pensions for populists

No ‘German Trumps’ if federal finance minister can help it

Germany’s Finance Minister Olaf Scholz Presents Budget Outlook
It looks a bit like this. Source: Bloomberg

Two short months ago, German journalists were waiting to hear the country’s finance minister, Olaf Scholz, present the national budget. They were prepared for a long and boring speech. But that’s not what they got. When Finance Minister Olaf Scholz was asked why there were not more tax cuts, given the fact that the country had such a big surplus, Mr. Scholz gave an interesting and possibly prophetic answer: There were more urgent needs for that money elsewhere. In order to avoid the rise of populism like in the US, Germany needed more social welfare not less, he said.

Mr. Scholz: “If we want to avoid German Trumps, we must have a reasonable social safety net. Pensions play a key role in that.”

The comment marked a change in Mr. Scholz’s personal strategy. As vice-chancellor, he is the most senior Social Democrat in Angela Merkel’s coalition government. But in his early months in office, Mr. Scholz was sometimes mocked as “Olaf Schäuble,” so close was he to the policies of his conservative predecessor, Wolfgang Schäuble, a member of a more centrist party, Ms. Merkel’s own Christian Democratic Union, or CDU. In fact, when Mr. Scholz was recently asked at a podium debate, if he could point out the differences between himself and Mr. Schäuble, his answer was pointed: “No,” he replied.

Mr. Scholz’s statements about the budget and populism appear to have heralded a new direction for the up-until-then staid finance minister. It is a two-pronged approach that aims to please everyone: To his base, he emphasizes traditional left-wing topics like social welfare. For the rest of the country, he emphasizes his cautious handling of the national finances.

03 p53 Pensions in Germany-01 contributions pay-out

For example, after the summer break, Mr. Scholz continued to champion pension reform, again invoking the specter of “German Trumps” to make his point. Specifically, he called for minimum state pensions to be pegged at 48 percent of average salaries, a proposal much favored by the SPD rank and file. At the same time though, such proposals could obviously do some damage to his reputation for hard-headed fiscal responsibility.

Whether it’s working or not is another question. Mr. Scholz undoubtedly wants to lead the Social Democrats into the 2021 election. But this isn’t just about personal ambition. Support for the once-dominant, center-left Social Democrats has decreased fairly radically over the past few years. The latest Forsa poll has the SPD on 17 percent support with the left-wing Green party and the far-right AfD both on 16 percent. So the finance minister is also doing all he can to save his once-dominant party.

To do this, he must somehow transfer his personal popularity onto his declining party. But even this is problematic. That same Forsa poll showed Mr. Scholz dropping three percentage points from last week when respondents were asked whom they would choose if they could choose the next Chancellor. Mr. Scholz is now sitting on 20 percent.

Although he served as a labor minister in a previous Merkel coalition, Mr. Scholz came to national prominence between 2011 and 2018, when he served as mayor of his native Hamburg.

Scholz setzt Aale in die Außenalster
Getting things done in Hamburg - with eels. Source: DPA

In Hamburg, his work ethic and skill as a wheeler-dealer impressed even political opponents but his first six months in office were a mixed bag. Firstly, he drew criticism from within his party for failing to boost investment. Then the outcome of a tough negotiation with his French counterpart on euro-zone reform was announced by Ms. Merkel as if it were her own work. Both missteps went down badly within his own party.

Despite the most recent polls, Mr. Scholz is still one of the most popular politicians in the country, a fact his own party cannot ignore.

But the mood in the party is fraught. “We may have only one chance to save the party,” a close associate of Mr. Scholz’s told Handelsblatt. “But above all, we first have to stabilize the party,” said another, an idea which may underlie the drive for pension reform.

But Mr. Scholz is not purely a cynical tactician. He is said to have been brought to tears, reading the US book “Hillbilly Elegy” which details Mr. Trump’s rise via an alienated and impoverished white working class. To avoid a similar thing happening in Germany, Mr. Scholz thinks the SPD must pay better attention to so-called “working class issues.”

This has been an ongoing refrain for him. Last year, Mr. Scholz made another suggestion that takes him away from a financially centrist subset, when he backed a steep rise in the country’s minimum wage, suggesting it rise to €12 (almost $14) an hour. The same goes for pension reform, something he has touted since the last election campaign.

The latter is at the heart of his political philosophy. Germans must be able to trust their social welfare system, he argues. If that trust goes, then radicals in parties like the far-right Alternative for Germany could gain more fans for their Trump-style, anti-elitist message. Good pensions for all will underpin popular support for constitutional democracy.

The former Hamburg mayor does not lack the self-confidence to attempt this and Mr. Scholz’s supporters say he has every right to self-assurance. After all, he knows how to win elections. When he became the leader of Hamburg’s SPD in November 2009, the party was languishing in the polls. Just 18 months later, he led it to election victory.

By all accounts, Mr. Scholz’s confidence only grew during his seven years as Hamburg’s mayor. The office often seemed too small for him, say associates, and he relished hosting world leaders. At a recent IMF meeting, he apparently startled international colleagues by boasting about his achievements as labor minister during the global financial crisis.

As a professional politician, he is one of our best, says one SPD politician. “But he is also one of our most arrogant.”

Defensive driving

The finance minister’s private life is closely guarded. His wife, Britta Ernst, is a prominent SPD politician, who serves as minister for education in the state government of Brandenburg. But he’s known to be funny and mischievous in private. However, in public, Mr. Scholz is an unfortunately wooden speaker. “He lacks the charisma to go further on the national stage, he’s got this layer of unapproachability about him,” said Fritz Horst Melsheimer, a leading Hamburg businessperson who has worked with Mr. Scholz.

Then again his boss – Ms. Merkel – has done very well out of an image of down-to-earth competence, emphasizing ability over vision. In political terms, both she and Mr. Scholz are careful, defensive drivers. He is said to despise politicians who hold forth on talk shows but who fail to address real problems, something he refers to as “fake politics.”

In Hamburg, he successfully sold himself as reliable, occupying the center ground so adeptly that the Christian Democrats could make no electoral headway. But supporters insist he also managed to push through SPD policy: Building social housing while expanding kindergartens and making them free of charge.

Still, Hamburg is a comparatively small place. On the bigger stage of national politics, the balancing act could be a lot tougher to pull off. Updating the euro currency union is just a little more complex than balancing the state budget and reforming the national pension system is going to be trickier than building social housing in Hamburg. As has already been pointed out his pension proposals will cost billions and he has yet to detail where the money is coming from.

With one foot in the center and another off to his left, Mr. Scholz is going to have to be careful if he doesn’t want to fall flat on his face.

Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Martin Greive is a correspondent for Handelsblatt based in Berlin. Christian Wermke is an editor for Handelsblatt Live, covering politics, corporate executives and lifestyle. To contact the authors: hildebrand@handelsblatt.com, greive@handelsblatt.com, wermke@handelsblatt.com.

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