile to investment. The effort, says Reichenbach, requires "thinking in terms of years instead of months." He was the vice-president of the European Bank for Reconstruction and Development and had planned to retire at the end of December. But then he received a call from European Commission President José Manuel Barroso, who then dispatched Reichenbach on this mission impossible.
He is a middleman between two Europes, the north and the south. The euro was intended as a currency that would help Europe grow together, but the first major euro crisis is in fact pitting the north and the south, the deutschmark economy and the lira economy, against each other. To make matters worse, there are also two different speeds in Europe, with one part of Europe moving at the high-paced speed of financial markets and banks, while the other drags along at the speed of governments and parliaments. And then there is also the Europe of two versions of the truth. One is at home in Brussels, Berlin and Paris, in the centers of power, while the other resides in the living rooms and on the streets of European cities.
As admirable as it is for Reichenbach and his 30 nation-builders to be bringing order to Athens, no amount of reorganizing can simply do away with €350 billion ($473 billion) in government debt. How to cope with this debt without ruining the European project is the most pressing question of recent weeks. After 20 years of bad decisions, spineless reforms and postponed actions, it isn't the citizens but the markets that have forced united Europe into an endgame over the euro. How can this currency have a future? Is there a risk that Greece is only the first domino in a row that could end with Germany? Is the euro zone a faulty design?
A team of SPIEGEL reporters went to Brussels, Luxembourg, Athens, Berlin and elsewhere to find answers to these questions. They have reconstructed the rise and fall of a currency that can only survive if the mistakes that were made over two decades are corrected in the next few months.
Act I: The Birth of the Euro (1991 to 2001)
Wim Duisenberg, the then-president of the European Central Bank, presents the euro notes in August 2001. The euro was built on a foundation of debt and trickery, where economic principles were sacrificed to romantic political visions.
Why the mistakes that would later threaten the euro were already made in the foundation phase. How Greece and other countries cheated their way into the monetary union. Why the common currency is a trillion-euro bet made by politicians against the markets -- and one that they would ultimately lose.
The bold, visionary project of creating a common currency for different countries and populations cannot be understood without reminding ourselves that the Berlin Wall came down in the late 1980s, the world still felt that World War II was a relatively recent event, and that Europe was still discussing whether Germany could pose a threat again.
Jacques Delors was the president of the European Commission for 10 years, and he was the lead author of the Maastricht Treaty, which defined the basic features of the euro. Now Delors is forced to listen to the daily criticism of how illusory his vision of a common currency was. But if he had had his way completely, he says, Europe would have been far better equipped, would have a more uniform constitution, and would be centrally governed by a Commission whose work would not be constantly undermined in the European Council, which comprises the heads of state and government.
Delors always wanted to go further than the political elite he was dealing with. At the time -- unlike today, he says -- that elite was consistently filled with dedicated Europeans, people like then-French President Francois Mitterand, then-German Chancellor Helmut Kohl, then-Dutch Prime Minister Ruud Lubbers and then-Portuguese Prime Minister Aníbal Cavaco Silva. But they too were not bold enough to integrate their countries to a degree that could count as true European coordination.
The Maastricht Treaty, which marked the establishment of the European Union when it was signed in 1992, made it all possible. It placed Europe on "three columns," the first of which was an economic column, complete with an "Economic and Monetary Union." The treaty provided the necessary legal framework, so that a common financial policy would have been conceivable, as would a coordinated fiscal and interest-rate policy. But the political will to fill out the Maastricht framework was missing.
The "United States of Europe" remained little more than a soundbite. And yet the introduction of the euro created a fait accompli that could no longer be rolled back. This European Big Bang, if you will, was to be followed by a process of evolution, during the course of which all the details were to be resolved.
Perhaps most importantly, the common currency was also a political symbol. Delors says that he always perceived Greece as being very far away, different and foreign. The country's acceptance into the euro zone happened much too early, he adds. But at the time, in the 1990s, politicians stood up in front of microphones and said that Europe was inconceivable without Athens, the "cradle of democracy." And Portugal, with its Carnation Revolution, also surely deserved to be part of the club. And the Irish, oppressed for so long by the British, had to be helped too. And who would have wanted to show Italy the door, merely because of its high unit labor costs and inflation rates?
And so, when the euro zone became a reality, elephants like Germany and France came together with mice like Portugal, Ireland and Luxembourg. Stable, prosperous countries of the north shared their common currency with shaky, underdeveloped countries of the south, mature industrialized nations joined forces with what were hardly more than developing countries. Strict Protestants mixed with sensual Catholics.
The promises of the euro were recorded in the Maastricht Treaty. It was to be a currency that would make Europe strong in a competitive globalized world; that would bring the European economies closer together; that would oblige countries to limit their debts and deficits; that would guarantee that no country would be liable for the debts of another; and that would promote political unity.
And the details? Well, they would be ironed out later.
Part 2: The Greeks Jump at the Opportunity
In Greece, the euro fueled hopes of a better future. In October 1993, socialist Andreas Papandreou was reelected as prime minister. Then-Finance Minister Yiannos Papantoniou recalls today that the cabinet of Papandreou's new administration quickly became convinced that Greece's accession to the monetary union was the only chance to solve the country's financial problems.
Greece was already well over its head in debt at the time. The country's liabilities exceeded its real economic strength, with the national debt amounting to 114 percent of the gross domestic product. Athens was battling more than 14 percent inflation and the economy was shrinking.
Any economist could have recognized that the Greek economy was not competitive, and that the country, without outside impulses, seemed incapable of fundamentally changing its situation. The euro and its regime were to forcibly bring about necessary reforms, and in particular make it easier to obtain credit. Gaining accession to the euro zone became Finance Minister Papantoniou's mission.
He used every opportunity to remind people of Greece's claim. When the EU finance ministers met in Brussels in April 1997 to discuss what the new money would look like, Papantoniou proposed that the coins be embossed with both Latin and Greek letters. Then-German Finance Minister Theo Waigel curtly rejected the idea.
Greece was not in a position to make demands, he said. And then, turning to Papantoniou, he added: "You are not part of this, and you will not be part of this."
When the two finance ministers spoke later on, Papantoniou proposed a bet to Waigel, namely that Greece would get the euro. Indeed, it would only take a few years for Papantoniou to win his bet.
