Dexit: Complacency kills

Some years ago a handful of female political correspondents in Berlin each received a bizarre package in the post. It contained sunglasses, a pair of flip-flops, and a bikini branded in the white and sky-blue colours of the Bavarian Christian Social Union (CSU) party.

There was also a card with the message: “Wishing you a perfect performance in the beach weather.”

Today the man who sent those parcels is on the brink of the most serious choice of his life. After three decades as the joker in the pack of German politics Markus Söder, 54, leader of the CSU and chief minister of Bavaria, must decide whether to run for the chancellorship.

In a recent poll Mr Söder emerged as Germany’s most popular politician—even outpacing Mrs Merkel. (2020)

Chancellor Angela Merkel and Health Minister Jens Spahn have been leading Germany’s national response to the coronavirus pandemic. But Germans would be forgiven for thinking that they were taking direction from a provincial governor: Bavaria’s imposing, straight-talking premier, Markus Söder. Since the pandemic broke out, Söder’s decisive crisis management in his home state—especially his imperious pronouncements on lockdowns, testing, and other public health measures—has captured national attention.

German banks grappling with the burden of negative interest rates are fighting back against a proposal to ban them from passing on the costs to their retail depositors. They warn that such a move could unleash “dangerous instability” on financial markets.

Markus Söder, the minister-president of Bavaria, proposed the ban last week in response to fears that banks could start charging their depositors if, as expected, the European Central Bank cuts interest rates further into negative territory next month. The idea is gaining political traction in Berlin.

 Die Zinspolitik der #EZB belastet Sparer und Lebensversicherte. Das ist eine schleichende Enteignung— Markus Söder (@Markus_Soeder) April 12, 2016 

Bavaria's Prime Minister Markus Söder wants to ban banks from charging negative interest rates on small savings deposits. He has won many fans among the so-called small savers. But does he act for good reasons or are the motives for his desires elsewhere? And: Aren't there other things through which politics could better help people?

At first glance, Mr Söder's request seems to be driven by the greatest care. Because many people in Germany, especially those with low incomes, use the savings account to make provisions for old age or the unpredictability of life. If you put money aside, you will no longer receive any interest on your savings account. Negative interest rates would mean that in the future you would have to pay the bank a small percentage of your savings for the safekeeping of the money. So this looks like a punishment for virtuous behaviour.

At this point, one could argue that real interest rates - that is, the return on money if you subtract inflation - are already negative at an inflation rate of 1.5 percent and have been negative for some time. One can also criticize the fact that savers only put their money in the bank account instead of using other investments that yield a higher interest rate. And note that a saver has just as little moral or legal entitlement to positive interest rates, i.e. an increasing value of his money, just as much as a consumer has no entitlement to falling prices for the products that are important and loved to him.

Despite these objections, it is important to protect small savers in Germany and to help them make smart provision. Is a ban on negative interest the right way to do this?

To find the answer to this question, we need to look at the causes of the low interest rates. And here an honest analysis shows that it is not the local savings bank or the monetary policy of the European Central Bank (ECB) that is responsible for the low interest rates, but that politics bears a great deal of responsibility. Because ultimately the price of money, i.e. the interest, is determined by the supply and demand for savings and investments. So if people consume less and, above all, the state and companies make very little investments - as is currently the case in Germany - and these actors (households, companies, public authorities) have high savings at the same time, then the interest rate has to fall.

For many years Germany has had record savings of almost 240 billion euros net every year. No country in the world has a greater surplus of savings than Germany in absolute terms. You don't get rid of negative interest by banning it, but by eliminating the cause of it. And that requires a change of course in German economic policy towards significantly stronger public investment. The German Institute for Economic Research in Berlin (DIW) has proposed a long-term investment program of an additional 30 billion euros by the state in infrastructure, education and innovation - and better framework conditions for private investments. That would create more growth and demand and ultimately raise interest rates as well.

Exhibit C: In 2013, as Bavarian finance minister, Söder filed a constitutional court lawsuit against the system of revenue-sharing among German states under which wealthy states such as Bavaria give a fraction of their tax take to poorer regions, notably the northern city-states of Hamburg and Bremen and the ex-communist states of eastern Germany. He called the system “a punishment for those who work hardest.”

One of the first questions the journalist asked, of course, was: what on earth has happened to the CSU? Blume answers calmly that he can very well imagine the journalists' confusion.

Indeed, he says, the CSU was been zig-zagging. It seems like there were two CSUs: one during the migration crisis of 2015-2016, and one now.

That first party, the old CSU, copied almost everything the AfD did, the CSU's big radical right-wing rival at the time in Bavaria.

'You can't outstink a skunk'

The second party, the new, reasonable, moderate CSU, stopped imitating the AfD and took its distance from it. The reason for this U-turn is simple, Blume says: "Du kannst ein Stinktier nicht überstinken" [You can never outstink a skunk.]

While many politicians would rather bite their tongues than admit having been wrong about something, Blume's openness is both refreshing and instructive.

The CSU, he goes on, tried literally everything with the AfD.

Ignoring it didn't help. The AfD has its own media and reaches many people with its constant provocations and polarisation.

Particularly during the migration crisis the AfD's propaganda machine was running at full-speed.

Imitating the AfD or even overtaking it on the right, which Söder and Seehofer tried to do for a long time, didn't work either because populists don't allow themselves to be overtaken on the right. They just move further to the right, says Blume, and then you have to move further to the right, too.

This is how classical rightwing parties slowly make the ideas of the radical right, a political movement with anti-democratic tendencies, mainstream. Before you know it 'you will end up being drawn into the dark side.'

However, we find that a negative political argument that highlights the possibility that Germany’s interests can be overruled in the EU has a statistically significant negative effect on voters’ support for EU membership.

Our results have important implications for the current debate about Euroscepticism and the future of European integration. While voters might support European integration in general, the resulting loss in sovereignty and the possibility that undesired policies may be imposed can sway the opinion of some citizens towards leaving the EU, even in Germany. While the trade-off between EU integration and sovereignty loss has been a concern in the media, political debates and the scholarly literature (e.g. Hix and Hagemann, 2015; Marks et al., 2002; Thomson et al., 2006), our study offers empirical evidence that sovereignty loss considerations can decrease support for European integration. Our findings therefore highlight the political cost of majoritarian decision-making procedures at the EU level and suggest that policy-makers need to address concerns about sovereignty loss if they seek to maintain support for European integration.