What Will Change in Germany?

In the final hours of her campaign for re-election, Chancellor Angela Merkel proclaimed that anchoring worldwide the principles of the German economic and social model would be a main task of a new government in Berlin.

Mrs. Merkel said this was a matter “of the defense of our ideals,” according to a dispatch from the German-language service of The Associated Press.

To say the least, here was a fairly puzzling and even contradictory statement about where the world’s leading exporting nation — and one of the countries most profoundly hit by the recession — saw its future.

On the one hand, the Group of 20 economic summit meeting in Pittsburgh had produced documents that in substance recommended significant, difficult changes in the way the German model, or Social Market Economy, works: “decisive progress on structural reforms that foster private domestic demand” (or reorienting Germany’s export-dependency from the trade imbalances that block international growth); and commitment “to raise capital standards” (or limiting rickety German banks’ highest-in-the-industrial-world leverage ratios and their role in feeding global financial instability).

On the other, Mrs. Merkel, 24 hours before getting a grip on another four-year term, was recycling the line that all was well between the Rhine and the Oder, and Germany a beacon to the world. To hear what she had said earlier on the campaign trail, there was “no sensible alternative” to exports as a base for German prosperity, and “the structural weaknesses that used to limit Germany’s competitiveness have been dismantled.”

Perhaps the Merkel language at the finish line was just a reflex gasp meant to tie a final bow on her yearlong refrain that Germany has been a guiltless party in the economic crisis. And perhaps the arrival of the Free Democrats in Mrs. Merkel’s government suggests new thinking by the chancellor.

But her last campaign hurrah — what she chose to say to voters after Pittsburgh — underscores international concern that the G-20’s declarations are toothless, and that Germany’s taking them on board is in doubt.

Look at the German economic model’s characteristics now: the highest level of new debt in the history of the Federal Republic of Germany, according to the government’s new budget. Deficits next year that will surpass in percentage terms those of Greece and Italy, in line with the projections of the European Commission. Unemployment that could rise in 2010 by as much as one million workers, an increase of more than 20 percent.

In fact, last week’s bad news cull included a record year-on-year export drop of 23.5 percent.

Add to that ˆ816 billion in toxic assets held by German banks in July — one-third of German gross domestic product.

And all this comes in the context of a comparison at the start of the crisis by The New York Times of 17 countries’ bank leverage ratios. It charted total working bank assets in relation to banks’ net worth and found, with greater ratios indicating a smaller margin of safety, Germany’s banks’ leverage were the highest.

Does the new government do something about that right away? A column in the International Herald Tribune by Paul Taylor of Reuters pointed out that stalling on strong medicine for zombie banks was the path that led Japan into stagnancy for a decade.

But the most popular man in Mrs. Merkel’s first government, Economics Minister Karl-Theodor zu Guttenberg, said last week that while higher working capital ratios were necessary to hinder speculative operations — what, speculation in Germany? — they must come “when the time is ripe, or when the present crisis is overcome” — in other words, at a very imprecise moment in the future.