Olaf Scholz Could Be the First Casualty of Germany’s Crisis

(Bloomberg Opinion) -- Germany’s government crisis may or may not cost Chancellor Angela Merkel her job. But it’s much likelier to claim the vice chancellor’s.

Olaf Scholz, Germany’s finance minister and Merkel’s deputy, is the most obvious victim of the Social Democrats’ surprise leadership vote last weekend, in which two leftists were elected as the party’s co-leaders. That unexpected result has destabilized the SPD’s ruling coalition with Merkel’s Christian Democrats and may yet lead to a full-blown government crisis.

Scholz had been the favorite heading in. As the results were announced on Nov. 30, his face turned ashen. A moderate who’s deemed conservative in the SPD, he had been fixing his career sights on the chancellery. That was always unlikely, given the SPD’s seemingly unstoppable decline. But in polls he topped some potential conservative opponents.

One reason for his popularity among the general electorate is that Scholz voluntarily wears a ball and chain around his ankle called the “black zero.” The black zero is German jargon for a balanced budget. But it’s more than that: It’s also a creed of fiscal rectitude adopted by the country’s center-right. These days, the Christian Democrats, with laudable self-awareness, gloat that the black zero is their “fetish.” Running deficits, by contrast, is supposed to be what irresponsible lefties do.

So Scholz set out to prove them wrong. A former mayor of Hamburg who has made a career out of selling his own drabness as Hanseatic understatement, he became an ardent defender of the black zero. Again and again, he has stared down critics domestic and foreign, from Brussels to the IMF to the ECB, and insisted that Germany wouldn’t budge. His federal accounts this year will show a surplus; his budget for next year (thankfully passed the day before the SPD’s leadership surprise) will be balanced.

Scholz and his running mate had made three commitments to the SPD’s members. By clinging to the black zero, they would hold the political center in a general election. By serving out the coalition with Merkel’s conservatives, they’d prove that the SPD is trustworthy. And by doing both, they’d rescue the party.

But Scholz didn’t notice just how livid the party’s base was. A bit like Britain’s Labour under the paleo-Marxist opposition leader Jeremy Corbyn, or American supporters of Senator Elizabeth Warren, many German Social Democrats are baying to veer left. During the leadership debates, even Scholz found himself calling for a wealth tax, which he privately considers unworkable. The party’s members didn’t buy his late conversion. When the SPD’s elites openly plumped for Scholz, the rank and file got madder still. So they chose two hitherto obscure left-wingers, Saskia Esken and Norbert Walter-Borjans. 

Fearing the sort of internecine strife for which the SPD is known, Esken and Walter-Borjans are now going out of their way to offer an olive branch to Scholz. They can’t imagine why he should have to quit as finance minister, they said, almost convincingly, on a TV talk show.

At the same time, Esken and Walter-Borjans must now navigate political white water. They had run on the promise to quit the coalition with Merkel’s conservatives. That would actually be a lengthy process in Germany, and politically risky for the SPD. So the party must first be seen to seek good-faith negotiations with its coalition partners.

Exactly what demands the SPD will make is up to a party convention this weekend. But Esken and Walter-Borjans have already mentioned three changes: raising the minimum wage, hiking the price on carbon in Germany’s pending climate-change legislation, and, most importantly, burying the black zero to make way for an investment bonanza, worth about half a trillion euros over a decade.

You see the problem for Scholz. How is he supposed to comport himself during these coalition negotiations, as simultaneously a Social Democratic cadre and a black-zero finance minister? Even if Merkel’s bloc agreed to end the black zero (and that’s unlikely), could Scholz just carry on in his job, now spending freely, as though nothing had happened?

To salvage his credibility, he may decide to fall on his sword. What would that mean for German policy? After all, aside from his rigidity on the black zero, Scholz recently signaled flexibility in another controversy, suggesting that he could under certain conditions accept a joint deposit-insurance scheme for banks in the euro area. (Even then, he hid the devils in the details.)

The answer is: It’s not clear. If the coalition survives, another Social Democrat would take Scholz’s place. That person could be more forthcoming toward Germany’s European partners. But Merkel and her conservatives would still be around as chaperones, so the change might not even be noticeable.

And if the coalition fails, the conservatives would probably stay on in a minority government, at least for a while. They would then take all ministries, and finance could go to a hawk. With or without Scholz, Germany’s not quite ready to budge yet.

To contact the editor responsible for this story: Timothy Lavin at tlavin1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andreas Kluth is a member of Bloomberg's editorial board. He was previously editor in chief of Handelsblatt Global and a writer for the Economist.

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