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Bad News for Germany’s Economy Might Be Good News for the Far Right Bad News for Germany’s Economy Might Be Good News for the Far Right
(about 1 hour later)
BERLIN — Despite Germany’s 10-year economic boom, a far-right party has managed to become Germany’s main opposition in Parliament, enter every state legislature in the country and vie for first place in elections in the former Communist East next month.BERLIN — Despite Germany’s 10-year economic boom, a far-right party has managed to become Germany’s main opposition in Parliament, enter every state legislature in the country and vie for first place in elections in the former Communist East next month.
And now the economy is slowing.And now the economy is slowing.
At a moment when populism is riding high in various corners of Europe, often against the backdrop of economic distress and high unemployment, a downturn in the Continent’s richest and most stable liberal democracy could add fuel to the fire and strengthen the nationalist Alternative for Germany party, or AfD, analysts said.At a moment when populism is riding high in various corners of Europe, often against the backdrop of economic distress and high unemployment, a downturn in the Continent’s richest and most stable liberal democracy could add fuel to the fire and strengthen the nationalist Alternative for Germany party, or AfD, analysts said.
“Economic crises fuel a fear of the future, a sense of decline and the sense that the elite is failing the people,” said Yascha Mounk, an expert on populism and author of “The People Vs. Democracy.” “That’s fertile ground for populists.”“Economic crises fuel a fear of the future, a sense of decline and the sense that the elite is failing the people,” said Yascha Mounk, an expert on populism and author of “The People Vs. Democracy.” “That’s fertile ground for populists.”
Marcel Fratzscher, a respected German political economist and professor at Humboldt University in Berlin, put it more directly: “The economic slowdown should rather help the AfD.”Marcel Fratzscher, a respected German political economist and professor at Humboldt University in Berlin, put it more directly: “The economic slowdown should rather help the AfD.”
Professor Fratzscher, who also heads the German Institute for Economic Research, pointed to a forthcoming study from his institute which will show that the AfD is much stronger in economically and structurally weak regions.Professor Fratzscher, who also heads the German Institute for Economic Research, pointed to a forthcoming study from his institute which will show that the AfD is much stronger in economically and structurally weak regions.
“This regional inequality and polarization is a threat to democracy,” he said, adding that “with the economic slowdown, structurally weaker regions will be hit harder, which will increase regional inequalities and accelerate the polarization.”“This regional inequality and polarization is a threat to democracy,” he said, adding that “with the economic slowdown, structurally weaker regions will be hit harder, which will increase regional inequalities and accelerate the polarization.”
That is true as true for Europe broadly as it is for Germany in particular. Signs that a period of exceptional economic growth may come to an end in Europe’s biggest economy sent shivers through global markets this week. That is as true for Europe broadly as it is for Germany in particular. Signs that a period of exceptional economic growth may come to an end in Europe’s biggest economy sent shivers through global markets this week.
But beyond the economics, the political implications of the slowdown are just as disconcerting.But beyond the economics, the political implications of the slowdown are just as disconcerting.
A weaker German economy not only threatens to open a broader path for the AfD. It may also further reduce the influence of Berlin and its lame-duck chancellor, Angela Merkel, precisely at a moment when German leadership is needed to address the European Union’s manifold problems, including Britain’s scheduled departure on Oct. 31, as well as global trade issues.A weaker German economy not only threatens to open a broader path for the AfD. It may also further reduce the influence of Berlin and its lame-duck chancellor, Angela Merkel, precisely at a moment when German leadership is needed to address the European Union’s manifold problems, including Britain’s scheduled departure on Oct. 31, as well as global trade issues.
“It would strengthen the case for German leadership, but it could also weaken its negotiating position,’’ said Guntram Wolff, a German economist who is the director of the Bruegel research institute in Brussels. ‘‘Whenever you get economically weaker, you have a weaker negotiating position.”“It would strengthen the case for German leadership, but it could also weaken its negotiating position,’’ said Guntram Wolff, a German economist who is the director of the Bruegel research institute in Brussels. ‘‘Whenever you get economically weaker, you have a weaker negotiating position.”
The AfD, which won less than 13 percent in the last national election, is weaker than far-right nationalists in neighboring countries like France or Italy, where wages are stagnant and youth unemployment has been in the double digits for years.The AfD, which won less than 13 percent in the last national election, is weaker than far-right nationalists in neighboring countries like France or Italy, where wages are stagnant and youth unemployment has been in the double digits for years.
But that may change — if the current slowdown turns out to be prolonged. That’s still a big if, some point out.But that may change — if the current slowdown turns out to be prolonged. That’s still a big if, some point out.
