German Chancellor Angela Merkel is Europe's most powerful politician, and she's been at the helm throughout the economic upheavals of the past few years. During this time, Europe's performance has been terrible, and despite a recent trickle of better news, its ordeal is by no means over. How, then, should one rate Merkel's leadership?
The crisis was by no means Merkel's or Germany's fault, but in significant part the weakness and indecision of the European Union's collective response have been. Her political mastery may not be in doubt; how she's used it should be.
Global investors seem to disagree. They like strong leaders, and they rate Merkel highly. According to the latest Bloomberg Markets poll, her numbers are almost off the scale. Her favorable-unfavorable rating in mid-April was 80-13. Compare that with U.S. President Barack Obama's 47-46.
In the same poll, investors were also asked: "Right now, are you more optimistic or more pessimistic about the policies of the following leaders as they affect the investment climate in their respective countries?" Obama's score was 37 percent optimistic against 49 percent pessimistic. Prime Minister Shinzo Abe of Japan did better: 54 percent to 28 percent. Merkel's score was 76 to 13.
Now consider the answers to another question: "In the next 12 months is inflation or deflation the greater threat to the following economies?" For the U.S., 47 percent thought inflation was the greater threat, 33 percent deflation. For the euro area, where Merkel holds sway, 74 percent thought deflation was the bigger danger.
That reading should be taken as a rebuke. Few economists dispute that deflation is uniquely dangerous, because it compounds the real (inflation-adjusted) burden of debt and drives down the demand for labor. To say that deflation is a greater threat than inflation is to declare that economic policy has failed. Deflation in parts of Europe has already arrived.
Strictly speaking, of course, investors could be right on both points -- right to praise Merkel's policies and right to fear deflation -- because what's good for Germany isn't necessarily good for the EU. Avoiding deflation in the euro region would require some combination of more aggressive monetary easing and new fiscal stimulus, policies that Germany has set its face against.
Granted, too, this resistance is understandable: Such policies might push inflation in Germany, as opposed to the wider euro zone, a little higher than Germans would like. But that would be a lamentably shortsighted view. In the long run, Germany cannot prosper unless the euro area as a whole does well, too. A stronger recovery in the EU will require Germany to give more weight than it has so far to its neighbors' prosperity.
Europe has made Merkel its de facto leader. Now that she has the job, she should start discharging the wider responsibilities that go with it.
To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at firstname.lastname@example.org.