Wolfgang Schäuble had only been in office as the new Finance Minister of the Federal Republic of Germany for a few months and was no longer particularly keen. At least that’s what it looked like when, on a long flight to South Korea, somewhere over Russia, he invited the journalists traveling with him to the front of the large government plane, which is reserved only for ministers and their closest employees. Schäuble was asked whether he was looking forward to these international meetings that his new ministerial office would bring. But the new minister just shrugged his shoulders and grimaced.
Small and slight, Schäuble sat in the massive seats of the government plane; his voice – never easy to understand anyway – could hardly be heard over the roar of the plane. He wanted to explain what he wanted to tell his colleagues from the other G20 countries in Pusan, South Korea. He spoke about the value of solid public finances and the blessing of low debt levels. But his message was hardly received, not acoustically, and the content hardly got through either.
As soon as the first financial crisis had been contained, the next one was already blazing in Europe in those summer weeks. This time it was a crisis of confidence in the cohesion of the euro: Greece had just been saved from bankruptcy with a total of 110 billion euros after a long period of refusal from Germany been. But the next candidates for bankruptcy were already around the corner: Spain, Portugal and Ireland. The USA pushed for a courageous, large-scale and European solution, as did banks and financial markets, as did the International Monetary Fund in Washington.
Dozens of questions bombarded Schäuble in that hour on the plane: Why did Germany refuse to be liable for loans together with other Euro states? What would a tough austerity policy bring in Greece? How does he now want to solve the problems in Spain, Ireland and Portugal? But Schäuble just sat there, shaking his head and becoming increasingly tight-lipped.
At that time, Schäuble was already marked by the stubborn and painfully inflamed sores that brought him almost to the brink of resignation a few months later – in this fateful year for Europe, which was also to be a bit of Schäuble’s own fateful year. Schäuble ultimately remained Federal Finance Minister for eight years, just eight years into a 50-year political career that was already full of historic events and offices. But those eight years as finance minister still shape Germany and Europe today – and they began back then, in the spring of 2010.
Two events are crucial for Schäuble’s term of office: the euro crisis from 2010 to 2015 and the consolidation of German public finances. When he said goodbye to the Ministry of Finance at the end of 2016, his employees lined up in the ministry’s courtyard, dressed all in black, and formed a black zero – Schäuble, the man of the black zero, no new debts, that was his legacy. This is also what most of the obituaries that appeared immediately after the news of Schäuble’s death echoed.
However, the German economist Rüdiger Bachmann, who teaches in the USA, struck a different tone. Like many, he praised Schäuble’s “great achievements” but also pointed out on the short message service Bachmann probably summed up Schäuble’s record as finance minister more accurately.
Even in South Korea, the lawyer Schäuble made no big secret about what he thought of economists: very little. The then US Treasury Secretary Timothy Geithner, an ex-banker and in every respect the opposite of Schäuble, urged Germany at the G20 meeting to clear the way to a debt union in Europe – Schäuble punished him by ignoring him. The logic of markets, the interplay of supply, demand, prices and incentives was no stranger to him (he had also taken a few courses in economics in addition to his law degree), but he wasn’t particularly interested in it either. Schäuble was deeply convinced that the state had to set rules as best as possible and communicate them reliably. Others should take care of the rest.
On the other hand, he was suspicious of acute crisis management as a matter of principle because it usually means that principles have little chance in a crisis. In a speech in 2017, he defended his policy with the words: “What is crucial is trust in the reliability and sustainability of politics, including in financial policy and in the sustainability of public budgets and in social security systems. That is why sound financial policy is important a prerequisite for economic growth and for people to be better off.”
The CDU politician primarily followed the principles of the German special discipline in economics, regulatory policy. The state should be strict and economical. And Schäuble stuck to this line for a long time, even more so in Europe than at home. He did accept that Chancellor Angela Merkel repeatedly made compromises during the euro crisis and created institutions such as the European Monetary Fund (ESM), which from then on handed out aid to cash-strapped euro states.
