“I will not let anyone tell me that we must spend more money.”
— Angela Merkel, rejecting appeals to spend more public money as part of a coordinated stimulus approach
There’s a new face popping up on television screens and grabbing newspaper headlines across the globe. It’s Angela Merkel, the Chancellor of Germany, who has been a dominant figure at the protest ridden G20 summit, attended by world leaders. Just a week before the convention began, President Barack Obama and British Prime Minister Gordon Brown concurred that the ideal strategy to fight the economic crisis would include additional fiscal stimulus plans to bolster the lifeless economies. But voices within Europe begged to differ, and the most vociferous among them was Merkel. The Chancellor of Europe’s growth engine stated emphatically, “It is not time to look at more growth measures … The existing measures must work; they must be allowed to develop.”
Merkel has been backed strongly by France, Spain and the Czech Republic. Mirek Topolanek, the Czech prime minister and the current president of the European Union, agreed wholeheartedly with Merkel, defining additional spending measures as the, “road to hell.” Merkel has practical as well as philosophical reasons for her stance. She explains that the Berlin government has a strong social security system that supports people during times of financial crisis. She points out that after the Asian crisis and 9/11, governments encouraged risk taking in order to boost growth. She doesn’t want to ‘repeat this mistake.’
Merkel reluctantly agreed to a $107 billion stimulus package in January after intense global pressure. Her measured, slow-to-act approach has put Merkel in unwanted spotlight in more times than one, and her fellow kinsmen have given her a thumbs-down for her handling of the economic crisis. She incensed the public as well as her party members by refusing to join, what she termed, “a pointless race” to spend billions. Merkel’s popularity has suffered in the process.
Being a contrarian and courting controversy seem to be Merkel’s forte. But Bavaria, where Merkel has the strongest backing, has already started diluting its support. Voters in Bavaria have not taken lightly her opposition to tax cuts to counter the crisis, and Catholics, who form a majority of the 12.5 million population, were offended by her recent criticism of Pope Benedict XVI, a Bavarian by birth.
But Germans have stood by Merkel in the past, referring to her endearingly as “mutti” or mother. Setting her apart from other leaders, she introduced reforms like setting a later retirement age, bringing more women into senior positions and raising pay for new parents. Reflecting her achievements, the Financial Times ranked her third among the 50 most influential people in 2009 who will frame the future of capitalism. She was also ranked number one by Forbes among the 100 most powerful women in 2008.
However, with elections just six months away, she needs to top more popularity rankings. Merkel is at the helm of the world’s largest export economy at a time when world trade is more than frayed at the edges. Her critics include Nobel Laureate Paul Krugman who claims she is underestimating the scope of the crisis and points to Germany as a ‘giant stumbling block’ in the effort to fight off the recession. Merkel’s defenders cite International Monetary Fund data which show Germany will spend 2% of its GDP to stave off the recession in 2010, compared to the U.S., which intends to spend 1.8% of the GDP in the same year. But Merkel does need to work some miracles. A global economic upturn before September, as Merkel expects, will definitely help her in the elections.
With her immense practicality, Merkel can come across as an iron lady with her tough stands. No doubt this is one reason Europeans voted her as their most influential politician in 2008. At this great crossroad in history, only time will tell if she will remain at the top.
Thomas White International is an independent, employee-owned asset management firm with offices in Chicago and Bangalore, India. Employing a value style, our investment approach blends a highly detailed, quantitative equity valuation method, with disciplined stock selection by a seasoned investment team. Backed by an exhaustive research process, the breadth of our research allows us to spot opportunities in relatively less known regions, while the depth of our process seeks to reduce risks through detailed evaluation of the regulatory environment, industry competition, and management quality. From mutual funds, to separately managed accounts, and institutional portfolios, Thomas White International now offers a large bouquet of asset management offerings, covering international, global, and emerging markets mandates.
Thomas White International
425 S Financial Place
(Formerly 440 S LaSalle Street)
Chicago, Illinois 60605