SPECIAL REPORT-The two lives of Angela Merkel

By Andreas Rinke and Stephen Brown BERLIN, Nov 12 (Reuters) - German conservative party headquarters is rocking. To the heavy thud of AC/DC, hundreds of young party members throng the foyer of Konrad Adenauer House in Berlin waving posters and talking over the music. Music over, they listen with rapt attention and regular applause to Germany's most popular politician -- approval rating a record 74 percent -- speak about passion and leadership. With Germany taking on a more assured and outspoken role in Europe, its economy moving into what the economy minister has called an "XL recovery", and no national elections to worry about for three years, there's every reason for Angela Merkel's government to bask in the glow of success. Unfortunately for the German chancellor, neither she nor her Christian Democratic Party (CDU) is the object of the chants and adulation at this rally of young conservatives on a Saturday afternoon in October. Instead, the calls -- "KT! KT! KT!" -- refer to Merkel's debonair 38-year-old defence minister from the CDU's smaller, more conservative Bavarian sister party, the Christian Social Union (CSU). "KT" is Karl-Theodor zu Guttenberg -- or to give him his full dues, Karl Theodor Maria Nikolaus Johann Jacob Philipp Franz Joseph Sylvester, Baron von und zu Guttenberg. Pictures of Guttenberg and his wife Stephanie, the great-great-granddaughter of the "Iron Chancellor" Otto von Bismarck -- architect of German unification in the 19th century -- frequently decorate the covers of newspapers and magazines. It may surprise many, especially those outside Germany, that the young noble is even considered a serious rival to the woman widely known as the new Iron Chancellor. But with the ruling coalition struggling in the polls, and some party insiders accusing her of weak leadership and a lack of enthusiasm, Merkel is beginning to look like a politician fighting for survival. In a Forsa survey in mid-October, 23 percent of respondents said Guttenberg would make a better chancellor than Merkel, with just 14 percent preferring the incumbent. More strikingly, nearly half the Germans polled saw no difference between the two leaders' abilities -- something of an insult to the 56-year-old chancellor, re-elected just a year ago and in the front line of German politics for almost two decades. Guttenberg, who entered parliament just eight years ago, may turn out to be a flash in the pan. But his rise does highlight a contradiction about Angela Merkel: after five years as the most powerful person in Germany, her star seems to be waning at home even as it rises abroad. "There seem to be two Merkels -- one abroad, one at home," says Eberhard Sandschneider, research chief for the DGAP foreign policy think-tank. "It is a pattern in German politics and is similar to what her predecessors Helmut Schmidt and Helmut Kohl experienced." IRON CHANCELLOR OF EUROPE In person, Merkel comes across as a supremely confident politician of growing global stature. Unemployment is at an 18-year low and Germany, unlike historic rivals France and Britain, has avoided the drastic austerity measures that have filled French streets with protesters and will chop almost half a million public-sector jobs in Britain. The economy, motoring along at 2.2 percent growth, looks likely to expand steadily from now until her second term ends in 2013. Germany's growing assertiveness on the international stage has just been cemented by a new two-year turn on the United Nations Security Council. Merkel can also draw confidence from the fact that almost all her former internal rivals for leadership of the CDU have left politics. Younger ministers call her "Mutti" (Mum) with a mixture of respect and fondness. Guttenberg might impress with his easy style, but Merkel exudes experience, learnt from surviving in two different ideological systems and through crucial posts like environment minister in the 1990s and, since the 1998 defeat of her mentor Helmut Kohl, at the helm of the CDU. If Kohl taught Merkel anything, it was to focus on the end result.

