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Bernd Lucke and the shifting sands of liberalism, nationalism euroscepticism and populism

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(Sie können eine deutsche Version dieses Textes bei Makronom, der Online-Zeitung für Wirtschaftspolitik, lesen: hier)

Just over a week ago Bernd Lucke came to Düsseldorf to give a lecture drumming up support for a new party. Bernd who? Well, the former member of the CDU – for 33 years no less – was very much in the German and indeed European news from 2013 to 2015, as the face of the euro-critical, liberal-conservative Alternative für Deutschland. After a power struggle with right-wing nationalists and racists who increasingly came to dominate the party, he and other members of the liberal wing left to form ALFA, the Alliance for Progress and Renewal. Declining to contest the recent German federal election – perhaps the acronym was just too dreadful – it mutated into the LKR, which stands for liberal-conservative reformer. This is the same name as the group in the European Parliament for which Lucke sits, having gained his seat as an AfD candidate in 2014.

I relate this party-political musical chairs, because Lucke’s background and recent political biography, and also his lecture and the subsequent discussion with 75 or so citizens who attended are telling about current trends in German, and beyond that European, liberalism, nationalism, euroscepticism and populism.

I’ll begin by accentuating the positive. Bernd Lucke, a former professor of economics, is certainly knowledgeable about EU and German affairs, especially economic issues. He is personable and, while conservative in outlook, I genuinely believe he personally has no truck with racists. This begs the question of why he has found himself in their company: I will attempt an answer. His analysis of the Euro is not far from the dominant strain of thinking within German (but not international) economics. He deploys arguments expressed in scientific language; however he does so in a very one-sided way. Again, I think I have an explanation.

Let me give you a flavor of Luckerian discourse, focusing on the Euro. [Read more…]

Same ECB medicine, higher dosage – good but more needed

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The ECB has announced a further expansionary shift by beefing up a range of existing policy instruments. Barring unexpected positive shocks this will not be enough to break out of a deflationary environment and convincingly underpin growth and a rapid reduction in unemployment. For that to happen fiscal policy must turn expansionary and/or the ECB must cast caution to the winds and adopt new tools. At the press conference following the policy announcement ECB President Draghi gave a tantalizing glimpse that new tools may indeed be on the way: we may yet see monetary financing of fiscal policy, or helicopter money as it is popularly known. [Read more…]

The right way for Germany to persuade the ECB to raise rates

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The “E” in ECB stands, lest it be forgotten, for “European”. It is the central bank of all the countries belonging to the Euro Area. It is also thanks to the Treaty and its own statutes independent of instruction from European and national public bodies. This does not prevent national lobbyists, commentators and politicians from giving it unsolicited advice, however, particularly when ECB policies are perceived to be out of line with the real or supposed “national interest”, or that of the social group in question.

Germany is something of a special case in this regard, for a number of reasons. It is the EU country most clearly associated with inflation-hawkism and, related to that, upholding the idea of central bank independence. It is the largest Euro Area economy. In theory this makes it less likely that its economic needs will differ widely from those of the currency area as a whole, creating pressure to seek changes in the monetary policy stance. Yet, in practice Germany has been something of a Euro Area outlier. It would have needed lower interest rates for much of the pre-crisis EMU period and would not, by itself, require the extraordinary expansionary measures pursued recently by the ECB. Lastly, its size, economic performance and the nature of the euro crisis mean that Berlin very much calls the policymaking shots in the EU as a whole.

It is against this background that we should reflect on reports that Chancellor Merkel is today meeting Mario Draghi and has been urged by party officials, Bundesbank president Weidmann and lobbyists from the German financial sector to – how to put this delicately? – persuade the ECB president to bring low interest rates and quantitative easing to an end sooner rather than later. [Read more…]