Whether he is seen as hero or villain depends a lot on which side of Europe’s austerity debate the observer falls. Wolfgang Schaeuble, who will continue as Germany’s finance minister in Chancellor Angela Merkel’s third government, sees it as a false debate. To Schaeuble, there is no question that piling on more debt stunts rather than stimulates growth in the long run. So it is just a matter of political pragmatism, not ideology, that heavily indebted euro zone governments need to cut their deficits and make structural reforms to improve their economies’ competitiveness.
Schaeuble sees himself as nothing if not a political pragmatist, albeit a conservative one. As the occupant of Room 4358 on the fifth floor of the imposing finance ministry building in Berlin, the no-nonsense — a visitor might be tempted to say austere — office of Germany’s finance minister, Schaeuble is arguably the most powerful elected economic official in Europe. In a 70th birthday profile, Der Spiegel described Schaeuble as “Europe’s treasurer” and said that “without his blessing, not much can happen in the continent’s financial affairs.”
At 71 now, he is also one of the oldest and most experienced European politicians (41 years in parliament) — as well as, in parts of Europe, one of the the most hated. But to Merkel, he is a trusted rock of stability. His continuation in office in her new coalition government — his only potential rival from the coalition partner Social Democrats was swiftly dispatched to run energy policy; a reminder that the dry, analytical minister is still a consummate politician — indicates there will be little if any change to Germany’s approach to the continuing euro crisis in 2014: budget cuts in deficit countries to tackle the region’s sovereign debt crisis — or, for Schaeuble critics, more mass poverty, unemployment and misery.
It will be the same as he wrote in 2011:
It is an indisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare. Piling on more debt now will stunt rather than stimulate growth in the long run. Governments in and beyond the euro zone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.
The recipe is as simple as it is hard to implement in practice: western democracies and other countries faced with high levels of debt and deficits need to cut expenditures, increase revenues and remove the structural hindrances in their economies, however politically painful.
It is the medicine that Germany took to cure itself of being “the sick man of Europe” in the 1990s. The remedy still seems good to Schaeuble.
That fits with another of his long-standing views, that national government’s use the E.U. as a scapegoat for their domestic problems. “In the ‘boom’ phase,” he has said, “several E.U. members let labor grow expensive and their share of world trade shrink. As the bust came, jobs vanished and public finances deteriorated.” It is not painful acts of German-led E.U.-mandated fiscal consolidation that brought them to that point, he argues.
Schaeuble points to what he sees as the successes of the policies he and Germany have championed. Public deficits in Europe have halved, unit labour costs and competitiveness are adjusting, bank balance sheets are on the mend and current account deficits are disappearing. In the second quarter the recession in the euro zone came to an end. On the other side of the social balance sheet, unemployment remains extraordinarily high, social welfare safety nets have been shredded, income inequality has risen, and poverty rates have increased.
He is also determined to eliminate Germany’s own budget deficit, both as a signal of its value in its own right and as of a determination to defend the euro. Schaeuble is an ardent supporter of the European project, though, as fits his political pragmatism, he is an incrementalist in its implementation, and says it shouldn’t advance faster than popular support. He would, though, like to see greater coordination of member states’ fiscal policies. That, he believes, is essential for the future of the euro; a common currency implies a common fiscal policy.
The E.U.s big agenda item for 2014, Europe’s putative banking union, will be shaped in the reflection of that incrementalism, putting in place strong European supervision of banks but also shielding national taxpayers against the costs of centralized E.U. bank bailouts. He strongly believes that the owners of banks that take risks should also be accountable for their outcomes. Taxpayers, and especially not German taxpayers, shouldn’t be backstopping risk takers. Germans agree, with three quarters of them approving his continuation in office in to 2014.