Finance Blog number 1

Wolfgang Schaeuble, who headed talks that led to German reunification and was forced out as Christian Democratic Union party chairman in a bribery scandal a decade later, was named finance minister in Chancellor Angela Merkel’s new government.

Merkel kept control of the coffers away from her Free Democratic allies, who advocated more aggressive tax cuts than the chancellor. Schaeuble, 67, will have to rein in a record post-World War II budget deficit, warding off calls for ever- lower taxes and increased spending as the economy recovers from the deepest slump since the Great Depression.

“He has the strength to drive things through,” Stefan Bielmeier, an economist at Deutsche Bank AG, said in an interview from Frankfurt.

The Finance Ministry was the most disputed post in coalition talks between the CDU, its Christian Social Union Bavarian sister party and the Free Democratic Party. FDP leader Guido Westerwelle, 47, who has never held a government post, will become foreign minister. Karl-Theodor zu Guttenberg, 37, will take over the defense ministry and will be replaced as economy minister by the FDP’s Rainer Bruederle.

Merkel and her allies completed a coalition deal in the early hours today to set up a second-term government that points Germany toward tax cuts and a reprieve for nuclear energy.

Wheelchair-bound Schaeuble, who was paralyzed from the chest down by a deranged gunman at a political rally in 1990, served as interior minister for four years under Merkel. Schaeuble aided Merkel’s ascent in politics. She toppled him from the party chairmanship in 2000 because of his links to a party-financing scandal under former Chancellor Helmut Kohl.

West German Veteran

As Kohl’s chief of staff in the mid-1980s, Schaeuble (pronounced SHOY-blah) is the only minister to have held a government post in pre-unification West Germany. He was chief negotiator for the West for the 1990 treaty that merged communist East Germany into the federal republic. He has served in parliament since 1972.

A native of the southwestern city of Freiburg, Schaeuble was assailed as interior minister by civil-liberties and privacy advocates who blasted plans to search personal computers, monitor online activity and deploy the military for domestic security.

He may make more enemies as he tries to rein in spending for a government that’s accumulated record debt.

Schaeuble has previously involved himself in finance issues. He championed a CDU plan to simplify the tax system in the late 1990s as leader of the party’s parliamentary group. Last year he pilloried executives earning inflated salaries soon after the financial system nearly collapsed.

Correcting ‘Excesses’

“It wouldn’t be bad if this crisis led to a correction of excesses,” Schaeuble said in an interview with Stern magazine last November. He cited “self-serving attitudes — a clique of managers endorses three-digit-million checks in a closed system that nobody can leave once he’s inside it.”

Schaeuble’s most testing time came when he became embroiled in the CDU funding scandal. He admitted to accepting 100,000 marks ($77,000) in cash from arms dealer Karlheinz Schreiber without ensuring it was registered in the party accounts. Pressure on Schaeuble to resign as CDU chairman mounted after he admitted he had lied by denying a second meeting with Schreiber. That cleared the way for Merkel’s ascent.

The CDU’s seizure of the finance ministry was a blow to the FDP’s Hermann Otto Solms, who had been touted by some analysts as a candidate. Solms advocates replacing the progressive income tax and its multitude of exemptions with three fixed brackets.

International Posts

The highest FDP post went to Westerwelle, whose lack of experience in foreign affairs has led to doubts about his credentials for the post, which traditionally goes to the leader of the junior party in a governing coalition.

The FDP will also take over the Economy Ministry with the appointment of Rainer Bruederle. He’ll succeed Guttenberg, who will now oversee the presence of more than 4,300 German troops in Afghanistan. The post would give an international profile to a CSU politician who previously focused on domestic affairs.

The youngest minister will be Philipp Roesler, 36, at the health ministry. He’d been deputy premier of the state of Lower Saxony.

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