Facing Up to Crisis

With the prospect of German elections in September, clouded by the country's biggest economic downturn in 60 years, Merkel has stepped out of her previous inertia and summoned the heads of Europe's biggest economies to find common ground.

Sunday's talks are due to be attended by France, Great Britain, Italy, Spain and the Netherlands, who, together with Germany, form the European contingent of the G20 group of the world's 20 most developed countries.

The group's aim is to develop a common European approach to the crisis, ahead of a G20 summit scheduled in London on April 2. Merkel was criticized last year for not doing enough to pull Germany out of recession.

Mindful of how the German electorate will judge her crisis management skills come September, the chancellor is recasting herself as an international player to be reckoned with.

An active politician

Gero Neugebauer, a political scientist at the Free University in Berlin, says Merkel wants to be seen as "an active politician." He says the G20 summit can help her "give the impression that she is actively managing the crisis and playing her part in finding a solution."

Merkel, who leads the conservative Christian Democrats (CDU), is yoked to a joint economic policy with the rival Social Democrats (SPD) within her coalition government.

The chancellor's partnership with Finance Minister Peer Steinbrueck of the SPD gives no opportunity for her to carve out distinct economic policies ahead of the election, Neugebauer says.

Instead, he says, she can use incentives such as Sunday's summit to stay in the headlines, and "demonstrate continued international activity."

In the early days of the financial crisis, Merkel's reluctance to take any rash action earned her the nickname of "Madame No."

A step slow with stimulus plan?

With an eye on the 2009 election year, the government had remained steadfast in its opposition to lowering taxes, and stuck to its prime goals of reducing borrowing and balancing the budget.

As it became clearer that the financial storm would not blow over, Merkel belatedly fell into line by proposing a fiscal stimulus package for Europe's largest economy.

A 31-billion-euro ($40-billion) financial package was put forward in November, followed by a further 50-billion-euro package which has now been approved by Germany's upper house of parliament.

The package includes modest cuts to income tax, increased family benefits and investments in roads, schools, hospitals, railways and other infrastructure projects.

In addition, Germany is providing a financial lifeline for failing banks.

Merkel is intent on setting up a new regulatory framework that prevents a recurrence of the current crisis, and has proposed a "risk map" which would identify products and companies with high financial exposure.

The chancellor has said that, whilst tackling the current economic difficulties, questions about the cause of the current financial crisis must not "fall by the wayside."

For Merkel and her conservative Christian Democratic Party (CDU), the key to stable financial markets draws on the concept of social market economy, a central strand of CDU ideology.

Merkel: Government must monitor economy

Unlike the Anglo-Saxon model, which is being blamed in part for the current crisis, Merkel's CDU envisages an active government stewardship of the economy, keeping financial institutions in check and obliging business to provide pensions and contribute to health care.

Hence Merkel's calls for greater oversight of financial markets, increased transparency and tougher regulations for hedge funds, rating agencies and corporate bonus structures, all of which are reflected in the 47 guidelines drawn up at the last G20 summit in Washington last November.

Merkel has high expectations of April's summit, which she has called an "essential" meeting. Buoyed by assurances from US President Barack Obama, the chancellor is expecting the summit to go a long way in setting up concrete measures.

Finding consensus

One of the challenges at Sunday's talks in Berlin will be to find consensus on the use of protectionist measures.

While Merkel has opposed incentives that favor the domestic economy, the French government has offered 6 billion euros in soft loans to Renault and Peugeot-Citroen, on the condition that the companies keep production and jobs in France.

These plans have met with anger in Slovakia and the Czech Republic, where the French carmakers have production sites.

In an open letter to the rotating Czech EU presidency, Merkel and French President Nicolas Sarkozy last week called for an additional EU summit to discuss the financial crisis.

This meeting now looks set to turn into an opportunity to lambast Sarkozy over his recent proposals.

As the French President's international approval ratings drop, this may give Merkel an opportunity to regain a key European role.