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TheStreet Open House

Merkel's Election Schedule Weighs On Greek Bailout

By JUERGEN BAETZ

BERLIN (AP) â¿¿ German Chancellor Angela Merkel's upcoming re-election battle is shaping Europe's response to bailing out debt-ridden Greece.

Her strategy: Do just enough to keep Greece afloat but spare German voters â¿¿ for now â¿¿ the news that even more of their money will be required to get the Greeks back on their feet.

Merkel has led Europe's biggest economy since 2005. The greatest risk to her re-election bid, pollsters and analysts say, is a dramatic worsening of Europe's debt crisis â¿¿ such as Greece exiting the eurozone, or a Greek debt write-off costing billions in German taxpayer money.

A deal reached Tuesday by the 17 nations that use the euro is a patchwork of measures to plug new shortfalls in Greece's budget and trim its debt load over the coming years. But it stopped short of forgiving some of the country's debt â¿¿ having eurozone creditors like Germany take a so-called "haircut."

"Greece's debt is not sustainable, even with the new measures, so the problem will be back in 2014 at the latest," said Christoph Weil, an economist with Commerzbank.

But losing more money on rescuing the Greeks and other economically weak European Union nations could be politically toxic in Germany, where Merkel faces a national election in September. So far, Merkel's hard-nosed approach to Europe's debt crisis has bolstered her popularity at home.

"Ms. Merkel doesn't want to stand in front of her voters and tell them that the Greek rescue will cost taxpayers a couple of billions," Weil added.

Many economists say that Greece's debt burden â¿¿ forecast to reach some 190 percent of gross domestic product next year â¿¿ can only be managed by writing off more government loans. But Merkel and German Finance Minister Wolfgang Schaeuble were the most outspoken opponents of such a step, instead insisting on austerity measures and structural reforms.

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