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Analysis
Berlin shifts to social, European spending

Berlin shifts to social, European spending

German left gains control over Julius tower

by David Marsh in London

Thu 8 Feb 2018

Agreement on a new version of Chancellor Angela Merkel's German coalition will give the Social Democratic Party control over the finance ministry. This marks an unusual chance for the left-of-centre party to gain access to large-scale budgetary savings built up under the rigorous regime of Wolfgang Schäuble, the previous incumbent.

The SPD is in essence storming what Germans know as the Julius tower – the legendary, battle-scarred citadel in Spandau, now part of Berlin, which for 150 years has been a colloquial metaphor for surpluses amassed by the German treasury.

As a price for backing Merkel for another four years after September's inconclusive general election, the SPD has won support for extra social spending as well as funds for institutional reinforcement of economic and monetary union, under plans put forward by French President Emmanuel Macron. In view of hostility to central elements of EMU plans from two major opposition parties, the anti-euro Alternative for Germany and the liberal Free Democratic Party, Macron's proposals will not have an easy passage through the German parliament.

Under plans agreed by party negotiators on 7 February, the new finance minister will be Olaf Scholz, a centrist-leaning SPD politician who is mayor of Hamburg. He attracted complaints for presiding over ineffective policing in last year's violence-marred G20 summit in the city.

SPD participation in a new 'grand coalition' with Merkel's conservative Christian Democratic Union/Christian Social Union grouping is dependent on a nationwide poll among the SPD's 460,000 members in the next three weeks. This could be a delicate exercise in view of the distaste for another possibly lacklustre term in office among many grassroots SPD members. Disaffected left-wingers opposed to a grand coalition have signed up for SPD membership in large numbers to scupper the deal with Merkel.

Scholz will profit from excess budgetary reserves – which some put as high as €60bn – built up during the Schäuble era of tight budgets, low interest rates and buoyant tax receipts. The SPD hopes that taking over the finance ministry – in addition to the foreign ministry, which will be run by Martin Schulz, the widely criticised SPD leader, who will now stand down from this position – it will gain favour from party members. Schulz has called for creation of a so-called United States of Europe by 2025, but his ultra-Europeanism is opposed by many in his party as well as the political right.

Schäuble's brand of plain-talking, quixotic humour and budgetary rigour has made him one of Germany's best-respected politicians. However, it would be unwise to rely on the finance ministry automatically bringing the SPD extra political kudos.

The SPD has held the finance ministry on nine occasions during the 69 years since the Federal Republic was formed in 1949. However, these periods – in 1969-82 and 1998-2009 – have lasted only 24 years, and have frequently been punctuated by economic upheaval in which SPD finance ministers have become bywords for unpopularity. A similar fate could befall Scholz if in coming years the German and European economic recoveries falter and European unity plans come unstuck.

David Marsh is Chairman of OMFIF.

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