Merkel’s halo slips

Angela Merkel is by far the most popular politician in Germany, although her poll ratings have slipped in recent weeks. The German chancellor is popular precisely because she is a pragmatic deal-maker, a consensual politician who prefers to craft compromises rather than lead from the front. But her centre-right coalition has had a bumpy start in office.

Ministers have squabbled in public over the size and speed of promised tax cuts and over pressure from Washington to send more German troops to Afghanistan. Within her own party ranks there is muttering that Ms Merkel is ignoring her conservative roots and paying too much attention to swing voters in the centre. Rumours that she might even resign briefly dented the value of the euro in currency markets last week. They were absurd, but their very existence suggests that the chancellor needs to take a grip.

None of the decisions facing the new government, still within its first 100 days, is easy. The German economy suffered a sharp 5 per cent contraction in gross domestic product last year and the liberal Free Democrats, the junior partners in government, are determined to push through €20bn in tax cuts for 2011, as agreed in the coalition programme last year.

Ms Merkel’s Christian Democrats are more cautious. They agree on tax reform, but Wolfgang Schäuble, finance minister, insists that the budget deficit cannot be allowed to balloon out of control. On present forecasts it will rise to 6 per cent of GDP in 2010, after a relatively restrained 3.2 per cent last year. To hold the line, tax cuts will have to be financed in part with unpopular spending cuts.

This is not the time for excessive fiscal caution. Berlin’s policy cannot and should not be decided in isolation from the rest of the eurozone. That is the reality of a single currency. The German economy is the vital motor of that zone, and a return to growth is essential to the recovery of those harder hit by the downturn, such as Greece, Spain, Ireland and Italy. The cost of bailing them out would be far greater than the cost of temporary fiscal stimulus from Berlin.

European recovery from the global recession depends on Germany. European leadership depends on Ms Merkel. She should not allow the political debate in Berlin to become too provincial. That is as true of the debate over Afghanistan and global warming as it is of the economy. The chancellor needs to swallow her doubts, and give a stronger lead to her coalition and to the rest of Europe.