Germany's Next Government Coalition Talks Hit Finance Ministry Snag

The business-friendly Free Democrats want the Finance Ministry, but Merkel's conservatives don't want to let it go. Now, plans are afoot to shrink its powers if the FDP insists. The disagreement could torpedo coalition talks.

The Finance Ministry in Berlin
Maurice Weiss / Ostkreuz

The Finance Ministry in Berlin

By and


It's the kind of idea that likely only Finance Ministry bureaucrats could come up with. On the occasion of long-time Finance Minister Wolfgang Schäuble's recent departure, he was presented with a photo of scores of ministry staff members dressed in black and standing in the shape of a zero at the entrance to the Ministry.

As a symbol for the balanced budget, the so-called "black zero" is more than just a number. It is the hallmark of Schäuble's eight-year tenure at the top of the ministry. And on Monday, the outgoing minister, who was tapped by Merkel to become president of German parliament, could be satisfied in the knowledge that he was leaving behind an agency in good shape: The budget is balanced, the euro crisis seems to have been overcome and the ministry does its work efficiently.

It remains unclear, however, who will be moving into room No. 4356 of the vast edifice in the heart of Berlin. Even if coalition negotiations are still in their infancy and the parties involved - Chancellor Angela Merkel's conservatives, the business-friendly Free Democrats (FDP) and the Greens - have insisted that personnel questions will be addressed only at the very end, the wrangling over the second-most powerful position in the German government has long since begun.

It's no wonder, really. The ministry, with its staff of 1,900, has grown even more important in recent years. The finance minister doesn't just distribute the 330 billion euros from the German budget to the other ministries and play a significant role in determining tax policy. He or she enjoys considerable influence over international economic policy and helps shape the future of the eurozone. The Finance Ministry will also be heavily involved in shaping Berlin's answer to the reform agenda proposed by French President Emmanuel Macron. In short, the next finance minister will play a key role in both Germany's domestic and foreign policy, no matter who it ends up being.

It is thus not surprising that everyone seems to want the position. FDP head Christian Lindner, in particular, has left little doubt about his ambitions. "Only as finance minister do you have relevant influence over economic developments in Germany, have a voice in Europe on decisive questions regarding the euro and sit at the table at the G-20 for important global decisions," he told the German daily Die Welt recently. His interviews read like a barely veiled attempt to claim the ministry for his party. The only thing that isn't clear is whether he wants it for himself or his deputy, Wolfgang Kubicki.

A Rival to the Chancellery

Merkel's conservatives are alarmed, with leading politicians from both the Christian Democrats (CDU) and its Bavarian sister party, the Christian Social Union (CSU), determined to defend their possession of a ministry they have occupied for so long. Should the FDP insist on the finance minister post, an emergency plan is already making the rounds among conservative leaders. The idea involves reducing its importance and ensuring that it doesn't emerge as a rival to the Chancellery.

Those close to Merkel see Lindner and Kubicki as irresponsible and fear they intend to break with Germany's euro policies. To limit potential damage to the joint currency, considerations are afoot to remove responsibility for European issues from the Finance Ministry, should it indeed by handed to the FDP, and place in the portfolio of the Economy Ministry instead. Following standard coalition logic, which holds that the same party should not hold both the finance and economics portfolio, the Economy Ministry should fall to the conservatives if the FDP ends up with the Finance Ministry.

The plan also calls for moving responsibility for global financial relations to the Economy Ministry as well. Rules for banks and capital markets, after all, are a key element of eurozone policy. That would essentially mean that the entire financial market division within the Finance Ministry would be moved.

This would mean a Finance Ministry that was only responsible for tax and budgetary issues within Germany. Instead of the finance minister, Germany's economy minister would be responsible for taking part in meetings of the Eurogroup, the minister level body of eurozone member states.

