(BBG) Why Germany’s Shakeup Won’t Help Greece

(BBG) Finance Minister Wolfgang Schaeuble is on the way out. His replacement could prove even tougher.

Cash flow.

Photographer: Kostas Tsironis/Bloomberg

Those cheering the looming departure of Wolfgang Schaeuble from the German Ministry of Finance should hold the champagne. His successor may not be as ornery, but southern Europeans — and above all Greeks — shouldn’t expect any better treatment.

Schaeuble has held a wide range of positions since he was first elected to the German parliament in 1972; he’s been interior minister, chief of staff to the chancellor and the leader of the Christian Democratic Union, the party now headed by Chancellor Angela Merkel; he nearly became president at one point and chancellor at another. Only one of his post-World War II predecessors at the Ministry of Finance has served longer than his eight years, and not by much. But Schaeuble has always served his party in whatever position it could offer, and he’ll still be a formidable figure as speaker of the parliament, formally the second most senior office-holder in Germany after the president, just ahead of the chancellor.

Schaeuble’s protestant philosophy of political service is important for the understanding of his tenure as finance minister. Of course, it took personal conviction to steer his unwavering course of austerity, balanced budgets and respect for rules. Schaeuble was trained at the University of Freiburg, where ordoliberalism was developed in the 1930s through 1950s. This theory married a liberal, pro-market approach with a strong state, whose role is to maintain a high level of social security. Ordoliberalism has faded somewhat since the 1970s, but it still influences much of German economic thinking, and Schaeuble was close to its origins in his formative years. As finance minister late in his life, he tended to lean toward the “ordo” part. He once confessed to his brother: “The older I get and the more I see as finance minister, the more skeptical I get about capitalism.”

By and large, though, Schaeuble merely upheld his party’s long-standing political line, which was obvious long before he took up the finance minister’s job — as the economic foundations of the European Union and the euro area were being discussed. Markus Brunnermeier, Harold James and Jean-Pierre Landau described the “Rhine divide” between expansionist, pro-stimulus France and rules-loving Germany in their recent book, “The Euro and the Battle of Ideas.” More of a constitutional lawyer than an economist (although trained in economics, too), Schaeuble maintained continuity as best he could. His single-minded discipline has been his biggest asset to Merkel, whom he has served loyally though she had outmaneuvered him politically after Helmut Kohl was forced to give up party leadership in 1998.

This is not the end of the Schaeuble era in politics. This year, the parliament even changed the rules so he could open its first session after the election as the longest-serving member. Before, the oldest legislator got the honor, but in 2017, it would have been an Alternative for Germany (AfD) member — and the German establishment couldn’t allow it. It played the king of clubs: Schaeuble. Now that parliament includes an unruly group of nationalists elected from the AfD party and a Social Democratic faction that is determined to oppose Merkel, Schaeuble is in a better position to help the chancellor and the CDU. Keeping the debate in hand is suddenly important, and Schaeuble is a rock of fortitude, exuding a “natural authority,” as liberal Free Democratic Party leader Christian Lindner noted in a tweet supporting Schaeuble’s move.

That Merkel is willing to move Schaeuble out of the finance minister’s job shows the seriousness of her intention to build a stable coalition with the FDP and the Greens. But the finance ministry will likely go to the FDP, which won more votes in the election than the Greens, and made clear its ambition to secure the finance post even before the election campaign was over. Unfortunately for Greece and other southern European nations seeking financial help, the party’s potential candidates are likely to be as tight-fisted as Schaeuble. The FDP is not ordoliberal — it’s unabashedly neoliberal. It is firmly opposed to fiscal stimulus, debt write-offs, transfers of German money to neighboring countries, and budget deficits, and its opposition has less to do with continuity than Schaeuble’s was: It’s a matter of principle.

Schaeuble could be expected to look for compromise within the established rules. Setting up the European Stability Mechanism, for example, was such a compromise, allowing the transfer of financial reputation to the distressed economies without the straight transfer of taxpayer cash. The FDP dislikes the ESM, mistrusts it as a dishonest trick. Its leaders’ belief in capitalism is stronger than Schaeuble’s; their belief in solidarity is weaker. The FDP wants to go after EU countries that don’t stick to their fiscal commitments; Schaeuble was willing to give them a pass. Eurogroup partners knew Schaeuble was hard to please, but they got used to his acerbic style and figured out how to work with him. That may be more difficult with an FDP minister, who, at least initially, is likely to be more of a zealot than a tradition-keeper in the Schaeuble vein. It’s likely that southern Europeans will be nostalgic for Schaeuble soon enough.