Visitors to Merkel's office on the 7th floor of the "Washing Machine", as the startling modern chancellery with its huge round windows is nicknamed, are immediately struck by her ambition. One clue, standing on a shelf behind her desk, is a small portrait of Catherine the Great, the German-born Russian empress with whom she seems to share a vision of transforming her country. "I want to ensure that in 2050 Germany and Europe are still taken seriously by the world, not just considered sanctuaries to the arts and beautiful old things," Merkel told Reuters when asked to define her ambitions. As the leader of Europe's biggest economy, Merkel is convinced Europe must integrate further if the old continent wants to retain influence. She denies the idea -- popular in some parts of Europe over the past couple of years -- that Germany's new willingness to push its opinion means it is moving away from the continent. Under her leadership, Germany helped push through the Lisbon Treaty which now underpins the Union, lobbied for a common foreign service and is now even happy to talk about closer coordination of economic and fiscal policy. Not surprisingly, Merkel often plays the role of "European chancellor" at summits of the bloc's 27 member states. "When she talks, it goes quiet in the room, everyone else listens," said one head of government after the last EU summit in Brussels. Austrian Chancellor Werner Faymann, a Social Democrat, admires that power, telling Reuters: "She is nearly always involved in finding a compromise." In May this year, after nerve-wracking negotiations between euro zone members as Greece teetered on the edge of default, Merkel acceded to a multi-billion rescue package for the euro -- but only after the rest of the zone agreed to her demands for, among other things, IMF involvement. Last month, Merkel and President Nicolas Sarkozy took their EU partners by surprise by announcing, from the chic Normandy resort of Deauville, a compromise on EU budget rules even as the bloc's finance ministers met in Luxembourg on the same subject. At the EU summit at the end of October they secured the treaty change needed to avoid challenge in Germany's constitutional court. EMOTIONAL INTELLIGENCE But reviews are mixed. "Merkel is not only a good leader of Germany, but also a very good leader for the whole of Europe," trills the visiting prime minister of Estonia, Andrus Ansip. Others are less enthusiastic about Germany's increased willingness to make decisions on behalf of Europe -- a role that was unthinkable for decades given Germany's part in 20th century history. Even Luxembourg's Prime Minister Jean-Claude Juncker, normally a fan of close Franco-German coordination, was critical of the way Merkel and Sarkozy railroaded EU policy at Deauville, saying such conduct was "simply impossible". Berlin and Paris shrug it off, observing that the EU complains when they don't get along and when they do. "If Merkel and Sarkozy are together, it is a pretty powerful pair," said France's minister of foreign affairs, Pierre Lellouche on a visit to Berlin. With more years in power than Barack Obama, Sarkozy, Dmitry Medvedev or David Cameron, her opinions sought by China's Wen Jiabao and India's Manmohan Singh, and fluent in English and Russian, Merkel is perhaps Germany's first "global" leader, voted most powerful woman in the world four times in a row by Time magazine and named the sixth most powerful person last week by Forbes. As a former environment minister she has fought -- not always with success -- to push climate change up the international agenda. She has lobbied in Washington for a more relaxed approach to Russia, and in Moscow and Beijing for modernisation. She brought the IMF into Europe to impose discipline and, in the words of American financier George Soros, an outspoken critic of her fixation with budget rigour, "Germany emerged after the crisis as being in charge of EU fiscal policy". At the G20 summit in Canada earlier this year, Merkel again imposed her thinking, this time on exit strategies from stimulus packages. "She went into the G20 summit in Canada with a minority and came out with a majority," complained Soros at a conference in Munich. That complaint is echoed in Washington. On a personal level, bilateral relations are markedly cooler than with George W. Bush -- just this week Germany has been highly critical of Washington's Quantative Easing policy, which is pushing down the dollar. Officials on both sides of the Atlantic ascribe the chill in part to personalities. Merkel is seen in Washington as stubborn and cagey; in Berlin, Barack Obama is seen as a worrying spendthrift. While the two governments share similar views on many geopolitical questions, including Russia and Afghanistan, they disagree on how to tackle the downturn and imbalances in currency and trade, and how to inform the public about terrorist threats, though cooperation on security works better at the top level, officials say. Despite all that, world leaders still listen to Merkel, giving Germany more prominence than it might otherwise have. The key, says one close aide, is Merkel's "emotional intelligence," a sort of quiet political and human instinct that sets her apart in male-dominated international summits and is a complete contrast with EU peers like Sarkozy or Italian Prime Minister Silvio Berlusconi.

