Germany’s Olaf Scholz on Track to Succeed Angela Merkel as Chancellor
Germany’s Olaf Scholz is on course to succeed Angela Merkel as chancellor after the victors of the September election reached a policy agreement focused on overhauling the country’s economy, investing in infrastructure and combating climate change, people involved in the negotiations said.
Under the policy program—which Mr. Scholz’s center-left Social Democrats, the environmentalist Greens and the pro-business Free Democratic Party are set to unveil on Wednesday afternoon—the country’s first three-party coalition would also aim to update the country’s patchy digital infrastructure and drive greater integration of the European Union.
Before Mr. Scholz can be elected chancellor by parliament, likely in early December, the coalition agreement must be endorsed by the three parties’ executive bodies or their members.
If this happens, which most political analysts expect, Mr. Scholz’s government would take office as the country faces a number of challenges, including a resurgence of Covid-19 infections that is causing more hospitalizations and deaths; a combined shortage of skilled labor, raw materials and parts that has hit the country’s key manufacturing sector; and the highest inflation rate in decades.
The three-way coalition’s investment program will be partly financed by debt, marking a departure from the fiscal orthodoxy of the Merkel era and its insistence on balanced budgets. While the departing government, in which Mr. Scholz is finance minister, has borrowed heavily to cover the economic costs of the pandemic, Mr. Scholz’s aides said his government would use debt to fuel growth.
Mr. Scholz is a veteran politician whose popularity has risen during the pandemic. He served twice as minister during Ms. Merkel’s 16-year reign, the first time between 2007 and 2009, when he was in charge of labor and social affairs and helped shape Germany’s successful response to the financial crisis. He became finance minister and vice chancellor in 2018, and has since played a key role in shielding Germany’s economy from the fallout from the pandemic, as well as in drafting a massive investment fund designed to help the EU’s ailing economies emerge from the disruption caused by the virus.
A partner in a law firm he helped set up, Mr. Scholz served as mayor of his native Hamburg between the two stints in the federal government.
Under Mr. Scholz, Germany’s Finance Ministry was transformed from an intellectual bastion of fiscal austerity to one more accepting of borrowing as a source of funding—especially given the negative borrowing costs Germany currently enjoys.
Following an initiative largely driven by Mr. Scholz, the EU agreed for the first time in 2020 to issue large amounts of common debt to finance the coronavirus recovery. Mr. Scholz has compared his efforts to achieve closer fiscal integration of the EU to those of Alexander Hamilton, who introduced the ability of the federal states to issue common debt—a step favored by the now designated German chancellor.
Key ministerial posts will be divided among the three partners: FDP leader Christian Lindner will become finance minister; the co-chair of the Greens, Robert Habeck, will head an expanded Economy Ministry with oversight over climate and energy policy; and his ally, Annalena Baerbock, will become Germany’s first female foreign minister, according to the people familiar with the talks.
Germany’s foreign relations, which have traditionally been shaped by the country’s trade interests, are unlikely to change substantially under Mr. Scholz. But the appointment of Ms. Baerbock, a vocal supporter of human rights and critic of nondemocratic regimes, could herald a change of tone in diplomatic relations with Russia and China, Germany’s largest trade partner.
One priority for the government will be to address the difficulties that have plagued the country’s export-oriented manufacturers, such as auto makers and capital-goods producers, which are struggling with parts and labor shortages, tougher climate regulations and surging electricity bills.
One of its toughest challenges will be to put Germany’s energy transition back on track. The country has failed to meet its greenhouse-gas emission targets because a 2011 decision to accelerate a phaseout of nuclear power has made it more reliant on coal and gas, something the parties of the coming coalition have pledged to change.