Chancellor Olaf Scholz? Change Without Disruption

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Senior Fellow - Germany

With 25.7% of the vote, Germany's left-leaning Social Democratic Party (SPD) came out on top in the Bundestag elections of September 26, 2021. Despite trailing in the polls for a long time, the SPD prevailed over the country’s center-right Christian-democratic alliance (CDU-CSU). The outcome is a sign of the rebirth of social democracy. Several factors explain this unexpected success. First, there is renewed debate on the distribution of wealth in German society which has gained momentum. Second, the quality of the party’s electoral campaign contrasted with the mistakes made by its main rivals. Above all, there is Olaf Scholz, who managed to impress German voters and succeeded in establishing himself as Angela Merkel’s natural successor. Who is this man who could soon preside over Germany’s destiny and breathe new life into European democracy? Alexandre Robinet Borgomano, head of the Germany Program at Institut Montaigne and co-author of "Quelle Allemagne après Merkel?" ("What Germany after Merkel?") paints his portrait within the German political landscape.

The Ministry of Finance in Berlin is located in an enormous grey building characterized by its straight lines - a model of Nazi architecture. During the Second World War, it served as the headquarters of the Luftwaffe, the German Air Force. It is there that the SDP candidate, Vice-Chancellor and Finance Minister Olaf Scholz bides his time. Currently in charge of leading the coalition negotiations with the Greens and the liberal Free Democratic Party, Olaf Scholz is preparing to succeed Angela Merkel. Just like her, he is reserved and intelligent, a man of the North, sober in his words and determined in his actions. Though the party he leads has long lagged in the polls, Olaf Scholz never doubted that voters would ultimately choose the most experienced person to become Chancellor - the one best able to provide an answer to what he sees as the main issue of our time: "the disintegration of our societies under the combined effects of technological progress and globalization".

Who is Olaf Scholz?

As the embodiment of the SPD’s more moderate wing, Olaf Scholz has been viewed as the natural successor to the outgoing Chancellor. So much so that he used the signature Merkel-Raute, the trademark hand gesture known as the Merkel Diamond, on the cover of the Süddeutsche Zeitung. On his campaign posters, he is accompanied by the slogan "He can be Chancellor" ("Er kann Kanzlerin"). This connection is not without foundation. During her 16 years in power, Angela Merkel has led a "social democratization" of the CDU. She leaves behind a party that is wholly disoriented ideologically and whose political line can easily be carried on by the SPD.

As Minister of Finance, Olaf Scholz has shown that he is able to maintain the stability of Germany’s public finances. At the same time, he was able to unleash a "financial bazooka" to deal with the economic fallout of the Covid-19 pandemic. In short, the SPD candidate in his current role found himself in the right place at the right time. Olaf Scholz himself put it as follows: "In the past, there has been criticism of my commitment to a balanced budget and my refusal to incur public deficits. I have always explained that this was not an end in itself, but that it would enable us to cope with any crisis that might arise. Today, thanks to the strength of our public finances, we can face the crisis comfortably."

The population remains attached to the stability of the Merkel era. As such, the latest elections favored a political force capable of embodying change without causing real disruption.

Indeed, with a budget surplus close to €50 billion at the start of the crisis, the German Vice-Chancellor has taught Europe a lesson in Keynesian economics: to avoid having to skimp on stimulus measures in the face of financial, ecological or public health shocks, it is best to create margins for action during periods of expansion. Freed from the constraints of the budgetary orthodoxy that he had been the guarantor of in recent years, Olaf Scholz is now in a position to propose a massive investment program. The SPD will have to deal with the liberals’ desire to rapidly balance public accounts again.

Nonetheless, its investment program has the potential to return to the foundations of social democracy while positioning the party as the political center’s main force. After 16 years of Angela Merkel and faced with the lack of energy of the grand coalition model, the German electorate seems to desire change. Yet the population remains attached to the stability of the Merkel era. As such, the latest elections favored a political force capable of embodying change without causing real disruption.

