Merkel visits Bush -- EU leadership stable
January 10, 2007

German Chancellor Angela Merkel met with President Bush on January 4, 2007 to gain his agreement on several points:

• A U.S.-EU free trade zone.
• Reintroduce the leadership of the Quartet in the Israeli-Palestinian peace process.
• Promote stability in Afghanistan and Lebanon.
• Continue to support the Chapter 7 UN Security Council resolution on Iran.
• End the violence in Darfur.

Merkel will visit Russia’s President Vladimir Putin on January 21 to discuss energy security, which Putin repeatedly puts at risk. Merkel has mentioned she may rethink Germany’s plans to mothball its nuclear power plants as a way to diversify its energy source.

What Merkel’s visit means:
This year, Chancellor Merkel assumes the presidencies of both the EU and the G-8. One of her main goals as EU President over the next six months is to lay the groundwork for a unifying vote on the EU Constitution, which was defeated by France and the Netherlands in 2005. A Constitution would give Europe a more responsive, unified voice. It is her goal to gain greater trade for Europe while securing energy through a more peaceful Middle East.

Thanks to Merkel’s policies, Germany’s economic growth seems assured. The German IFO Institute forecast a GDP growth rate for 2008 at 2.3%, only slightly less than the 2.5% in 2006. GDP growth for 2007 will be only 1.9%, since the economy has to absorb an increase in the VAT tax from 16% to 19%. However, unemployment is at its lowest level since reunification, at 9.5%...high by U.S. standards, but low by European standards.

Action steps:
Merkel's leadership is a good sign for Europe’s largest economy and the developed world at large. Continue to keep about a third of your portfolio in large cap and developed markets. Talk to your financial advisor about the best way to do this.

Source: WhiteHouse.gov, “President Bush Welcomes Chancellor Merkel to the White House,”, January 4, 2007; Radio Free Europe/Radio Liberty, “Germany’s Merkel to Visit Russia This Month,” January 9, 2007; CES IFO Forecast, December 2006.

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