Beware the German voter backlash, warns Newton

Newton Investment Management is warning of the potential for more political backlash against bail-outs after Finland’s anti-euro True Finns party recently won 19% support in elections.

The Finnish parliament could theoretically veto the latest EU bail-out package, said Newton’s Fred Moore, but another danger – voter discord in Germany – is on the cards.

The alternate manager of Newton’s European Higher Income fund said Germany is torn between a wish to save the eurozone and a “deeply engrained fear of inflation” that could occur if saving it involves printing money.

These competing sentiments – grounded in different parts of Germany’s history – puts the nation’s politicians increasingly at odds with their voters, Moore added.

“The German electorate, increasingly youthful and another generation removed from the war, see no reason why their hard-earned money should go to those who, in their view, do not deserve it,” he said.

Germany’s public is “seldom told of the enormous cost of bailing out the German banks should the eurozone break up”.

But if Berlin does nothing to rescue the periphery, the eurozone and perhaps even the EU could be at risk, “risking a collection of failed states on Europe’s borders and the potential security concerns that might result.

“Blithely riding to the rescue of the periphery of the eurozone risks inflation through effectively turning on the printing presses to bail out the indebted governments,” he added. This stirs memories of hyperinflation before the last World War.

“And so Germany’s leaders try and opt for the middle way, telling the profligate periphery that if they want to stay as members of the eurozone club they must tighten their belts and play by the rules.”

Moore said: “Ultimately the German pro-European lobby will probably muddle through, and it is unlikely the eurozone will break up, at least not in the near term.”

David Walker

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