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Published: Tuesday, 9/24/2013

Merkel’s next challenge

Questions remain about the direction in which she will lead Germany and the European Union

Angela Merkel’s resounding re-election in Germany this week is a personal triumph. But it still leaves unanswered questions about the direction in which she will lead Germany and the European Union over the next four years.

Under her leadership, Germany has been an oasis of relative prosperity in the slumping euro zone, and voters rewarded her for it. Although her Christian Democrats and its Bavarian sister party, the Christian Social Union, came close to a majority in Parliament, she will need a new coalition partner. Her previous partner, the pro-business Free Democrats, were a major casualty, falling below the minimum 5 percent threshold for entering Parliament.

Ms. Merkel’s most likely partner is the Social Democratic Party, despite its relatively poor showing. The two parties shared power during her first term, from 2005 to 2009.

The Social Democrats are more firmly committed to strengthening the European Union than the Free Democrats. They are more open to easing austerity conditions for struggling debtor nations, and favor measures that could raise consumer demand at home, such as setting a national minimum wage.

Reviving the euro-zone economy will not be easy. Although the severe recessions in Greece and elsewhere seem to be bottoming out and deficit projections are starting to improve, unemployment rates of more than 25 percent in Greece and Spain — twice that for youth — are disastrous. A generation is losing its future, social tensions are rising, and neo-fascist movements such as Greece’s Golden Dawn are growing bolder in their extremist talk.

There is blame to go around for the euro zone’s contraction. Greece fudged its fiscal accounts. Spain and Ireland failed to restrain speculative housing bubbles. No country kept close enough watch over banks. The European Central Bank was never granted adequate lending powers.

But the agonies of Greece, Portugal, Spain, and Cyprus owe much to the rigid austerity measures Ms. Merkel insisted on for support programs that have kept payments flowing from debtor governments to their creditors. Those measures have stymied growth and forced those governments to shred social services for their poorest citizens.

Germany’s competitive export-driven economy has stayed largely immune to the recession that has gripped the rest of Europe. The jobless rate in the euro zone is now 12.1 percent, but in Germany it is 5.3 percent. For Europe to prosper, Germany must boost consumer demand at home, agree to easier bailout terms for debt-crisis countries, and accept a more powerful European banking union.

Despite Ms. Merkel’s post-election remarks that German policies would not change, she has softened her tone on austerity-related issues. That suggests she has begun to understand the need for a more enlightened German approach.

Her challenge is to put together a government that is wise enough to make the needed changes, and strong enough to sell them to the German people.

— New York Times

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