Does anyone remember before 2016?

The year we had Brexit...

The year Trump was voted into office?

Does anyone recall the sheer shock when both campaigns won?

I do.

The complacency leading up to both was rife.

And as the title says, complacency kills.

We've seen something pretty dramatic happen this week, and something that has very close connotations with UKIP's rise during the pre-referendum period...

Far-right AfD calls for Germany’s exit from EU in election manifesto
Despite Covid restrictions, around 600 members of Germany’s far-right Alternative for Germany (AfD) met in Dresden to agree a manifesto for the coming election in September.

'Oh but they're a far right fringe party...'

Well, let me introduce this man.

Who is Markus SÖder?

Markus Söder on right

I'll give you a picture of Markus Soder through various quotes from media outlets...

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.
Markus Söder: The joker who may emerge from the pack to succeed Angela Merkel
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
In a recent poll Mr Söder emerged as Germany’s most popular politician—even outpacing Mrs Merkel. (2020)
Markus Söder makes his mark
Might he bid to be Germany’s chancellor? | Europe
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.
Germany Found a Strongman for Its Coronavirus Crisis
The Bavarian governor’s law-and-order paternalism has been extraordinarily popular—and could shape the country’s post-Merkel future.

Most importantly for us, however, is this quote...

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.
German banks say no to proposed negative rates charge ban on retail depositors
Idea of prohibiting the passing on of costs has been gaining political traction in Berlin

Markus Söder has come from left field it seems.

His outspokenness on the handling of the pandemic, being especially critical of Brussels has been almost a breath of frisches luft for many Germans.

Check out his polling from back in March 2020 when the pandemic struck...

And check out the below polling data and see how far ahead Söder is.

But most importantly...

Look at him versus the other Union candidates (this is the most recent data I have).

Germans are LOVING him at the moment.

Germans are loving a candidate who is anti-negative rates (let me be hyperbolic and perhaps say, anti-euro by extension, but I'll get onto whether he is truly for or against the Eurozone next) and who could therefore maybe subdue some of the AfD's vote.

So is he anti-euro?

Here's a Tweet from him in 2016.

And now, let me quote a (really shit) takedown of negative interest rate policy.

I've translated it for you, but below is the original.

ZEIT ONLINE | Lesen Sie mit Werbung oder im PUR-Abo. Sie haben die Wahl.

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.

It's actually hilarious that this is the conclusion.

Yeah, Germans don't invest as much in higher risk assets, but they haven't invested as much traditionally anyway.

And low rates lead to misallocation of capital.

The conclusion the author here has come to is quite frankly embarrassing.

But I digress.

If Markus (I cannot keep searching for the umlaut every time, so I will refer to him as this from now on) is anti negative rates, and the ECB is absolutely stuck in a low rate regime, then what is the alternative?

The alternative is to give back monetary independence to Germany.

But I think this quote in Politico's '4 reasons Markus Söder should not be German chancellor' is a real kicker.

4 reasons Markus Söder should not be German chancellor
Bavarian contender may be more popular than his rival but that doesn’t make him a smart choice.
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.”

I am sure you have heard me harp on about the Eurozone's Target2 payment system.

If not, then have a read of the article below.

Optimus (non)Prime: A Eurozone Banks story
I’ve railed against Eurozone banks for a long time. To be honest, it’s hard not to. They really are facing a hell of a lot of trouble, especially over the next tenyears, and I’d argue that the virus crisis has exacerbated these issues. The difference between what I say versus what other commenta…

What Markus is critiquing above to do with richer German states sharing resources with the poorer German states is exactly the problem with the Eurozone but on a more micro scale.

See the latest Target2 reading below so you can visualise this.

Germany is a clear outlier in terms of 'funding' the rest of the bloc.

The problem is this though - Markus is in fact pro-European integration.

So I'm unsure as to whether his political desires might in fact displace his economic ones.

But this article does shed some light on the situation.

[Column] Why the CSU (successfully) stopped imitating the AfD
The U-turns of Horst Seehofer and Markus Söder, both of Germany’s CSU, are worth exploring, because they contain a useful message for the rest of Europe, too.

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.'

Here's where things get... interesting

As I said above, the AfD is now backing Dexit.

As stated above, 'you can't outstink a skunk.'

So what if, rather than trying to 'outstink', there is a shift further to the right by the CSU (via Markus), but the argument made to counter AfD is that the more morally palatable decision (versus campaigning on migration) to also have a referendum on the euro is made?

I mean, I'm not betting on this, but what if?

See, there's got to be something to counter radicalism with, especially if support for a more radical party such as the AfD is rising.


You read it above, they can't just ignore it.

I find the Overton Window to be fascinating, and I think that could be something that occurs here...

Concerns have to be addressed and as more people become aware of said concerns, such as monetary union, perhaps there lies some risk.

Markus has already outlined his distaste for subsidising poorer states - but that has been the central theme to the Eurozone since its inception.

And the policies being introduced of late by the powers at be at the European Commission (via the ECB as well) are being critiqued by German

A legal sword of Damocles hangs over Europe’s vast bond market
With the €750bn Recovery Fund, Europe’s leaders have unwittingly created a device to explode their own project

Professor Lucke, a German economist and former Eurosceptic MEP, put in a lawsuit at Germany's highest court, explaining that the way the European Recovery Fund was being financed is unlawful, and that it puts the burden predominantly on Germans.

These are the kinds of things that sow the seeds of doubt in the citizens of more powerful countries, who pay the taxes to finance these sorts of big government schemes.

'Why should I be subsidising people who I don't know, who aren't part of my society and where I receive little benefit?'

Politico explains the case further...

Professor Nein: Economist threatens EU recovery fund
Bernd Lucke has got Germany’s top court to hit pause on flagship European initiative.

Personally, I think it'll pass, but what does that mean for Germans' thoughts towards these larger institutions?

Why am I telling you this? There's no trade idea

It's a risk, and a risk that should be noted.

As I said at the start, think back to Brexit.

To Trump.

To how people were pretty shocked at how things can change so quickly after being so sure.

This isn't an assessment as to whether these things are bad or good, but purely on expectations.

And I think people are very doubtful that the Germans would push for some kind of breaking with the EU in a financial way...

Because even though they have benefitted from the euro since its inception, are they getting that same benefit now?

Based on the below study, I think this ruling could in fact create some serious pushback against EU support in Germany.

The study below is hugely interesting.

Swaying citizen support for EU membership: Evidence from a survey experiment of German voters - Nikoleta Yordanova, Mariyana Angelova, Roni Lehrer, Moritz Osnabrügge, Sander Renes, 2020
The United Kingdom’s 2016 ‘Brexit’ referendum vote to leave the European Union (EU) raised concerns that other countries would follow suit. This article examine...

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.

It's small decisions that chip away at the psyche of certain voters, and these days, it's extremely easy to market a view, or tell a story.

Imagine if the German people truly knew the extent to which they were essentially subsidising the bloc without any real knowledge of them doing so.

Is that sovereignty?

It wasn't in the case of Brexit, since paying out to the EU for a rebate that was instructive in nature, was a key driver of the belief of a disregard for sovereignty.

I don't think Markus will be the straw that breaks the camel's back at all...

But he has said things that align with a broader anti-euro view and if he sticks to his word, there could be some unravelling.

I am absolutely going to love the next year or two of German politics.

Literally cannot wait.