German arguments over next finance minister echo beyond its borders

Arguments over jobs in Europe’s ever-changing coalition governments are nothing the outside world usually cares…

Arguments over jobs in Europe’s ever-changing coalition governments are nothing the outside world usually cares about. But the job of German finance minister seems to be everyone’s business.

Over the past decade the custodian of Germany’s public finances has wielded power far beyond the country’s borders, shaping the EU’s response to everything from the Greek debt crisis to the Covid-19 pandemic. At home, the person is second only to the chancellor in political power.

That explains why all eyes are on who Germany’s next finance tsar will be. “The last 20 years have shown that this is a pivotal position when it comes to the EU’s financial architecture,” said Lucas Guttenberg, deputy director of the Delors Centre in Berlin. “It’s no wonder it attracts so much international attention.”

Germany’s next government will be a three-party coalition led by the country’s current finance minister, the Social Democrat Olaf Scholz. Most political observers expect his successor to be Christian Lindner, leader of the liberal Free Democrats (FDP). But the prospect of such a fiscal hawk assuming one of the most influential roles in the eurozone is causing nervousness.

Last week Joseph Stiglitz and Adam Tooze, well-known economists at Columbia University in the US, published an article in a leading German weekly warning of the consequences of Lindner’s insistence that Europe and Germany revert to the strict rules on debt that adhered before the pandemic.

“For his own sake, Lindner should be spared the mission impossible of applying his antediluvian fiscal agenda to today’s financial situation,” they wrote in Die Zeit. “It is a crash test neither Germany nor Europe can afford.”

They said the finance job should go instead to the Greens, who in any case performed better than the FDP in September’s election. “As the Greens must realise, there can be no serious climate policy without control of the Finance Ministry,” they said.

Lindner was quick to retaliate. “Some kinds of criticism must be seen as confirmation of one’s own positions,” he wrote on Instagram, slamming Stiglitz and Tooze as “economists of debt” and reiterating his commitment to “sound public finances”, both in Germany and Europe.

There was also criticism of Stiglitz and Tooze’s intervention from economists in Germany. Clemens Fuest, head of the Ifo Institute, the Munich-based think-tank, called the comment piece “extremely one-sided and misleading”.

“The message is: spend more money and save the world,” he said. “That’s just wrong . . . Expansive fiscal policy is right in a world with spare capacity, but right now, capacity is tight, there is a shortage of skilled workers and supply problems. They’re living in a world of yesterday.”

Lindner, right, with current finance minister Olaf Scholz and co-leaders of the Greens Robert Habeck and Annalena Baerbock © Liesa Johannssen-Koppitz/Bloomberg

It is unsurprising, though, that the question of who will — or should — be Germany’s next finance minister is under such scrutiny, considering the influence wielded by previous holders of the job.

Wolfgang Schäuble, who held the job for eight years under outgoing chancellor Angela Merkel, became a household name and a hate figure in southern Europe thanks to his advocacy of austerity during the eurozone crisis — a policy that some critics say slowed the economic recovery.

And the FDP leader has made no bones about his adherence to German “ordoliberal” orthodoxy. Before September’s national election he said the FDP would not join any coalition government that planned to raise taxes or change the “debt brake”, Germany’s constitutional cap on new borrowing.

In an interview with the Financial Times he said it was time for Europe to stop its coronavirus-related spending splurge. “Pressing on with an ultra-expansionary fiscal policy for Europe would be a big danger,” he said.

It is no wonder that Lindner is viewed with such scepticism in large parts of Europe, especially France and Italy. Emmanuel Macron said of Merkel before the last Bundestag election in 2017: “If she teams up with the liberals, I’m dead.”

So far, the FDP seems to be getting its way in the coalition talks, at least when it comes to fiscal policy. The three partners have already said they will leave the debt brake intact. They have also agreed not to increase income tax or introduce a wealth tax — a key demand of the Greens and SPD.

Many Greens have not yet given up hope of gaining the finance ministry. Jürgen Trittin, a Green MP and former environment minister, said his party had a stronger claim to the job than the FDP after winning more votes in September’s election.

“If the strongest party gets the chancellery, then the second strongest party traditionally gets the finance ministry,” he said.

Trittin said Robert Habeck, the Greens’ co-leader who played a key role in drafting its financial policies, was “highly qualified” for the post. Habeck himself has stressed there were Green finance ministers in three of Germany’s 16 regions, and “we keep house there in a highly responsible way”.

For the FDP, though, the stakes are perhaps higher. Party veterans recall its strategic mistake in 2009 when it campaigned on an ambitious tax reform but then failed to land the finance ministry after the election.

Its proposals were never implemented and it lost so much support that it failed to make it into the Bundestag in 2013. “We learned our lesson from that,” said one senior FDP MP. “The choice of ministry must correspond to your election manifesto.”

The MP said not getting the finance ministry would be a deal-breaker for the FDP. “It would be a huge loss of face for the party,” he said. “Politically, we just can’t do without it.”

https://www.ft.com/content/8edcb755-b05a-4ee4-940c-f3660d4240c5