Schauble Out as German FinMin Paves the Way for Lifting Russian Sanctions

The news hit the wire this morning that the first casualty of Sunday’s German elections is Finance Minister Wolfgang Schauble.  Coalition talks between Chancellor Angela Merkel and both the Free Democrats (FDP) and the Greens led to this.

Merkel’s weak showing forced this change.  Christian Lidner, head of the FDP, has been angling for the finance minister job during this entire election season.  He has also, along with former SDP head and current Finance Minister Sigmar Gabriel, been an outspoken advocate of normalization of relations with Russia.

“We have to get out of the dead-end sitution,” Lindner told the Funke Mediengruppe newspaper chain. “To break a taboo, I fear that we must see the Crimea as a permanent provisional arrangement, at least for now.”

He is the front-runner for the job of Finance Minister and should push for this change in policy.  He’ll be opposed by the likely coalition partner The Greens in the Bundestag, but that won’t matter from an EU perspective.

Lidner will get plenty of support from Bavarian President Horst Seehofer, who has also visited Moscow multiple times over the past two years to discuss this issue with Russian President Vladimir Putin.

And Seehofer now has a lot more power within the CDU/CSU Union party because of Merkel’s slide in support.  Between the CSU, the FDP and AfD, they represent nearly a third of the Bundestag, making support for lifting sanctions on Russia a much greater reality from the ground up.

Remember, Merkel herself is the ultimate political chameleon, taking on the issues of the day to retain power.  With French President Emmanuel Macron calling for a more independent Europe and the formation of an EU army, the symbolism of breaking with U.S. sanctions against Russia would net Merkel a lot of political capital back home.

Her immigration policy was one issue that hurt her, but Germans want better relations with Russia.  Even Merkel herself has been signaling in this direction.  But, really she has been letting the politicians who stood to benefit the most by her fading support do her heavy lifting for her, seeding the issue into the news narrative over the past month.

All it takes is one defector among the 28 Foreign Ministers to vote against extending the sanctions for them to end.  No matter how much previous members have publicly criticized the sanctions, they have always done what Merkel and the U.S. behind her wanted.

But with her terminally weakened by this election, that throws everything into doubt. 

I expect Lidner to continue Schauble’s policy of pitting Germany against any country looking for debt relief.  The German people will simply not pay for anymore bailouts.  And this election makes that very clear. 

When, not if, the EU is facing another sovereign debt crisis – be it Greece again, Italy or Spain – Merkel will not have the leverage over Lidner to force him to accept another deal.  He will pursue, like Schauble wanted to with Greece in 2015, a path of forcing them out of the euro.

And once that process starts, do you really think, for example, that the Italian or Greek Foreign Minister won’t vote to stick it in the eye of Germany and the U.S., do what is in their country’s best interest and lift the sanctions on Russia?

Why would they continue to support sanctions and reduced trade with Russia when they have everything to gain thanks to a freshly-devalued Lira or Drachma?  They wouldn’t. 

After that things really get interesting.