Waigel, who recently described Greece's acceptance into the euro zone as a "mortal sin" in the German newspaper Süddeutsche Zeitung, eventually became a fan of Greece, says Papantoniou. "It was Waigel who brought us into the euro," he says. "It is absolutely untrue that he was opposed to our accession to the euro."
The former Greek finance minister dismisses the charge that his country used falsified figures to cheat its way into the euro zone. "We didn't do anything differently from all the other countries," he says.
The Trickery of Euro Candidates
In his book "Herausforderung Euro" ("The Euro Challenge"), Hans Tietmeyer, the then-president of Germany's central bank, the Bundesbank, confirms that "questionable cosmetic surgery" was performed in some countries to make data on inflation rates, government debt and price trends conform to the euro zone's requirements.
Italy's government debt of 115 percent of GDP was dramatically higher than the 60 percent debt limit agreed to in the Maastricht Treaty. Belgium was also massively in violation of treaty provisions.
At the time, then-Bundesbank President Tietmeyer noted with concern that, in 1998, the Europeans, inspired by the sheer magnitude of their project, had eliminated the final test of whether enough countries even satisfied the requirements for the euro, from their roadmap for switching to the new currency. They were determined that the euro would be introduced on Jan. 1, 2002.
In a German government meeting that was supposed to make a decision on the currency, Tietmeyer raised his objections against certain euro candidates -- to no avail. In fact, the outcome of the meeting had already been determined in advance, and it had even been stated in writing.
Then-German Chancellor Helmut Kohl, a thoroughly committed European who belonged to the school of thought that there should never again be a war in Europe, wanted the historic decision. As Tietmeyer recalls, the chancellor said solemnly: "May we look back at the euro in 50 years' time as positively as we do today with the deutsche mark."
Numbers and data were constantly being thrown around at the time, in the late 1990s. The gathering of data was left up to each EU country, and Europeans trusted one another. But there was one question that hadn't been clarified: When the figures came together in Luxembourg, what would happen if Eurostat, the organization tasked with assembling the data, discovered mistakes or violations of the rules? What authority or body would implement sanctions, and at what level?
Schröder and Eichel Inherit the Euro
Germany was still preoccupied with other issues. After 16 years under Kohl, a coalition of the center-left Social Democratic Party (SPD) and the Green Party won the German national election in 1998. In Germany, it felt like the beginning of a new era, but there was little enthusiasm for the European project. For the new Chancellor Gerhard Schröder, the euro was no longer a question of war and peace. Schröder flippantly referred to the new currency as a "sickly premature baby."
But the euro was also a consistently political currency, says Eichel. Spain, Portugal and Greece were all former military dictatorships that had only found their way back to democracy in the mid-1970s. The strong connection to Europe, says Eichel, was also seen as a means of strengthening democracy.
Greece's democracy received the validation it desired in 2000, when the European Commission and the European Central Bank concluded that the country had made great strides in the previous two years. The ECB warned against Greece's high debt levels, and yet the Commission recommended that Athens be admitted to the common currency. "Greece has completed a successful convergence process after a long and difficult path," then-Finance Minister Eichel told the German parliament, the Bundestag.
Then-Greek Finance Minister Papantoniou had reached his goal, winning his bet with Theo Waigel. Greece became a member of the euro zone.
But that meant that the European treaties weren't worth the paper they were printed on. Greece's public debt wasn't at 60 percent of GDP, the required maximum, but at over 100 percent. And even back then, there were already doubts about the numbers that Athens was officially reporting.
Part 3: The Critics of the Euro
There were opposing voices in society, particularly in Germany, where the deutsche mark was not just a means of payment but also a psychologically important symbol of Germany's postwar reconstruction and economic miracle. The 1990s were a decade of squabbles over the euro.
In 1992, for example, 62 German professors issued a joint warning against introducing the euro. They feared that the monetary union, the way it was structured, would "expose Western Europe to strong economic fluctuations, which, in the foreseeable future, could lead to a political acid test."
In the end, the political will prevailed over the economic objections. In April 1998, the two houses of the German parliament, the Bundestag and the Bundesrat, which represents the interests of Germany's 16 states, cleared the way for the last step toward monetary union.
After that, whenever a government official spoke out against the euro, it would set off an enormous commotion throughout Europe. Hans Reckers, the president of the central bank in the German state of Hesse, learned that when he dared to voice his concerns publicly.
Reckers was a member of the Bundesbank executive board at the time. In April 2000, near the end of a speech to a handful of financial journalists in the conference room of the state central bank, he cleared his throat and said: "In my view, Greece is by no means ready for the monetary union. Its accession must be postponed by at least a year."
It took about 20 minutes for the first news agency reports to be sent, and another five minutes for prices to begin plunging on the Athens stock exchange, prompting Greece's central bank to buy up drachma to prevent it from declining in value. Eichel, the finance minister, called then-Bundesbank President Ernst Welteke, and Welteke called Reckers, who was promptly muzzled. But today Reckers claims that all 15 of the bankers on the Bundesbank executive board felt that the Greece accession was a mistake.
A mistake, some said, that could be absorbed because Greece is such a small country.
A dramatic mistake, others said, warning against underestimating the power of the financial markets.
The true problems were not addressed in the wake of the Jan. 1, 2002 introduction of the euro. Despite all the declarations of intent in Maastricht, the 12 new euro countries drove up their debt by more than €600 billion in the five years of preparations for the introduction of the euro. By the end of 2002, they had a combined debt of €4.9 trillion, with Italy's debt alone amounting to €1.3 trillion.
The Skepticism of the Americans
Across the Atlantic, American economists were busy examining Europe's plans, which they felt were half-baked and "oversized," in the words of financial economist Kenneth Rogoff, a Harvard professor and adviser to US presidents and governments around the world. His office is in the Littauer Building on the edge of Harvard's manicured campus in Cambridge, Massachusetts.
When the euro became a real currency, Rogoff had just taken the position of chief economist at the International Monetary Fund (IMF), and he was teaching at Princeton when the euro began to take shape in the 1990s. He agreed with his fellow US economists' view that the euro was conceived "on too grand a scale."
