German Budget Hawk Steers Faltering Coalition as Far Right Rises

When German Finance Minister Christian Lindner was asked this year where he sits on the “government boat” – in the middle, at the stern or on the lower deck — he didn’t hesitate: “At the helm.”

(Bloomberg) — When German Finance Minister Christian Lindner was asked this year where he sits on the “government boat” – in the middle, at the stern or on the lower deck — he didn’t hesitate: “At the helm.”

The leader of the business-friendly Free Democrats, or FDP, has been at the forefront of infighting within Berlin’s three-way governing coalition. His policy wins have enraged his Green party partners on issues including fossil-fuel heating, combustion-engine cars, and cutting funding in their ministries.

The 44-year-old sees himself as steering the fractious alliance and best placed to win over some conservative voters and stem the flow of support to the nationalist Alternative for Germany. And with Olaf Scholz’s Social Democrats, or SPD, fading behind the resurgent far right, the chancellor has given his hawkish budget chief free rein.

“Due to the weakness of the major parties, there is competition between the Greens and FDP for the role of kingmaker,” Ursula Muench, director of the Academy for Political Education in Tutzing, Bavaria, said in an interview. “The chancellor is aware that he needs both partners and, in my opinion, the FDP is closer to him because the dogmatism of the Greens bothers him and the SPD immensely.”

Critics say the government’s unpredictable behavior has become a disruptive influence, with the fallout being felt not just in Germany but throughout Europe.

The question of how far to indulge Lindner’s love of the spotlight and whether to change tack is becoming a potentially decisive issue for the chancellor. Yet as Scholz struggles to persuade Germans he can solve problems ranging from slumping industry, high energy costs and urgent defense needs to the AfD’s resurgence, his finance chief knows he has leverage until the general election due in the fall of 2025.

And he’ll put this to the test already on Oct. 8 when the wealthy states of Bavaria and Hesse hold five-yearly votes.

The son of a math teacher and a reserve major in the German military, Lindner argues that opposing the leftist climate-protection agenda of his coalition partner, the Greens, is the best way to prevent voters switching to the AfD, which questions humans’ role in global warming.

“Not everyone who votes for the AfD is a Nazi,” Lindner said during a meeting with citizens in Weimar, in the eastern state of Thuringia, a far-right stronghold.

That sort of talk has so far failed to stop voters drifting to the anti-migrant group, whose popularity has leapfrogged that of the SPD as public discontent simmers over inflation, record immigration and costly environmental measures.

The latest INSA poll of voting intentions put the AfD at 20.5%, ahead of the SPD at 18.5% and Economy Minister Robert Habeck’s Greens at 14%. The FDP trails with 8%.

The conservative bloc led by the Christian Democratic Union, or CDU, is in front with 26.5%. Lindner sees the party of former Chancellor Angela Merkel as his main competitor and considers he can win voters away from it while acting as a bulwark against the AfD.

Veronika Grimm, a member of Scholz’s panel of independent economic advisers, said political point scoring within government too often distracts from the issues at hand.

“I would have hoped that the coalition partners would pool their strengths,” she said. “The constant confrontation — from all sides, by the way — is not conducive to increasing the coalition’s popularity.”

During months of in-fighting, the FDP scored wins on the temporary extension of the lifespan of nuclear power plants and watering down a virtual ban on new fossil-fuel heating systems. Against the will of the Greens, Lindner pushed through a 2024 budget that slashes net new borrowing to its lowest since before the pandemic to protect what he calls Germany’s reputation as the “gold standard of public finance.”

As well as wresting harsh spending cuts from all ministries except defense, including those led by the Greens, he succeeded in shifting €20 billion ($21.6 billion) of subsidies for foreign chip manufacturers that Habeck lobbied for from the regular budget to the Climate and Transformation Fund.

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At the Finance Ministry’s summer party in June, Lindner explained that his voters expect resistance against the leftist ideas of the SPD and Greens, and rejected claims that coalition bickering serves the far-right. He said the public backed his opposition to Habeck’s controversial heating law and that the AfD would be at 25% in the polls if it weren’t for his fight to keep the country in the political center.

Just days later, in the Sonneberg district of Thuringia, voters elected an AfD candidate as a district administrator for the first time.

While Lindner says he’s focused on the next general election, he’s determined to do better in state votes. Having taken over a defeated FDP a decade ago that had failed to secure any seats in Germany’s Bundestag for the first time in its history, a string of regional election losses since joining the coalition at the end of 2021 raised the specter of becoming irrelevant again. The party was in danger of missing the 5% threshold for entering parliament again in a regional election in Bremen in May but ultimately scraped in with 5.1%.

An FDP parliament member familiar with Lindner’s thinking said coalition battles will continue in the run up to the October votes, enabling him to play on his firm stance against the Greens.

Lindner also appeals to his base through tough talk on fiscal discipline, including his defense of Germany’s constitutional debt break that limits federal net borrowing.

Still, international organizations have raised questions over his budget pronouncements. The OECD warned some of his spending restrictions contain loopholes that have created massive taxpayer liabilities and harmed the credibility of the country’s public finances.

The International Monetary Fund echoed this view, suggesting the government should limit the use of special investment funds worth hundreds of billions of euros to enhance transparency, cohesion with the European Union’s fiscal rules and the effectiveness of the debt brake.

When contacted by Bloomberg for this article, a finance ministry spokesman declined to comment on any party-political issues or internal government consultations.

Regarding criticism of the government’s use of off-budget funds, the spokesman noted that Lindner had made it clear on several occasions that transparency should be increased and their overall number reduced. The government is continuously reviewing the funds, added the spokesman, who asked not to be identified by name.

Back in Berlin after summer breaks, the governing parties will lock horns again when Scholz holds a cabinet retreat in Meseberg starting on Tuesday.

“I also wish there could be less noise, with solutions presented more quickly,” Lindner told Bavarian radio this week when asked about public coalition spats. But he added: “It must make a difference to voters who they vote for.”

–With assistance from Zoe Schneeweiss and Iain Rogers.

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