Olaf Scholz appears to be reassuring in this respect. As Angela Merkel’s Minister of Labor from 2007 to 2009, Mayor of the city-state of Hamburg - one of Germany’s economic centers - from 2011 to 2018, and Minister of Finance and Vice-Chancellor since 2018, his experience in government is infinitely more extensive than that of his competitors. This experience enables him to position himself as a sort of crisis manager. He played a decisive role during the financial crisis of 2008, notably by developing the "partial unemployment" model, and again during the pandemic. His experience in Hamburg allows him to back up his vision for Germany with concrete achievements, especially with regards to housing and the environment, two key focuses of his campaign.

The international context also works in Olaf Scholz’s favor. In Europe, he played a leading role in the implementation of the EU recovery plan alongside French Minister of the Economy and Finance Bruno le Maire, and developed the common EU debt issuance. Both enabled him to demonstrate his commitment to Europe. Aware that a unique opportunity to deepen EU integration presented itself, Scholz popularized the notion of a "Hamiltonian moment" at home and now advocates for the EU to create its own resources. The election of Joe Biden as President of the United States has also given new impetus to his emphasis on "fair taxation" as a condition for social justice. In Germany Olaf Scholz has reaped the full political benefits of the historic Global Tax Agreement reached at the G7 Summit on June 5, 2021, which targets multinational companies. A few days after the summit, he asserted that he had bought data on tax evasion practices that affect German players, making the fight against tax evasion one of his favorite campaign themes.

His plans for tax reform aim to reduce taxes for lower-income households by taxing the richest more and introducing a wealth tax. It is a good sign of the SPD’s new orientation. However, it could also be its stumbling block. If Olaf Scholz’s involvement in several financial scandals linked to the Warburg Bank in Hamburg and the spectacular Wirecard bankruptcy is confirmed, it could be destabilizing for the party. All the more so for a Finance Minister who has made fair taxation the spearhead of the revival of social democracy.

A social democratic revival rooted in the notion of "respect"

The Social Democratic Party is Germany’s oldest party. Founded at the end of the 19^th century and banned during the Nazi era, it rose from the ashes in West Germany after the Second World War but remained in the shadow of the conservative Chancellor Konrad Adenauer during the reconstruction period. At the Bad Godesberg Convention in 1959, the SPD underwent a renewal and became a "Volkspartei" (a party of the people) which accepted the principle of the social market economy and renounced the class struggle. Two of Germany’s previous SPD Chancellors continue to shape the party’s orientations in their own way. Willy Brandt, former mayor of Berlin and Chancellor from 1969 to 1974, was the main architect of "Ostpolitik", or the opening up of economic and diplomatic relations with East Germany and Eastern Europe. Helmut Schmidt, Chancellor from 1974 to 1982, was originally from Hamburg - just like the current SPD candidate. It is no coincidence that the SPD’s campaign ad presents Olaf Scholz as following in the footsteps of Helmut Schmidt.

Former Chancellor Gerhard Schröder, on the other hand, is no longer a reference for his party. He was Germany’s head of government from 1998 to 2005; electoral support for the SPD collapsed from 1998 onward, and many party activists see the "Hartz labor reforms" initiated by Gerhard Schröder as the main reason.

State Secretary at the Ministry of Finance and Olaf Scholz’s main advisor Wolfgang Schmidt recalls: "In 2005, the unemployment rate reached 11.5% and the popular daily BILD headlined ‘Germany, 5 million unemployed’. A majority of activists were aware of the unpopularity of the [Hartz] reforms, but an equivalent majority was aware of their necessity." Schröder’s liberal turn led to a split in the SPD. In 2007, Oskar Lafontaine founded the radical left-wing party Die Linke, which got almost 10% of the vote in the last federal elections and became the biggest party in the eastern state of Thuringia. This split has significantly weakened the party’s identity. Olaf Scholz’s mission is to turn this page in the history of social democracy.

Schröder’s liberal turn led to a split in the SPD. [...] This split has significantly weakened the party’s identity. Olaf Scholz’s mission is to turn this page in the history of social democracy.

