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European, global economy depends on Merkel in 2015

If anything is certain about the new year, it is that much of the world’s stability and economic health will depend, in large part, on German Chancellor Angela Merkel.

Merkel’s leadership in 2014 was a curious mixture of boldness and timidity. It fell to her to confront Russian President Vladimir Putin. And her efforts are what secured the unanimity among the European Union’s 28 fractious nations that was needed to impose meaningful economic sanctions to deter further Russian aggression in Ukraine.

As helpful as Merkel has been with Russia, however, she has so far only harmed efforts to address the faltering European economy. On both fronts, next year will be harder.

Europe’s Russia challenge will get tougher, because the pressure to repeal sanctions will rise. The current measures against Russia begin to expire in March. Yet until there is a more meaningful settlement that ensures Putin can’t continue his semi-covert war in Ukraine, sanctions need to stay.

As for the EU, new forces for disunion will emerge. British Prime Minister David Cameron will be pushing for changes in the way the bloc works that help him persuade Britons to vote against leaving it. Merkel will need to simultaneously rein Cameron in and convince other EU leaders that it would be in their interests, too, to return some powers to national governments.

At the same time, the euro crisis threatens to heat up again. The favorite to win early elections in Greece next month, the neo-Marxist Syriza party, says it will refuse to carry out the further austerity measures required for the country’s remaining bailout funds, and promises to roll back economic reforms put in place under the terms of the country’s 240 billion euro loan program.

So far, Merkel has resisted relenting on austerity policies for Greece. She has been unwilling to stimulate demand in the euro area, either by boosting investment in Germany’s own low-growth economy or by letting the European Central Bank engage in large-scale quantitative easing. She should not wait for the dawn of a new government in Greece to change course on all fronts.

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