24 April 2013

FT: Merkel pressed to ease up on austerity

Angela Merkel is coming under political pressure to back an easing of spending cuts and tax rises in the eurozone's crisis-hit periphery, as the effectiveness of austerity becomes a domestic election issue.

The surprising admission by José Manuel Barroso, the European Commission president, that Europe may have reached political limits with its austerity drive, was warmly endorsed by Ms Merkel’s main rival. “Austerity traps countries like Greece in a vicious circle; without growth they cannot escape from their budget deficits”, Peer Steinbrück, the SPD’s candidate for chancellor, said when asked about Mr Barroso’s comments.

In the campaign for September’s parliamentary poll, Ms Merkel risks being squeezed between the centre-left Social Democrats (SPD), calling for more emphasis to be put on growth, and a new anti-euro party campaigning for the return of the Deutschemark. The anti-euro Alternatives for Germany (AfD) is building momentum and membership in advance of the elections on September 22. Even if it does not make it over the 5 per cent threshold needed for seats in parliament, it could steal enough votes from Ms Merkel’s Christian Democrats (CDU) and her coalition partner, the Free Democrats, to force her into a grand coalition with the SPD.

“Germany cannot ignore that it has an interest in having growth in the eurozone”, said Pierre Moscovici, the French finance minister, echoing calls for the Germans to do more to support growth.

But even a red-green government or a coalition supported by the leftist party Die Linke would be unlikely to open the coffers to stimulate the whole eurozone. The SPD voted in favour of the fiscal compact, enshrining fiscal discipline in a new EU treaty, and the German “Schuldenbremse”, or constitutional law, that requires balanced budgets in the medium term and cannot be changed by a new government.

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