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Thomas Molloy: German poll only election Kenny needs to fret over

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ENDA Kenny's job got a little bit more difficult due to an election in another country this week which will almost certainly have a greater effect on the cost of bailing out Ireland than anything said or done here.

The election took place in the proud and wealthy port of Hamburg and the result was an electoral drubbing for German Chancellor Angela Merkel's CDU party, which posted its worst result there since World War Two.

The victors included parties such as the chancellor's junior coalition partner, the FDP, which opposes bailouts for countries such as Ireland and Greece unless many more strings are attached.

It is difficult to exaggerate just how unlucky Kenny is as he looks beyond Friday's elections and prepares to travel to Brussels for his much-touted showdown with the other eurozone states over the cost of the Irish bailout.

Kenny has unwisely staked a large amount of his prestige on wringing concessions from Germany at a time when Germany's leaders are least able to deliver those concessions without appearing weak and triggering a series of cataclysmic electoral disasters.

Unhappily for Kenny, Merkel faces six more regional elections this year including two next month, which come just two days after the crucial meeting on restructuring our debts.

After what happened in Hamburg on Sunday, it is inevitable the German public's reluctance to give away yet more money to pay for Ireland's mistakes will harden.

Yesterday, the bond markets were already reacting to the results from Hamburg with the spread on Irish and Portuguese bonds rising because of worries Merkel will be less willing to support the euro region's most indebted countries.

Analysts were also predicting Merkel's policies would have to change if she is to remain in power.

German regional elections are not like the local elections here; defeat there equals loss of power in Berlin.

"Merkel will have to adopt a harder line to try to win round voters," was the view of Peter Chatwell, a strategist at Credit Agricole in London.

Hans-Juergen Hoffmann, the managing director of Hamburg-based pollster Psephos, agreed, saying the German chancellor "will surely be concerned now that this disaster won't be repeated in upcoming state elections".

Hamburg was the first electoral test of Merkel's policy of reluctantly agreeing to bailouts since her party lost a state election last May, a result that she blamed on voter anger over bailing out Greece.

That defeat cost her control of the parliament's upper house, the Bundesrat, where regional administrations are represented.

The Hamburg result will cost the CDU a further three seats, further limiting her ability to pass legislation.

Opposition from Merkel's two junior coalition partners, public and media hostility, and fear of Germany's constitutional court will leave her with little room to bolster the bailout fund.

Opposition to the bailouts is spread fairly evenly through German society.

Tabloid newspapers don't like it and central bankers agree because they fear public opinion is turning against the euro itself.

The veteran central banker Otmar Issing, an adviser to Merkel, last month warned further fiscal transfers to prop up the common currency would drive German citizens to reject the euro.

While Merkel is a European and thinks more strategically than the likes of Bertie Ahern, she did not climb to the top of the political ladder in western Europe's most populated nation without a ruthless streak and a strong sense of electoral realpolitik.

It is naive of Kenny to expect her to be prepared to sacrifice many more votes in Germany to help Ireland or help out Ireland's next Taoiseach.

Kenny's predecessors have been able to look elsewhere in Europe for support at moments like this. But the debt crisis and constitutional inertia mean the next Irish leader will find himself face-to-face with Germany rather than 27 nations including a large number of smaller nations willing to help us.

As Reuters reported yesterday in an analysis of decision making in Europe: "Chancellor Merkel is now calling the shots, with France as a distinctly junior partner, setting out demands for economic policy co-ordination along German lines and using her leverage as Europe's paymaster to gain acceptance."

The message from Berlin is: "If you want German taxpayers to underwrite the eurozone, you will have to accept German-style fiscal rules in your constitutions, raise your retirement ages and make your economies more competitive."

As Britain enacts laws, like Ireland's laws, to require a referendum on any further transfer of sovereignty from London to Brussels, many European countries have given up any hopes that the EU is capable of agreeing another large-scale treaty.

It may well be that the Lisbon Treaty was the last old-style treaty and future institutional change will be low-key and managed by governments in bilateral agreements.

In such an environment, Fine Gael will find limited scope for the sort of horse-trading between countries that helped Ireland so much in the past.

Merkel gave Kenny's election campaign a boost by meeting him in Berlin last week.

But Kenny will find she is the woman who will deliver the first serious blow to his prestige when he becomes Taoiseach following the general election.

Irish Independent