Crisis could come back to haunt Europe's leaders

By Noah Barkin - Analysis

BERLIN (Reuters) - The global financial crisis has given European leaders an unexpected political boost, but those gains could vanish as quickly as they came once recession takes hold and jobless rates start to creep up across the bloc.

British Prime Minister Gordon Brown and French President Nicolas Sarkozy have profited most from the financial upheaval of the past six weeks, burnishing their reputations by tackling the turmoil head-on and monopolizing the media spotlight.

German Chancellor Angela Merkel has kept her popularity ratings high as well by deftly deflecting blame for the crisis and relying on cabinet colleagues to manage the mess.

As Europe heads into what economists believe could be a deep downturn, however, the bloc's leaders may find it increasingly difficult to escape the wrath of voters, whose anger over lost jobs and a wave of bank bailouts will only build.

Merkel, who faces a federal election in 2009, appears the most vulnerable of all.

The crisis has dashed her hopes of campaigning on the economic accomplishments of her first years in office -- a balanced budget, steady drop in unemployment and some of Germany's best growth rates since unification.

Her Christian Democrats (CDU) are now watching the labor market nervously, anticipating a reversal in the jobless trend. Already German companies, from automaker DaimlerChrysler to chemicals group BASF, are warning of job cuts they say are directly linked to the financial turmoil.

"The German economy will spiral downward in the wake of this crisis and that will force Merkel to completely rethink her election strategy," said Klaus-Peter Schoeppner, head of polling group TNS Emnid.

Her CDU allies now say the party will run a Merkel-focused campaign that skirts the issues and stresses what they believe is her key selling point -- steady, reliable leadership.

OPPOSITION ACCUSATIONS

Brown, who must call an election by mid-2010, will rely on a similar strategy.

Before the financial crisis reached new heights in mid-September, the news in Britain was dominated by Labor Party discontent with Brown's leadership.

Since early October, Brown has bounced back, narrowing the poll lead of the Conservatives to single digits thanks to favorable publicity at home and abroad for his widely-copied bank bailout package.

But like Germany, Britain's economic outlook is bleak. Once the full impact of the downturn becomes clear, Brown could be more vulnerable to opposition accusations that he set the foundations for the current crisis by mismanaging the economy during his lengthy tenure as finance minister.

"Policy mistakes were made and the Conservatives will hammer on this," said Wyn Grant, a politics professor at Warwick University. "Clearly we're heading into a long, deep recession. Those people who are adversely affected, lose their jobs or have their houses repossessed, are unlikely to vote Labor."