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POLITICS

Germany’s Scholz denies influence in tax fraud probe

German Chancellor Olaf Scholz on Friday denied helping a bank avoid paying back millions in tax rebates claimed under a huge fraud scam as he answered to a committee investigating the scandal.  

Olaf Scholz (SPD)
Bundeskanzler Olaf Scholz (SPD) speaks at an event with citizens in Neuruppin, Brandenburg. Photo: picture alliance/dpa | Carsten Koall

The parliamentary committee in Hamburg is probing why local finance authorities in 2016 dropped a bid to claw back 47 million euros ($48 million) in taxes from private bank M. M. Warburg over so-called cum-ex trades.  

Scholz was the mayor of Hamburg from 2011 to 2018 and has struggled to shake off suspicions that he was involved in the decision to let the bank off the hook, despite repeatedly denying his involvement.  

Arriving at the hearing, the chancellor eyed the room with a grim expression on his face before swearing that he would tell the truth to the committee.  

He then reiterated his innocence, declaring: “I had no influence on the Warburg tax proceedings.”  

First exposed in 2017, the “cum-ex” scam involved numerous participants swiftly exchanging company shares amongst themselves around dividend day to claim multiple tax rebates on a single payout.  

The scam cost the government billions and has seen dozens of people indicted in Germany, including bankers, stock traders, lawyers and financial consultants.  

Warburg eventually had to pay back tens of millions of euros under pressure from Merkel’s federal government.  

READ ALSO: Germany lost €32 billion to bankers in ‘biggest ever tax scandal’

According to German media reports, investigators have examined emails from the account used by Scholz during his time as the mayor of Hamburg in connection with the scandal. 

Nothing to hide

The grilling in Hamburg comes as Scholz is already facing dismal popularity ratings after his first six months in office were tarnished by criticism over his perceived weak response to the war in Ukraine.  

More recently, the chancellor has struggled to reassure Germans over possible energy shortages this winter and the very real prospect of a recession in Europe’s biggest economy.  Scholz also this week faced a backlash over his failure to immediately condemn comments on the Holocaust made in Berlin by Palestinian president Mahmud Abbas.  

Scholz’s spokesman Steffen Hebestreit on Wednesday assured journalists that the chancellor would answer all of the committee’s questions and had nothing to hide.  

Asked about the scandal himself during a press conference last week, Scholz said he had “commented on these things very extensively and for many hours and will do so again”.  

“A huge number of hearings, a huge number of files have brought only one result: there are no findings that there was political influence,” he said.  

But rumours have continued to swirl, especially over an alleged conversation between Scholz and Christian Olearius, then head of the bank.  

Scholz initially admitted meeting Olearius, according to Stern magazine, but later denied having any concrete recollection of the encounter. 

Cash stash

The Bild daily on Friday published excerpts from Olearius’s diary in which the banker appeared to describe talks between him and Scholz on October 26, 2016.  

“He asks questions, listens, expresses no opinion, gives nothing away as to what he thinks or whether and how he intends to act,” Olearius reportedly wrote after the meeting.  

According to several German media reports, investigators have also seized emails from Scholz’s former office manager Jeanette Schwamberger that could bring new evidence to light.  

These emails are “potentially relevant to the evidence, as they suggest considerations around deleting data”, according to the reports.  

The Frankfurter Allgemeine Zeitung said the emails clearly “incriminate” Scholz.  Scholz and his people have “tried to provide only limited information on certain meetings or telephone conversations”, said Matthias Hauer, an opposition conservative MP.  

Johannes Kahrs, a former MP with Scholz’s Social Democrats (SPD) party, is also under investigation as part of the Hamburg probe.  

According to German media, investigators recently found around 200,000 euros in cash in a bank safe deposit box belonging to Kahrs, though it is unclear whether the find has anything to do with the cum-ex scandal. 

READ ALSO: German police make nationwide raids over tax fraud

By Sebastian Bronst with Femke Colborne in Berlin

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POLITICS

Germany’s Scholz weathers shocks in turbulent first year

A war in his backyard, galloping economic crisis, and unhappy partners at home and abroad -- German Chancellor Olaf Scholz has weathered unprecedented shocks in his first year, while struggling to make a mark on the global stage.

Germany's Scholz weathers shocks in turbulent first year

The ex-finance minister took office promising continuity with the era of Angela Merkel, who ended her 16 years as chancellor a widely respected figure.

But Russia’s invasion of Ukraine has forced him to rip up Germany’s post-war axioms and chart out new economic, defence and geopolitical directions for the country that prizes — and is valued for — its stability and predictability.

“We never before had a government faced with such a dramatically worsening situation, when it came to foreign and security policy, but also of course energy policy,” political scientist Ursula Muench told AFP.

