JUST BEFORE THE CHRISTIAN DEMOCRAT LEADER Angela Merkel took the stage to address her party's disappointment in Germany's national elections last Sunday, a few young yahoos started chanting her name: "An-gie! An-gie! An-gie! " Soon they had the whole room going. Choreographed enthusiasm is something new in postwar German politics. To most people, it looks like mimicry of an American custom. To Merkel, the daughter of an evangelical pastor who spent her first 35 years in Communist East Germany, it must have looked like something worse. Merkel scanned the crowd and curled her lip into a joyless expression conveying: Are you through ?

She had plenty to be joyless about. True, Gerhard Schröder's ruling coalition of Social Democrats and Greens had been voted out after seven years in power. True, with 35 percent, Merkel's Christian Democratic Union (including its Bavarian wing, the Christian Social Union) was Germany's largest party. It thus had the first claim to try to form a government. But the CDU had lost dozens of seats. It had been less soundly repudiated than the SPD, but only by a hair's breadth. For the first time since World War II, both big parties were under 40 percent--and they were way under 40 percent. That Merkel would lead the new government was by no means clear. As the evening wore on, Schröder had the effrontery to suggest that he lead it himself.

Only weeks before, Merkel had enjoyed a double-digit lead in the polls and had been cast as the Margaret Thatcher of her generation. Now she had blown an unblowable election. As we go to press, the German parties are deadlocked and unable to form a government, with no consensus on whether to proceed on a course of state reform or to stop it. And an unstable Germany is a crisis not just for a country but a continent.

Between Slovakia and Egypt

WHAT MADE THE ELECTION look like a safe win for the CDU opposition was the steadily worsening quality of life for median Germans. The main problem was that 11 percent of them (19 percent in Berlin) had no jobs. In February, unemployment rose to over 5 million people. That was a record high, but the jobless rate has been in or near double digits since the mid-1990s. Starting with Thatcher's Britain, almost all European countries have fought unemployment through deep and sometimes painful reforms. A quarter-century later, Germany--along with France and Italy--is still holding out.

But Germany has also spent 1.4 trillion euros to rebuild the former East Germany. As the state goes broke, its reputation for high-quality social services wanes. The country had its Sputnik moment in 2003, when the Program for International Student Assessment (PISA) ranked the German education system near rock-bottom of 32 developed countries surveyed. To add to the problem, Germans are having children at half the rate they were when the socialist state was built up in the 1950s and 1960s. Since pensions and health care, the most expensive parts of the social system, are pay-as-you-go, battles over the role of the state increasingly pit the old against the young.

Schröder is a campaigning genius. His poll numbers have been at historic lows for most of his seven years in power, except for a few weeks of campaigning in 2002, when he engineered a frenzy of outrage over the impending Iraq war, and won reelection by the narrowest of margins. Non-geniuses in his party have fared less well. After 2002, the SPD lost an unbroken string of state elections. That left 11 of the 16 German states under Christian Democrat-led governments, which can block Schröder's programs in the Bundesrat, the upper house. The breaking point came in May, when the Social Democrats were roundly defeated in North Rhine-Westphalia, the gigantic state around Cologne. If you could double the weight of California in American politics, you would get an idea of North Rhine-Westphalia's importance in Germany's. If you could double the average margin of victory for Democrats in California, you would get an idea of its solidity as an SPD stronghold. After the loss, Schröder asked his own party to pass a vote of no confidence against him, so he could call early elections. At this point, Merkel was outpolling him on all issues except two: foreign policy, which is German for Iraq, and "social justice," which is German for welfare.

No one should think--although the CDU tried to leave the impression--that Schröder had just sat on his hands when it came to reforming the state. The problem was the reluctance and the slipperiness with which he did it. While railing against the "Hire-und-Fire Gesellschaft," Schröder implemented it, to a degree. The maximum size of companies in which you could hire and fire at will rose from 7 employees to 10, and then to 20. The man who had given a blunt nein to what he called "American conditions" was doing something to create them. In early 2004, he had called for the creation of elite universities on the American model; student loans would put the onus of payment on the credential-obtainer, not the working-class taxpayer. That archetypal figure of post-1968 Germany--the fully subsidized 36-year-old "student"--was becoming a thing of the past.