The decline of social democracy is a European and Western phenomenon that takes a unique form in Germany. As shown in a study by Friedrich Ebert Stiftung in January 2021, the departure of voters from the SPD has not benefited the far-right or the Greens as much as it has the CDU. During her 16 years in power, Angela Merkel has skillfully applied the method of "asymmetric demobilization", which consists of dulling the German public debate by seizing on her opponents’ campaign themes and transforming them into reforms that she can call her own. The SPD’s participation in the grand coalition between 2005 and 2008, and then from 2013 onwards, has enabled it to push for social reforms that lie at the core of its program (in particular the minimum wage and same-sex marriage), but without reaping any real political benefits. The center (Die Mitte) remained embodied by the CDU. Today, with Olaf Scholz, we are seeing a reversal of this trend.

Voter migration - SPD

Source: infratest dimap.

Over half a century after the Bad Godesberg Convention, it is up to Olaf Scholz to embody a new German left that is more inspired by the American Democrats than by the Nordic model, which no longer hesitates to oppose the defense of the working classes and the welcoming of foreigners. To regain the support of the middle and working classes - the core of the SPD’s electorate - Olaf Scholz centered his campaign on the notion of "respect". While this does imply a recognition of each person’s own identity (Identitätspolitik), it also translates into a questioning of the notion of merit, in which Olaf Scholz sees the root cause of the divisions in our societies.

Referring explicitly to Michael J. Sandel’s latest essay, "The Tyranny of Merit", Olaf Scholz denounces the overemphasis placed on merit in Western societies. Merit leads to a false justification of inequality and makes those who do not succeed feel guilty. As Professor Sandel explains, meritocratic elites have become accustomed to repeating the mantra that those who work hard and play by the rules can go as far as their talents take them, but they have not realized that this view has lost its inspirational power.

It is up to Olaf Scholz to embody a new German left that is more inspired by the American Democrats than by the Nordic model.

In Michael J. Sandel’s words: "Tone-deaf to the mounting resentments of those who had not shared in the bounty of globalization, they missed the mood of discontent. The populist backlash caught them by surprise. The parties that made the offer [of upward mobility] have missed the insult implicit in it to a large number of working people." Olaf Scholz seeks to define a new form of progressivism - the opposite of that embodied by Emmanuel Macron in France.

To counter the excesses of meritocracy, Olaf Scholz envisions a "society of respect" which involves raising the minimum wage to €12 and renegotiating rates within branch-specific collective agreements in order to increase workers’ pay, in particular for certain low-wage jobs that the pandemic has shown to be essential to our societies. For those in long-term unemployment, the society of respect involves the abolition of the sanctions imposed by the Hartz IV reform in favor of an allowance (Bürgergeld) that lets families live in dignity while extending the duration of benefits. The SPD’s new program, designed to turn the page on Schröder’s reforms, also contains a strong ecological component, marked by a 130 km/h speed limit, massive investment in railways and a transition to 100% renewable energy by 2040. The notion of respect also means these transformations are not intended to take place too quickly. Olaf Scholz insists on the need to accompany the workers and regions most affected by the transformation of the economy. He accuses the Greens of embodying an arrogant form of progressivism that overlooks the most fragile groups.

With its focus on "the future", "respect", "dignity" and "a sovereign Europe", the SPD’s electoral program gives importance to the European project. Convinced of the need for a more political Europe, the party advocates qualified majority voting in certain key areas, notably taxation and foreign policy. The SPD is committed to developing the EU’s own resources (through the taxation of digital giants and the revision of the CO₂ Emissions Trading System) and supports the creation of a fiscal union. Defense issues are largely absent from the SPD’s program, but the party’s orientations can be deduced from the common will expressed in the preliminary coalition agreement to maintain NATO as an indispensable part of German security and to allow cooperation between European armies. Here, Olaf Scholz will have to deal with an otherwise largely anti-militarist line imposed by the leadership of his party, which has called into question past interventions by Germany’s armed forces (Bundeswehr) and initiated a new fight for arms export controls at the European level.

Olaf Scholz failed to take over the SPD leadership last year, and it is now up to him to embody a political line that is more left-wing than the one he personally defends. This is his main weakness and his main difference with the current Chancellor. But by choosing to provide an original response to the loss of momentum for social democracy, and by learning from the pandemic, he could represent a moderate and prudent leader capable of winning back the electoral center and making a lasting impact as Germany’s new Chancellor.

Copyright: ANDREAS GEBERT / POOL / AFP