Rogoff observed that a trans-Atlantic rift was developing between two groups of economists. The Americans and the Western Europeans, who usually more or less agreed on key macroeconomic issues, were suddenly arguing to the point of insult. The Europeans accused their overseas colleagues of failing to recognize the historic processes, the grand vision and Europe's great leap forward. The Americans, dry and pragmatic, accused their European counterparts of downplaying the risks. Once again, they felt that Old Europe was being overly romantic and blind to reality.
Rogoff did find some good ideas in the work of the EU and the architects of the euro. The Maastricht debt criterion, for example, remains a brilliant and valid idea to this day, says Rogoff. He is still convinced that setting an upper limit for the ratio of government debt to GDP at 60 percent proved to be a great success.
"It was something new at the time," says Rogoff. "It was a great insight."
The only problem, as soon became apparent, was that the Europeans had a tendency to betray their own ideals.
The Ticking Euro Bomb: How the Euro Zone Ignored Its Own Rules
After they joined the euro zone, the countries of southern Europe suddenly discovered they could borrow money at German-style rates, and any hope of sorting out their dodgy finances vanished. But it was France and Germany who set the worst example, when they broke the euro-zone rules they had forced on others.
By Spiegel Staff.
October 06, 2011
Act II: Life With the Euro (2001 to 2008)
How the euro heated up the borrowing-fueled economies of member states. Where Greece got its billions from. How the growth miracle failed to materialize. How the Germans betrayed the rules of the EU and benefited from the euro zone.
The Europeans' new determination and palpable desire to make the historic project a success was rewarded. Banks, pension funds and major investors from around the world began to show an interest in this new Europe.
Portuguese and Irish government bonds, coupled with French economic strength and German reliability, suddenly looked like low-risk, reasonable, future-oriented investments. It was at this time that the financial industry developed its new magic tricks.
Sewage treatment plant operators in southern Germany, city governments in Spain, villages in Portugal and provincial banks in Ireland got involved with Wall Street bankers and London fund managers who promised profits by converting debt into tradable securities. And while central governments tried to cap their national budgets to comply with the Maastricht requirements, municipalities piled on debt that was not documented or recorded anywhere at the European level.
Low-interest loans were available everywhere, and it was all too easy to postpone their repayment to a distant future and refinance or even expand government spending.
A loophole developed in the Maastricht Treaty. Harvard economist Kenneth Rogoff says that the rule about the maximum debt-to-GDP ratio should have been amended, and that it was wrong to establish the 60 percent limit on a purely quantitative basis without asking where the loans were actually coming from.
According to Rogoff, it would have been necessary to limit the proportion of foreign liabilities in each country's national debt. In the long run, and especially during an economic crisis, this kind of debt leads to an undesirable dependency on the vagaries of the markets.
In fact, governments borrowed excessively from foreign lenders, especially the major European banks. They accumulated what economists refer to as external debt. Deutsche Bank bought Greek bonds, Société Générale invested in Spanish bonds and pension funds from the United States and Japan bought European government bonds. The yields were not particularly high, but neither were the risks of default, or so it seemed. However, it was during this period that the monetary relationships were formed that turned Greece into a money bomb that would threaten the entire euro zone years later.
The Greeks were able to borrow at interest rates that were only slightly higher than those that the German government paid on its bonds. "The euro was a paradise of sorts," says then-Greek Finance Minister Yiannos Papantoniou.
Once they had joined the euro zone, Europe's southern countries gave up trying to sort out their finances, says Papantoniou. With a steady flow of easy money coming from the northern European countries, the Greek public sector began borrowing as if there were no tomorrow. This was only possible because the country, in becoming part of the euro zone, was also effectively borrowing Germany's credibility and credit rating.
The Greeks Establish a Debt Agency
Prior to the euro, Greece had shown little interest in the international bond market. The country was simply too small and economically too underdeveloped to play much of a role. But in 1999, the Socialist government in Athens established a "Public Debt Management Agency," naming Christoforos Sardelis as its director. Sardelis, an economist, had taught in Stockholm during Greece's military dictatorship. Now he headed a staff of two or three dozen employees.
For the first time, the Greeks tried to convince foreign investors to buy larger volumes of debt with longer maturities. The message was: Buy an attractive security from the European Union.
He worked all of Europe, speaking with every fund, Sardelis recalls. Today, he is 61 and a member of the board of directors of Ethniki, Greece's largest private insurance company. "Our task was to obtain money in the best possible way," he recalls.
Greece was soon selling packages of bonds worth upwards of €5 billion at government auctions, says Sardelis. Starting in 2001, there was "enormous demand from all over Europe," as well as from Japan and Singapore, he says. Things were going so well that Sardelis was even able to lure experts away from Deutsche Bank. Greece was in vogue. In reality, the Greeks were auctioning off their own future, without even noticing. They saw joining the euro as their goal, even though it was only a beginning.
In the spring of 2003, rates on Greek bonds were only 0.09 percentage points above comparable German bonds. In plain terms, this meant that the markets at the time felt that Greece, with its economy based on olives, yogurt, shipbuilding and tourism, was just as creditworthy as highly industrialized Germany, the world's top exporter at the time. Why? Because both countries now had the same currency. And because the markets -- as Andreas Schmitz, the head of the Association of German Banks, explained in a recent interview with the German weekly newspaper Die Zeit -- never believed in the so-called "no-bailout" clause of the Maastricht Treaty, a clause that was designed to prevent euro-zone countries from being liable for the debts of other members.
According to Schmitz, the markets were confident that "in an emergency, the strong countries would support the weak ones," a view based on European politicians' lax treatment of their own rules early in the game. Those who bought Greek bonds on a large scale at the time were betting that Europe's statesmen would break their rules if a crisis came along.
Sardelis claims that he had recognized the looming problems and warned against them. Today, he describes a mood characterized by the ever-increasing "illusion that the monetary union could solve our problems." But instead of pushing for serious reforms of Greek government finances, the Greeks simply "relapsed into old mentalities." Instead of saving being promoted, obtaining "as much money as possible" was encouraged.
Germany Undermines the Treaty
In 2002, the German government had other things on its mind than examining Greece's public finances. It was having troubles of its own, with the European Commission threatening to send a warning to Berlin. Germany was expected to borrow more than had been forecast, thereby exceeding the allowed 3 percent of GDP limit for its budget deficit. The result was not, however, an example of German fiscal discipline and exemplary adherence to European rules, but a two-year battle by the Schröder administration against the slap on the wrist from Brussels.
