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Elections In Germany May Shift Economic Tone In Eurozone

Sep 23, 2013
Originally published on September 23, 2013 1:53 pm

Chancellor Angela Merkel has won her third term as Germany’s top leader.

But Merkel’s center-right Christian Democrats party fell five seats short of an absolute majority in the German Bundestag — the national parliament.

This may change some economic policies in the eurozone’s largest economy, including a softening towards bailed-out nations like Greece.

Financial Times reporter Cardiff Garcia joins Here & Now to explain.


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From NPR and WBUR Boston, I'm Jeremy Hobson. It's HERE AND NOW.

German Chancellor Angela Merkel has won a third-straight term, making her one of the few European leaders to survive the debt crisis.

CHANCELLOR ANGELA MERKEL: (Through translator) I'd like to thank the voters who have given us so clearly their trust. And I can promise them we will treat that trust responsibly. Thank you.

HOBSON: Merkel's position is secure, but her former allies are getting booted from the Bundestag. The Christian Democrats fell just five seats short of a majority, and the chancellor will likely now have to partner with the more liberal Social Democrats. So what does that mean for the eurozone's largest economy?

Joining us for more is Cardiff Garcia, reporter at the Financial Times. Welcome.

CARDIFF GARCIA: Thanks, Jeremy.

HOBSON: Well, let's first just take a look and remind people of where Angela Merkel has stood with her economic policies. So far, she's obviously been a key figure in the debt crisis in Europe. Tell us about her approach.

GARCIA: Certainly. So I would describe it as an approach of just good enough. So on the one hand, she's very much pro-integration. What does that mean? It means that all the countries in the eurozone who used the euro currency should stay in the eurozone. And Germany is going to do whatever is necessary to keep things that way.

On the other hand, she's been incredibly cautious about bailing out countries. She wants to make sure that whenever there's a bailout, that very stringent conditions are attached, that it's not very lenient, and that just enough is done to prevent contagion from going to another country. And if it does go to another country, then they'll bailout that country when the time comes. But it's a policy that I think has just barely done enough. And there's a lot of economists that have disagree with it, thinking that she should have done more to push for massive, overwhelming financial firepower to help Europe, you know, Europe's economy start growing again.

But we clearly see from the election results that this is a policy that Germany favors. She won a huge landslide election. It wasn't quite enough to, you know, to keep the kind - same kind of control she had before because her previous partners lost. On the other hand, I think she's in good shape. And this is clearly a sign that Germany wants to keep the same approach as she's been using.

HOBSON: And tell us about how the approach might change, though, because she's now, as we said, going to have to partner with these more fiscally dovish members of parliament.

GARCIA: Yeah, that's very possible. I don't want to sort of exaggerate the case though. I think if she does have to partner with, I think, the Social Democrats, the party that came in second, they'll have to look at some of these other countries at a very delicate time and say, OK, well, in the past, we did keep things from, you know, becoming a total financial conflagration. On the other hand, Europe's economy didn't, you know, didn't take off. So they're going to be looking at these things very carefully. But keep in mind that there was also a very small minority party that's rabidly anti-bailout that also gained in this election. And I think they've sent a very powerful signal. So this is a very delicate time. It's a very tricky balancing act that she's facing.

And I think it's going to be interesting to see what happens in the next few months, especially with big decisions that have to be made now on Portugal, on Greece. And all this at a time when Europe's economy is just starting to show early signs of coming out of a double-dip recession. So this is a very interesting time for Europe, and it's going to be very interesting to see, now that the German elections are over, exactly what happens.

HOBSON: Cardiff, we just got a few seconds left. But is the U.S. economy at stake here? Are we still somewhat reliant on the European debt crisis coming to an end?

GARCIA: Somewhat reliant, not too much. I think in terms of our, you know, trade with Europe, I don't think that will be impacted that much. But we have to be mindful of what happens to European financial institutions because if there's another big foul-up, then we have to start worrying about the extent to which our financial institutions are exposed to those. And that means we'll have another problem if there is.

HOBSON: Cardiff Garcia, reporter at the Financial Times. Thanks so much.

GARCIA: Thanks, Jeremy.

HOBSON: And we'll be back in a minute. HERE AND NOW. Transcript provided by NPR, Copyright NPR.