Bloomberg Columnists : Matthew Lynn : Germany's Merkel Won't Survive Economic Crisis

Nov. 16 (Bloomberg) -- Angela Merkel already has one historic achievement to her name. Later this month she will become the first female chancellor of Germany.
That may well be her only achievement. It is unlikely that Merkel can last very long in the top job.
Why not? For the simple reason that she has allowed herself to preside over a disastrous economic program that seems certain to push Germany into recession. Voters won't forgive her for that, nor will they forgive the Christian Democratic Union she leads for allowing it to happen.
The Sept. 18 federal election produced a stalemate between the two big parties: the CDU and the Social Democratic Party. With neither commanding enough seats in parliament to form a government by itself or in coalition with other parties, Merkel was left with little choice but to agree to a ``grand coalition'' of the two main rivals.
At the time, some commentators welcomed the policy mix. A grand coalition would have the unchallenged authority to push through the structural change that the German economy needs. It would unify the country, and give it a common purpose. It would have the power to face down special interest groups on both sides of the political divide.
It was a seductive line of reasoning. There was just one flaw: It didn't produce the policies needed.
The coalition may be grand, yet the economy will be petite.
`Fear the Worst'
``The plans of the future grand coalition to cut subsidies and to hike the value-added tax rate from 16 percent to 19 percent make me fear the worst for Germany,'' said Dirk Chlench, an economist at Hypothekenbank in Essen AG, in an e-mailed response to questions. ``If this was not bad enough, ECB interest-rate hikes seem to be around the corner. Thus, deflation has become more than a remote possibility in Germany.''
Merkel's government will be presiding over the kind of economic program that has rarely been seen since the global recession of the 1930s. It's taking an economy that suffers from chronically weak consumer demand, and punishing it with an iron determination to balance the budget. It is as if John Maynard Keynes had never been born.
The program has taken the worst knee-jerk policies from both the left and the right, ignoring the probability that anyone with two knees jerking at the same time will fall over.
Take a look at the platform that has been approved.
From the traditional right comes a determination to balance the budget. From the left, there are proposals to punish the rich.