Few within the European Commission openly criticized the loosening of the Maastricht rules. And the Germans, together with the French -- both facing the threat of an excessive debt procedure -- were too busy undermining the Maastricht Treaty. The two countries, determined not to submit to sanctions, managed to secure a majority in the EU's Council of Economic and Finance Ministers to cancel the European Commission's sanction procedure. It was a serious breach of the rules whose consequences would only become apparent later.
The German-French initiative effectively did away with the Stability and Growth Pact, which the Germans had forced their partners to sign. The consequences were fatal. If the two biggest economies in the euro zone weren't abiding by the rules, why should anyone else?
The lapse was concealed behind political jargon. The violation of the pact was covered up with false affirmations of the pact. Its provisions were not formally abolished, but they were informally softened to such an extent that, in the future, they could be twisted at any time to benefit a government in financial trouble. The process also led to a not insignificant side effect: Executive power in Europe, supposedly held by the European Commission, which is informally known as the "guardian of the treaties," was de facto transferred to the European Council, which consists of the European heads of state and government.
Part 2: The Greek Deception Is Discovered
Instead of bundling and concentrating the efforts of the euro zone in Brussels, as intended, national interests began emerging once again in Berlin, Paris, Madrid and Rome.
Greece's new conservative government, elected in 2004, disclosed that its socialist predecessors had been reporting manipulated figures to Eurostat since 2000, including the numbers used to join the euro zone.
But instead of criticizing Greece, European Commission President José Manuel Barroso, a Portuguese citizen, praised the new government for its openness and congratulated it for taking such "courageous steps" to make up for the mistakes of the past. Now it was Greece's job to put its house in order by 2006, Barroso added.
But the new administration in Athens soon proved to be just as creative with its accounting as its predecessor. Defense expenditures were posted retroactively to the time of order, not payment, cleverly removing them from the current balance sheet. The bureaucracy refused to make projections about budget trends and used a purely fictitious deficit of less than 3 percent in its budget planning.
Sardelis, the director of the "debt agency," was replaced. His successor, like Sardelis before him, took advantage of the low rates on his country's government bonds. In 2005, Greek bonds were yielding rates only 0.16 percentage points higher than German bonds. The market was buying and the Greeks were selling. Government debt increased by 14.7 percent in 2006.
A blame game began in Brussels, where officials argued over who exactly had given incorrect or insufficient information to whom. The EU currency commissioner pointed his finger at the director general of Eurostat, who shifted the blame to the EU commissioners, who in turn criticized the European Central Bank. National governments and finance ministers joined the fray and, instead of the spirit of optimism that had prevailed around the turn of the millennium, dark skies were suddenly on the horizon for this new Europe.
To make matters worse, hopes of strong economic growth in the euro zone were dashed. Germany, in particular, was ailing, growth was minimal in Europe and unemployment figures were disconcerting. Europe became a constant topic of discussion at the International Monetary Fund (IMF) in Washington.
The IMF Warns Europe
Europe was under observation at IMF headquarters. The euro countries, after having built themselves brave new economic worlds since the late 1990s, mostly on borrowed money, were already in a deepening debt hole, which was still almost unnoticed and certainly vastly underestimated. They were like a mouse that is overjoyed to have spotted a piece of cheese in a trap, without noticing that by eating the cheese it will set off the trap.
At the time, then-IMF chief economist Rogoff's answer to the question of whether the euro zone could break apart again was simple: "Of course." Rogoff said that, in 10 years' time, some countries might not even be using the euro anymore. When he said these things, his colleagues, particularly the Europeans, always looked at him "as if I had a screw loose," he recalls.
The IMF noted a "paralysis in Europe," says Rogoff. The political union that had been promised for years as a real framework for the technical monetary union did not materialize. But the European party continued -- and as long as the music was playing, everyone wanted to dance. Everyone except the Germans, that is, who were busy introducing painful and unpopular reforms -- known as Agenda 2010 and Hartz IV -- to their labor market and welfare systems.
"What the Germans accomplished at the time is very impressive," says Rogoff. "They recognized a debt problem and the systemic weaknesses, and then they rationally went about eliminating those weaknesses." But instead of developing economic productivity, reforming their social systems and controlling costs, countries like Greece, Portugal and Italy borrowed more and more money, dragging out the maturities as long as possible so as to postpone the necessary decisions into the future.
But the critics targeted Germany instead of these countries. The Germans, they said, were pushing their European partners up against a wall. German exports to countries in the euro zone were growing by an average of 7 percent a year, while 73 percent of Germany's trade surplus came from these countries.
The Agenda 2010 reforms applied pressure on wages and helped reduce unit labor costs, so that Germany acquired even greater competitive advantages over countries like Italy and Greece. While unit labor costs were declining in Germany, they were going up in most euro-zone countries, especially Greece.
Greece's Structural Problems
The Greeks were consuming on credit, using cheap loans. They bought German machinery and cars, which helped increase Germany's gross national product, while neglecting to introduce reforms at home. No elected official was willing to trim the country's enormous bureaucracy, hardly anyone was interested in debt repayment, trade deficits or unit labor costs, and very few fought against corruption, subsidy fraud or unearned privileges. The consequences of these failings are still in full view in northern Greece today, in the region bordering Bulgaria.
Almost all of the many factories and warehouses in the industrial zone of Komotini are now shut down, and yet they look as if they were brand-new. Komotini is a prime example of why the Greek economy doesn't grow, why it is uncompetitive and why there is no progress in the country.
Most of the companies there never even opened their doors for business. In fact, the abandoned buildings are the ruins of subsidy fraud. Their developers obtained funds and low-interest loans from the government in Athens and from the EU to build the factories and warehouses, but they never intended to do any business there.
Transparency International considers Greece to be the most corrupt country in the EU. Permits and certificates can only be had in return for cash. Not everyone in Greece sees this as a problem. Some see corruption as part of Greek culture, and they also believe that taxes are unnecessary. As a result, the government has a double revenue problem. On the one hand, the bureaucracy prevents some businesses from growing and becoming profitable. On the other hand, the businesses that do grow and realize profits find ways to pay almost no taxes at all. Every year, the Greek state misses out on an estimated €20 billion in unpaid taxes. A third of Greece's economic activity is untaxed.
