Aug. 16 (Bloomberg) -- Germany’s election campaign is in full swing now that Chancellor Angela Merkel is back from her hiking vacation in the Alps. She’s way ahead in the polls and likely to join the handful of European Union leaders who’ve won re-election since Europe’s economy tanked. She’s maybe the only one who dares ask voters, “Are you better off now than when I took office?”
Amazingly, given the state of the rest of the euro area, the answer is yes: Germans have more jobs than in 2005. The unemployment rate has roughly halved, to 5.4 percent; inflation is low; and the budget deficit is close to zero. The news that the German economy grew by 0.7 percent in the second quarter has probably sealed her victory on Sept. 22. Now, the issue is less whether she wins but how. And that’s a two-part question.
First, there’s the matter of parliamentary arithmetic: Will the Free Democratic Party, which has partnered with Merkel’s Christian Democratic Union, cross the 5 percent vote threshold, enabling the present coalition to continue? If not -- and it might be close -- Merkel will have to find a new partner on the left.
Second, and at least as important, how truthful does Merkel intend to be about the choices facing her country? So far, she hasn’t been straight at all, and her silence has forced an unhealthy pre-election quiet in Europe’s debate about stabilizing the euro area. The rest of the EU is in purdah, waiting for Sept. 22 to pass, so that Merkel will be free to change course and open Germany’s coffers.
There’s not much doubt about what needs to happen. Even the fiscally conservative Bundesbank recognizes the problem, according to an article in Germany’s Der Spiegel magazine this week. In an unpublished paper, staff members say that to avoid default Greece will need new debt relief -- on top of the more than 200 billion euros it has already been lent. Portugal may need another bailout as well, and the outlook for Spain remains uncertain.
Merkel continues to sidestep these issues, saying that a further Greek bailout isn’t on the agenda. Any forgiveness of debt would inflict a loss on German taxpayers, which would be unpopular -- but there’s no plausible alternative. A full-bore resumption of the euro crisis would hurt Germany even more. Peer Steinbrueck, Merkel’s challenger from the left, laid out in an interview with Bloomberg News this week how he plans to hammer home that Merkel isn’t telling voters the truth.
Steinbrueck warns that Merkel’s austerity has created a rift in Europe and dangerous resentment against Germany. “Merkel is lulling the voters, she isn’t challenging them,” he said, calling for economic stimulus in Germany and a mini-Marshall Plan for the euro area. It may be bad tactics, but on these aspects of policy (though not on others), he’s mostly right.
It would be naive to expect Merkel to be completely honest. How many politicians tell inconvenient truths just before a vote? To her credit, Merkel hasn’t made pledges that would stop her from changing policy after the election. Still, Germans need a franker discussion of their situation than the comforting homilies about thrift she delivers on the campaign trail. They need to hear that exporting their savings to the rest of the euro area contributed to the crisis; that the bailouts are helping German banks as much as the recipient countries; and that if Germans want to keep the euro and repair the European Union, they will have to write down loans.
Merkel looks set to win. To deserve that victory, she ought to risk a little more honesty.
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