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All eyes on Germany now

india Updated: Sep 24, 2013 21:17 IST
Angela Merkel

She is being compared to Margaret Thatcher, Otto von Bismarck and called the new leader of Europe. German Chancellor Angela Merkel is a bit of all these, but she has otherwise proven to be unique.

Not only has Ms Merkel won a third term, she has given anti-incumbency a bad name by winning with a record-breaking share of the votes and done so while riding two successive macro-economic crises: a global subprime loan blowout and a subsequent eurozone sovereign debt meltdown. Ms Merkel would be the last person to make much of her accomplishments.

This does not mean the road before her is not without challenges. Ms Merkel needs to persuade her ideological rivals, the Social Democrats or the Greens, to work with her to pass legislation as she is just short of a majority in both the upper and lower legislative chambers. While she has successfully walked a tightrope — bailing out teetering European economies with the money of angry German taxpayers — the euro-crisis still has a few more acts to go through.

Ms Merkel has successfully forced structural reforms on many southern European nations. But she is still waiting for a similar bitter pill to be swallowed by France, the second-largest but increasingly uncompetitive number two in the eurozone.

The German leader will also have to decide how much more austerity can be imposed on Greece whose political system seems almost paralysed and will probably need a third bailout of about $12 billion. The green shoots of recovery are being discovered in parts of the eurozone, but jobs remain far and few.

Amid all this, she will also need to start thinking about reforming Germany as well. This is the sheet anchor of the European Union economy but it is dangerously dependent on exports and its demographic deficit so negative as to endanger future growth.

India has an enormous stake in Germany’s success because Berlin is the capital with the greatest say in the success of Europe. While there is much excitement about a hardening of US’ monetary policy, the fact is the eurozone crisis has been as damaging to the fortunes of emerging economies.

The eurozone’s current account has swung from red to black by $400 billion — a giant vacuum as far as global capital flows are concerned. India has seen the impact: over the past 15 years its exports to its largest market, the European Union, have fallen nearly 11%. Germany has again emerged, somewhat against its own will, as the oberherr of Europe and the direction it provides is now a concern for all.