Olaf Scholz from Germany's Social Democratic Party (SPD) was sworn in Wednesday as the new Federal Chancellor, taking the baton from his predecessor Angela Merkel who bowed out from the political stage after a 16-year run.

Scholz, deputy chancellor and finance minister under former Chancellor Merkel, won 395 votes from the 736-seat Bundestag, the lower house of Parliament.

He will lead Germany's first three-party coalition composed of the SPD, the Greens, and the Free Democratic Party (FDP). His new cabinet of 16 ministers will helm a green transition, infrastructure upgrade and social welfare development amid a fourth wave of the COVID-19 pandemic.

As a new chapter in German politics unfolds, the world is watching how the 63-year-old new chancellor will live up to his commitments and what his new government means for Europe and the rest of the world.

AMBITIOUS PLANS

Scholz's new government has announced ambitious plans regarding Germany's domestic and international interests, but questions remain.

The 177-page coalition agreement signed on Tuesday places climate change as priority.

The deal pledges to phase out coal by 2030 instead of 2038, to cover 80 percent of power demand with renewables instead of the previous 65-percent target and to have at least 15 million electric vehicles on German roads by the decade's end.

As part of the agreement, the new government plans to increase the minimum wage from 9.6 euros (10.85 U.S. dollars) an hour to 12 euros (13.60 dollars) an hour, build 400,000 new housing units every year and restrict rent rises.

The new government will also focus on upgrading infrastructure, providing faster internet speeds, improving health services, and offering more training to the jobless.

One big question is how the new government will raise enough funds for all its plans without violating either its promise of no tax increases or the "debt brake" -- Germany's constitutional cap on new borrowing from 2023 onward.

Analysts here believe the state-owned development bank KfW will play the role of an innovation and investment agency, using its expanding balance sheets to leverage private investments in green energy and digitization.

SYMBOLS OF CONTINUITY

Germany's power transition is widely expected to be stable. The joint appearances of Merkel and Scholz at the Group of Twenty summit in Rome in October impressed the European media, which reported that it signaled a great deal of continuity.

Scholz once served as mayor of Hamburg and was vice chancellor for three years to Merkel, who wished him good luck at the handover ceremony on Wednesday.

As for foreign policy, Germany's new government will continue to strengthen the European Union (EU) on the global stage and will make sure that Germany is part of that process, Scholz said at a press conference on Tuesday.

"German foreign policy is a policy of continuity," he added.

Scholz's first trip outside Germany as chancellor will take him to France, just as Merkel did after her first election in 2005, and then to Brussels for meetings with top EU officials.

Observers say the smooth transition of power relies more on solidarity among the three coalition parties, which had different and sometimes opposing priorities before and during the election on issues like climate change, taxation, fiscal policy and the appointment of ministers in the new cabinet.

How to ensure unity within the new government, achieve its objectives and lead Germany in the post-Merkel era is likely to be a test of political wisdom for the new chancellor.