Walker's World: Spring in Europe

By MARTIN WALKER, UPI Editor Emeritus

BERLIN, May 13 (UPI) -- Like the skies clearing after a storm, some small but hopeful patches of blue and even the occasional ray of sunshine are breaking through the prolonged gloom over Europe's economic prospects.

The question is whether these hopeful signs last until Germany's election in September.


The Bank of England is expected this week to revise upward its forecasts for economic growth this year and a revision of last year's national economic statistics suggests that Britain didn't, in fact, suffer the supposed double-dip recession.

Advance bookings for tourists to Greece this summer have topped 17 million, the highest figure since the financial crisis began in 2007, which should -- at least temporarily -- start to reduce the country's dismaying 27 percent unemployment rate.

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The coalition government of Antonis Samaras seems to have stabilized the country's volatile politics and risen in the opinion polls. The opposition has split, with the leftist AKEL party wanting to leave the euro, while the Syriza Party of the young firebrand Alexis Tsipras wants to remain within the eurozone, albeit on new terms.


In Portugal, the prospects look good for a return to the bond markets, after successfully rising $3.9 billion with a 10-year term, the first such loan since 2011, when the country sought the protection of a European bailout. It now looks as though Portugal should successfully from that $103 billion bailout program on schedule next year.

In response to the growing clamor against their austerity programs, European leaders have loosened the fiscal belts a notch or two, giving countries like France two more years to reach the target of a maximum budget deficit of 3 percent of gross domestic product. This has proved controversial. Jens Weidemann, head of the Bundesbank, Germany's central bank, warned that Europe was destroying its own credibility by chopping and changing its rules.

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"To win back trust, we cannot just establish rules and then promise to fulfill them at some point in the future," he said. "Rules must have force or they are lifeless."

Still, the new focus on Japan's daring new financial strategy and the record-breaking performance of stock markets is taking some of the focus and much of the worry away from Europe. Even the prospect of a new banking problem in Slovenia has caused no flurries in the markets.


The view is taking hold that Europe could have a calm summer ahead of the German elections in September, the big event of Europe's political year.

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Not only is Germany the richest and most populous country in Europe but incumbent Chancellor Angela Merkel is the veteran heavyweight of the political scene. She has been chancellor since 2005 and has worked with three French presidents (Jacques Chirac, Nicolas Sarkozy and Francois Holland), three British prime ministers (Tony Blair, Gordon Brown and David Cameron) and two U.S. presidents. Only Russia's Vladimir Putin has been at the world's top table for longer than Merkel.

If the European economic scene remains calm, Merkel's prospects of re-election will probably be stronger.

But nothing is certain, because the key question of German politics isn't in her control. Under the German political system, it is almost impossible for either Merkel's center-right Christian democrats, or the opposition SPD socialist party, to rule on their own. Each would need a coalition partner.

Merkel's current and preferred partner is the small Free Democrat Party, which favors free market economics and tax cuts. But the opinion polls suggest that the FDP will have difficulty in reaching the threshold of 5 percent of the vote, required to qualify for any seats in the Bundestag, Germany's Parliament.


If they have no seats to guarantee her a parliamentary majority, they are useless to Merkel. She would need another coalition partner, either the Greens or the SPD once again in a grand coalition of national unity.

But her own share of the vote could be eroded by the emergence of a new party on the right, the AfD (Alternative for Germany) Party, which wants to leave the euro and embraces catchy, populist slogans about no more money from hard-working Germans going to lazy, improvident Greeks and Spaniards. Even if the AfD fails to reach the threshold of 5 percent of the vote, by taking votes from Merkel they could change the outcome of the election.

Bond markets and foreign investors will soon start watching Merkel's election prospects with care. If she were to be defeated, and replaced by a Red-Green coalition of socialists and environmentalists, market confidence in the euro and the European economy could take a big hit. Europe will need a lot more blue sky, sunshine and signs of recovery over the next three months to fend off what would be a dramatic political upset if Merkel were to fail.

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