And Schröder linked unemployment benefits to work. When his plan to cut employer copayments and the duration of benefits unleashed bitter weekly protest marches in 2004, particularly in the East, he held his ground. The week before the election, the Washington-based International Finance Corporation ranked Germany among the top handful of reforming economies, between Slovakia and Egypt. German companies, already lean from years of unaffordable labor, have begun to see an increase in foreign investment.

Under such circumstances, Schröder's decision to call early elections--in the pain stage, rather than the eventual gain stage, of his reforms--looks crazy. To use an American analogy, he had chosen to run as the Ronald Reagan of 1982, not 1984; as the Bill Clinton of 1994, not 1996. His timing made it appear as if he didn't believe his reforms would promote prosperity in the first place, as if he thought the global economy could be easily duped with a couple of showy tricks that would leave economic fundamentals intact. Faced with jobless rates that weren't budging, Schröder didn't counsel patience. He turned populist, blaming a set of causes that were all someone else's fault. These causes varied, but the Kosovo war, the attack on the World Trade Center, high oil prices, and the dot-com bubble usually figured among them. This was Merkel's opening. Every European country had gone through all these things, she noted in speech after speech--Germany, and Germany alone, was hemorrhaging jobs. Schröder's program was an unappealing combination of timidity and scapegoating. "Our difficulties," she said, "are homemade."

Bloodsuckers of the Nation

EVEN AS THE WORKING CLASS SHRINKS, the SPD is still a working-class party. With a few exceptions (such as the novelist Günter Grass), it has not become a preserve of the credentialed upper-crust, the way other Western social democratic parties have. Not only did Schröder's reforms come out of the hide of his own people--the promises he made to defend them from the vicissitudes of a rapacious capitalism were idle ones. The industrial workers of Slovakia and Hungary were now part of the European Union, and could do the work of German labor for a seventh of the cost. At Opel, Siemens, and other companies, unions were negotiating lower benefits, or agreeing to work slightly fewer hours for vastly lower pay.

Gregor Gysi, the leader of the Party of Democratic Socialism (the successor to the East German Communist party), liked to say in his speeches, "There must be logic in politics." Many leftist voters had trouble seeing any. Why, they asked, should Jürgen Schrempp reap a windfall from his stock options when news of his resignation as chairman of Mercedes sent share prices soaring? In effect he'd been paid millions--more, it was alleged, than Mercedes paid in taxes--for doing a bad job. How could 5 million unemployed coexist with a place like the Schlemmermarkt in the Galleria shopping mall in Hamburg, where the entire menu consisted pretty much of lobster, caviar, and champagne, and which was two deep at the bar on weekend afternoons? Other countries had hashed out these questions in the more stable 1980s. Germany was addressing them in an age of global terrorism and political realignment. "Many Germans believe Gysi is right," says Martin Klingst, the political editor of the opinion weekly Die Zeit, implying that those who agreed with Gysi far exceeded those who were ready to vote for him. Dozens of books about "unfettered capitalism" clogged the shelves of bookstores. One, by the former television commentator Michael Opoczynski, was called The Bloodsuckers of the Nation.

Schröder's quick-election gambit rested on the intuition that his supporters on the German left would not take economic reality lying down, that his only chance to get a positive verdict from the public would come before a broad left-wing opposition could coalesce. He was right. In May, Oskar Lafontaine, Schröder's former finance minister and a onetime SPD candidate for chancellor, defected. He joined the W-ASG, a party of the hard left founded just before the North Rhine-Westphalia debacle. Lafontaine took with him dozens of important functionaries from the German labor movement. The W-ASG, meanwhile, announced it would join Gysi's post-Communists to form a new force, the Left party.

None of the members of the new party quailed at the question often posed to them: How would they feel about being the Ralph Naders of the German election--shaving off enough Social Democrat votes to make Angela Merkel chancellor? They insisted they hadn't left their party, their party had left them. "We took nothing from the SPD in North Rhine-Westphalia," said Axel Troost, a W-ASG board member, over coffee at an outdoor café in Bremen. "Most of our votes came either from nonvoters or the far right." Troost was not the only one--inside or outside the party--who saw the party as a welcome roadblock in the way of the radical right's recruitment of protest voters. In Saxony, the NPD, Germany's oldest neo-Nazi party, was on the rise. It had developed a grassroots movement, with sports clubs and rock CDs that it handed out in schoolyards. It had taken 9.2 percent of the Saxon vote in September 2004, half a percentage point behind Schröder's SPD, and entered the state parliament.

