June 30 2010

IWF In the News: DAS President

Nicole Kurokawa Neily

German delegates took to the polls to elect the country's next president, following the surprise resignation of Horst Koehler at the end of May. And although Chancellor Angela Merkel's preferred candidate won, the consequences of the election are sure to be felt for the next several months.

Despite the relative unimportance of the (largely ceremonial) position, the election was closely watched across Europe because it served as a referendum on Merkel's tenuous ruling coalition, which has come under increasing fire for its fiscal austerity measures. Although results were expected to fall largely along party lines, the fact that the election took three rounds to complete was an embarrassment to a leader with a comfortable majority - and certainly signals deeper problems in the center-right alliance of Merkel's Christian Democratic Union/ Christian Social Union and the Free Democratic Party.

Merkel's choice, Christian Wulff, was seen a capable if boring candidate. Alas, he was also viewed by many as too "safe," a choice which has been criticized by some (including Der Spiegel) as putting the interests of her party above that of the country at a time when national unity is sorely needed.

The Social Democrats and Green Party's nominee, Joachim Gauck, was an inspired choice, and one designed to make Merkel look bad. Gauck is widely respected for his work on the East German Stasi archives, and he was seen by many as above partisan politics - both points in his favor. Party loyalties aside, Gauck was the far more likeable candidate.

The Chancellor survived the election - but is badly bruised as a result. Her political future is closely tied to if, when, and how robustly the German economy rebounds.

Interestingly, however, Merkel is not the only person whose future rests on the success of her economic program. The Obama Administration, having decisively thrown their hat in the "spend our way to recovery" camp, is likely hoping that the German austerity measures fail. Prior to last weekend's summit, the White House sent a letter to G-20 members cautioning against "consequential mistakes of the past when stimulus was too quickly withdrawn," and warning of "renewed economic hardships and recession." The results of European austerity efforts just might settle the Hayek-Keynes battle on the global stage.

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