Steffen Kampeter, head of the BDA, Germany’s employers’ federation, dismisses gloomy comparisons with the 1920s, when mass unemployment and hyperinflation boosted the Nazis.Steffen Kampeter, head of the BDA, Germany’s employers’ federation, dismisses gloomy comparisons with the 1920s, when mass unemployment and hyperinflation boosted the Nazis.
“I don’t see mass unemployment coming our way any time soon,” said Mr. Kampeter, a conservative who was once a junior minister in the Finance Ministry. “I don’t share the markets’ hysteria. Germany is an economically stable country.”“I don’t see mass unemployment coming our way any time soon,” said Mr. Kampeter, a conservative who was once a junior minister in the Finance Ministry. “I don’t share the markets’ hysteria. Germany is an economically stable country.”
But as the trade war between the United States and China heats up, businesses may soon begin to feel the pinch, economists say.But as the trade war between the United States and China heats up, businesses may soon begin to feel the pinch, economists say.
The German economy shrank 0.1 percent from April through June and may shrink again this quarter, meeting the technical definition of a recession, as President Trump’s trade tariffs began to bite. The government now expects the economy to expand by only 0.5 percent this year, compared to 1.5 percent last year.The German economy shrank 0.1 percent from April through June and may shrink again this quarter, meeting the technical definition of a recession, as President Trump’s trade tariffs began to bite. The government now expects the economy to expand by only 0.5 percent this year, compared to 1.5 percent last year.
In an ominous coincidence, a high-profile survey also released this week showed that a majority of Germans are now dissastified with democracy.In an ominous coincidence, a high-profile survey also released this week showed that a majority of Germans are now dissastified with democracy.
“The current numbers are a wake-up call and a warning,” said Peter Altmaier, the conservative economy minister in Ms. Merkel’s governing coalition.“The current numbers are a wake-up call and a warning,” said Peter Altmaier, the conservative economy minister in Ms. Merkel’s governing coalition.
Germany is the world’s third-largest exporter and particularly vulnerable to the uncertainties weighing on international trade because of Mr. Trump’s tariffs but also the prospect of a disorderly departure of Britain from the European Union this fall. According to a leaked report by the German Finance Ministry, Berlin now considers a no-deal Brexit on Oct. 31 “highly likely.”Germany is the world’s third-largest exporter and particularly vulnerable to the uncertainties weighing on international trade because of Mr. Trump’s tariffs but also the prospect of a disorderly departure of Britain from the European Union this fall. According to a leaked report by the German Finance Ministry, Berlin now considers a no-deal Brexit on Oct. 31 “highly likely.”
“We have a whole cocktail of international problems,” said Klaus Deutsch, chief economist at the Federation of German Industries, warning that this could hand another argument to the far right.“We have a whole cocktail of international problems,” said Klaus Deutsch, chief economist at the Federation of German Industries, warning that this could hand another argument to the far right.
“They will say: ‘Nothing works, big industry is firing employees, globalization is creating problems,’ ” he said.“They will say: ‘Nothing works, big industry is firing employees, globalization is creating problems,’ ” he said.
One reason Germany proved more resistant to the tide of populism after the 2008 financial crisis is that the economy held up so well, said Mr. Mounk, the author.One reason Germany proved more resistant to the tide of populism after the 2008 financial crisis is that the economy held up so well, said Mr. Mounk, the author.
The AfD was created in 2013 as an anti-euro party in the wake of the Greek debt crisis. It then got its big break after Ms. Merkel welcomed over a million migrants into the country in 2015 and 2016.The AfD was created in 2013 as an anti-euro party in the wake of the Greek debt crisis. It then got its big break after Ms. Merkel welcomed over a million migrants into the country in 2015 and 2016.
Fanning fears about migrants, crime and a loss of control on the part of the German authorities, the AfD became the first far-right party since World War II to enter the national Parliament in 2017 and has since become a fixture of the political landscape at the local and regional level, too.Fanning fears about migrants, crime and a loss of control on the part of the German authorities, the AfD became the first far-right party since World War II to enter the national Parliament in 2017 and has since become a fixture of the political landscape at the local and regional level, too.
But with migration receding in the news, the party has been looking for a new crisis to latch on to.But with migration receding in the news, the party has been looking for a new crisis to latch on to.
“The refugee issue has driven voter numbers for the AfD so far but that issue is receding,” Mr. Mounk said. “A slowdown could be a welcome next thing.”“The refugee issue has driven voter numbers for the AfD so far but that issue is receding,” Mr. Mounk said. “A slowdown could be a welcome next thing.”
