Germany's Schäuble Expected to Step Aside as Finance Minister -- 2nd Update

By Marcus Walker and Stefan Lange Features Dow Jones Newswires

Wolfgang Schäuble, one of Europe's elder statesmen, is set to step down as Germany's finance minister in the wake of the country's election, ending an era in which he shaped Europe's response to its debt crisis.

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Chancellor Angela Merkel's conservative party said it would nominate Mr. Schäuble as president of the Bundestag, Germany's lower house of parliament, a role equivalent to parliamentary speaker in other countries. Mr. Schäuble indicated his willingness to accept the nomination, according to a statement from the Christian Democratic Union and its Bavarian sister party, the Christian Social Union.

Sunday's election delivered a blow to Germany's conservative alliance, handing it its worse result since 1949 and weakening its bargaining position in talks about forming a new government. The pro-business Free Democratic Party is expected to demand the finance ministry -- the second-most important job in the German cabinet after Ms. Merkel's -- as part of its price for serving in a coalition government.

German policy on Europe is likely to broadly stay the same. The FDP shares Mr. Schäuble's attachment to strict fiscal rules for eurozone countries, and his doubts about bailout aid for Greece. Mr. Schäuble, a longtime believer in deeper European integration, was somewhat more open than the FDP -- or Ms. Merkel -- to France's current push for closer ties among euro members.

Mr. Schäuble, a 75-year-old veteran conservative lawmaker, has been a political heavyweight for three decades. He helped negotiate Germany's reunification in 1990, the same year he survived an assassination attempt by a mentally ill gunman, leaving him paraplegic. Ms. Merkel ousted and succeeded him as conservative leader in 2000, but he later served her loyally as interior minister and since 2009 as finance chief of Europe's largest economy.

In that post, he played a leading role in negotiations about financial bailouts of crisis-hit European countries such as Greece, Ireland and Portugal. Unusually for a finance minister, he became a household name throughout Europe -- especially the continent's stricken South, where his advocacy of stringent fiscal austerity made him a feared and sometimes despised figure.

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Mr. Schäuble famously clashed with Greece's flamboyant finance minister Yanis Varoufakis in 2015, and argued for Greece to exit the euro. He nearly fell out with Ms. Merkel that year when she overruled him on "Grexit."

His signature policy at home was running a small budget surplus to put Germany's national debt on a downward path -- to the frustration of some other European policy makers, who urged Germany to spend more to boost demand and growth.

Mr. Schäuble was known to have wanted at first to stay on as finance minister, partly to influence the overhaul of the eurozone that Mr. Macron is urging, according to people familiar with his thinking. But he recognized this week that complex coalition talks could leave him without a senior job in the next cabinet, these people say.

The FDP said before Sunday's vote that it would seek to take over the finance ministry. It hasn't said yet whom it would nominate as minister. Party chairman Christian Lindner, a 38-year-old who has served two terms in parliament but hasn't held a ministerial post, is seen as the most likely candidate. His deputy Wolfgang Kubicki is also seen as a potential contender.

The FDP wants to cut taxes at home and tighten eurozone rules on fiscal discipline. Around Europe, the party is seen as taking a hard, fiscally orthodox line that could make agreement about deeper integration in the eurozone more difficult.

The FDP has been critical of European Union authorities' recent tolerance of budget deficits in other euro members. Before the elections Mr. Lindner reopened a debate in Germany about "Grexit" by saying Greece's debts need restructuring, which would be possible only if the country left the euro. The FDP also sharply criticized French President Emmanuel Macron's proposals for a common eurozone budget.

Since Sunday, however, Mr. Lindner has softened his tone, saying the FDP supported Ms. Merkel's policy of keeping Greece in the euro with bailout loans provided International Monetary Fund is involved in the rescue and certifies that Greece's debt is sustainable.

He also said the FDP opposes permanent fiscal transfers between euro members, but could support efforts within the EU's existing financial framework to boost investment in the euro area.

The CDU-CSU alliance came in first in the election but won only 33% of the vote. They are now exploring a possible three-way coalition with the FDP and the left-leaning Greens.

Christian Democratic lawmakers have urged Mr. Schäuble to accept the role of Bundestag speaker in order to uphold parliamentary order, which mainstream parties fear could be threatened by the entry into the Bundestag of the populist Alternative for Germany party, or AfD, which won 12.6% of Sunday's vote. The AfD has denied other parties' accusations of rowdy behavior and racist rhetoric.

--Bertrand Benoit contributed to this article.

Write to Marcus Walker at marcus.walker@wsj.com and Stefan Lange at stefan.lange@wsj.com

(END) Dow Jones Newswires

September 27, 2017 16:39 ET (20:39 GMT)