Trouble at t’Mill for Frau Nein?

With most major developed economies struggling badly since 2008, Germany has seemed to be the calm centre of everything. The leader of any other industrialised country would pinch themselves if they had to deal with Angela Merkel’s problems. Germany shrugged off double-dip recession fears in late 2011 as its economy powered ahead again in 2012. Germany’s unemployment rate declined to 7% in May, its lowest level since shortly after reunification. Labour market reforms have fuelled growth in relatively insecure service jobs without denting the standard of living and job security of Germany’s industrial workforce. The East is, ever so slowly and partly by exporting tens of thousands of young workers to Hamburg and Munich every year, catching up with the West. The old western coal and steel heartlands finally seem to be reinventing themselves, with clusters of bleeding edge industrial firms dotting the landscape, from nanotechnology in Saarbrücken to clean energy on the Ruhr. Germany’s social and economic problems are as real as those of any other country; but just for the moment, they seem to be managing them better than any of the other big boys.

The USA, Japan, France, all fear Chinese competition; Germany instead makes the machines that the Chinese need to remain the workshop of the 21st Century world.

In struggling parts of the Eurozone, from Kerry to Crete, Angela Merkel has become a hate figure, the symbol of German callousness while weaker economies burn. Frau Nein orders that the PIGS’ books be balanced, whatever the cost to the people of the Eurozone’s struggling fringe. From afar, she seems to bestride the scene like a colossus, the immovable champion of austerity. For as long as Germany funds the European Union and German financial credibility underpins the Euro, Germany can call the shots, especially when other major net EU contributors like the Netherlands are equally hawkish.

At home, however, Merkel is far from all-powerful. A run of brutal state election results means that her coalition of Christian Democrats and right-wing Liberals is now a long way short of an overall majority in Germany’s indirectly elected Upper House. Getting legislation passed means negotiating with the social democratic SPD. Her personal poll ratings are poor. Although her party is polling at levels comparable with the Union’s indifferent 2009 general election result, and remain well ahead of the SPD’s, support for her FDP coalition partners has collapsed. There seems to be no prospect of a centre-right majority in national parliamentary elections scheduled for the autumn of 2013.

Merkel’s “Frau Nein” stance is not universally popular in Germany. It has its enthusiastic supporters and its detractors, among the punditocracy and among the voters. Germans have no desire to fund Greek civil servants to retire at 60, or Ireland’s relatively generous benefits for the long-term unemployed, when they made difficult decisions on pensions and welfare themselves a decade ago. But Germans are equally aware that their economy is more dependent on exports than any other established major economy. Only China regularly exports more than Germany. Some years the USA pips Germany for second place in the world export league, in recent years usually not. Japan has long since been left for dust in fourth place.

If Italians, Spaniards and Greeks see a collapse in their living standards, that means fewer customers for German exporters and lost jobs at home.

I asked one prominent German election blogger today where he thought domestic opinion lay on Eurozone austerity. He said – look at France. The election there was effectively a referendum on austerity and the country was more or less split 50:50. In Germany, he said, opinion was just as closely divided.

If Angela Merkel wants to remain Chancellor, given the collapse of the FDP, her only hope is probably a ‘grand coalition’ with the SPD. Her first term government was a grand coalition, and it worked surprisingly well, as it often does at state level. The two big parties often find it easier to find common ground around the mushy centre than they do with the more ideological parties of the left and right. The SPD doesn’t like austerity on principle and doesn’t think it will work for the German economy in the medium term; the SPD’s left is currently flexing its muscles inside the party.

The pressures for Merkel to shift on austerity now seem to be on the cusp of irresistibility. As well as needing to rebuild relations with the centre-left at home, Merkel is isolated in Brussels. Sarkozy is gone. Her key allies in the EU now seem to be David Cameron, very much a fringe figure as far the Euro goes, and Mark Rutte, the Prime Minister of the Netherlands, no more a household name in Germany than he is in Northern Ireland.

Domestically, Merkel’s key strength is the inability of the SPD to produce a candidate for Chancellor who ticks all the boxes. Four names are in the frame. One, Frank-Walter Steinmeier, leader of the opposition in Parliament, led the SPD to its worst election result since 1890 last time round and few expect him to worry the favourites.

Party leader Sigmar Gabriel is parodied by the right as ‘Siggi Pop’ after a period as the SPD’s “Representative for Pop Culture and Pop Discourse” in his younger years (only in Germany). Gabriel is a master at keeping the SPD’s warring factions moving in the same direction, but lacks the common touch and lacks gravitas at the same time.

Peer Steinbrück, a tough and able Finance Minister in Merkel’s first government, is probably the favourite to get the nod. He is highly rated by voters for his undoubted economic competence and ability to communicate difficult issues in layperson’s terms, and often tops popularity ratings among German politicians. He is, however, too centrist for the taste of the SPD’s resurgent left wing, and with the Greens polling at record levels for the past two years, the SPD can afford no complacency on the left.

The SPD left would love to see Hannelore Kraft, the Prime Minister of Germany’s most populous state of North Rhine-Westphalia (NRW), throw her hat into the ring as a candidate for Chancellor. Sunday before last, she led the SPD together with their Green coalition partners to a sweeping overall majority on the Rhine and Ruhr. NRW, home to 18 million people, is the California of German politics, the biggest electoral prize of them all.

During the previous two years of SPD-Green minority government in NRW, Kraft played The Left party for fools, and then persuaded the electorate to dump them out of the state parliament entirely this month. NRW has more than its fair share of left wing strongholds, especially the ex-coal mining towns along the Ruhr, with over a century of far-left political tradition only strengthened by the large Turkish and Kurdish populations that live there today. If The Left can’t get 5% of the vote here, it will struggle anywhere in the West. If The Left again becomes a regional party of the former East Germany, it becomes a lot easier for the SPD to form stable governments, in the states and at national level.

Kraft made very public promises on the night of her re-election that she would serve a full five year term as state Prime Minister before seeking federal office – perfect timing for a run for Chancellor in 2017. We all know, however, that politicians’ public promises are worth as much as… well, politicians’ public promises. Kraft is currently crushing Merkel in head-to-head polling on preferred Chancellor. She is the SPD left’s dream candidate at this stage – a woman with a proven track record of moving her own party to the left while still winning centrist voters, working well with the Greens without being overshadowed by them, and crushing threats from the far left at the ballot box. She continues to dismiss all overtures to run for the big job, but that hasn’t stopped the overtures from pouring in.

If the clamour for Kraft to run becomes too loud to quieten, we may yet see the first all-female race for the top job in a major industrialised democracy. And on current polling, that would spell deep trouble for Angela Merkel.