German Budget Hawk Survives Under Scholz to Check Spending Hopes

(Bloomberg) -- German Chancellor Olaf Scholz was elected on promises of economic renewal and calls to loosen up the country’s tradition of tight spending. Instead, a key defender of fiscal discipline will continue to manage the government’s budget.

Werner Gatzer, Germany’s most powerful civil servant, has been retained as a deputy finance minister, a title that underplays his importance in deciding how much and where the federal government spends. 

For some 15 years, the behind-the-scenes power player has orchestrated Germany’s balanced-budget policy -- known as the “black zero” -- fending off efforts by elected officials and government ministers to channel money into pet projects. 

The career bureaucrat has even rebuffed Scholz. In 2015, the then mayor of Hamburg sought billions of euros in federal funds for a bid to host the Olympics, but Gatzer traveled to the port city to inform Scholz his request wouldn’t be granted. 

Gatzer’s latest handiwork is evident in a supplemental budget for 2021 that passed cabinet on Monday and is due to be approved by German parliament on Wednesday. The plan foresees 60 billion euros ($68 billion) to create a fiscal buffer for climate spending for the coming years without additional debt. 

In the course of its budget management, the country might even borrow less than the 240 billion euros it had planned this year, Christian Lindner, the government’s new finance minister, said on Monday. 

While the climate fund provides an initial boost for the country’s environmental ambitions, the Greens -- one of Scholz’s coalition partners -- campaigned for 50 billion euros a year in fighting climate change, a goal they’ll struggle to achieve with Gatzer in charge of spending.

Gatzer and Lindner -- head of market-oriented Free Democrats, the second junior partner to Scholz’s Social Democrats -- are in agreement that instead of expanding the budget, there’s room to cut programs to free up money for new projects, according to people familiar with their thinking. 

When Wolfgang Schaeuble was finance minister from 2009 to 2017, Gatzer played a key role in establishing Germany’s so-called black-zero policy of balanced budgets. He briefly left his post to take an executive role at state-owned rail company Deutsche Bahn AG, but he returned to the ministry to continue to run the German budget after Scholz was appointed finance minister in 2018.

Gatzer -- a trained lawyer who briefly flirted with the idea of becoming a veterinarian -- has set up a system in which every year ministers come to him to present their wish lists, and every year he blocks anything that overshoots their allotment. 

©2021 Bloomberg L.P.