Because of the sensitive nature of the ongoing coalition talks with the FDP, no senior CDU or CSU politicians wanted to comment on the model on the record. And it is far from being a perfect plan: It could, after all, weaken Germany's position in Brussels. As a member of the Eurogroup, the German economy minister would have limited authority due to the fact that whenever money was needed, he or she would have to not only clear the request with the Chancellery, but would also have to ask permission from the Finance Ministry, which would continue to hold the purse strings. Instead of a powerful finance minister with wide-ranging authority, Germany would be sending a second-tier cabinet member with limited jurisdiction.

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The Finance Ministry, for its part, would still be responsible for writing the checks, but its role beyond that would be severely limited. It is a situation that would no doubt be welcomed by countries like France, Spain and Greece. Many indebted EU member states have long resented the influence wielded by Germany's powerful finance minister. Plus, the model is already in use: Spain's representative in the Eurogroup is Economy Minister Luis de Guindos, while a cabinet colleague back in Madrid controls the budget.

'Without German Participation'

That arrangement hasn't been particularly effective, though. And there's another problem with the model as well: It stands in direct contrast with Germany's intention to streamline its decision-making on EU political questions in Brussels. Currently, German ministers are often forced to abstain from votes in the EU capital when two ministries in Berlin have different views on the same issue. A recent example comes from Wednesday, when the Agricultural Ministry and the Environment Ministry couldn't agree on whether the permit for selling the potentially carcinogenic chemical glyphosate (the active ingredient in the Monsanto herbicide Roundup) should be renewed for another 10 years.

Diplomats in Brussels have long complained of the many German abstentions - referred to colloquially as the "German vote" - which frequently slow the EU decision-making process. Were the Finance Ministry in Berlin be divided between two competing political parties, the situation would only become worse.

Leading politicians from the parties that could be part of Germany's next governing coalition are thus demanding that the ongoing negotiations result in an agreement that allows Berlin to take clear positions on European issues. Agricultural Minister Christian Schmidt (CSU) says that anything less could endanger Germany's vital role in shaping policy at the European level. "Otherwise, future majorities will be assembled without German participation." Daniel Caspary, head of the German conservative caucus in European Parliament, agrees: "We have noticed that many EU members look to Germany, particularly at the beginning of the law-making process. Therefore, the future government has to be able to establish a clear position on important issues early on."

One goal of the conservative plan to divide the Finance Ministry is to make it less attractive, in the hopes that the FDP might relinquish its claim to the portfolio. CDU and CSU politicians are particularly concerned about the prospect of Kubicki taking over from Schäuble. He is a man who wears many hats: In addition to being floor leader for the FDP parliamentary group in Schleswig Holstein state parliament, he also leads a flourishing law firm. And he doesn't seem particularly selective when it comes to his clients, having once represented Volkswagen executive Klaus-Joachim Gebauer, for example, who was neck deep in a salacious corruption and sex-party scandal just over a decade ago.

Currently, Kubicki is representing Hanno Berger, one of the dodgiest investors in Germany. Berger is one of the inventors of a tax-dodging scheme that saw stockholders receive multiple refunds on capital gains tax payments. The scheme, which came to be known as the "Cum-Ex scandal," ultimately cost the German tax office upwards of 10 billion euros.

Kubicki doesn't seem to care and has energetically argued his client's case. "Tax planning and optimization isn't punishable," he said in justifying his client's behavior. He said the aggressive stance taken by public prosecutors against Berger was akin to prosecuting "thought crimes."

A Novelty for the Eurogroup

Kubicki has also been a vocal critic of the practice pursued by German federal and state governments of purchasing CDs containing illegally copied data pertaining to tax dodgers who have hidden their money from the German tax office in overseas accounts. The practice has resulted in billions of euros being paid back to German tax offices, but Kubicki has remained unconvinced. "The state cannot be in the business of rewarding criminal behavior," he says.

Perhaps most important, however, is the fact that the FDP is opposed to the common currency policies Germany has thus far followed. Both Kubicki and Lindner would prefer to see an end to the European Stability Mechanism (ESM), as the euro backstop fund is known. The two also want eurozone member states to be given the right to temporarily exit the common currency zone should they run into economic difficulties. Many German conservatives, though, believe that such positions are dangerous, fearing they could drive the currency union apart and unsettle the financial markets.

