The Strategist

Will Merkel jettison Schaeuble?

09/26/2017 - 14:43

It will be difficult for Chancellor Angela Merkel to form coalition of the ruling conservative party CSU / CDU, free Democrats and "Greens" in the Bundestag. Viability of such an untypical for Germany association will depend on readiness of Merkel’s CSU/CDU party to compromise when forming a new Cabinet. European political analysts warn that one of the key politicians of the euro zone and the current German Finance Minister Wolfgang Schaeuble can become a victim in this scenario.

Armin Kübelbeck
Armin Kübelbeck
The outcome of the elections to the Bundestag can be a very tangible loss not only for the German economy, but for the entire euro area. According to CNBC, Germany's Finance Minister Wolfgang Schaeuble, known as a supporter of austerity and one of Angela Merkel’s closest allies, may lose his post in the government.

Schauble is one of luminaries of the political Olympus of Germany. He was the right hand of Helmut Kohl, participated in negotiations on the reunification of Germany, advocated the unity of Europe. A lawyer by education, a member of the Christian Democratic Union party and one of the closest associates of Angela Merkel, he has been the minister of finance since 2009, influencing not only the development of Germany, but also the entire economic policy of the eurozone.

In the Bundestag elections, the faction of the Christian-Social and Christian Democratic Union (CSU/CDU) and their closest rivals, the Social Democratic Party of Germany (SPD), showed their worst results, receiving 246 (33% of votes) and 153 (20 , 5%) seats in the parliament. After that, the Social Democrats said they would not take part in the coalition with the conservatives. More even, they are going to step back to the opposition.

To form a new cabinet, the factions of Angela Merkel will have to unite with the liberal Free Democratic Party (10.7% of the vote and 80 seats in the Bundestag) and the Green Party (8.9% of the vote and 67 seats), which will share ministerial portfolios.

Traditionally, Chancellor is chosen by the party that has won the most votes. In this situation, free Democrats can get an opportunity to choose their Minister of Finance and put an end to the Schaeuble era.

"Wolfgang Schaeuble is a man of compromise, and a compromise lies at the heart of democracy," Jean-Claude Juncker noted on the eve of the German elections, calling Head of the Treasury of Germany "a man of decisions."

End of the Schaeuble era would be a "watershed for the entire euro area," ING's chief economist Carsten Brzeski told CNN. Leaving the post of one of the main heroes of saving the eurozone from the crisis clearly means the end of the historical chapter, the expert is sure.

Schaeuble is consistently in favor of deep European integration and actively participates in the discussion of the idea of the euro zone's general budget. At the same time, he is opposed to saving the Greek economy at any cost. According to the minister, the country should carry out reforms in order to become competitive, or to leave the euro area.

In one of his interviews, Schaeuble, when asked about his tough position on Greece, said: "My grandmother said: kindness is worse than debauchery. It happens that generosity can lead to a result quite the opposite of what is expected. "

In August, German newspaper Bild reported that Schaeuble intends to reform the existing European Stability Mechanism (ESM) in order to play a more active role in preventing crises in the region.

After the assassination attempt in 1990, Schaeuble was partially paralyzed and confined to a wheelchair, which did not stop him from continuing his successful political career. When asked how he could hold responsible positions in government with such health problems, he answered sharply:

"In fact, all people are disabled. But we, the disabled, have an advantage: we know about our physical deficiency", - he said in an interview with Focus magazine.

The economy of Germany itself is currently on the rise. GDP in the second quarter increased by 0.6%, real incomes of the population went up by 1.2%. Unemployment is at one of the lowest levels in Europe (3.8%). In terms of exports, Germany is in third place after China and the United States.

Eurostat’s data show that Germany is the only large European country that maintains the budget balance even in times of crisis and post-crisis phenomena. The surplus of the German budget for the first six months of 2017 amounted to 18.3 billion euros, which is the largest indicator since the unification of the country.

"Very few people can be called as an alternative to Schaeuble, at least from the point of view of individual politicians. None of those who really comes to mind can make a worthy competition to him," CNBC quoted Carsten Nickel, a managing director at Teneo Intelligence. It is possible that Schaeuble will remain the Minister of Finance.