Angela Merkel is beset by anger abroad and mistrust at home – and there's an election looming
Angela Merkel referred to it as "successful", not least because it had, she said, "managed a fair distribution of the burden" on both creditors and depositors.
But while the deal to secure a financial lifeline to Cyprus after months of tortuous negotiations between Nicosia and the eurozone was met with relief, comfort and not a small amount of praise from both left and right in Berlin, there was also a considerable amount of scepticism. From the straight-thinking German point of view it had been a small victory in the battle to keep profligate southern Europe in check, and German voters on board.
As finance minister Wolfgang Schäuble put it: "Germany has managed to have its concerns met, both in the interests of Europe and the German taxpayer."
But the terms of the bailout also sent shivers down plenty of spines, including those of many voters who still fear that, despite the strength of the German economy, the euro crisis could still land on their doorsteps.
"If everybody starts to think their money is unsafe, we'll get a self-fulfilling prophecy, and the banks will go under," said Thomas Schuster from the Cologne Institute for Economic Research. "So trust is paramount."
Architects of the deal have been quick to point out that the Cyprus bailout – or bail-in, as many are calling it – will not and cannot become the template for other troubled eurozone nations.
But economics commentator Philip Faigle, writing in Die Zeit, disagreed: "The taboo has been broken. For the first time in the euro crisis, savers have been expropriated."
But as the blame for draconian economic reforms in Dublin, Madrid, Athens, Lisbon and Nicosia is increasingly heaped at Merkel's door, the German government's reaction has been not to relax its stance, but to tighten it. It has been especially keen to show that it is practising what it preaches at home. A case of "do as we say and do as we do," as one television commentator put it.
Just two days before EU leaders gathered in Brussels earlier this month to argue exactly how much economic reform the south should be forced to swallow, the German cabinet approved key figures in its own federal budget. As if to underline the German government's tough attitude to countries living beyond their means, it foresaw some rigorous fiscal belt-tightening, including public sector wage freezes and the lowest new borrowing levels for 40 years.
Such moves enable Merkel to go to Brussels and say: "You, too, can save." It also wins her plaudits at home among credit-shy consumers, who have so far welcomed her austerity drives. Such domestic support is particularly welcome to Merkel with an election looming.
But the political mood in Germany post-Cyprus is noticeably more defensive. Deeply angered by the portrayals in Nicosia of Merkel as an SS guard, or sporting a Hitler moustache, and by an article in Spain's El Pais comparing her to Hitler, leading German politicians began to speak out last week about the unfair treatment they feel they have been receiving from fellow EU partners.
"Germany is showing solidarity," said the justice minister Sabine Leutheusser-Schnarrenberger, who went on to urge fellow EU leaders to take their fair share of the responsibility for the unpopular bailout conditions – blame, she said, Germany had so far largely had to shoulder alone.
It is often said that Germany can appear a little gauche and inexperienced on the diplomatic front. There have also been widespread accusations that the German government has failed to communicate its crisis strategy properly either at home or abroad.
This may be why Merkel took the unusual step last week of dispatching a goodwill ambassador to Greece in order to restore her dilapidated image. Otto Rehhagel, the German football coach seen as a hero in Greece after he led its national side to victory in the 2004 European Championships, is on a charm offensive in the region.
"We have to help countries which are down on their luck," the 74-year-old said in an interview. "But it wasn't my chancellor who created this crisis."
Although her popularity rating in Germany is still an impressive 68%, Merkel may also be forced into a reassurance offensive closer to home after 54% of Germans said last week that they did not believe her assurance, post-Cyprus, that savings were safe. One in three said their trust in the common currency had been shattered and that they would like to see the return of the deutschmark.
There is anecdotal evidence that some Germans have begun removing their savings from banks, and that others have opened new accounts to spread their savings around and avoid getting caught like Cypriot depositors with more than €100,000. Financial daily Börsen Zeitung commented that while Germans – still collectively haunted by the currency collapses experienced by their forefathers – were not necessarily planning a run on the bank with their feet, "they are already doing it in their heads".
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