Public Spending Auf Wiedersehen Austerity

Martin Schulz, the Social Democrat candidate to run against Chancellor Angela Merkel in September, advocates loosening the purse strings to stimulate growth. If he wins, Germany’s economic policy will change significantly.
Quelle: dpa
Martin Schulz greets lawmakers after being chosen as the Social Democrat chancellor candidate.
(Source: dpa)

Martin Schulz, freshly anointed as the new leader of the Social Democrats and their candidate in the September general election, received a warm welcome from his party’s lawmakers Wednesday.

Outgoing leader Sigmar Gabriel, who surprised almost everyone by stepping down on Monday saying Mr. Schulz would have a better chance of ousting Chancellor Angela Merkel in the vote, sipped his coffee in a display of nonchalance — but the rapturous applause for his successor must have seemed like a slap in the face.

But no one’s looking at Mr. Gabriel. All eyes are on Mr. Schulz, and on how he proposes to catch up with Ms. Merkel’s conservatives, more than 15 points ahead in opinion polls. That’s a huge gap, but he has a key advantage over Mr. Gabriel in that he hasn’t been in the ruling coalition and is therefore untainted by it.

“This is a new era,” said one Social Democrat lawmaker. “We can turn this thing around,” said another.

Thomas Oppermann, the party’s parliamentary group leader, called Mr. Schulz’s nomination “a successful start into an election year” and said the new leader had the full support of the party’s lawmakers.

In the meeting, Mr. Schulz, who stepped down as president of the European Parliament this month, called on the SPD to wage a confident campaign up to the last second because it had a real chance of winning — if it can convince voters that it has their interests at heart.

Mr. Schulz was never especially zealous when it came to enforcing the European Stability and Growth Pact.

He stopped short of presenting concrete economic plans — he’s expected to do that at a meeting in the party headquarters on Sunday. But his views are well known from the plethora of speeches and interviews he has given in the past.

The 61-year-old Social Democratic firebrand has made one thing clear above all in the last five years at the helm of the European Parliament: he disagrees with the balanced budget policy of Ms. Merkel’s conservative finance minister, Wolfgang Schäuble.

“The mantra of a policy that one-sidedly and unimaginatively focuses on saving,” was wrong and had always been wrong, Mr. Schulz said in an interview last year.

And in an interview with Austrian television in 2014, he said: “Investing means accepting rising debt. That’s a way to guarantee new growth.”

Those words pleased his fellow Social Democrats in the European Parliament. During the debt crisis Mr. Schulz had “made passionate appeals to get Europe back on track with investments in its future,” said European lawmaker Udo Bullmann.

Fellow MEP Peter Simon said: “As a German chancellor, Martin Schulz will be a strong advocate of moving away from blind austerity policy to an economic policy in Europe with more investment in growth and simultaneous budget consolidation."

Mr. Schulz was never especially zealous when it came to enforcing the European Stability and Growth Pact, the set of budget rules requiring E.U. member states to consolidate their finances.

The agreement has been frequently breached in the past, including by Germany and France, and Mr. Schulz consistently took a lax approach to rule breakers, said critics.

“He contributed to the stability criteria being softened and he was always on the side of the lenient,” said Manfred Weber, parliamentary group leader of the conservative European People's Party in the European Parliament.

Mr. Schulz may also usher in a change of direction in other areas of financial policy. For example, he supports a plan by the European Commission to create an E.U. bank deposit insurance scheme which has so far been opposed by the German government because it might make German taxpayers bail out savers in other E.U. countries.

He also differs with the German government’s stance on the E.U. budget. He supports the Commission’s demand to create new direct sources of revenue for the budget, the bulk of which still comes from member states’ contributions.

He hasn’t explicitly called for dedicated E.U. taxes but he has demanded a “new simplified source (of income)” for the E.U. budget.

This revenue, he said, could be dedicated specifically to “central areas of E.U. policy and European goals for example to the European single market, E.U. energy policy, to financial market regulation or to our CO2 reduction goals.”

He thereby indirectly called for reserving an E.U. climate levy, and E.U. energy tax or a financial transactions tax for the Brussels budget.

In other issues, however, he’s in line with the German government, for example on trade policy. He wholeheartedly supported the E.U.-Canada Comprehensive Economic and Trade Agreement, or CETA.

“Agreements like CETA are important for the European economy, especially for a trading nation like Germany,” said Mr. Schulz. To help shape globalization, trade deals that anchored social, environmental and consumer protection standards were of central importance, he said.

He was also fundamentally in favor of the larger planned E.U.-U.S. Transatlantic Trade and Investment Partnership, TTIP, although he opposed initial plans to incorporate private arbitration courts into the deal, and he demanded more transparency and parliamentary oversight over the treaty. That seems academic, though. The TTIP talks ground to a halt ahead of the U.S. election and are not expected to be relaunched under U.S. President Donald Trump.


Heike Anger is a Handelsblatt editor covering economics and politics. Ruth Berschens heads Handelsblatt's Brussels office, leading coverage of European policy. To contact the authors: [email protected] and [email protected]