March 17, 2020
The old crisis narratives are returning to Germany
Germany is like Winston Churchill’s America. It will do the right thing, eventually, reluctantly, and insufficiently. But do not underestimate the opposition, those who pull Germany back in the other direction. They are not just the famous professors. We noted a letter by a group of politicians and economists that included Peer Steinbruck, a former SPD finance minister, Wolfgang Clement, a former SPD economics minister, and Günther Oettinger, a former European Commissioner, calling on the ECB to raise rates. Now, the ECB will not do that. But the important point is that this kind of stuff matters because if forms narratives. The narratives that accompanied the eurozone crisis are coming back. The arguments are not new. They are essentially interest-based: low rates are bad for German savers and for German insurance companies. They are also bad for German foundations, like those that own newspapers. They are not allowed to invest in equities.
Narratives such as these matter because they will ultimately create political perimeter fences. The debt-brake and black-zero nonsense seriously constrains Germany’s ability and willingness to launch a big discretionary stimulus right now. FAZ reports that Olaf Scholz’ finance ministry is still working on the assumption of a black zero during the 2021-2024 budget period. One of Scholz’ aides is quoted as saying that the purpose is to express a sense of continuity and normality. You would not say such a thing if you were about to launch a big discretionary stimulus.
And, while Scholz would probably not put his name to a letter like above, unlike Steinbruck, he has never dared break ranks. The political dividing line on economic policy in Germany is not between conservatives and progressives, as in the US, but between ultras and cowards.