Wolfgang Schäuble

A Titan Departs

Source: Wolfgang Kumm/DPA.

Wolfgang Schäuble made his farewells to his staff this week, as his long spell as Germany’s finance minister draws to a close. “Eight years are enough,” he told them.

Ousted from office as a result of coalition horse-trading, Mr. Schäuble leaves with opinion polls rating him Germany’s most highly-regarded politician. On Tuesday, he will be elected speaker of the German parliament, an institution to which he has been elected in every election for the last forty-five years.

Eight years is an eternity in ministerial time. Mr. Schäuble’s time in office began with a major crisis but was later marked by extraordinary German economic performance, with borrowing reduced to zero. But outside the country, Mr. Schäuble will be remembered above all for his hardline stance on euro-zone debt and bailouts for indebted European Union countries.

Mr. Schäuble was just a few months in office when Greece sought and received massive emergency financial assistance from the European Union, the first of three major bailouts for the Aegean nation. Later, Ireland, Portugal, Spain, and Cyprus would all follow suit, with ad hoc assistance institutionalized as the European Stability Mechanism.

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The German finance minister did not make himself popular outside Germany with his economic orthodoxy and his departure has been widely welcomed in Greece. Many economists, particularly in the English-speaking world, were not fans of his budgetary rigor and structural reforms. “There are Nobel prize-winning economists who believe I think about nothing but balanced budgets,” he once said.

In fact, he aimed for far more than that. Above all, he wanted everyone in the economic union to play by the same rules, and to avoid establishing false economic incentives. His critics said his austerity policies made Europe’s situation worse. But other than Greece, the bailed-out EU states all left the bailout program and improved their economic performance, seeing growth and employment rising.

Greece is supposed to exit the bailout program in June 2018, but it is not clear whether it will. Europe has lent the country some €240 billion in recent years, around $280 billion. No one knows how much of that Athens will eventually repay.

As time went on, Mr. Schäuble became even more of a skeptic – in 2015, during the most dramatic phase of the crisis, the German finance minister stood opposed to new loans, and he pushed for a temporary Greek exit from the euro. On both, he was overruled by Ms. Merkel. If the crisis flares up again, he may have to chair debates on the subject in parliament.

At home, Mr. Schäuble will be remembered for the country’s strong economic performance, and for success in driving down public debt and balancing federal budgets. But Mr. Schäuble’s first years in office took place under the cloud of the financial crisis, which hammered growth and threw Germany’s budget predictions out of joint. In 2010, Mr. Schäuble predicted a massive €80-billion deficit.

But the economy improved unexpectedly sharply, tax revenues shot up and the deficit declined. Then the European Central Bank cut interest rates, saving billions on Germany’s debt interest payments.

Critics say circumstances made life easy for Mr. Schäuble, and he failed was to use his good fortune to reform taxes or address Germany’s creaking infrastructure. There is some truth to that: in his later years, at least domestically, Mr. Schäuble was comparatively lax on spending, particularly social spending, which now comprises 55.8 percent of the federal budget.

But there is no denying that Mr. Schäuble accomplished what few of his predecessors ever did: he balanced the budget, a historic achievement which his successors will find difficult to live up to.

For many, the finance minister’s greatest fault was his failure to institute any substantial tax reform. There was some tinkering, and Mr. Schäuble did champion e-filing, but ultimately the German tax system looks largely as it did in 2009.

In his first four-year term, Mr. Schäuble fought off demands for tax cuts, arguing that the country could not afford them in the aftermath of financial crisis. But even when things were back on an even keel, Mr. Schäuble showed remarkably little interest in cutting taxes. There was always some reason not to: first, he blamed the Germany’s sixteen states for clinging to their portion of federal tax money, later he blamed his Social Democratic coalition partners.

The result of all this was a steady increase in the burden on taxpayers. Figures from the Organization for Economic Cooperation and Development suggest that Germans are the second most heavily-taxed nation in the industrialized world, with only Belgium higher.

Under Mr. Schäuble, Germany’s ratio of tax-to-GDP increased from 22.4 to 23.3 percent; if social security is included, it is a massive 38.9 percent. Business is taxed more highly than in most other Western countries, partly because of local business taxes, which Mr. Schäuble tried and failed to abolish.

But in one arena, the veteran finance minister enjoyed good news shortly before he hangs up his hat. On the international stage, Mr. Schäuble has been one of the strongest proponents of cracking down on tax evasion, arguing that information sharing and transparency are key to a coordinated move against tax havens.

At the end of September, one of Mr. Schäuble’s pet projects bore fruit: 49 countries announced they had begun automatic sharing of tax data, with that number set to rise to 100 next year. In addition, under BEPS tax reporting reforms, another of Mr. Schäuble’s schemes, corporations will soon have to institute country-by-country corporate reporting.

Martin Greive is a correspondent for Handelsblatt based in Berlin. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. To contact the authors: greive@handelsblatt.com, hildebrand@handelsblatt.com

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