Scholz seals coalition deal to become next German chancellor

Olaf Scholz is set to succeed Angela Merkel as German chancellor after forging an unprecedented alliance that aims to revamp Europe’s largest economy by tackling climate change and promoting digital technologies.

After nearly two months of intense negotiations, Scholz’s center-left Social Democrats said they will present their agreement with the Greens and the pro-business Free Democrats on Wednesday. Details of the coalition deal will be published later, when Scholz and leaders from the other two parties will hold a news conference at 3 p.m. in the German capital.

The deal seals the end of Merkel’s 16-year tenure. During her four terms as chancellor, she became one of the West’s most respected leaders but left the country’s industry exposed to threats from China and changing technologies.

The new government will put climate protection front and center, pushing for investment in new technologies and upgrading Germany’s aging infrastructure. The government plans to exit coal by 2030 -- eight years earlier than planned -- and accelerate the transition to electric vehicles. It’s also likely to become more assertive on the international stage.

The pact secures a majority in the lower house of parliament, which is expected to swear in the new government in early December -- after the parties’ members approve the coalition accord.

Here’s some key proposals based on a preliminary agreement reached last month:

• Keep Germany’s constitutional debt limits intact
• Refrain from raising taxes or imposing new ones
• Engage in an active policy to strengthen the European Union
• Promote the construction of 400,000 new homes annually, including 100,000 that are publicly financed
• Increase public spending on R&D to 3.5% of GDP
• Raise the minimum wage to 12 euros an hour from 9.60 euros
• Accelerate the exit from coal by eight years to 2030
• Allow only emission-free cars to be registered ahead of the EU’s 2035 target

The three-way alliance -- the first time this has been tried on the national level -- creates a ruling melange out of policy priorities spanning aggressive investment in climate protection to raising minimum wages and clamping down on debt spending.

The new government will have little time to settle in. Germany’s Covid-19 outbreak is surging out of control, geopolitical tensions are escalating over Russia’s military buildup on its border with Ukraine, and the European Union is battling with the fallout from Brexit and disputes on its eastern flank.

Scholz, a low-key pragmatist in Merkel’s mold, has years of experience as finance minister, mayor of Hamburg and an SPD heavyweight dating back to Gerhard Schroeder’s chancellorship. Many of his potential cabinet members are untested, and the parties’ disparate positions create plenty of scope for bickering.

FDP Chairman Christian Lindner, an advocate for fiscal discipline, is slated to become finance minister, according to a preliminary list of cabinet posts obtained by Bloomberg on Monday.

Robert Habeck -- the co-leader of the Greens who campaigned on ambitious spending to upgrade German industry and infrastructure -- is expected to become a “super minister” overseeing the economy along with climate and energy policy.

Germany could also quickly take a different tone on the global stage. Annalena Baerbock is in line to become Germany’s first female foreign minister. The Greens’ former chancellor candidate has called for the country to take a more assertive role, has repeatedly criticized China for human rights violations and opposes Russia’s Nord Stream 2 gas pipeline.

The posts, which are filled by the parties, may not be officially announced until later. 

While Germany’s system of coalition governments promotes stability, the new government is about as big a break as possible after 16 years under Merkel. Her Christian Democratic-led bloc is being relegated to the opposition for only the third time since World War II. 

While the market-oriented FDP has traditionally played a kingmaker role, the Greens have only served in federal government once before -- under Schroeder from 1998 to 2005 -- and its members have high expectations.

Scholz’s alliance has come together quickly by German standards, especially considering the policy differences. The Social Democrats narrowly beat Merkel’s conservatives in the Sept. 26 election, and the fragmented political landscape left little alternative to forming a government.