The future of Europe is at stake in the fight for the German Ministry of Finance

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The German election result was known a few minutes after the polls closed on September 26th. But the type of government that will emerge is decided now, behind closed doors, in intense three-party coalition negotiations. With the Christian Democratic Union (CDU) / Christian Social Union (CSU) humbled by a defeat of unprecedented magnitude, Olaf Scholz of the Social Democratic Party (SPD) is the big favorite to succeed Angela Merkel at the chancellery.

The real question is that of the balance of power between the two coalition partners of the SPD, the Greens and the Free Democratic Party (FDP). A key question in these negotiations is who gets the job at the Ministry of Finance. The politicians involved may be unknown outside of Germany, and the battle over who controls the purse strings may not seem glamorous. But that will in fact decide the prospects not only of the next German government, but of Europe.

The FDP and the Greens both want the post in the finance ministry. Indeed, during the campaign, FDP leader Christian Lindner grabbed the headlines, warning voters that the choice was between him and Robert Habeck, the chairman of the Green Party and chief architect of the Fire Coalition. circulation.

The FDP and the Greens are, in some ways, similar. It is the two parties that are vying for the voices of young people. The two take a tough stance on civil liberties and have little time to come to terms with Russia and China. Both want to modernize Germany’s creaky infrastructure, especially when it comes to technology. But on the climate, the Greens are much more serious than the FDP. The two parties also differ on social and economic policy – and they also differ on Europe.

Lindner and the FDP defend low taxes, debt limitation and a hard line to Germany’s European partners. The climate crisis must be addressed through private investment and carbon pricing. The Greens, on the other hand, have brought the climate to the fore – and for this reason, are arguing for large-scale investment, the lifting of Germany’s ‘debt brake’ and a pro policy. -European which continues the measures taken in 2020 towards a common investment policy financed by debt. It is precisely in these policy areas – where the differences between the Greens (and the SPD) and the FDP are most important – that the finance ministry is critical.

The German finance ministry matters, and not just for Germany. In the Merkel governments between 2009 and 2017, the post of finance minister was held by Wolfgang Schäuble. He became known as the stimulator of the Eurozone crisis. Its constant demands for austerity put debtor countries under enormous pressure. At the height of the crisis, in 2015, he went so far as to suggest that Greece take a “time out” from euro membership. Schäuble is a convinced politician. For him, the rule of law – including European treaties and tax rules – is the embodiment of Europe’s highest ideals, the greatest achievement of Western civilization.

But beyond Schäuble’s personal convictions, there was also an inescapable political logic in his European power game. In Europe, a fiscal conservative at the head of the German finance ministry has nowhere to hide. They must show their colors. This, it is to be feared, would apply even more strongly to Lindner as Minister of Finance. Lindner has much less European convictions than Schäuble. His economic ideas are conservative banalities. But he is also a showman who will have to demonstrate that he and his party can stand up to his two other left partners. It would be naïve to imagine that it can be safely sandwiched between a powerful chancellery led by Scholz and a Green-handed super-ministry for the environment.

Scholz himself has demonstrated the difference a pro-European progressive at the head of the German finance ministry can make. He is not an economist, but he has surrounded himself with a forward-looking and internationally-oriented team that has changed both the tone and the content of the German economic policy debate. The Scholz ministry has stepped up public investment and pushed for global tax reform. During the Covid crisis, he spent on a lavish scale. Above all, he took the fragility of the euro zone seriously. Faced with the populist breakthrough in Italy in 2018, Scholz has maintained a dignified silence, doing nothing to fuel the policy of outrage of Matteo Salvini and his right-wing nationalists. When the Covid crisis threatened to burst the eurozone in the spring of 2020, Scholz decisively pushed for collaboration with the French, opening the door to the breakthrough of Next Generation EU.

The absence of a crisis in Europe today, the sense of purpose and constructive progress, the ability to focus on investment and climate policy, should not be taken for granted. This critically depends on maintaining a delicate balance within German politics and between Germany and the other major players in Europe. No one should be mistaken about the importance of this balance. Europe’s recovery is still fragile. Europe’s debts are higher than before. The governance policy of the euro zone is still unresolved.

Against this background, Lindner’s prospect at the German finance ministry should be worrying. FDP financial experts insist loud and clear that both Germany and Europe return as quickly as possible to the debt limitation rules that prevailed before the Covid crisis. For Germany, it may be feasible. The SPD and the Greens could even agree to it, if the FDP accepts large-scale investments via off-balance sheet public banks. For Europe, such a program would be ruinous. Sixty percent of euro area citizens live in countries where the debt-to-GDP ratio is now above 100%. In Italy, it is more than 150% of the GDP. Under these conditions, forcing a return to the criteria of the Maastricht era, requiring debt reduction to reach 60% of GDP, would be a disaster. It would hamper any public investment in the green transition and provoke a populist backlash, starting with Italy.

Tinder for a conflagration is in place. Eight European governments have already called for a conservative consolidation of European finances, from 2022. They are small states. Their victory depends on the position of Germany.

With power seemingly within its grasp, the SPD may be tempted to grant its wish to the FDP and hand the finance ministry over to Lindner. Scholz’s team may think they can call the Chancellery blows. The FDP seeks to generate momentum behind the idea that the financial position is theirs to demand it. It would be a dangerous bet to grant his wish. A conservative at the German finance ministry is a systemic risk for Europe. And, as even Angela Merkel discovered, it is very difficult for Berlin to conduct a concerted policy if Europe is in crisis.


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