Some observers say that the economy will be harder to exploit as an issue for the AfD because unlike with migration, it does not have a radical policy response to offer voters that sets it apart from traditional parties.Some observers say that the economy will be harder to exploit as an issue for the AfD because unlike with migration, it does not have a radical policy response to offer voters that sets it apart from traditional parties.
“On economic policy the AfD does not really have a clear profile,” Professor Fratzscher said.“On economic policy the AfD does not really have a clear profile,” Professor Fratzscher said.
Others observe that in recent years economic hardship has tended to help leftist populists — Syriza in Greece, or the Five Star Movement in Italy — more than far-right ones in Europe.Others observe that in recent years economic hardship has tended to help leftist populists — Syriza in Greece, or the Five Star Movement in Italy — more than far-right ones in Europe.
Far-right populism, by contrast, “has often thrived in a situation of solid economic growth,” said Holger Schmieding, chief economist at Berenberg Bank. “Think Trump or Brexit.”Far-right populism, by contrast, “has often thrived in a situation of solid economic growth,” said Holger Schmieding, chief economist at Berenberg Bank. “Think Trump or Brexit.”
A more meaningful variable than aggregate economic growth in trying to understand the rise of nationalism and far-right populism is economic inequality — and the growing regional polarization between the relative winners and losers of economic growth, Professor Fratzscher of Humboldt University said.A more meaningful variable than aggregate economic growth in trying to understand the rise of nationalism and far-right populism is economic inequality — and the growing regional polarization between the relative winners and losers of economic growth, Professor Fratzscher of Humboldt University said.
“There are many parallels with the U.S.,” he said.“There are many parallels with the U.S.,” he said.
In rural areas of northern and eastern Germany, where shrinking towns and villages have lost important infrastructure like shops, schools and regular train or bus services, people’s absolute income levels may not necessarily be that low.In rural areas of northern and eastern Germany, where shrinking towns and villages have lost important infrastructure like shops, schools and regular train or bus services, people’s absolute income levels may not necessarily be that low.
But they feel left behind by a politicians who appear unwilling or unable to address their grievances. But they feel left behind by politicians who appear unwilling or unable to address their grievances.
One in three German municipalities is now so indebted that it’s unable to maintain public buildings like schools, Professor Fratzscher said. The risk is that an economic slowdown will intensify regional inequalities as tax revenues decline and even more people flock to find work in urban areas, perpetuating the decline.One in three German municipalities is now so indebted that it’s unable to maintain public buildings like schools, Professor Fratzscher said. The risk is that an economic slowdown will intensify regional inequalities as tax revenues decline and even more people flock to find work in urban areas, perpetuating the decline.
The prospect of an export-led slowdown has fanned a debate about whether Germany needs to do more to increase public and private investment at home — and loosen its fetish-like commitment to balance its budget.The prospect of an export-led slowdown has fanned a debate about whether Germany needs to do more to increase public and private investment at home — and loosen its fetish-like commitment to balance its budget.
Many in Ms. Merkel’s conservative party favor tax cuts to boost spending. Their coalition partners, the Social Democrats, want to boost pensions and the education budget. The Greens, now the second-strongest party in opinion polls, demand major investment in measures to combat climate change.Many in Ms. Merkel’s conservative party favor tax cuts to boost spending. Their coalition partners, the Social Democrats, want to boost pensions and the education budget. The Greens, now the second-strongest party in opinion polls, demand major investment in measures to combat climate change.
But if politicians want to stabilize not just Germany’s economy but also its democracy, they should start investing serious sums in rural areas to shore up rail services, schools and tackle the notoriously bad broadband coverage, Professor Fratzscher said.But if politicians want to stabilize not just Germany’s economy but also its democracy, they should start investing serious sums in rural areas to shore up rail services, schools and tackle the notoriously bad broadband coverage, Professor Fratzscher said.
“The government has been doing nothing to fight regional inequalities,” he said. “Now would be a good time to start.” “The government has been doing too little to fight regional inequalities,” he said. “Now would be a good time to start.”
Those regional inequalities have become a major theme in critical, Sept. 1 elections in the state of Saxony in the east, where the AfD is strongest. Those regional inequalities have become a major theme in critical Sept. 1 elections in the state of Saxony in the east, where the AfD is strongest.
“Already, there are a lot of companies that have recruitment problems because of the AfD,” said Mr. Deutsch of the Federation of German Industries. “The rise of the AfD threatens the image of Germany in the world.”“Already, there are a lot of companies that have recruitment problems because of the AfD,” said Mr. Deutsch of the Federation of German Industries. “The rise of the AfD threatens the image of Germany in the world.”