There was a perceptible drift to the extremes among young people throughout Germany; a Bertelsmann poll in late summer found more than a third (35.3 percent) of teenagers agreed on the need for "a strong hand to once again bring order to our state." Of these, many more described themselves as belonging to the left than to the right. So it was also possible to see the Left party as simply offering a new label under which extremists could pursue their agenda, particularly after Lafontaine gave a speech in July using the word Fremdarbeiter, innocent enough in its denotative meaning of "foreign worker," but unknown to German political rhetoric since Nazi times. Schröder attacked Lafontaine late in the campaign for wading in the "brown mire" of Germany's past--the same phrase he'd used to attack the NPD a year before.

On election night, this hard-left force, inexperienced, disorganized, and ostracized by other parties, with much in common on socioeconomic issues with the hard right, outpolled the Greens to become the fourth political party in Germany--and came within a few percentage points of being the third. The parties of the center-left have thus far ruled out any coalition with it.

Sozialversicherungspflichtige Beschäftigungsverhältnisse

CLEARLY MERKEL'S ELECTION was never in the bag, as it had looked. If Schröder's mild reforms had put the country in such a state, it should have taken more than a few opinion polls to prove that Germans would vote for a party demanding even more of them. Merkel accused Schröder of "trying to give false facts to scared people." That was not what Merkel planned to do. She was going to lay out her case patiently, honestly--and logically, as befit the physicist she had been when the Wall came down. Merkel had won everything in life not by bamboozling people but by being proved correct. She seemed scrupulously (or arrogantly, depending on how you viewed it) unwilling to win on any other terms, or to bother with the petty superficialities of electioneering. She made herself the anti-Schröder. At their one-on-one debate, with 21 million Germans tuned in, she allowed herself to be filmed at an odd camera angle that made her look squat and strange. At the roundtable debate a week later with all the candidates, she spoke only when spoken to.

It became clear from what she did not say that Merkel was trying to keep the campaign rational and at room temperature. On the issue where German voters agreed with her most--her opposition to Turkish membership in the E.U.--she was almost completely silent. Merkel preferred to discuss, rather numbingly, the rate at which Germany was losing sozialversicherungspflichtige Beschäftigungsverhältnisse--the kind of jobs that, through taxes, provided the funds for Germany's starving welfare state. The SPD and Greens, meanwhile, advertised their own pro-Turkey position in Turkish language posters and TV spots. Merkel's avoidance of Turkey was reminiscent of Republicans' avoidance of hot-button issues when running against Bill Clinton in the late 1990s. There are certain campaign weapons that a campaigning genius, a Schröder or Clinton, is certain to turn against their wielders, even if one cannot say exactly how.

Her timidity did not stop Social Democrats from describing Merkel as a "radical" (often after showing their objectivity in the American political style, by praising to the skies those of her predecessors who were either retired or dead). The undercurrent of much criticism was that she was too marked by the Communist East in which she had been brought up--too serious, too earnest, some kind of cipher out of Zamyatin's We. It was to contrast Schröder's beery élan with Merkel's reserve that the SPD's most widely posted billboard described the chancellor as "Strong. Courageous. Menschlich."

Merkel refused to identify herself as an "East" German--reunification was too important to her for that. The most bitter attack she made at the end of her campaign was on Oskar Lafontaine, because he had "never wanted reunification." But her unwillingness to tell stories about herself was held against her. There was indeed something very Eastern European about Merkel. She was impatient with the cant of the West German holdovers who still dominated German politics, accusing them, for instance, of favoring criminal rights over victims' rights. She had as much in common with free-market politicians in the Czech Republic and Hungary and Poland as she did with her fellow Germans.