The Greens agree, which is why they too are in favor of curtailing the powers of the Finance Ministry should it be assigned to the FDP. On European policy, the Greens tend to be much closer to the CDU and CSU than to the FDP - with one exception. They would like to see the responsibilities that might be taken from the Finance Ministry be assigned to the Foreign Ministry instead of the Economy Ministry. The Greens, after all, have their sights set on taking over the foreign affairs portfolio. Having a foreign minister sitting at the table, though, really would be a novelty in the Eurogroup.

Either way, conservatives see the splitting up of the Finance Ministry as an emergency measure if the FDP insists on the portfolio. If the party shows a willingness to compromise on that demand and allows conservatives to hold onto the ministry, then CDU and CSU experts have a separate plan: to give the Finance Ministry even more power.

Thus far, three ministries in particular have been responsible for Europe policy: the Foreign Ministry, the Economy Ministry and the Finance Ministry, with the Chancellery likewise playing a vital role. This division of labor has sometimes had some absurd consequences. Whereas the Foreign Ministry negotiates the multi-year financial framework, the Finance Ministry is responsible for EU budget in the current and ensuing years. Germany's permanent representative in Brussels is always appointed by the Foreign Ministry while his deputy often comes from the Economy Ministry. Both ministries are seen by the German government as having a significant role to play on the formation of European policy, but neither was particularly involved in developing strategies to combat the euro crisis.

Conservative leaders in Berlin say that German interests would be better served if all responsibilities pertaining to money were bundled in the Finance Ministry. The Economy Ministry, which has lost influence in recent years, could be compensated for the loss by being granted exclusive control over a different policy area, such as digitalization, for example. Such a post could prove attractive to Lindner and his party, particularly given the fact that digital issues were a key element of the FDP campaign.

'Digitalization Changes Everything'

A stronger Finance Ministry with increased responsibilities for shaping European policy would also be in Merkel's interest, given the challenges currently facing Brussels. French President Emmanuel Macron is pushing things forward so quickly when it comes to reforming the EU's economic and currency unions that Merkel even saw fit to tap the brakes at the European Union summit last week. "In the coming weeks, it is necessary to respect the government building process in Germany," she said.

Still, though, it is vital that the German chancellor present a convincing candidate as soon as possible to formulate Germany's answer to Macron's proposals. And possible candidates have already begun jockeying for position. Chancellery Chief of Staff Peter Altmeier, for example, is already leading the Finance Ministry on a provisional basis after Schäuble was elected to the role of Bundestag president earlier this week. He would rather take on an important portfolio in the new cabinet than continue slaving away as head of the Chancellery. Altmeier already got a taste for the spotlight as head of the Environment Ministry from 2012 to 2013 and, as someone who is very much pro-EU, he would love to help reshape Europe as the head of the Finance Ministry.

Ursula von der Leyen can also imagine leaving behind the Defense Ministry, a portfolio she isn't particularly fond of, for the prestigious Finance Ministry. Such a move would underline her claims to being the No. 2 in the party behind Merkel.

The economic wing of the CDU has repeatedly mentioned Günther Oettinger, who is currently in Brussels as Budget Commissioner, as a candidate. And then there is Thomas de Maizière, the current interior minister. He, after all, once served as finance minister for the state of Saxony and has traveled to Brussels in Schäuble's stead when the latter was ill.

But no matter what solution the conservatives ultimately opt for, they are heaping pressure on Lindner. Either he takes over a shrunken portfolio with limited powers, or he steps aside and allows the CDU to hold onto the ministry - a solution that Lindner recently categorically rejected. Should both sides refuse to back down, it could endanger the entire coalition negotiations.

Conservative leaders remain hopeful that the FDP will acquiesce in the end. After all, coalition talks thus far have made it clear that the Finance Ministry, no matter who leads it, won't be introducing far-reaching tax reform in the next four years. That could be enough to lure the FDP into accepting the Economy Ministry and responsibility for political issues pertaining to startups, the internet and other digital issues. After all, the FDP campaigned on the slogan: "Digitalization changes everything."

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