German finance minister in hot water over Wirecard scandal

German Finance Minister Olaf Scholz is feeling the heat over his handling of the Wirecard scandal — and it could damage his chances of running to replace Angela Merkel as chancellor next year.

Scholz was grilled for around four hours on Wednesday by lawmakers on the Bundestag’s financial affairs committee, who demanded answers about why he and his ministry took so long to react to warnings about the activities of Wirecard, an online payment services company that filed for insolvency last month after acknowledging that €1.9 billion of cash it had claimed to hold in bank accounts didn’t actually exist.

The scandal, which revealed serious deficiencies in Germany’s regulatory oversight, has evolved into a tangible threat to the political ambitions of Scholz, who is viewed by many as the most likely candidate for chancellor for the Social Democratic Party (SPD) in the 2021 German election — although he has not yet officially announced his candidature. The SPD is currently governing in a grand coalition with Merkel’s Christian Democratic Union (CDU).

While other politicians also face questions about the scandal — including Merkel, who lobbied for Wirecard’s business interests in China during a trip to Beijing last September, even though German authorities had already raised red flags about the company’s activities — Scholz is the main one in the firing line because his ministry oversees financial regulator BaFin and was therefore first to be informed about irregularities and responsible for taking action, such as warning Merkel.

Following the closed-door committee hearing, lawmakers from opposition parties said Thursday morning they were not satisfied with the explanations given by Scholz and demanded clarifications. Based on that information, they will decide whether to set up an investigative committee — the toughest instrument that lawmakers can use to probe government misdeeds. The committee can summon witnesses and demand access to government papers, and its findings could, besides the negative publicity, have judicial consequences.

“Of course he [Scholz] bears the political responsibility for this” — Danyal Bayaz, German Green MP

Florian Toncar from the liberal Free Democrats (FDP) criticized Scholz for not giving “coherent and conclusive” answers about why he did not take earlier action on Wirecard despite having been aware of suspicions of market manipulation as early as February 2019, when BaFin asked the country’s financial reporting watchdog to launch a probe into the company.

“He cannot, on the one hand, claim that the financial supervisory authority under his supervision has taken the accusations seriously and then, on the other hand, shrug his shoulders and say that this supervision has basically not produced any results for a year and a half,” said Toncar. “That is why we believe that this is an illogical presentation of facts that needs to be checked further.”

Toncar even suggested that the finance minister could be responsible for dragging Merkel into the affair: “How was it possible to allow the chancellor to support Wirecard abroad at a time when it was being investigated? She should have been protected from this.”

Hans Michelbach from the CDU agreed that “we still have a considerable need for further clarification,” while Danyal Bayaz from the Greens said the parliament had submitted a “very extensive” list of 90 questions to the finance ministry, which must be answered by August 10.

“Of course he [Scholz] bears the political responsibility for this,” Bayaz said. “We expect a complete clearing-up of the Wirecard case. And if we get the feeling that this is not the case, then we will also give very serious consideration to further parliamentary instruments … Let me say today that the probability that a committee of inquiry will come is probably higher than it will not.”

Scholz sought to defend his actions during an interview with public broadcaster ARD late Wednesday, in which he tried to deflect criticism onto the auditor Ernst & Young, which failed to report Wirecard’s financial irregularities for years.

“The really big issue is that a major auditing firm has been working on this company for over 10 years now and has not uncovered what we now know to be considerable fraud,” Scholz said. He argued that state regulators also needed “an audit structure with more bite,” and said he had made “proposals” that would allow BaFin to launch its own audit, even against a company’s will.

Yet he rejected any suggestion of personal wrongdoing. “We have done what was prescribed by law,” Scholz said, adding: “So far, the system has worked quite well … It is only with the present results that we can see that we need new, additional competences and no one should shirk from taking them.”

Asked whether German regulators and the government might have shied away from closer scrutiny of Wirecard because of its prestige as a German company taking a leading role in the global fintech market, Scholz snapped back with a resolute “Nein.

Economy Minister Peter Altmaier was also questioned by lawmakers on Wednesday, but the affair has much less political risk for him because, unlike Scholz, he’s not vying for a higher political role.

Germany has also been under pressure at EU level after the European Commission asked its market regulator ESMA to investigate potential failings of BaFin’s oversight.

German Economy Minister Peter Altmaier was also grilled | Clemens Bilan/EPA

Sharp criticism about the role of Scholz and the government also came from the far-right Alternative for Germany (AfD). “One of the biggest accounting scandals in the history of the Federal Republic of Germany has left many unanswered questions that undoubtedly need to be clarified by an independent commission,” the AfD’s deputy federal spokeswoman Alice Weidel said in a statement ahead of Wednesday’s committee hearing.

Setting up an investigative committee is undoubtedly in the AfD’s interests because it would, thanks to a rotation system, chair the committee’s work. That may cause at least some reluctance among other parties to call for such a move.

“At the current stage, special hearings” — rather than an investigative committee — “are the most effective means of quickly obtaining the information on which we as parliamentarians depend,” said the Greens’ Bayaz.

Hannah Brenton contributed reporting.

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