In the course of the campaign, this would become her biggest problem. She was a childless, divorced, Eastern, Protestant woman in a party that was familial, Western, and largely Catholic and male. The powerful governors who had risen in the shadow of Helmut Kohl had all expected to be in the position that she had won through canniness and competence. One got the impression they wished her ill. At an early August rally, the Bavarian governor Edmund Stoiber, head of the Christian Social Union, had badly damaged Merkel with an ex tempore remark. "When I look at the polls," he had said, "I realize that it's actually the biggest losers--Lafontaine and Gysi--who are making the biggest promises, trying to collect the votes of the protest voters of right and left." After wishing the eastern part of the country well, he concluded: "At the end of the day, it's unacceptable that these losers should determine the fate of Germany." Clearly, when he was talking about losers, he meant Gysi and Lafontaine. But people in the East swore he had meant them.

Stoiber may simply have misspoken. But he had also--like many of Merkel's fellow party members--built a career on promising extravagant benefits out of the German welfare state. It was not certain that his own career could survive the reforms Merkel had proposed. Merkel didn't really understand, or have too much in common with, the party she was supposed to represent. That led her into a big mistake.

Merkel's Boner

MERKEL GOT one of the most brilliant tax experts in the country, an apolitical Supreme Court judge in Heidelberg named Paul Kirchhof, to draft a plan for tax reform. It was a flat tax. Kirchhof suggested a 25 percent rate for everyone; this would be a cut for most Germans. He would pay for it by adding 2 percent to the sales tax and closing 418 loopholes in the tax code. You could make the case that this was terrific politics. First, it committed Germany to a path of reform, for, just as in the United States, the flat tax was not only about making taxes fair and transparent. It was also about wiring the state's jaws shut. Second, it showed Merkel as sufficiently bold to carry out reforms in the first place. Third, it put her on the right side of one of Germany's great populist grievances--widespread tax evasion by the very rich, many of whom were able to use those 418 loopholes to avoid paying any tax at all. "A complicated tax system," Merkel said, "is an unjust tax system." In the case of Germany, she was right.

Anyone who remembers the fate of Republican flat-tax efforts in mid-1990s will know what happened next: The complexity of the present system worked against those who wanted to simplify it. Since figuring out how much one would win or lose in the transition was almost impossible, the popularity of the plan became a matter of atmospherics. This was Schröder's strong suit, not Merkel's. Schröder described the flat tax as the same "for millionaires and bus drivers," and the man who dreamed it up as "that professor from Heidelberg." What happened to your average nurse--with two kids and just as many loopholes--under the plan? Der Spiegel ran a study saying that she got tax relief, and those richer than she paid more. The SPD took out ads that proved opposite conclusions. The SPD won the battle, if not the argument. They understood human nature better. It turned out that Germans cherished their loopholes, in accord with the rule that people will happily live under any system, as long as they can feel they're outsmarting it, or ripping it off.

In the last days of the election, two of the most influential Christian Democrat governors--Christian Wulff and Roland Koch--disassociated themselves from Kirchhof's plan, claiming it wouldn't work. They succeeded in getting Friedrich Merz, their friend and Merkel's longtime party rival, brought into a prominent role--a campaign shake-up half a week before voters went to the polls. When the result came in, Wulff lamented, "We didn't spread enough hope, courage, and confidence."

But confidence alone would not have done the trick. Germans may have been too mesmerized by their economic predicament to notice it, but from the time the election was called, Schröder had had an ace in the hole. Germany actually had not one big project but two. Alongside his (gingerly) modernization of its welfare state, Schröder had undertaken (with gusto) the modernization of Germany's position in the world. The very youngest Germans to have experienced the Second World War as adults were now moving into their eighties. Germany was no longer a pacifist special case of a country but a middle-sized European power that had fought two wars (Kosovo and Afghanistan) on Schröder's watch, and had 7,000 soldiers stationed around the world. This normalization was inevitable and natural. So was some friction with the United States, which, however benign its motives and however gentle its influence, is the country whose custodianship Germany had to renounce in order to reclaim a normal position in the family of nations. But there were many possible ways of effecting this break. Germans proved not to like Schröder's attitude towards the welfare state; they loved his way of reforming German foreign policy.

