- The SPD has struggled to get into power and has been mostly in opposition since the 19th century.
- The party saw its worst result in modern times in September's general election.
- However, analysts expect Scholz to continue the same vision of austerity as his predecessor Wolfgang Schaeuble.
Olaf Scholz was appointed Germany's finance minister on Wednesday — but his biggest challenge could be bringing the country's Social Democratic Party (SPD) back from the brink.
The 59-year-old former mayor of Hamburg, a trained lawyer and advocate of closer European integration, will probably target centrist voters, according to an analyst.
"Scholz's home base is the SPD's right-wing. He will likely see it as his task to rebuild the SPD's credibility with centrist voters," Carsten Nickel, managing director of Teneo Intelligence, told CNBC via email.
The SPD has struggled to get into power and has been mostly in opposition since the 19th century. The few times it has governed Germany, it was mostly as the junior member of a coalition — a factor that has impacted the opinion of many of its traditional voters, concerned that the party is merely following Merkel's policies.
The party saw its worst result in modern times in September's general election. Its former leader Martin Schulz blamed the result on the SPD's role during the 2013-2017 coalition with Chancellor Angela Merkel's Christian Democratic Union (CDU) party.
Nevertheless, the SPD is once again part of the German government, again as a junior coalition partner, after the failure of preliminary coalition talks between the CDU and the Green Party and the Liberal FDP. In this new government, the SDP managed to get the top seat at the finance ministry.
"Among SPD pragmatists, the view has always been that there is only (one) way to (rebuild the credibility of the party)," Nickel said, outlining its "record of solid, prudent fiscal policy."
"Sholz's party might be tempted to move slightly to the left on some issues over the next four years. But Scholz's job will be to make sure that the SPD becomes competitive again where you ultimately win elections: at the political centre ground."
However, analysts expect Scholz to continue the same vision of austerity as his predecessor Wolfgang Schaeuble.
"He is known for loving details and swallowing briefing files. Expect a well-prepared German finance minister, (but) don't expect the end of black zero or austerity-minded fiscal policies," Carsten Brzeski, chief economist at ING, told CNBC via email.
"The only thing I would expect to be different compared with Schaeuble would be that Scholz will — at least at the beginning — refrain from teaching other countries lessons," Brzeski added.
As finance minister, Schaeuble was vocal about what he saw as the fiscal indiscipline of southern European countries. During the sovereign debt crisis, media reports suggested that he thought Greece should leave the euro zone, arguing that a voluntary departure could perhaps be better than another bailout program.
Last month, Scholz told Der Spiegel magazine that Germany should not "dictate" to other European countries how they should develop their economies.
Nonetheless, as a pro-European politician, Scholz is set to work with other euro countries to drive reform in the region.
"Expect Germany to support a pro-European reform agenda, but an agenda with small baby steps rather than big visionary ideas," Brzeski said.