A Rock and a Hard Place

Two days ago German Chancellor Angela Merkel came out strongly in support of the Eurozone. This plays reasonably well to the international audience, but doesn't go down well to the folks back home.

Germany has benefited handsomely from the Euro. About 43% of its exports are to the Eurozone. The single currency union means that the other members can't devalue their currencies to compete with Germany. And now, in this time of fiscal crisis, given that Germany is essentially the paymaster, their political clout within the EU has risen accordingly, and,for the first time, they are using it.

The German folks back on the farm however, are not so enthusiastic about the Euro. They went through an austerity program of their own before the credit crisis. They don't understand why they have to cajole member states from the periphery to enact the budgetary measures they did on their own. They also don't understand why they should have to pay for it.

Frau Merkel can't be to aggressive in singing the Euro's praises to her domestic audience. If she clearly outlines to them the extent to which Germany benefits from the Eurozone she risks alienating fellow EU members whose populace is already bristling at the price of being bailed out-austerity measures a la Allemagne.

There are elections in four of the German states between February 20 and March 27 and another three later in the year. If Frau Merkel and her coalition are to stay in power she is going to have to figure out how to talk to two very different audiences.

That's a tricky proposition.