That is why Schröder brought foreign policy--almost totally absent from public consideration all summer--roaring into the campaign in its final days. When he referred to Nazism and Stalinism as a means of passing off his largely economic relationship with Putin's Russia as a peace initiative, Schröder was being cynical. But about America he was direct, and clearly speaking from the bottom of his heart. Schröder sought to stoke anti-Americanism in any way he could. The city most often mentioned in the course of the campaign was not Berlin or Hannover but New Orleans, which Schröder and his Green running mates called an example of what would happen to Germany if the CDU were elected. The spectacular scandals at Volkswagen were all over the German press just a few weeks ago, but in addressing the problem of corporate corruption it was Enron to which Schröder referred. He tried to pick a new fight with George W. Bush over the latter's statement that no options were off the table in dealing with Iran's nuclear program. He dusted off his nationalistic applause line from the 2002 race about how Germany's foreign policy decisions would be made "in Berlin and in no other capital."

In one of the more pitiless ad hominem attacks of the campaign, Joschka Fischer, the Green foreign minister, belittled Merkel for having written in the Washington Post on the eve of the Iraq war that Schröder did not speak for all Germans. One SPD campaign poster showed the famous 2004 photo of a cargo plane full of coffins draped in the American flag, under the (altogether baseless) sentence "She'd have sent soldiers." It was Iraq and, to a lesser extent, flourishing antiglobalist NGOs such as ATTAC that gave the SPD the most energetic youth wing in the campaign. And it probably hurt Merkel that, at the end of her debate with Schröder, she stole a page from Ronald Reagan's 1980 campaign and asked her fellow Germans if they were better off than four years ago.

Formal Grounds

MERKEL IS A CEREBRAL POLITICIAN, who tries to convince you she is right. Schröder is an animal politician, who tries to convince you he is stronger. The clash of these two styles was visible on election night, and it has a lot to do with why Germany is spiraling into crisis. Merkel gave a tight smile and admitted she wished she'd done better. Schröder made his trademark Popeye-the-Sailor-Man gesture--clasping both hands over his head and pumping them about as if he were shaking a cocktail. That did not change the fact that Merkel got more votes, or remove her customary prerogative to lead coalition negotiations. But it seemed to. "Practice humility," Schröder told Merkel and the CDU. "That's the least one can expect from a Christian party." By the end of the week, the SPD was reportedly plotting a parliamentary maneuver to get the votes of the two component parts of the Christian union (CDU and CSU) counted separately. That had never been done in the 60 years since the party system emerged from the war, but it would--post facto--render the SPD the largest vote-getter and give Schröder first crack at forming a government.

On a postelection roundtable with the other candidates, Schröder seemed to argue that he deserved the chancellorship because he'd beaten expectations, even if he hadn't beaten Merkel. "Just take a look at what really caused this electoral turnaround," he said. "Alongside the comparison of policies, there was also a comparison of the people putting them forward. And that's why there can't be any talk whatsoever here about making a claim to power on formal grounds, however much you may want to. That won't be accepted."

It was as if Howard Dean had made his 2004 Iowa rant as he was moving towards getting made president in an election thrown to the House of Representatives. Writing two days later, Frankfurter Allgemeine Zeitung editor Frank Schirrmacher compared Schröder's outburst to those of dictators in Latin American novels. "What did Schröder actually mean by 'formal grounds'?" Schirrmacher asked. "As best we can tell, he meant the election result." Some Germans felt remorse, even a bit of the panic Schirrmacher did, as if they'd woken up hungover after having done something terrible. The percentage of voters who wanted to see Merkel as chancellor rose dramatically; the number who preferred Schröder plummeted. Schröder, they seemed to admit, had looked prettier at closin' time.

Merkel had been described by Schröder, in speech after speech, as a menace to the soziale Gerechtigkeit (social justice) that is a core principle of the German social state. Merkel's worldview held that that social justice, whatever its historic virtues, had turned into a mere slogan, one that was doing real harm to society. There is nothing less socially just, she stressed, than mass unemployment, or older people living auf Pump--on credit--at the expense of future generations. It was a rational argument, and she was right. But it was precisely Merkel's rationality that made the campaign extremely hard to read, and now makes Germany's predicament so stunning. Nobody can ever really tell whether people have grasped a cogent argument. It's a deep mystery. But any fool, in a hall full of noise and emotion and electricity, can look into the heart of a nation.

Christopher Caldwell is a senior editor at The Weekly Standard.

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