Merkel seeking long-term answer as Europe burns

As the eurozone turmoil mounts, German Chancellor Angela Merkel is trying to regain the upper hand with calls for long-term political integration but she continues to resist emergency action. "We need more Europe ... a budget union ... and we need a political union first and foremost," Merkel told German public television Thursday. "We must, step by step, cede responsibilities to Europe." However her proposals fall far short of the kind of bold measures to douse the raging fires that were demanded this week by US President Barack Obama and British Prime Minister David Cameron. Speaking later Thursday with students in Berlin, alongside Cameron and Norway's Prime Minister Jens Stoltenberg, Merkel reiterated that there was no such thing as a magic solution to the euro crisis. "Calling for this one big bold stroke and then the euro crisis will be gone. This won't work," she insisted. "These problems have piled up over many years and now it will take some while to render this system fit for the future. It's obviously in human nature to wish for this bold stroke but I don't think it will work." A European diplomat in Berlin said that Merkel's latest comments on a political union were aimed at hitting back at the impression she had been sitting on her hands as the debt crisis has deepened, threatening to snag Spain after Greece, Ireland and Portugal all needed to be bailed out. "She has her sights set as far away as possible because a political union would be for 10 years from now," the diplomat, who spoke on condition of anonymity, said. "At the same time, she avoids looking like 'Madame Non'," as she was branded by European critics early on in the crisis. The issue is likely to come to a head at the next EU summit at the end of June, when leaders will be under pressure to come up with an answer to the latest turbulence threatening to engulf stricken member states. The diplomat also criticised a new economic growth initiative unveiled by Merkel's government this week, which blends the German recipe of fiscal discipline with structural reforms to the labour market to buck the crisis. He noted the eight pages of proposals ruled out eurobonds, or the pooling of debt among euro countries to drive down borrowing rates for the most vulnerable, for years to come. France, Spain, Italy and the European Commission have notably called for such a crisis-fighting mechanism. Merkel has also set up daunting preconditions for the creation of a banking union, a Commission-backed plan that would create cross-border oversight, as well as a common deposit guarantee, and bank bailout and resolution schemes. The leader of the eurozone's top economy also draws the line at a more active fire-fighting role for the European Central Bank, for example to boost growth, and the use of European bailout funds for direct aid to ailing banks. "The chancellor's idea is that you shouldn't cede any ground before the Greek parliamentary elections" on June 17, Financial Times Deutschland columnist Thomas Fricke said. "She does not want to send a message that the extremists in the country are right to pressure Berlin" to win concessions on the austerity plan imposed on Greece in exchange for bailout funds. But Fricke said he was confident that Merkel would eventually swing into action. "We do not know what she is willing to do but when catastrophe approaches, she will change her position at the last minute like she did in May 2010, when, seeing the impending implosion of the system, she backed the idea of aiding Greece," he said. Berlin's centre-left daily Tagesspiegel noted that the domestic pressures Merkel faces shape her strategy to an extent often not recognised abroad, where exasperated critics say she is simply dragging her feet. "The perpetuation of the European drama -- and the radical reactions to it -- are an integral part of her rescue policy," it wrote Thursday. "She knows that Germans want to save the euro but not at any price. The longer the crisis lasts, the more they will be ready." Thus far, Germany, with its low employment rates, has escaped the effects of the crisis thanks to robust exports to emerging markets. But analysts say that neighbours on the brink and a crippling US slowdown may soon focus minds in Berlin -- above all, the chancellor's.