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Merkel gets her way at pre-election EU summit

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(Globalpost/GlobalPost)

By Noah Barkin

BERLIN (Reuters) - A year ago, Angela Merkel emerged bruised and battered from a European Union summit after the leaders of France, Italy and Spain ganged up on her, forcing German policy concessions on aid to struggling banks. Not this time.

With an eye on a looming election in September, the German chancellor returned to Brussels this week and reasserted her authority in Europe.

Aware that controversial decisions about closer European integration might disconcert her voters, or even fan support for a new anti-euro party in Germany, she ensured debate on the next stage towards a European banking union was pushed back until the end of 2013, months after the vote.

This time around, there were no calls for Merkel to agree to steps like common debt issuance or a massive euro zone budget.

She made clear that any form of German taxpayer liability for the debts of others -- whether in a common bank resolution fund, a joint deposit guarantee or any form of common euro bonds -- was strictly off the table.

Nor was there any mention of "austerity", a buzzword that angers officials in Berlin more than any other because it implicitly links the German leader's crisis management policies to the dire economic distress of southern Europe.

Instead, the summit gave Merkel a platform to recast herself as a defender of the bloc's downtrodden with a much-hyped plan to combat soaring youth unemployment in Europe with 6 billion euros ($7.80 billion) in European money.

To reinforce the message that she cares, Merkel will host a special summit on the same topic of jobless youth in Berlin next week. In a sign of her pulling power, most EU leaders present in Brussels will reconvene in the German capital even though no one expects any decisions of substance there.

"Everyone is going easy on Merkel because we all know we'll have to deal with her again after September," said a senior adviser to one of the main European leaders, who requested anonymity due to the sensitivity of the issue.

Asked pointedly at a summit news conference whether election considerations were shaping her approach to Europe and putting EU decisions on hold, Merkel coolly dismissed the notion.

"To be honest, I'm not aware of a single European decision that has been delayed because of the fact that we have an election in September," she said, pointing to deals struck this week on the EU's long-term budget and bank restructurings.

"Our government is working. This is very important for me. We are fully aware of Europe's needs and the election is playing no role at all."

LESSONS OF 2005

But officials in other countries say the German vote is influencing both the pace of decision-making in Europe and the rhetoric coming out of Berlin on a range of economic, industrial and foreign policy issues.

And they say the phenomenon is not new. Three years ago, when Europe's debt crisis first erupted, Merkel stalled on granting Greece a bailout ahead of a crucial regional vote in Germany's most populous state of North Rhine-Westphalia.

In the end, the pressure to act proved too strong. She was forced to agree to the Greek rescue a week before that vote and her party was booted from power by the center-left Social Democrats (SPD) and Greens.

That does not appear to be a risk in the looming federal vote. A poll released on Friday showed Merkel's conservative bloc with a crushing 17 point lead over the SPD with less than three months to go before the September 22 election.

The chances are good that she will either be able to form another center-right coalition with her current partner, the liberal Free Democrats (FDP), or lead a "grand coalition" with the SPD, as she did in her first term between 2005 and 2009.

Still, Merkel learned in 2005 that nothing can be taken for granted. Months before that vote her party held an even more dominant lead in the polls, only to eke out a razor-thin one point victory over the SPD on election day.

The experience appears to have shaped her risk-averse approach to elections ever since.

In the past week alone, she has blocked a European deal to enforce stricter rules on CO2 emissions for new cars, aware that this could alienate Germany's big auto industry and the millions of voters who depend on it for a living.

"At a time when we are spending days talking about employment, I think we need to ensure that in our drive to protect the environment we are not damaging our own industrial base," she said by way of explanation.

The chancellor has also hardened her line on Turkey, in what many see as an attempt to appease her conservative voter base.

Backed by the Netherlands and Austria, Berlin blocked EU plans this week to open a new chapter of accession talks with Turkey. The talks will have to wait until after the European Commission produces a report on reforms and human rights in Turkey in October, a month after the German election.

The contrast with June 2012, when Italy's Mario Monti, Spain's Mariano Rajoy and a newly elected French President Francois Hollande felt emboldened to challenge Merkel, could not have been greater.

This time, JP Morgan analyst Alex White said in a note ahead of the summit, Merkel's primary objective was to get through the meeting "without anything much happening".

"The Chancellery has put in a lot of effort ahead of this summit to neutralize any potential surprises, and ensure that Germany's position cannot be misinterpreted," he wrote.

($1 = 0.7691 euros)

(Reporting by Noah Barkin; Additional reporting by Paul Taylor, editing by Peter Millership)

http://www.globalpost.com/dispatch/news/thomson-reuters/130628/merkel-gets-her-way-at-pre-election-eu-summit