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Merkel's Greek gambit backfires

The chancellor becomes a lame duck by fumbling the eurozone crisis. Germany frets inflation. And the national soccer team loses its captain.

Top News: Germans have been astounded recently by the rapid decline in Angela Merkel's political fortune.

Indeed, it's hard to believe that Merkel was triumphantly re-elected only eight months ago. Polls show that the coalition that Merkel's Christian Democratic party forged with the free market Free Democratic party would have little chance today of winning at the ballot box. In the last month, Merkel's personal approval ratings have for the first time sunk and lingered below 50 percent. Things don’t seem like they’ll be getting better: with the CDU/FDP coalition having lost its majority in the country's upper house of parliament at the beginning of May, it's unlikely that Merkel will be able to pass any of the signature legislation she campaigned on.

So what happened? Essentially, Merkel was judged to have mishandled the burgeoning European economic crisis. She's seemed to be bewildered by it, setting policy that lurched in one direction, only to then move suddenly in the other.

For a long time, it seemed Merkel didn't take the debt crisis in Greece very seriously. She indulged instead in populism, suggesting that Berlin wasn’t disposed to lend aid to spendthrift Athens. This dismayed Germany's neighbors, not just because it was impossible to organize any sort of rescue plan without the German government's consent, but also because it was traditionally Germany who took the lead in addressing EU-wide crises. But Merkel made it clear that her priority was a key regional election in the German state of North Rhine Westphalia, and she thought tough love would go over better with the voters there than would cutting a big check.

Of course, things turned out differently than she had hoped. International bond markets didn't react well to the combination of Greece's lingering problems and Merkel's reticence. When Jean-Claude Trichet, head of the European Central Bank, and Dominique Strauss Kahn, head of the International Monetary Fund, came to Berlin, they made it clear that the economy of the entire continent might collapse without concerted action. Merkel quickly approved a 150 billion euro bailout plan. That was revealed to be too little too late, as Greek bond ratings and euro currency markets continued to decline precipitously. For what it’s worth, Merkel's party also lost the regional election she'd been pining for.

A subsequent emergency meeting among European leaders produced a $1 trillion aid package that will greatly alter existing EU institutions. Germany is expected to be the greatest financial contributor, but after Merkel's previous skepticism, the country wasn't eager to sign on to a package that French president Nicolas Sarkozy called “95 percent French.” The new, massive bailout eventually passed the German parliament on a strict party line vote, a development that doesn't bode well if further measures are needed.

Money: In economic news, the country has been focused on the question of whether the new European bailout package will result in runaway inflation. Currency stability is an extremely sensitive subject for Germans: the country still has lingering cultural memories of how hyperinflation in the years of the Great Depression contributed to the rise of Adolf Hitler and the destruction of World War II. In the post-war years, Germany's greatest pride was its Deutschemark currency, the continent's most stable and admired.  Indeed, Germans only consented to join the new euro currency because they were assured that the European Central Bank would operate according to the same principles as the old German Bundesbank, with full independence from political intrusion and a strict mandate to fight inflation.

The $1 trillion bailout package sees the ECB buying Greek bonds, a move that subverts the bank's political independence. Germans are wondering about the stability of their currency given that their central bankers may soon be administering piles of junk bonds from various European countries. The current head of the bank, Jean-Claude Trichet, has claimed that it's only a temporary measure and that he's determined to soak up the excess liquidity released into the market. But, it's fair to say that many German don't trust him: they'd prefer to see Axel Weber — head of the Bundesbank, a close Merkel confidante, and a strict monetarist — take over the ECB when Trichet's term runs out next year.

Elsewhere: Germany's soccer team will be playing at the World Cup in South Africa without their beloved and respected captain, Michael Ballack. The country obsessed over Ballack's injury when it was revealed he had torn ankle ligaments in a match in mid May with his club team, Chelsea. Ballack will need two months to recover, which means he won't be eligible to play in the tournament, but he's joining the team on the trip, if only to provide moral support.

There was a great deal of speculation over the back story to the injury, which came about as Ballack was fouled on the field by Kevin Boateng, a German-Ghanaian midfielder for Portsmouth. Apparently, there had been some bad blood between the two: Boateng has insisted the foul and the injury were accidents but Boateng's father has cited some unfriendly comments made by Ballack as possible motivation. Meanwhile, the German media has had to walk a delicate tightrope — vilifying Kevin, while avoiding casting aspersions on Jerome Boatend, his brother, who will potentially be on the German roster heading to South Africa.