Scholz’s coalition of his Social Democrats and partners Greens and liberals FDP had taken office planning ambitious climate policies and budget restraint.

The designated German Chancellor Olaf Scholz (C), co-leader of the Greens and then designated German Minister for Economy and Climate Robert Habeck (L) and the leader of the Free Democratic FDP party and then designated German Finance Minister Christian Lindner (R) pictured in December 2021 in Berlin after leading members of Germany’s social democratic SPD party, the Greens and the FDP sealed their coalition deal to form a new government. (Photo by Tobias SCHWARZ / AFP)

But as Moscow dwindled its energy supplies in the wake of the war, Germany has had to halt its planned nuclear exit, restart mothballed coal power stations while burning through a budgetary hole in a scrum for oil and gas to replace Russian supplies.

And in a turning point for a country whose role on the world stage was still affected by memories of World War II, Scholz announced a historic shift on defence, vowing to re-arm Germany with a massive boost in military spending.

“Going by the dramatic events this year, he did pretty well,” said Nils Diederich, a political scientist at Berlin’s Free University.

Turning point

But Rachel Rizzo, a senior fellow at US think tank the Atlantic Council’s Europe Center, warned that losing momentum was a danger, even if the initial response was “impressive”.

In this file photo taken on June 16, 2022, Ukrainian President Volodymyr Zelensky and Chancellor of Germany Olaf Scholz shake hands after a press conference following their meeting in Mariinsky Palace, in Kyiv. (Photo by Sergei SUPINSKY / AFP)

“I think not being able to follow through with defence and security commitments is a concern,” she told AFP.

Not only is Germany trying to replenish its own military stocks, it is facing intense pressure from Ukraine to deliver what it has to help in the fightback against Russia.

The defence spending is high at a time when the treasury is also being pressed to help cushion a price shock fuelled by the energy crisis.

Huge investments are also required for the export giant to manage an economic transformation of reliance on cheap Russian energy or Chinese components to a diversified approach.

And governing in a three-way coalition means resolving each challenge inevitably involves squabbles that could unravel the fragile partnership.

Scholz’s government has managed to implement part of its programme, including raising the minimum wage and reforming unemployment benefits.

But with myriad crises not going away, the chancellor’s popularity ratings have plunged. One poll published in August suggested that 62 percent of Germans had an unfavourable view of him, compared to about 39 percent in March

emmanuel macron and olaf scholz

In this file photo taken on May 9, 2022, German Chancellor Olaf Scholz (R) and French President Emmanuel Macron make their way inside after inspecting an honour guard during a welcome ceremony at the Chancellery in Berlin. (Photo by John MACDOUGALL / AFP) / ALTERNATIVE CROP

‘Going it alone’

As well as disagreements at home, there have been tensions with partners abroad.

European Union allies were upset that Scholz announced a massive 200-billion-euro ($207-billion) energy fund without first consulting them, complaining he should have focused on coming up with EU-wide measures.

Tensions have also arisen in the key relationship between Berlin and Paris over issues ranging from the energy fund to German plans for defence procurement.

Unlike Merkel, who, in her time, was widely respected as the voice to reckon with in Europe, Scholz has so far failed to step into the role on the international stage.

Merkel’s departure “has left a void”, said Eric Maurice, from the Brussels office of the Robert Schuman Foundation.

Scholz is “struggling to make his mark at the European level… He is still trying to find his bearings, he does not have Merkel’s experience.”

In this file photo taken on November 10, 2021 then outgoing German Chancellor Angela Merkel and then German Finance Minister and Vice-Chancellor Olaf Scholz attend a press conference to present the annual report of the German Council of Economic Experts (Wirtschaftsweise) in Berlin. (Photo by Kay Nietfeld / POOL / AFP)

The view Scholz was seeking to “go it alone” was reinforced when he made the first visit to China by a G7 leader since the start of the pandemic in November, accompanied by a delegation of German business leaders.

The chancellor faced accusations he was pursuing the same mercantilist, trade-focused foreign policy of previous German governments, which led to economic ties flourishing with authoritarian Russia, but ultimately left Berlin vulnerable.

As Scholz heads into his second year in the job, many of the open challenges will continue to entangle him.

High energy prices will remain a major problem, particularly for electricity-hungry German manufacturers, said Sudha David-Wilp, Berlin office director of US think tank the German Marshall Fund.

“Ensuring German competitiveness because of the increase in energy costs, particularly for industries like chemicals and steel manufacturing, is the big challenge for Scholz,” she said.

The energy fund “is just a short-term fix. No one knows when energy prices are going to come down to pre-war levels”.

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