Covid-19: Merkel faces her nightmare as decision time looms on lockdown and bonds

Angela Merkel has struggled with decisions all her life. As a 12-year-old, she spent an entire swimming lesson shivering on a diving board until, just before the bell sounded, she leaped into the water below. The moral of the story, Merkel said later, is that she prefers to "wait until a decision is ripe for the making".

Now the German chancellor faces the nightmare of two decision diving boards: one in relation to coronavirus and the other regarding so-called corona bonds.

On Monday a clearly conflicted Merkel announced a cautious loosening of Germany's lockdown. Though the virus transmission is under control in Germany, she has misgivings because the chain of infection has yet to be broken.

Earlier had she told senior members of her Christian Democratic Union (CDU) that she was not amused by their jostling for media attention on how and when to loosen the lockdown. In her rage, she gifted the German language a new word: "Öffnungsdiskussionsorgien" or orgy of discussion on (re)opening of daily life.

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In the nervous days ahead, when she can do little but watch and wait for the daily infection numbers, Merkel will face growing demands from crisis-hit car companies for state-financed sweeteners to sell more cars, like the euro crisis scrappage scheme.

This time around, the chancellor knows it may be more difficult to bribe Germans with their own money, given subsequent revelations of industry-wide fraud on diesel emissions.

Corona bonds

And as Thursday’s European Union summit looms, Merkel’s eyes are on the second diving board: corona bonds.

A decade ago in the euro crisis she kept the entire continent guessing for months as she weighed up her options. She refused to stabilise the single currency area with euro bonds, jointly-issued debt bonds with joint liability. In the end she backed a jointly-funded bailout fund, today known as the ESM.

Merkel’s critics say her hesitation – and the stringent conditions of ESM loans – exacerbated the damage to many crisis-wracked economies. Merkel’s defenders say the chancellor took a huge risk in the euro crisis, bending the very “no-bailout” rules Germans had demanded as security for sacrificing their beloved deutschmark for the single currency.

The euro crisis may have scarred bailout recipients’ economies, but it up-ended Germany’s political landscape, too.

After Merkel urged German backing for the bailout solution, calling it “without alternative” if the euro was to be saved, a group of liberal economists and hard-right conservatives swung into action.

Now Germans are more concerned with the real threat of coronavirus than the AfD and its theoretical threats

Their legal challenges to the bailouts failed but the political structure they created for the battle has survived: the Alternative für Deutschland (AfD).

In the subsequent years the party shifted from opposing German bailout policy to opposing German refugee policy, another torturous decision for Merkel in 2015.

The AfD has morphed into a far-right populist party, now the largest opposition party in the Bundestag and is represented in all 16 of Germany's state parliaments.

Existential threat

But now Germans are more concerned with the real, existential threat of coronavirus than the AfD and its theoretical immigration threats. Its support has slipped into single digits in polls, though AfD officials hope they can bounce back with renewed talk at EU level of joint liability bonds.

It's not just the AfD who know what deep-seated fears are stirred in Germany when Italy and France call for Berlin to back so-called corona bonds.

Aware of these concerns, Italian prime minister Giuseppe Conte told Monday's Süddeutsche Zeitung daily that "not a single euro of Germans will be used to pay off Italian debt, this solidarity is devised very specifically and time-limited".

With decision time looming, Merkel has begun some delicate manoeuvres. Hitting out at cultural stereotyping in some German quarters, she insisted all EU member states faced a crisis and that requests for help from some capitals were not motivated by “long-term budgetary and fiscal policy”.

Without mentioning corona bonds by name, however, she ruled out any crisis measures outside the current EU rulebook – and Berlin believes mutual debt bonds meet that definition – requiring time-consuming treaty change.

“We need quick answers to this pandemic,” she said, but left the prospect of a last-minute Angela Merkel compromise dangling in the air: “Germany will participate in finding solutions that show solidarity – and beyond.”