A farewell to the best political leader of the 21st century (so far)

On Sunday, Germany will elect a new parliament and with it a successor for Angela Merkel. After the election Merkel will remain in office until a new coalition is formed and a new chancellor elected. After 16 years in office, Merkel led Germany and the European Union through three major crises, starting with the Global Financial Crisis in 2008, followed by the European Debt Crisis in 2011, and then the pandemic in 2020.

That her policies have been criticised by left-wing politicians is no surprise. After all, Merkel and her party are Germany’s conservatives and ostensibly follow centre-right policies. Yet, Merkel has invited a lot of criticism from conservatives alike and in particular from conservative pundits and politicians in the United Kingdom and the United States. Yet, despite the dire warnings of these Anglo-Saxon “experts”, the European Union is alive and well and the Euro is still around. And in my view, no one can take more credit for that than Angela Merkel.

It is instructive to see how far detached from data and facts her critics on the right have become and how ideologically blinded especially the conservative wings of the UK Conservative Party and the US Republicans have become. It shows how ideologues need to ignore reality in order to keep their ideological system intact in the face of contradicting evidence. And it shows why countries that elect ideologues and extreme parties (be it on the right or left wing of the political spectrum) always suffer economically. And it is the reason why I am a radical centrist and a technocrat when it comes to politics.

To do this, let me take a couple of quotes from an opinion piece by conservative commentator Allister Heath published in the Telegraph on 1 September 2021. What starts out as a critique of Boris Johnson quickly turns into a comprehensive takedown of Angela Merkel’s 16 years in office.

Heath writes: “The German Chancellor’s strategy was to put herself first, and to court popularity by making all sides believe she was one of them” just to add a few lines later that “her mishandling of the 2015 refugee crisis fuelled the populist Right and created a permanent fissure with Eastern Europe which, in time, will destroy the EU”.

That is an obvious contradiction though cleverly disguised by taking these two sentences apart from each other and digressing into other ad hominem attacks in between. But Angela Merkel was not a populist who put popularity above the good of her country. Her actions during the 2015 refugee crisis were severely criticised by her own party and fuelled the rise of the populist right because they were so unpopular. The chart below shows Angela Merkel’s popularity figures during her time in office and in 2015 her willingness to accept refugees with an open border policy cost her dearly in terms of popularity.

Merkel’s popularity amongst voters

Source: Politbarometer

On her economic record, Heath writes: “Its economy only survives thanks to her predecessor’s labour market reforms, and the fact that the euro is much cheaper than the Deutsche Mark would have been” and “the result is a gigantic, disastrous mess: a Germany in structural decline, the most over-rated political leader of her generation, and yet the most popular”.

To which I say that first, it is ironic that a conservative commentator credits her predecessor with labour market reforms. Did he forget that his predecessor was the centre-left social democrat Gerhard Schroder? And even so, the facts don’t prove him right. I have looked at the average annual real GDP growth in Germany during Angela Merkel’s term in office. It was 1.1% per year. That sounds like stagnation and structural decline, but it is still better than the 0.7% average growth over the same time by the Eurozone overall. And since Heath likes to think that the Brits do everything better, let me clear that up. Over the same time period, the average UK real GDP growth was 0.6% per year. Compounded over the 16 years of here chancellorship it means that the German economy has created 7% more income and wealth than the Eurozone on average and 10% more income and wealth than the UK.

Now, I can hear conservatives in the UK claim that this is all fine and well, but the UK had a Labour government until 2010 and was only governed by the Tories since December 2010. Starting in 2011, the average real GDP growth in Germany was 1.25% vs. 0.8% for the Eurozone overall and 0.8% for the UK. Over the last decade, Angela Merkel and her government have created about 5% more national income and wealth than the UK government has.

And unlike the UK government or the Eurozone overall, this growth did not come at the expense of future generations. Germany’s debt/GDP-ratio declined by 4.8 percentage points during her time in office. Over the same time, the Eurozone’s debt/GDP-ratio increased by 29.6 percentage points and the UK’s debt/GDP-ratio increased by 78.3 percentage points. When Angela Merkel became chancellor, the UK’s net debt was half that of Germany in terms of GDP. When she leaves office, the UK will have twice as much debt relative to GDP than Germany. When it comes to fiscal discipline and not living off borrowed money no country (except maybe Switzerland) even comes close.

And with regard to the point of a weak Euro let me give you some more facts. During her time in office, the Euro has appreciated(!) on a trade-weighted basis by 3.0%. Over the same time, Sterling has depreciated 25.0%. During the time of a conservative government in the UK, Sterling depreciated on a trade-weighted basis by 3% while the Euro depreciated by 1%.

It is a persistent myth in Anglo-Saxon countries that the Euro is a weak currency when in fact it is Sterling that is weak and should have given the UK economy a growth boost that has narrowed the growth gap between the UK and Germany.

Plus (and my conservative readers may forgive me for that comment), if the weak Euro was such an advantage for Germany, I suggest the UK abolishes Sterling, adopts the Euro, and re-joins the EU?

Finally, Heath states that Germany has a decrepit infrastructure and is in terrible shape and bound for structural decline. Well, the WEF’s last assessment of the competitiveness of different countries puts Germany in 7th place vs the UK in 9th. Germany’s infrastructure is ranked 8 in the world vs. the UK in 11th place. When it comes to having a skilled workforce, Germany ranks 5th, while the UK ranks 11th. And in the category of business dynamism, Germany ranks 5th, while the UK is in 9th place.

In other words, Angela Merkel leaves behind a dynamic economy that is growing at a faster pace than the majority of other European countries despite the headwinds of a stable to stronger Euro. And she did all that without the use of government deficits to inflate growth.

And in my view, the reason why she achieved that is because she is not associated with any ideology or grand plan of how the world works. Heath criticises this lack of beliefs as a negative, but in my view, it is exactly why she was so successful. Angela Merkel is at heart a technocrat and that is a good thing. Instead of dithering about keeping the economy open as so many politicians did during the first stages of the pandemic, she followed the evidence of scientists and probably saved thousands of lives. And guess what, against the dire forecasts of conservative pundits, locking the economy down in spring 2020 didn’t cause the end of the world. Germany’s economy declined, but far less than the UK economy.

Throughout her career, Angela Merkel was willing to follow the evidence and the data no matter where it took her. Did that lead to mistakes? Absolutely. We know today that austerity measures to reign in debt in Southern European countries were counterproductive and caused more harm than good. But back in 2011 it seemed like the sensible thing to do based on empirical evidence and data. Nobody knew back then that in a low interest rate world, austerity measures have a different effect than in a high interest rate world. A decade later, our knowledge has evolved and so have my views and Merkel’s views. Why else would she have agreed to the pandemic bonds and effectively the introduction of Eurobonds in spring 2020 which also means that another European debt crisis like the one in 2011 can never repeat itself?

I don’t agree with all of her policies, though. I think her appeasement politics towards Russia (e.g. the Nordstream 2 pipeline) and her exit from nuclear power in 2011 while giving in to the German energy lobby’s desires to continue to run lignite and coal power plants are a historical error. Nevertheless, Germany is at the forefront of the green revolution and will be one of the first countries in the world to become fully sustainable. In the end, her pragmatism may have led to some policy mistakes but on the whole, I think Angela Merkel was popular in Germany and abroad not because she was a populist, but because she was competent. And that is more than can be said for almost all political leaders these days.