[Global Focus] A Pragmatist Crossing Left and Right... Germany's Scholz Strengthens 'Labor and Environment' Policies

Scholz Next Chancellor Reaches Coalition Agreement Two Months After Merkel's Failed Talks 4 Years Ago
Minimum Wage Raised from 9.6 to 12 Euros... Basic Income for Children Expected
Coal Power Plants to Close by 2030... Tough Stance on China and Russia Likely to Continue

[Image source=AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Germany will bid farewell to the era of Chancellor Angela Merkel, who ruled for 16 years, and welcome the new era of Chancellor Olaf Scholz early next month. Scholz, the current Vice Chancellor and Finance Minister, led the Social Democratic Party to victory in the September 26 general election and announced a smooth start by concluding coalition negotiations about two months later on the 24th. It is noteworthy that Scholz successfully concluded coalition talks that Chancellor Angela Merkel failed to resolve four years ago.

After winning the 2017 general election, Merkel attempted a coalition with the Free Democratic Party and the Green Party. However, about two months after the election, Christian Lindner, leader of the FDP, declared the coalition negotiations had failed. In contrast, Scholz concluded coalition talks with the same Free Democratic Party and Green Party within two months. Lindner, who had refused to join Merkel's government, is expected to serve as Finance Minister in Scholz's government. Lindner praised Scholz, saying, "Scholz has experience and expertise" and "He will be a strong chancellor for Germany's future." Scholz's political skill, which brought about a compromise between the ideologically opposed Green Party and FDP and even won over Lindner, whom Merkel failed to persuade, is characterized by flexibility.

From Labor Lawyer to Finance Minister in a Conservative Government

Scholz was a passionate socialist during his school days. He joined the Social Democratic Party in 1975 when he was a high school student. In August last year, Scholz recalled his childhood when he joined the SPD, saying, "I had a conviction that capitalism must be overcome. Over time, I have certainly become more of a pragmatist."

Scholz obtained his lawyer's license in 1985 and worked as a labor lawyer, helping workers struggling due to factory closures. When he was first elected to the Bundestag in 1998, he was regarded as a figure with strong left-wing tendencies within the party.

However, after becoming party secretary-general in 2002 and emerging as a prominent politician, contrasting evaluations arose. This was because Scholz supported former Chancellor Gerhard Schr?der's labor reform policy (Hartz reforms) in 2002. The Hartz reforms pursued labor market flexibility, and Scholz was criticized by hardliners within the party. He served as Minister of Labor and Social Affairs for two years during Merkel's first cabinet and has been Finance Minister since April 2018, when Merkel's fourth cabinet was formed. There were evaluations that his political ideology was becoming increasingly conservative. Because of this, Scholz suffered a painful defeat in the second runoff vote in the SPD leadership election at the end of 2019, despite leading in the first round.

However, during the COVID-19 pandemic last year, Scholz reversed the evaluations against him. He unleashed hundreds of billions of euros in fiscal spending to help workers and companies struggling due to COVID-19, referring to it as a "bazooka." This left a strong impression on the party's hardline faction that had criticized him.

His political trajectory, swinging between left and right, was criticized for lacking clear ideological orientation. However, on the other hand, he was also evaluated as a pragmatic figure demonstrating political flexibility. Scholz proved his leadership by concluding coalition negotiations with the Green Party and Free Democratic Party faster than expected, something Chancellor Merkel had not succeeded in doing.

Minimum Wage Increase and Strengthening Environmental Policies

After taking office, Chancellor Scholz is expected to focus on labor and environmental policies. According to the coalition agreement, the coalition plans to raise the current hourly minimum wage of 9.6 euros to 12 euros. A basic income for children will also be introduced.

Since the Green Party is participating in the coalition, environmental policies are expected to be further strengthened. These policies will likely be pursued in a way that inherits and develops Merkel government policies. Chancellor Merkel, who was a former Environment Minister, showed exemplary performance in environmental policies during her tenure.

The coalition agreed to phase out coal-fired power plants by 2030, advancing the current government's target of 2038 by eight years. They also agreed to phase out gas-fired power plants by 2040. Furthermore, they agreed to ban gas heating systems in new homes and replace existing gas heating systems with eco-friendly heating. A new Ministry of Climate will be established to specifically handle environmental policies, which are a core policy of the current Ministry of Economy. The establishment of the Climate Minister position and the 2030 coal phase-out were both election pledges of the Green Party.

As part of economic stimulus measures, the coalition also plans to promote large-scale social infrastructure investment policies. Finance Minister Scholz said, "We will make massive investments to ensure Germany remains a leading country in the world," adding, "We will push for a decade of investment that will achieve the greatest industrial modernization in over 100 years of German history." Scholz emphasized, "We will make Germany a pioneer in climate protection."

Likely to Take a Hard Line on China and Russia

Changes in Germany's status within the European Union and diplomatic relations are also drawing attention. On the 26th, France and Italy, the second and third largest economies in the Eurozone, signed a new friendship treaty to strengthen bilateral relations. Analysts suggest that France and Italy are seizing the opportunity of Germany's regime change to seek shifts in the balance of power within Europe by joining forces. It is also expected that France and Italy will lead changes to the EU fiscal rules, which currently stipulate government debt ratios within 60% of GDP and fiscal deficits within 3%. The Merkel government, which pursued pragmatic diplomacy, did not concede on fiscal issues. Compared to Chancellor Merkel, Scholz is evaluated to have a more flexible stance on fiscal matters.

Scholz previously pointed out the extreme volatility of Bitcoin prices, warning that a bubble similar to the 17th-century tulip mania is forming in the cryptocurrency market. He also stated that the monopoly on currency issuance must remain in the hands of the state.

There are also forecasts that Scholz will take a tougher stance on China and Russia than during Merkel's administration. In the coalition government, Annalena Baerbock, leader of the Green Party who emphasizes human rights, is expected to be appointed Foreign Minister. Christian Lindner, leader of the FDP, has also criticized Merkel's moderate China policy. Reflecting this, the coalition agreement mentions issues sensitive to China, such as human rights in Xinjiang and Hong Kong, and Taiwan.