Sluggish growth hurts Merkel.

via Real time brussels, The Wall Street Journal Online's site for news and analysis on the European Union.

By Matthew Dalton

It's supposed to be good to live in Germany right now. The unemployment rate is lower than it was before the crisis. Yes, the global economy is headed for a soft patch, but German GDP growth last year, a moderate 3.5%, was the second-highest rate since 1991.

Why then are Germans unhappy with their political leadership? Angela Merkel's Christian Democrats have lost elections in Hamburg and the state of Baden-Wuerttemberg this year. Her party and its Bavarian sister party, the Christian Social Union, face low approval ratings, as they have for the last two years.

The answer, according to political economists at the University of Braunschweig, is that Germany's economic performance is actually dragging on Ms. Merkel's popularity. The after-tax income of the average German, adjusted for inflation, fell sharply during the worst of the economic crisis in 2009, and it has been growing only moderately since. This measure--the growth-rate of real, per capita, disposable income --does a remarkably good job of predicting electoral outcomes in many countries, Germany included.

Braunschweig Thursday sent us its most recent version of its Government Performance Index, based on newly-released data from the German government on disposable (after-tax) income for the second quarter. The index fell in the second quarter to -2.39 from -2.07 in the first quarter, meaning the economy would cost her coalition that many percentage points of the vote if an election were held today.

"The only-moderate economic growth of the German economy in the 2nd quarter and rising energy prices contribute significantly to the negative appraisal of the German government's economic performance," the university said in a statement.

Disposable income adjusted for inflation fell 1.15% in the quarter compared to the period a year ago. It was hit hard by higher energy prices.

Ms. Merkel's unpopularity has consequences for the euro zone. There's the widespread feeling that she is being punished by voters for bailing out Greece, Ireland and Portugal. That has surely made her oppose more decisive policies to keep Spain and Italy out of the crisis. And it has also encouraged the German parliament to resist changes to the bailout programs she signed up for at the euro-zone summit in July.

But the GPI suggests skepticism that this is the sole explanation of her unpopularity. If the German government were doing a better job delivering strong disposable income growth, then it's likely Ms. Merkel would be significantly more popular -- and have more political latitude to sign Germany up for bailouts.

Is there relief on the horizon for Ms. Merkel? With growth in the third quarter looking even weaker than in the second, it's possible the GPI will fall further in the quarters to come.