Even Gesine Loetzsch, chairwoman of the Left party in Germany, admires her rival's core strength. "Merkel's biggest advantage is that she has no vanity," Loetzsch tells Reuters, pointing at a photograph of Merkel and her centre-left predecessor Gerhard Schroeder. "He was extremely vain but she is not vain at all and vanity has never prevented her from doing things." Standing beside Argentina's carefully coiffed and elaborately made-up president Cristina Fernandez in the chancellery recently, Merkel's straightforward style was obvious. The chancellor, who prefers her hair in a bob and usually wears a three-buttoned blazer, could not repress a smirk as she eyed her visitor's long painted nails. Even as Fernandez launched into a long lecture on economics, Merkel kept smiling and hardly said a word. When Sarkozy recently suggested that Berlin would imitate his policy of emptying Roma camps -- even though there are no such camps in Germany -- Merkel was restrained in her denial, understanding that patience will be rewarded down the line. TROUBLE ON THE HOME FRONT What works in international affairs, though, does not always translate well back home. Germans have quickly grown disappointed with the "dream coalition" between the Christian Democrats and the pro-business Free Democrats (FDP) even though the parties involved have more in common than those in the "grand coalition" that combined the conservatives and Social Democrats (SPD) between 2005 and last year. Poll after poll indicates that if Germany were to hold an election today the SPD and Greens would win by a large majority. The Christian Democrats and its smaller Bavarian sibling score only 30 percent, while the FDP, led by Foreign Minister Guido Westerwelle, gets just 5 percent, enough to cross the threshold to get into parliament but well down on the 14.6 percent it won in last year's election. Conservative newspaper Frankfurter Allgemeine Zeitung has begun to talk of a "post-Merkel era" that might begin if her coalition loses a regional election in the industrial powerhouse state of Baden-Wuerttemberg next March.

The German media have begun comparing her to Kohl in his later years: respected abroad but lacking authority in the domestic sphere. What's gone wrong? Besides German objections to bailing out tax-evading Greeks, Merkel in many ways faces a crisis of expectations. Even though she exudes a presidential air that has often eluded German chancellors, she remains hamstrung by the rigid system of checks and balances set up by the Allies following World War Two to prevent any future German leader from amassing too much power. Her coalition lacks a majority in the Bundesrat, or upper house of parliament. When a Bundestag (lower house) committee met in April to hear Merkel explain the euro rescue scheme, one Green deputy accused her of delaying the rescue package to avoid hurting her party's chances in a state election in North Rhine-Westphalia the same weekend. "If you really want to believe I am that powerful, I won't contradict you," said Merkel with a smile. Of all the limits placed on Merkel's power, none is more of a hindrance than her own ruling coalition. Such are the current frustrations over the in-fighting between the coalition partners that some senior CDU officials look back fondly on the coalition with the socialists. "It is more difficult to govern now," said one senior official. Another acknowledged that the Grand Coalition "suited Angela Merkel's leadership style much more. With the SPD it was all about consensus, and that's the way she likes to reach decisions." Top officials from Merkel's CDU describe their current coalition partners as "very problematic". They say Westerwelle's FDP lacks experience in government and relies on novice MPs with unrealistic expectations. The CSU, meanwhile, tries to remedy declining support at home in Bavaria by attacking the FDP.

"Merkel's problem is Westerwelle and (CSU leader Horst) Seehofer," said Manfred Guellner of polling institute Forsa. The temptation, therefore, is to be more active on the international scene where she does not need these two, says Sandschneider at DGAP. "In reality you don't have two Merkels -- but two different stages for politics." Unusually in German politics, Merkel lacks her own regional power base, having parachuted into the CDU during reunification and been promoted by Kohl.

She remains something of an outsider: a divorced, childless female physicist from the former East Germany in a western party whose core supporters still tend to be Catholic, male and reluctant to altogether drop their resistance to immigration and an attachment to the view that women should stick to the three K's -- "Kinder, Kueche, Kirche" (children, kitchen and church). Merkel has attempted to infuse the CDU with more modern ideas to help it survive as the country's last great Volkspartei (people's party). This has drawn criticism from the business and youth wings of the CDU who say she has eroded the party's identity without defining a clear strategy. Some even speculate that a "Tea Party"-style movement could emerge to lure away disaffected conservatives. COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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