Poor Ratings for Greece
In September 2008, when the Lehman bankruptcy wreaked havoc on financial markets, the Greek government believed it had been spared. Greek banks held very few of the supposedly innovative securities that Wall Street's financial wizards had devised. Nevertheless, in 2008, government debt rose to 110 percent of economic output. Greece's debt-to-GDP ratio had surpassed Italy's, and the proportion of its debt that was held by foreign investors was also significantly higher. The country of beautiful islands was in much bigger trouble than it was willing to believe.
The rating agencies, which had declared massive numbers of worthless securities to be safe investments, came under special scrutiny after the Lehman crash. After all, they were also rating entire countries and government bonds. What were their ratings worth? Had they misjudged the quality of national economies just as they had got it wrong with private companies?
For years, the world's three major rating agencies had unanimously given AAA or AA ratings to the bonds of euro-zone members. On Jan. 14, 2009, one agency, Standard & Poor's, decided to downgrade Greek government bonds to A-. It was the lowest rating among all the euro zone's then 16 members. From today's perspective, it marked the beginning of the crash.
The downgrade set in motion a downward spiral that would show European leaders how fragile their euro is and how contagious conditions in a small country like Greece could be.
Marko Mršnik, a "sovereign credit analyst" responsible for Greek government bonds at Standard & Poor's, was behind the downgrade. The native Slovenian doesn't talk to journalists, but his reports provide an indication of how he assesses the markets.
His office is in Canary Wharf in London's Docklands district, a business center with shimmering façades and coffee bars built on the ruins of the old industrial society. Lehman Brothers also had its offices there, until the end.
The purely economic criteria are readily available in the tables produced by central banks, Eurostat and the IMF. But another aspect, the politics of a country, is not something that can be figured out with a calculator. It has to do with issues such as how well an administration functions, corruption, strong unions, how rebellious a country's young people are and how strong its leader is. These are the soft -- but nonetheless important -- criteria.
Explaining the decision to downgrade the country's debt rating, Mršnik wrote that the ongoing financial and economic crisis had amplified a fundamental loss of competitiveness in the Greek economy. After this assessment was issued, prices plunged on the Athens stock exchange and interest rates rose. The buyers of Greek government bonds, wanting to be compensating for taking on more risk, demanded a higher premium. From then on, if Greece wanted to borrow €1 billion, that is, sell bonds worth €1 billion, it had to promise to pay €2.8 million more in interest than Germany was paying. The debt burden continued to grow and grow.
Alarmed by the downgrade, the European Commission initiated another excessive deficit procedure against Greece. But it was a helpless gesture. Once again, the sanction procedure remained ineffective -- not unexpectedly, one might be tempted to say. To this day, not a single euro country has even been penalized, despite the many cases of rule violations. The euro zone's sanction mechanism is an empty threat. Besides, it was poorly conceived from the start. What good does it do to slap fines on a country that is in financial difficulties?
In October 2009, the new government of Socialist Georgios Papandreou replaced the conservative administration in Athens. After Papandreou's election win, Mršnik wrote, in a confidential letter to Standard & Poor's customers, that in light of the repeated budgetary lapses of the various Greek governments, it remained to be seen whether the new administration had the will to implement a credible budget strategy. This sounded diplomatic, but it was pure sarcasm. Investors got the message, namely that the decline of Greek bonds from secure investments to casino chips was accelerating.
The Greek tragedy had begun.
The Ticking Euro Bomb: What Options Are Left for the Common Currency?
Politicians have maneuvered their countries into an unparalleled situation in the euro crisis. And they already know what most voters don't yet suspect. In the end, only two possibilities will remain to save the beleaguered common currency: an expensive transfer union or a smaller monetary union. Either solution will be extremely costly.
By Spiegel Staff
October 07, 2011
Act III: The Euro Crisis (2010/11)
How Greece becomes a pawn in the hands of investors. How the European Central Bank goes astray. Why the world no longer makes sense to the Greeks. How the Maastricht bet goes bad.
In October 2009, Marko Mršnik's analysts at rating agency Standard & Poor's computed that Greece's debt would increase to 125 percent of economic output in 2010. On the same day, it became more expensive to hedge Greek bonds against default. The default insurance instruments, known in market jargon as credit default swaps (CDS), were an indicator of how bad things stood for Greece. It was now costing $189,000 a year to hedge a $10-million Greek government bond against default. For major investors, it was a signal to get out of Greece.
A few people had also become nervous at the headquarters of the Pacific Investment Company (PIMCO) in Newport Beach, California, about an hour's drive south of Los Angeles.
PIMCO is by far the world's largest investor in government bonds. The company lends governments money by buying their bonds. When PIMCO stops buying a country's bonds, it's a clear sign that the country is on the verge of crisis and possibly even bankruptcy.
PIMCO controls more than $1.3 trillion (€1.05 trillion) on behalf of its customers. It is an absurd number, even in these times of superlatives, times of bailout funds and banks being supported with billions upon billions in taxpayer money. Though far from a household word, PIMCO has four times the German national budget to invest.
That's why almost all governments maintain close ties to PIMCO. They send their finance ministers, the heads of their central banks and sometimes even their national leaders to see CEO Mohamed El-Erian and convince him to buy their government bonds.
In the last few weeks of 2009, PIMCO sold all of its Greek bonds. El-Erian says the company wanted to get out before everyone else noticed that the numbers weren't adding up. The company never relies on outside assessments. Instead, it employs hordes of analysts, some of whom used to work at the International Monetary Fund, where El-Erian began his career.
The analysts spend all of their time digging through large quantities of data and the financial statements of nations, re-calculating, preparing projections and feeding numbers into computers. When they don't like what they see, PIMCO gets out.
When Greece was accepted into the euro zone, it was one more reason for PIMCO to buy Greek bonds. El-Erian says the sentiment at PIMCO was that if the Greeks were being granted membership in such an elite club, then Athens would follow the rules -- or the government would be severely sanctioned if it didn't. But that didn't happen. Instead, political concessions were made and the rules were ignored. That, El-Erian argues, is what brought the cancer into the euro zone.
