Greek Showdown Puts Merkel's Teflon Legacy at Risk

by Patrick Donahue

June 16, 2015 — 1:14 AM EEST

Bloomberg

The Teflon chancellor may be vulnerable after all.

The specter of insolvency in Greece poses the biggest threat to the legacy of German Chancellor Angela Merkel whose political longevity rests on her crisis-fighting diplomacy.

From the threat of the U.K. leaving the European Union to the festering conflict in Ukraine, Merkel’s credibility as the continent’s most powerful leader and her guiding philosophy of a more united, competitive Europe risks unraveling.

And it might just be Greece, an economy a fraction the size of Germany’s, that could deal the most painful blow.

“This does look a bit like a tipping point,” Ulrike Guerot, founder of the European Democracy Lab at the European School of Governance in Berlin, said in an interview. “If Greece leaves, then she’s taking the first step toward the end. This is what she wants to stop.”

As the Greek saga heads toward a denouement, her approval ratings have dipped amid differences with Finance Minister Wolfgang Schaeuble over the battered Mediterranean economy. Signs point to her parliamentary group favoring Schaeuble’s tougher line toward the Greek government and the solid support that has been a mainstay of her stay in power is slipping.

The timing couldn’t be worse as Merkel mulls a run for a fourth term that would put her in position to match Helmut Kohl’s 16-year record. Polls suggest Merkel may have peaked. Her support slid 4 percentage points to 66 percent in an Infratest poll in June, a month after a 5 point drop following allegations of German cooperation with U.S. spying in Europe.

Risk Averse

It was in a leaked 2009 cable from U.S. diplomats to President Barack Obama, that the world found out she was seen as “risk averse” and a “Teflon” leader.

Still, it would be a mistake to write off a wily political survivor who has etched out a career from being underestimated. Merkel has outmaneuvered rivals and coalition partners alike. Her most famous victim was her own mentor, Kohl.

Merkel has a “very skillful talent of not seeming as if she’s to blame for things,” John Kornblum, who was U.S. ambassador to Germany from 1997 to 2001, said in an interview.

For a politician who regularly tops German popularity ratings, a drop in the polls to third place -- behind Schaeuble -- is ominous as the prospect of a Greek exit from the euro looms. She’s already spent political capital engaging with Greek Prime Minister Alexis Tsipras, agreeing to talks after initially trying to keep him at arm’s length.

Personal Failure?

“Any failure will be seen as a personal failure,” said Andrea Montanino, who stepped down as Italy’s representative to the IMF last year and is now director of the Atlantic Council’s global business and economics program in Washington.

While her austerity rhetoric played well to a domestic audience tired of bailing out struggling euro members, it may come to haunt her. The sacrifices imposed on Greece have failed to resurrect the country’s economic fortunes and ushered in a radical opposition party intent on pushing back even harder.

“Merkel’s language hasn’t been helpful,” said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington.

Her effort to coax Tsipras to lay out a plan to satisfy Greece’s creditors hit a wall Monday as the Greek leader blasted the institutions for demanding more pension cuts.

Ukraine Cease-Fire

Further east, Merkel’s attempts to resolve the 16-month crisis in Ukraine also faltered four months after she and French President Francois Hollande negotiated a cease-fire and peace plan in Minsk, Belarus. Days before she hosted Group of Seven leaders for a summit in Bavaria, fighting surged between Ukrainian forces and pro-Russian separatists.

“The situation is not stable enough that it wouldn’t threaten to spin out of control any day,” Foreign Minister Frank-Walter Steinmeier, whose approval rating put him top of the Infratest poll, said on June 4.

Merkel, a Russian speaker who was raised in communist East Germany, had hoped to leverage her relationship with President Vladimir Putin to end the deadly conflict.

After battling her way up to become Germany’s first woman chancellor and its first from the former communist East, it’s not in her character to give up.

“It’s going to be: she fought valiantly to the end and Europe or Russia or the United States, the universe or whoever just didn’t do what she needed them to do,” said Kornblum. “So it’s not her fault.”

Regardless of who is held to blame for a Greek exit, it would mark a defeat of the signature policy of her 10 years in office: maintaining the integrity of the euro area.