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

By Marcus Walker and Stefan Lange Features Dow Jones Newswires

Wolfgang Schäuble, one of the most powerful policy makers in the euro currency zone, is set to step down as Germany's finance minister in the wake of the country's election, ending an era in which the veteran conservative shaped Europe's response to its debt crisis.

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Chancellor Angela Merkel's conservative party said it will nominate him as president of the Bundestag, Germany's lower house of parliament, the equivalent of parliamentary speaker in other countries. Mr. Schäuble has 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.

The election delivered a blow to the 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.

Mr. Schäuble, a 75-year-old veteran conservative lawmaker, has been German finance minister since 2009. In that time, he played a leading role in negotiations about financial bailouts of crisis-hit European countries such as Greece, Ireland and Portugal.

His pro-austerity views on fiscal policy, and his skepticism about whether Greece belongs in the eurozone, have made him a feared figure in Europe's indebted South.

He has for decades been a strong supporter of deeper European integration, especially among a core group of countries around Germany and France. 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.

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The FDP said before Germany's national elections on Sept. 24 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 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 said Greece's debts need restructuring, which would be possible only if the country left the euro, reopening a debate in Germany about "Grexit." 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 that the 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.

Mr. Schäuble was known to want 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.

The CDU and CSU 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 Democrat 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 10:48 ET (14:48 GMT)