So why didn't the financial markets penalize Greece earlier? Why was the same yardstick applied to Greek government bonds as to German bonds, until only a few years ago? Why did the markets continue to buy the country's bonds?
The Crash of Greek Bonds
On April 27, 2010, a country's debt was downgraded to junk status for the first time in the history of the young currency. Standard & Poor's downgraded Greece's bond rating by three notches, to BB+, putting it at the same level as Azerbaijan and Egypt, and just ahead of countries like Ecuador, El Salvador and Zimbabwe.
Mršnik wrote that Greece's government debt had to be "restructured" -- a fancy word for bankruptcy. Restructuring involves a debt haircut, so that owners of Greek bonds might only get 30 percent of their money back, that is, lenders are only repaid a fraction of the money they lent. The markets view a downgrade as the kiss of death. At this point, anyone who was still holding Greek bonds in his portfolio was crazy -- or a charitable donor.
But the market is neither crazy nor charitable. As soon as the downgrade was announced, Greek bonds were thrown onto the market, causing their prices to plunge. If the Greek government had introduced two-year bonds into the market at that point, it would have had to promise buyers a 13-percent interest rate, up from only 6.3 percent a few days earlier. The rate for 10-year bonds climbed to above 10 percent.
This came as a shock to many European banks. After the Lehman bankruptcy, they had invested heavily in the supposedly safer government bonds, with small yields that suggested security. But now it wasn't only Greek bonds that were seen as risky; confidence was also dwindling in Portugal, Ireland, Spain and even Italy.
Fear in Europe's Financial Capitals
Fear began to spread in places like Frankfurt and London. European banks had invested more than €700 billion in government bonds from the five crisis-stricken countries. And Greek banks alone were holding €50 billion in Greek government bonds. When the government bond rating was downgraded, so were the ratings of Greek banks, as part of a chain reaction that would not stop at Greece's borders.
Government bonds also serve as collateral when banks borrow money from the European Central Bank. The bonds are a key link in monetary transactions, and when their value becomes questionable, the supply of money to economies begins to falter.
Part 2: Greece Adrift
Greece was adrift in a storm of mistrust, unleashed by the rating agencies and reinforced by the financial markets. The lower the country's rating fell, the more expensive it became to refinance debts, the greater the debts became, the lower the rating went, and so on. All of this spelled a golden opportunity for foreign currency traders, hedge funds and speculators. They could bet on the decline of the euro and on the euro partners bailing out the Greeks. One of the instruments they used was the credit default swap, which the financial crisis had already spread around the globe following the Lehman bankruptcy.
Although CDSs were designed to insure against the risk of credit default, someone who holds government bonds can also use them to speculate. It's as if someone had purchased fire protection insurance for a house he didn't own. He could conceivably have a strong interest in the house actually going up in flames. Those who bought CDSs for Greek bonds without owning any bonds themselves were betting that the bonds would lose value. If that happened, they could sell the swaps later on at a higher price.
A €26 trillion gray market for CDSs had developed outside the official markets. The premium that had to be paid to hedge a Greek government bond doubled within a few weeks, and by now it was 10 times as high as the premium for a German bond.
In June 2010, Greece's credit rating was downgraded by four additional notches, due to "considerable" general economic risk. Greek government securities now had the status of junk bonds. Investors in Greece had already begun moving their money to Cyprus, Malta and Switzerland. Greece had been ejected from the family of creditworthy nations. But the effect of the downgrade was also detrimental to the entire euro project, even through Europe felt that it had reacted firmly and decisively, and that it had the Greek crisis under control.
This belief was triggered by the European Central Bank's purchase of €25 billion in Greek government bonds only a month earlier, in May 2010. It did this to stabilize prices for the bonds and bring calm to the markets, but the strategy only worked for a few days.
From then on, the ECB would buy more and more Greek bonds, even in 2011, and soon it was also buying Portuguese, Italian and Spanish bonds. The ECB was filling its own house, which had been created as a stronghold of euro stability, a Fort Knox of the new currency, with junk bonds. In doing so, it was ruining the credibility of the euro.
Questions about the beginnings of the euro kept resurfacing. Why did the leaders of France, Germany and nine other countries believe that Greece's way of running its economy could be compatible with other economies under the umbrella of a common currency? How is it possible that a currency was developed exclusively for good times and phases of growth, only to be dangerously in jeopardy during a crisis?
The Truck Drivers' Strike
In Greece, the plunge in the value of government bonds triggered unrest, because EU assistance was tied to austerity requirements and demands for tough reforms. The government was to shrink the public sector, which had become inflated over the decades, by one-fifth. And the markets were to be liberalized to facilitate more growth.
As a truck driver, Antonis Dimitriadis belongs to a group known as the "kleista epaggelmata," which consists of about 70 closed professions, a curiosity of Greek labor law, including attorneys, notaries, architects and taxi drivers. The members of these professions had been protesting since the reforms began, because they were losing their privileges. Until then, their rules had not been set by the market but by the state.
Dimitriadis was one of those who demonstrated in the summer of 2010 against what they believed were unreasonable government austerity measures. Trucking companies nationwide went on strike, shutting everything down. For eight days, filling stations were unable to get gasoline, while supermarkets quickly ran out of fresh products. Tens of thousands of tourists were stranded, flights were delayed and ships were unable to leave port.
There are 33,500 licenses in Greece for independent truckers like Dimitriadis. They were issued under the country's military junta in the early 1970s, but no new licenses were added after that, even though the Greek economy is now four times as large as it was at the time.
A trucking license became something of a guaranteed livelihood and even a retirement plan. When truckers retired, they would sell their licenses to the highest bidders, and licenses for large tanker trucks were being sold for up to €350,000. But now, under the debt regime dictated by Brussels and Washington, the licenses were to be made available to anyone starting in 2014, which of course caused the value of truck licenses to plunge. Today Dimitriadis's license is worth only about €12,000-15,000.
He received the license, which guarantees him his profession, as a gift from his father in 1993, for whom he had worked since he was 13. He cleaned the truck, filled the gas tank and accompanied his father throughout Greece, just as his 11-year-old son Manolis does today -- as if it were a law of nature. Of course, Dimitriadis took care of his father after he had given him the keys to this truck, if only in gratitude for the truck license, and he would expect the same from his own son.