But in the finance ministers’ negotiations in Brussels, Schäuble was the tough guy that many other ministerial colleagues feared. At home in Germany, Schäuble was not the inventor of the debt brake, but he was still its master. During his term in office, he reduced the current national deficit not only to the maximum of 0.35 percent of German economic output GDP required by the Basic Law, but actually to zero. His dirty little secret was that he didn’t have to do much about it, but that he was just lucky because the economy and therefore tax revenues were doing well in those years. Nevertheless, he became the face of the “black zero” and was visibly proud of being the only finance minister to have managed without any new debt for several years in a row.
The consequences, however, will concern Germany for decades to come. The emaciated public administration, the lack of digitalization, the dilapidated infrastructure from motorway bridges to canal locks to the railway: All of this cannot be traced back solely to Schäuble’s “black zero”, but rather to a basic attitude according to which the state must be as lean as possible. The idea that a state should maintain, renew and expand its infrastructure in order to maintain the basis for future economic growth is structurally neglected in this philosophy. “Schäuble’s zero makes zero sense,” commented trade union-affiliated economist Sebastian Dullien back in 2016. “A company boss who rejects highly profitable investments when debts and interest rates are low would be thrown out of office.” Nevertheless, Schäuble’s attitude prevailed under his successor Olaf Scholz (SPD) – at least until the pandemic at the beginning of 2020.
The debate over savings versus debt culminated in Schäuble’s confrontation with his Greek counterpart Yanis Varoufakis in the first half of 2015. Schäuble took the duel with Varoufakis to such an extreme that Greece was actually on the verge of leaving the eurozone. In retrospect, perhaps both politicians had a point: Of course, Varoufakis, who likes to use aggressive anti-capitalist rhetoric, could not have expected that his counterpart from Berlin would use German taxpayers to cover Greek national debt. The fact that Schäuble insisted on the principles of the monetary union, which forbade states to dupe each other out of debt problems, may even have strengthened the long-term credibility of the euro zone and thus the common currency. Nevertheless, Schäuble’s tough stance not only caused a lot of social suffering in Greece, but it also promoted political radicalization, especially in southern Europe.
Schäuble himself later said: “As long as the decisions for economic, financial, social and labor market policy are made in the member states – you can change that if you have the majority for it, but we don’t have that at the moment – the member states have to They must also bear responsibility for the consequences of their decisions. Otherwise they will make the wrong decisions. This is not a lack of solidarity, but rather the prerequisite for us to demonstrate solidarity in Europe.”
Ultimately, it was neither Schäuble nor Merkel nor the EU Commission in Brussels who found the way out of the euro crisis. But the then ECB President Mario Draghi, who saved the Eurozone with a comprehensive guarantee for the existence of the euro (“What ever it takes”). Thanks to the low interest rates that followed, thanks to Draghi’s monetary policy, Schäuble was able to present his federal budget even more easily without any new debt.
Looking back at Schäuble’s role as a financial politician, it seems as if the Federal Constitutional Court had enshrined Schäuble’s political legacy with its judgment on the debt brake of November 15, 2023. The highest German court ordered politicians to continue to observe the debt brake, which they had adhered to so exemplary.
But while his CDU party friends triumphed, Schäuble adopted a very reserved tone after the verdict: The verdict also binds future federal governments, including those that would be led by the CDU and CSU again, warned Schäuble in one of his last appearances before the Union faction in the Bundestag. This is already an obligation in the opposition, for example when it comes to formulating credible alternatives to government policy. Everything the Union proposes or demands must be realistic and financeable, Schäuble reported shortly afterwards in an interview with “Spiegel”.
You can also read it like this: If you want to spend money on social spending or tackling climate change, you have to make savings elsewhere or increase taxes – or do both. He received a lot of applause for that, he said – but his first colleagues from the Union immediately ruled out tax increases, Schäuble added with his usual sarcasm.
Today, two more sentences from the “Spiegel conversation” seem like the real legacy of the (financial) politician Wolfgang Schäuble: “You will win more approval if you don’t tell people what they want,” he said to his Union colleague given the way. “Only when you contradict people will they believe you.”
It is quite possible that Schäuble’s advice will be missed most in the future – even in his own party.
Note: This article first appeared on Capital.de.
