Schaeuble Says Spain Exports Show Merkel Formula Working

German Finance Minister Wolfgang Schaeuble said Angela Merkel’s prescription for the euro area is yielding results, dismissing her main election challenger’s plans to tackle the crisis as evidence he’s out of his depth.

Portugal saw the fastest economic growth in the 17-nation euro region in the second quarter, while Spain’s labor-market reforms and lower wage costs have resulted in “very strong export dynamism,” Schaeuble said in an interview in Berlin on Aug. 27. In Greece, wage costs have fallen by 13 percent, showing that “everyone’s on the right track,” he said. “We wouldn’t have come that far if there had been an easier way.”

Schaeuble, 70, contrasted the Merkel government’s stance of conditional aid with that of Peer Steinbrueck, her first-term finance minister, who is the Social Democratic candidate for chancellor in Sept. 22 elections. The SPD platform contains a pledge to pool euro-area debt in a so-called redemption fund, a step Merkel said this week “is something I will not do.”

“Steinbrueck still hasn’t got it,” said Schaeuble, a Christian Democrat like Merkel who succeeded Steinbrueck at the finance ministry in 2009. “If we pool liabilities, through euro bonds or a debt redemption fund, we remove the incentive for countries that need to raise their competitiveness to do so,” he said. “Why should we endanger what we have achieved?”

Sunday’s Debate

Schaeuble’s comments show how the debt crisis that spread from Greece to dominate the 17-nation euro region throughout Merkel’s second term is shifting to the fore of the campaign for leadership of Europe’s biggest economy. The candidates will debate their respective positions on Sept. 1, during the only televised clash of the campaign.

Merkel has returned repeatedly to her handling of the crisis during campaign rallies across the country, saying that German “solidarity” in the form of financial help can only be given to countries that reform and become more competitive. Steinbrueck says there needs to be less emphasis on savings and more on spurring economic growth and tackling joblessness.

“No-one knows where this coalition wants to take Germany or Europe,” Steinbrueck told reporters in Berlin today, as he laid out his priorities for the first 100 days in office if he were to become chancellor, including a flat-rate minimum hourly wage of 8.50 euros ($11.28), reform of the pensions system and equal pay for men and women working in the same job. Germany under Merkel “is at a standstill,” he said, promising a change of course to policies of “content” rather than “nothing.”

‘Chancellor’s Skepticism’

All the same, Steinbrueck ruled out a second debt cut for Greece, saying that “I share the chancellor’s skepticism” and “extreme reluctance” on further Greek debt relief.

Support for Merkel’s Christian Democratic Union and its Bavarian sister party, the Christian Social Union, was unchanged at 41 percent in an FG Wahlen poll for ZDF television today, while her Free Democratic coalition partner held at 6 percent. Their combined tally of 47 percent would probably be enough for a rerun of the current coalition if repeated on Election Day.

Steinbrueck’s SPD gained one percentage point to 26 percent while its Green party ally dropped a point to 12 percent. The Left Party had 7 percent, down one point. FG Wahlen polled 1,348 voters on Aug. 26-28. The results have a margin of error of as much as 3 percentage points.

Schaeuble rejected a so-called grand coalition between his CDU/CSU bloc and the SPD, citing the opposition’s plans to raise taxes on the better off as “poison for the economy.”

Unemployment Rises

In any case, “it’s clear that we can finance public expenditure with the current tax rates,” he said. “How can you justify tax increases and threaten favourable consumer sentiment when you’re running an overall budget surplus?”

While unemployment unexpectedly rose in August for the first time in three months, the rate held at 6.8 percent, near a two-decade low. Germany’s economic expansion of 0.7 percent in the second quarter helped pull the euro region out of its longest-ever recession.

“A bit more than 10 years ago, we were the sick man of Europe,” Merkel said during a rally in the cathedral city of Ulm yesterday. “We also went through a series of reforms that were difficult for a lot of people. And today we’re the growth engine and the anchor of stability in Europe -- we know that painful reforms have their success.”

German voters “are better off than they were four years ago,” said Schaeuble. “Against a difficult European and global backdrop, the balance of this legislative period is a stable economic picture.”

Before it's here, it's on the Bloomberg Terminal.