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Stuck with Schaeuble

15 July 2015 By Olaf Storbeck

Like his former Greek colleague Yanis Varoufakis, Wolfgang Schaeuble has become a liability for the euro zone. In the runup to a Greek deal on July 13, Germany’s finance minister temporarily made a Greek exit from the single currency into an official policy option. Afterwards, he openly mused that the agreement should have been different. Schaeuble is not the man to lead future negotiations – but that doesn’t mean he won’t.

The 72-year-old from Freiburg has long played an inglorious role in the euro crisis. Schaeuble was a mastermind of excessive austerity that pushed southern Europe into deep recession. It has long been an open secret in Berlin that he personally favours Grexit. But until last weekend, Angela Merkel’s desire to keep the euro zone intact trumped his personal views.

Turning Grexit into an official policy option is a different matter. Schaeuble’s apparently serious proposal that Greece could temporarily leave the euro implied a worrying misunderstanding of the currency union’s inner workings and its legal underpinnings. On July 14, he undermined the agreement European leaders had reached with Greece two days earlier by stating that many German officials still preferred a Grexit.

This is at odds with Merkel’s decision to back the deal. It is hard to imagine how Schaeuble can lead future negotiations intended to keep the euro zone intact in good faith. Outside Germany, many now see him as a provocateur.

But Angela Merkel cannot afford to lose him. He is one of the country’s most popular politicians, with an approval rating this month reaching a record 70 percent. Voters see him as a guardian of financial prudence defending German taxpayers’ money. Within Merkel’s CDU, he is an icon of the West German conservative wing, which views the chancellor’s modernisation of the party with suspicion. Merkel made the CDU embrace the minimum wage, gender equality and modern family policies.

Losing Schaeuble, who links today’s party with its glorious past under Helmut Kohl, would alienate the grassroots. It could also one day make an internal revolt against Merkel more likely. That suggests Schaeuble isn’t going anywhere – and forthcoming bailout negotiations will be just as fraught.

 

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