Merkel's New Finance Chief Is Dubbed Fiscal Hawk in Berlin Debut

(Bloomberg) -- Germany’s designated Finance Minister Olaf Scholz is a middle-of-the-road pragmatist much like Chancellor Angela Merkel, but his party’s demand for bold steps to strengthen the euro area risks leading to conflict.

Scholz, mayor of Hamburg and acting head of Germany’s Social Democrats, is about to be thrust to the center of the debate about Europe’s future and attempts by leaders in Berlin and Paris to work out a road map. SPD leaders presented Scholz on Friday among their cabinet picks for Merkel’s fourth term.

While Scholz, 59, has revealed little about his stance on euro-area reforms, that may help him keep his policy options open. Merkel grew to respect Scholz’s professionalism when he served as labor minister in her first cabinet, says a person familiar with his career, and he isn’t an unknown in Paris.

“My impression is that he’s a European by conviction,” said Najat Vallaud-Belkacem, who met Scholz when she was a minister under former French President Francois Hollande. “It will be interesting to see how much room to maneuver he’ll have in this government. He’s clearly an ally for greater integration within Europe.”

Balanced Budget

He’s also a budget hawk and a defender of the German labor-market and welfare overhaul that split the Social Democratic Party more than a decade ago. When Scholz shared a plane to Hamburg in 2014 with Emmanuel Macron, then French economy minister, he is said to have told his visitor how much the reforms benefited Germany.

Based on Scholz’s seven years as mayor of Germany’s second city, he stands for “budget discipline on the one hand and investment into education, research and infrastructure on the other,” Andrea Nahles, the SPD’s parliamentary caucus leader, told reporters in Berlin.

Scholz shares other bonds with Merkel: he’s convinced that policy is best made behind closed doors and wants the government to speak with one voice on Europe, said the person familiar with his background. Both are level-headed people, with Scholz, a labor lawyer by training, often needled by German comics for his stone-eyed monotone.

“You cannot push him into hectic and thoughtless decisions -- not even in times of crisis,” said Lothar Binding, an SPD lawmaker.

Last summer, Merkel stood up for Scholz after anti-capitalist protesters caused havoc in Hamburg during the Group of 20 summit, which she had wanted to host in the port city known as Germany’s trading gateway to the world.

ESM, Banks

Scholz’s nomination is one of the last pieces in Merkel’s cabinet before her inauguration next week. While the finance post offers a sizable stage, it’ll also be a lightning rod for coalition conflicts over European policy between the SPD, Merkel’s Christian Democratic Union and its Bavarian sister party.

Plans to reform the European Stability Mechanism, the financial backstop created in response the euro’s debt crisis, are likely to be an early battleground between the SPD and Merkel’s CDU-led bloc. Scholz’s approach to European banking union, where Germany is pushing back against calls for joint deposit insurance, will be another key test.

One wild card is the German government’s roughly 15 percent stake in Commerzbank AG, currently worth about 2.3 billion euros ($2.8 billion).

Speculation about a sale of the stake will resurface “at the very moment at which a new finance minister is nominated,” Joerg Rocholl, president of the Berlin-based business school ESMT and an adviser to the finance ministry, said by email.

That may put pressure on Scholz to decide whether it’s time to sell. As Hamburg mayor, he had a hand in the forced sale of the city’s stake in regional lender HSH Nordbank to investors including private-equity firm Cerberus.

‘Pragmatist, Realist’

For all of Scholz’s credentials, senior members of Merkel’s party bloc are putting her on notice after she gave up the CDU’s eight-year hold on the finance ministry as part of a coalition deal with the Social Democrats in February.

“We hope that he sticks to a balanced budget at home and controls spending in Europe,” said Eckhardt Rehberg, a CDU budget lawmaker. “We expect Scholz to be a pragmatist and realist in European policy.”

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