Family is everything in Greece, a country of pre-modern, almost archaic labor structures that have been cemented into law in the form of an elaborate system of rules and regulations. As a result, the family-owned business has remained the DNA of the Greek economy. Of Greece's working population of 4.4 million, roughly 1.5 million people work for the government, while another 1.5 million are employed in small businesses with between one and nine employees, or are self-employed. And these people were now being expected to accept, in the space of a few weeks, changes to a system that had developed over decades. An economy dominated by guilds and family owned businesses was to be converted into a market economy that satisfied the requirements of politicians in Brussels and Berlin.
A Country on the Verge of a Nervous Breakdown
The truck drivers' strike did immense damage to Greece's image around the world. Until the summer of 2010, the Greek crisis had remained a relatively abstract phenomenon for the global public, one that was analyzed primarily in the business sections of newspapers. But now there were images the media could use, images that portrayed a country on the verge of a nervous breakdown, images of irate tourists, empty shelves and barricaded streets, and of soldiers driving truckloads of kerosene, gasoline and diesel around the country. The images depicted a country that was no longer functioning and was unlikely to become functional again in the foreseeable future.
They also depicted a society deeply suspicious of its own government. With tax revenues of less than 30 percent of economic output, Greece has the second-lowest tax rate of all euro-zone countries. The Foundation for Economic and Industrial Research (IOBE) in Athens estimates annual black-market sales at €59 billion -- a quarter of the official economy.
Outsiders may be shaking their heads about all of this, about the Greeks and their stubbornness and backwardness, about their way of doing business in general, which is alien to the economic systems in Central and Northern Europe. But they should be even more taken aback by Europe's politicians and its movers and shakers, and the years they spent doggedly looking the other way, repressing and denying the realities of the Greek economy.
Part 3: Design Defects, Political Weakness, Public Disinterest
The architects of the euro and their successors have lost the Maastricht Treaty bet. They have jeopardized an agreement made by 12 countries in the hope that the markets wouldn't notice how fragile their shiny new currency really is. And what the founders of the euro left in the way of loopholes in the original treaty -- which was aimed at providing a stable foundation for the common currency -- their successors have used in the course of 10 years to make the euro even more vulnerable.
In defiance of all rules, the euro countries have almost doubled their combined national debt since 1997. It has grown by close to €2 trillion, or 30 percent, in the last three years alone. Without the costs incurred as a result of the financial crisis, perhaps it would have taken longer for the bet to turn sour, but it would have done so nonetheless. The euro had too many design defects, the European political class was too weak to correct them, and Europeans themselves were too disinterested in the entire massive project.
A Dangerously Unstable Network
The four main promises of the euro, as put forth in the Maastricht Treaty, were all broken: government debt was not limited, but in fact doubled, with only five of the 17 euro countries still falling below the debt ceiling of 60-percent of gross domestic product permitted in the agreement's Growth and Stability Pact; budget deficits were not capped, and only four countries are now below the norm; the ban on bailouts was violated; and the European Central Bank, no longer independent, has turned into a bad bank for the bonds of ailing governments.
It isn't just a matter of political failure, which would have been as inconsequential as any broken election promise. In fact, it is a matter of the failures of two generations of political leaders, which have resulted in Europe now being blanketed in a dangerously unstable network of countries, their central banks, the ECB, the banks and investors.
The nations of the euro zone are in debt to the tune of €8 trillion, while banks hold European government bonds at a face value of €1 trillion on their books. The central banks of Greece, Italy, Portugal and Spain owe Germany's Bundesbank €348 billion. The ECB has purchased €150 billion in government bonds, and the banks, fearing loan defaults, would rather park up to €150 billion with the ECB than lend money.
The sum of all credit default swaps for Greece is unknown, as is the identity of the banks that hold them, which makes their risks incalculable. Large European banks have so many bonds of vulnerable countries on their books that, according to the IMF, they would need €200 billion in additional capital to pull through in the event of large-scale defaults. This has already prompted the rating agencies to downgrade some of the banks.
The Euro Is a House without Keepers
This highly explosive network of mutual dependencies makes the euro unstable in times of crisis. But it becomes vulnerable and truly dangerous as a result of a unique feature that distinguishes it from the dollar, the yuan and all other currencies: The euro is a house without keepers, a currency without political protection, without a uniform fiscal policy, and without the ability to forcefully defend itself against speculative attacks.
For a monetary union to function, the economies of its member states cannot drift too far apart, because it lacks the usual balancing mechanism, the exchange rate. Normally a country depreciates its currency when its economy falters. This makes its goods cheaper on the world market, allowing it to increase exports and thereby reduce its deficits. But this doesn't work in a monetary union. If one country doesn't manage its economy effectively, the common currency acts as a manacle.
If Greece were a state in a United States of Europe with a common fiscal and economic policy, it would be just as protected as the city-state of Bremen, also deeply in debt, is by the Federal Republic of Germany. But because there is no common European fiscal policy, Greece, as the weakest country in the European Union -- and despite the fact that it only contributes three percent to the total economic output of the euro countries -- becomes a systemic threat for 16 countries and 320 million Europeans. And the euro, intended as a means of protecting Europe against the imponderables of globalization, becomes the most dangerous currency in the world.
Part 4: Are European Rescue Efforts Doomed to Fail?
Act IV: The Future of the Euro (2011 to ?)
Why Jacques Delors, one of the founding fathers of the Europe , still believes in the common currency. Why economist Kenneth Rogoff feels that his nightmare scenario is realistic. And why Mohammed El-Erian, CEO of the world's largest bond trader, says that he isn't making any bets on the demise of the euro.
What will happen to Europe in the coming weeks and months has much to do with Greece, but it has also long been detached from the drama in Athens. In fact, it is the continuation of the financial tragedy that began in New York in 2007. According to American economist Kenneth Rogoff, what began in New York was not a normal recession, albeit somewhat more severe than usual, but a "great contraction" of the sort that happens only once every 75 years in global economic history. This circumstance, says Rogoff, has not been recognized to this day. In his view, this is why Europe's crisis, which began as a crisis of confidence, turned into a debt and liquidity crisis and finally led to multiple solvency crises, is not ending.
