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- The European political centre continues to crumble
- In the UK, Labour will struggle to raise revenue
- In desperation, they might do something radical
If ever there was a year to be in the newspaper business, this must be it. Practically every day brings a big new headline. Yet the articles that follow always seem to contain some qualification.
“Labour Landslide” is followed by “… with just over 30% of the vote”.
“Biden steps down” is followed by “… but remains president until January”.
“German far-right victorious” is followed by “… but will be unable to form a government”.
Having lived in Germany for some five years, I’m going to offer some thoughts on the most recent of the above.
For those not familiar, Germany has a federal governance structure, in which the states exercise a fair bit of power. Not as much as states in the US, provinces in Canada or cantons in Switzerland, but more than, say, departments in France or counties in the UK.
German state elections are not held on the same schedule as those for federal office, including the parliament, or Bundestag. (Germany also has an upper-house, the Bundesrat, but this is largely a rubber-stamp.)
This past weekend, two formerly East German (DDR) states, Saxony and Thuringia, held elections and, in both cases, the political centre did poorly, whereas parties on the “far-left” and “far-right” did surprisingly well.
In Saxony, the CDU, historically Germany’s most centrist and powerful political party, barely won the largest share of the vote with 32% vs 31% for “far-right” Alternative for Germany, or AfD. The three leading “far-left” parties also did well, collectively winning over 20% of the vote.
Put together, supposedly extreme parties won over 50% of the vote. And voter turnout was high at 74%, so this was not some rogue result.
In Thuringia, the centre fared even worse. The AfD won the largest share at 33%. The CDU managed only 24%. “Far-left” parties won 32%.
When supposedly extreme parties on the left and right capture 50%-65% of the vote you can fairly conclude that voters are angry at the ruling centre. So, what is it that they are angry about?
The simplest way to answer that question is to take a look at what issues the “far-right” and “far-left” actually happen to agree on, yet disagree with the political centre.
Those two issues are: immigration and the Ukraine War.
While there are of course subtle differences between Germany’s non-centrist parties on these two issues, they both routinely criticise the political centre for its policies on both.
This unusual situation has the German press tied up in something of a knot. Is it now a “far-right” position to be anti-war? And is it now “far-left” to be against illegal migration?
And not only the German press. Here in the UK, the Guardian described popular socialist Sahra Wagenknecht’s party as “leftwing but socially conservative”, whatever that means.
In any case, the centrist CDU and SPD parties have ruled out forming a coalition with what they both describe as “extremist” parties, claiming that to do so would “threaten German democracy”.
How refusing to form a coalition with the party that took the most votes in a democratic election with high turnout is supportive of democracy is not explained, perhaps because it can’t be.
The problem with populism, as those in power sometimes say, is that it is “too democratic”. Churchill, who famously said that democracy was the “worst form of government, save for all the rest”, would probably disagree.
Stepping back for a moment, these German state election results are quite similar to those seen across much of Europe during the past year. Centrist parties have fared poorly. “Extremist” parties on both sides have gained much popular ground.
Across the Rhine in France, a left-wing coalition in the National Assembly is threatening to impeach centrist President Macron. While that is unlikely to succeed, the unwillingness of the French parliament to work with the President, and vice-versa, is indicative of how centrist parties are losing control across Europe.
Perhaps most indicative of where this is going is what has already taken place in the historically progressive, liberal, tolerant Netherlands. Following his party’s big win last year, Geert Wilder’s populist, nationalist party was shunned by potential coalition partners at first. But following populist revolts from within their own relatively-centrist parties, they eventually caved and formed a coalition with the largest, democratically elected party in the country.
Isn’t that how democracy “works”, messy as it undoubtedly is?
Speaking of messy, here in the UK, the Labour government is proceeding apace with its various measures to raise revenues. Whether these will actually work is debatable.
Imposing VAT on public schools will no doubt raise revenue, but it will also send many students into the state sector. That will increase costs.
Revising the rules for non-dom taxation may also raise revenue, at least at first. But if some of these wealthy expats choose to depart for lower-tax, probably also sunnier climes, the net result down the road may be less rather than more revenue, especially when VAT and other taxes are taken into account.
In my opinion, the UK is already well over the far side of the “Laffer Curve”, where any further attempts to increase revenue through taxation actually have the opposite effect. The government will almost certainly deny that is the case, but later on in their current term in power they may re-learn the lessons their forebears did back in the 1970s.
With revenues having peaked, the only way to shore up government finances will be to cut costs. But where? The NHS? Defence? Bureaucrats’ salaries?
No, none of the above. This government will be politically unwilling and/or unable to cut costs.
What then will they do? If you’d like to learn more about our latest prediction and how you can join us at The Fleet Street Letter, you can do so here. An idea so radical, so uncharacteristic of Labour, so uncharacteristic of even today’s so-called “Conservatives”, that it would only be tried by a government absolutely desperate for additional revenue.
Hence, it’s nearly certain to happen in a few years’ time.
The Fleet Street Letter has a long history of making such radical, bold predictions and, more often than not, being proven correct, in time. With the assistance of our Global Intelligence Network, we seek always to remain one, two or even three steps ahead of events, while providing customers with practical, actionable investment advice.
Until next time,
John Butler
Investment Director, Fortune & Freedom
