The result of the German election was known within minutes of the polls closing on 26 September. But the kind of government that will emerge is being decided now, behind closed doors, in intense three-way coalition negotiations. With the Christian Democratic Union (CDU)/Christian Social Union (CSU) humiliated by a defeat of unprecedented magnitude, Olaf Scholz of the Social Democratic party (SPD) is the clear favourite to succeed Angela Merkel at the chancellery.
The real question is the balance of power between the SPD’s two coalition partners, the Greens and the Free Democratic party (FDP). A key issue in those negotiations is who gets the job at the Finance Ministry. The politicians concerned may be unknown outside of Germany, and the battle over who controls the purse strings may not seem glamorous. But it will, in fact, decide the prospects not just of Germany’s next government, but of Europe.
Both the FDP and the Greens want the finance ministry job. Indeed, in the course of the campaign, FDP leader Christian Lindner made it into a headline issue, warning voters that the choice was between him and Robert Habeck, the Green party chairman and chief architect of the traffic-light coalition.
The FDP and Greens are, in some ways, similar. They are the two parties that contend for young people’s votes. Both take a strong line on civil liberties and have little time for accommodation with Russia and China. Both want to modernise Germany’s creaking infrastructure, especially when it comes to tech. But on climate, the Greens are far more serious than the FDP. The two parties also differ on social and economic policy – and they differ, too, on Europe.
Lindner and the FDP stand for low taxes, debt limitation and a hard line towards Germany’s European partners. The climate crisis is to be addressed by private investment and carbon pricing. The Greens, by contrast, have put climate first – and for that reason advocate large-scale investment, lifting Germany’s “debt brake”, and a pro-European policy that continues the steps taken in 2020 towards common, debt-financed investment policy. It is precisely in these policy areas – where the differences between the Greens (and the SPD) and the FDP are greatest – that the finance ministry is critical.
The German finance ministry matters, and not just to Germany. In Merkel’s governments between 2009 and 2017, the post of finance minister was held by Wolfgang Schäuble. He became notorious as the pacemaker of the eurozone crisis. His constant demands for austerity put debtor countries under huge pressure. At the climax of the crisis, in 2015, he went so far as to suggest that Greece take a “time out” from euro membership. Schäuble is a conviction politician. For him the rule of law – including European treaties and fiscal rules – is the embodiment of Europe’s highest ideals, the greatest achievement of western civilisation.
But beyond Schäuble’s personal convictions, there was also an inescapable political logic to his European power play. In Europe, a fiscal conservative at the helm of the German finance ministry has nowhere to hide. They have to show their colours. This, one must fear, would apply even more powerfully to Lindner as finance minister. Lindner has far less European conviction than Schäuble. His economic ideas are conservative banalities. But he is also a showman who will need to demonstrate that he and his party can stand up to his two more leftwing partners. It would be naive to imagine that he can be safely sandwiched between a powerful Scholz-led chancellery and an environmental super-ministry in the hands of the Greens.
Scholz himself has demonstrated what a difference a progressive, pro-European at the helm of the German finance ministry can make. He is no economist, but he surrounded himself with a forward-thinking, internationally minded team that has changed both the tone and content of German economic policy debate. The Scholz ministry accelerated public investment and pushed global tax reform. During the Covid crisis it spent on a lavish scale. Above all, he took seriously the fragility of the eurozone. Faced with the populist breakthrough in Italy in 2018, Scholz preserved a dignified silence, doing nothing to feed the indignation politics of Matteo Salvini and his rightwing nationalists. When the Covid crisis threatened to blow the eurozone apart in the spring of 2020, Scholz pushed decisively for collaboration with the French, opening the door to the breakthrough of Next Generation EU.
The absence of crisis in Europe at the moment, the sense of purpose and constructive forward movement, the ability to focus on investment and climate policy, should not be taken for granted. It depends, critically, on holding a delicate balance within German politics and between Germany and the other major players in Europe. No one should be deceived about the importance of that balance. Europe’s recovery is still fragile. Europe’s debts are higher than before. The politics of eurozone governance is as unresolved as ever.
Against this backdrop, the prospect of Lindner at the German finance ministry should be ominous. FDP finance experts insist loudly that both Germany and Europe should return as quickly as possible to the debt limitation rules that prevailed before the Covid crisis. For Germany, that may be doable. The SPD and the Greens might even agree to it, if the FDP accepts large-scale investment through off-balance-sheet public banks. For Europe, any such programme would be ruinous. Sixty percent of the citizens of the eurozone live in countries where the debt to GDP ratio is now more than 100%. In Italy, it is more than 150% of GDP. Under those conditions, to force a return to the criteria of the Maastricht era, requiring debts to be reduced until they reach 60% of GDP, would be a disaster. It would hobble any public investment in the green transition and would provoke a populist backlash, starting in Italy.
The tinder for a conflagration is in place. Eight European governments have already called for a conservative consolidation of Europe’s finances, starting in 2022. They are small states. Whether they prevail depends on the stand taken by Germany.
With power seemingly within its grasp, the SPD may be tempted to grant the FDP its wish and hand the finance ministry to Lindner. The Scholz team may feel that they can call the shots from the chancellery. The FDP is seeking to generate momentum behind the idea that the finance position is theirs for the asking. To grant its wish would be to take a dangerous gamble. A conservative in the German finance ministry is a systemic risk for Europe. And, as even Angela Merkel discovered, it is very difficult for Berlin to make concerted policy if Europe has descended into crisis.
Adam Tooze is a professor of history at Columbia University. His latest book is Shutdown: How Covid Shook the World’s Economy
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