Olaf Scholz, Germany’s finance minister, pauses at the German Foundation of Family Businesses conference in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

Merkel's Biggest German Ally Could One Day Be Her Biggest Threat

(Bloomberg) -- In Germany’s year of political turmoil, Finance Minister Olaf Scholz is emerging as a surprise winner.

With his pro-European convictions and even-keeled presence, the Social Democrat gained stature during Chancellor Angela Merkel’s recent infighting with her party bloc’s nationalists over migration. Scholz, 60, has pulled ahead of Merkel and now is Germany’s most popular politician, having stood aside and presented himself as a stabilizing force during the coalition crisis.

Merkel's Biggest German Ally Could One Day Be Her Biggest Threat

It doesn’t hurt that he’s a budget hawk much like Wolfgang Schaeuble, his Christian Democratic predecessor, and shares Merkel’s focus on working with France to hold the European Union together. While that makes Scholz one of the chancellor’s most valuable allies, his poll surge also establishes him as a likely contender for her job down the road.

“Scholz isn’t a target of anger as Merkel is for her migration policy,” Manfred Guellner, head of the Forsa polling company in Berlin, said by phone. Instead, “he’s popular because he is seen as the guarantor of a solid budget.”

G-20 Debut

Scholz, who’s also deputy chancellor, had broad public backing for taking that stance to his first Group of 20 finance chiefs’ meeting in Buenos Aires over the weekend. A labor lawyer by training, Scholz served in Merkel’s first-term cabinet and for seven years as mayor of Hamburg, Germany’s biggest port and second-biggest city.

Germans appear to appreciate his emotional restraint, political pragmatism and preference for making policy behind closed doors -- traits he shares with Merkel.

When Merkel’s parliamentary majority teetered in early July, it fell to Scholz to urge her Christian Democratic Union and its Bavarian allies to stop squabbling about asylum rules, avoid a risky early election and get back to work for the sake of the country.

His deadpan understatement is so well-known to Germans that Scholz was ribbed on a talk show for describing Merkel’s worst coalition crisis yet as “remarkable to put it mildly.” Those were strong words coming from Scholz, the host quipped, making everyone on stage crack up.

‘Male Merkel’

Scholz’s steady hand is a key asset while Merkel’s popularity suffers from her party bloc’s strife. Once dubbed a “male Merkel” by a columnist, he overtook the chancellor in a poll of highly-rated German politicians in June and reached the top spot in the latest survey published on July 13, according to polling company FG Wahlen.

As the SPD regroups from its biggest defeat since World War II in last year’s national election, Scholz’s popularity increasingly positions him as the party’s next candidate for the chancellorship, according to two people familiar with views inside the party who asked not to be identified. Scholz hasn’t revealed any plans publicly and his office declined to comment.

Other potential Social Democrat contenders include party head Andrea Nahles and Foreign Minister Heiko Maas. The next regular election is due in 2021.

Euro Breakthrough

Scholz’s first four months on the job include real breakthroughs. In four late-night meetings in June, he and French Finance Minister Bruno Le Maire hammered out a deal to create a euro-area budget, clearing the way for Merkel and Emmanuel Macron to present a joint blueprint on EU reform.

While the plan has been blocked so far by a Dutch-led group of euro members leery of pooling more financial risks, the agreement made the German-French axis stronger than ever, German Economy Minister Peter Altmaier, a Merkel confidant, said last week.

At home, Scholz is sticking with Schaeuble’s fiscal rigor, banishing any notion that an SPD-led finance ministry would turn to deficit spending. Europe’s biggest economy now plans to run balanced budgets at least through 2022.

Meanwhile, the one-time labor minister put his party’s stamp on next year’s draft budget. The biggest share of government spending increases, 38 percent, is earmarked for job-market and social programs.

Against Populists

Like Merkel, Scholz is more popular than his party. While polls suggest that support for both the CDU-led bloc and the SPD is hovering around postwar lows, it’s the Social Democrats who really have their work cut out to get back into contention for the chancellery.

Merkel’s bloc declined 2.5 percentage points to 33 percent and the SPD fell 1 point to 20 percent in a monthly Allensbach poll published Tuesday. The far-right, anti-immigration Alternative for Germany party polled 15 percent, a 2-point gain.

That populist challenge gives Scholz a key role in holding Germany’s political center.

“He comes across as calm and competent without fundamentally shifting German positions,” said Holger Schmieding, chief economist at Berenberg bank. “It makes him a suitable candidate for chancellor.”

©2018 Bloomberg L.P.