"The current policy is to act as if a liquidity crisis could be overcome," says Rogoff, "and as if all it took were to hand out enough loans to jump-start growth once. But it's the wrong diagnosis. We have a solvency crisis, and we have European countries and regions that are fundamentally bankrupt. No loan in the world, no matter how big, will save Greece, nor will it save Portugal and probably not Ireland, either, and Italy is also very worrisome."
Band-Aids Where Surgery Is Needed?
If this conclusion is correct, it means that the new European Financial Stability Fund (EFSF), established for ailing euro countries, is pointless. It means that the ECB's new policy of financing the national debts of countries will fail. It also means that Europe's leaders, as they rush from one crisis meeting to the next, are merely handing out Band-Aids where surgery of the inner organs of the Union would be necessary. "The goal now should be to trim debt," says Rogoff, "declare bankruptcy and start over again." According to Rogoff, Greece is so insolvent that it will only have a future if 50 to 75 percent of its government debt is written off, and the situation in Ireland and Portugal isn't all that different.
If strong medication isn't administered to Europe now, says El-Erian, notwithstanding its adverse side effects, the infection will soon reach the heart and the brain: France and Germany.
Either way, says Rogoff, the euro project is at a crossroads. The European partners must either enter into a forced marriage, a shotgun marriage, or the union will break apart sooner or later. "And, of course, it's questionable whether the people of Europe are willing to enter into such an unromantic marriage."
The Germans, says Rogoff, play a critical role. And if they want to save Greece, they should take a sober look at the situation.
They should look to Italy, says Rogoff, where the northern part of the country has been paying the bills for southern Italy for 90 years. And they should ask themselves whether they are prepared to pay Greece's bills for the next 90 years.
'A Risk Bordering on Madness'?
"That's what is involved when we talk about a transfer union. It's certainly possible. Germany is probably strong enough to pay all the bills, presumably to the tune of 150 percent of its own economic output, and the markets would somehow play along. Germany would then be the super-European, and everyone would love Germany. But, to be honest, for the Germans it would be a risk bordering on madness."
When politicians ask him for advice these days, Rogoff suggests starting with a debt haircut as quickly as possible, but even this solution would be very costly. To avoid simply pushing the affected countries over the brink, Europe -- and Germany in particular -- would have to find a way to deal with the bankrupt states.
Rogoff could imagine the Europeans guaranteeing the debts of a country's central government, but nothing more than that. In the case of Ireland, this would mean that no guarantees would be assumed for the banks. And in the case of Spain, it would mean that the immense debts of its cities and towns, such as Barcelona's, would remain Spain's problem. And finally, in that of Greece, it would mean that only the government's most critical expenses would be assumed, but nothing more.
It would mean that Europe would enter a very difficult period. "That's the problem with big crises," says Rogoff. "In the end, they create many more losers than winners."
While this is the scenario Rogoff, an American expert on financial crises, paints, European politicians like Jacques Delors stand by their vision of a great Europe. Delors, the founding father of modern Europe, cannot imagine that the euro zone, by and large, will break apart. "It would be too expensive, and I think that no one wants to take this risk." Europe, says Delors, is a moral obligation, something that today's politicians have apparently forgotten. "They run around like disorganized firefighters, and they still believe that they can put out all the fires." But what is really necessary, says Delors, is a strong central government in Brussels that coordinates the efforts, as well as new, robust institutions.
Do Only Two Possibilities Remain for Saving Euro?
The proposals to solve the euro crisis are manifold -- reducing debt with or without withdrawal from the euro zone, a European finance minister or even a European economic government -- but they have become little more than an expression of the cluelessness of economists and politicians. There is no precedent for this crisis, nor is there a recipe that could be applied to resolve it. Europe's politicians have maneuvered themselves and their people into an unparalleled situation. It scares some of them more than it scares their voters, because politicians already know what voters don't even suspect yet.
In the end, only two possibilities will remain: a transfer union, in which the strong countries pay for the weak; or a smaller monetary union, a core Europe of sorts, that would consist of only relatively comparable economies.
A transfer and liability union requires new political institutions, and individual countries would have to confer a significant portion of their powers on Brussels. Some politicians are warming up to this idea as they consider an economic government or even a United States of Europe, but without explaining exactly what this means.
The second path is the more likely one. It will not be easier, and it might not be any less costly, either. First a firewall would have to be erected between the countries that are in fact insolvent and do not stand a chance of ever repaying their debts, like Greece, and others that have only a short-term liquidity problem. Then the banks would have to be provided with government funds, so that the financial system does not collapse when banks are forced to write off some of the government bonds on their balance sheets. Finally, the countries exiting the euro zone would require continued support, because Europe cannot simply look on as countries like Greece descend into chaos.
'That Doesn't Look Not Dangerous'
Horst Reichenbach will still be needed in either case. In his first tour through the offices of Athens cabinet ministers, the director of the EU Task Force is embarking on a battle against 10 years of mismanagement, 100 years of slowness and the pride of 3,000 years of history. Reichenbach is a mathematician, an economist and a technocrat with decades of experience in the Brussels bureaucracy, and generally a well-tempered man with an aura of extremely professional and esthetic austerity. He is an envoy from another time zone, an envoy from the future.
While waiting for the elevator, Reichenbach says that he feels "extremely welcome" wherever he goes. He attributes this to the fact that he is, after all, the "good guy" in this game, whereas the representatives of the so-called troika, consisting of the European Commission, the IMF and the ECB, who are there to monitor compliance with requirements, are "regarded less favorably" in Greece.
When he drives through Athens, what he sees looks like a dynamic European city through the tinted windows of his dark-blue Renault Espace, the Task Force's official vehicle. Traffic is light now that 15,000 striking taxi drivers have disappeared from the streets of Athens.
He has to slow down at one point, where the other side of the road is blocked. Reichenbach slowly maneuvers his Renault past a burning car in front of the US Embassy. He says, "oops!" and looks out the window, but then he concludes: "That doesn't look not dangerous."
Reported by Ferry Batzoglou, Manfred Ertel, Ullrich Fichtner, Hauke Goos, Ralf Hoppe, Thomas Huetlin, Guido Mingels, Christian Reiermann, Cordt Schnibben, Christoph Schult, Thomas Schulz and Alexander Smoltczyk
Translated from the German by Christopher Sultan