Macroscope | As Angela Merkel prepares to bow out, who will hold the euro zone together?

With growing discord over wealth disparities, hostility towards Brussels over the bungled Covid-19 vaccine roll-out and populist tendencies bubbling under the surface, there is a palpable sense of political divisions opening up again

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German Chancellor Angela Merkel (right) talks with then German vice-chancellor Sigmar Gabriel during a debate ahead of a vote on a third bailout for debt-mired Greece at the German lower house of parliament in Berlin in August 2015. Photo: AFP

Published: 10:00pm, 5 Jul 2021Updated: 10:39pm, 5 Jul 2021

As German Chancellor Angela Merkel prepares to step aside after 16 years in office, Germany, Europe and the world are entering a new, more uncertain phase – one that will be significantly shaped by her legacy. But which one will it be?

Arguably Merkel came to the euro’s rescue in the wake of the 2008 crash and the European debt crisis. But she leaves office with Europe looking less united, facing economic uncertainties and showing greater rigidity towards the outside world.

With Europe’s political future looking less assured and Germany’s controlling grip on European policymaking slipping, Merkel’s departure from the political stage after the German federal elections in September will resonate across the markets. Europe’s single currency faces some serious tests ahead, and there will be potential reserve management headaches for large euro investors, especially China.

Merkel is a hard act to follow. She should always be remembered as the saviour of Europe’s economy and the euro for masterminding the bailout during the European sovereign debt crisis in 2010.

Initially reluctant to spend Germany’s hard-won riches on the affected peripheral euro zone member states of Greece, Ireland, Portugal and Spain, Merkel was finally spurred into action when she realised the extent of counterparty exposure by Germany’s banks to a mass credit default in Europe. If Europe’s financial system went down, then it would drag Germany down with it.

Christine Lagarde (left), then managing director of the International Monetary Fund, and Euclid Tsakalotos, then Greece’s finance minister, talk at the start of a special Euro group finance ministers’ meeting on the Greek crisis, at the European Council headquarters in Brussels, Belgium, on July 12, 2015. Euro zone finance ministers had set the day as the deadline to reach an agreement to save Greece from bankruptcy, amid warnings that failure to strike a deal by then could lead the country to crash out of the zone. Photo: EPA

Without Merkel galvanising joint rescue with the European Union and the European Central Bank, history would have been a lot different. For this, the world owes Merkel a big debt of gratitude.