protests | Live or be worthwhile

It started with a student demonstration: demonstrators in Brussels Photo: IMAGO/Bob Reijnders In Berlin, a red-green-red Senate could socialize living space in order to make housing more affordable. A storm of indignation breaks out against this. “Stop it!” raged the Chancellor. In France, Italy and Spain, crowds are taking to the streets to demonstrate for the affordability of life. The state authorities are acting extremely harshly against this.

In both cases, the starting point is a contradiction between people's living needs and investors' return requirements. From the perspective of governments, this raises the question: How do you win the trust of the population and at the same time the trust of the donors, on whom sacred economic growth depends?

The socialization of living space would not only affect the large housing companies and their shareholders, but also Germany as a whole. Because it would be an interference with the property rights of investors and therefore a “serious breach of trust,” according to the Munich Institute for Economic Research (Ifo). This would “sustainably damage the institutional quality of the business location.”

The Ifo states that investors' trust in an appropriate return on investment - compared to other investments - is the basis of prosperity, or in short: all prosperity, all jobs, income and tax revenue depend on someone earning money from its production. Socialization is shaking up this principle, which is why the economist Stefan Kofner sees “the symbolic boundary” between socialism and social democracy as being crossed here.

A crisis of “affordability” of life also prevails in other countries – the USA, Italy and France. According to surveys, the French on average lack 500 euros per month to comfortably cover their expenses, making them vulnerable to sudden changes in their economic situation. So they take to the streets, protest - and thereby damage investors' trust in France. This is currently visible in the rising interest rates that investors are demanding from the French state for new debt. That's a problem. “Sustained higher interest rates are leading to a gradual increase in financing costs for the state, companies and private households,” explains the major Dutch bank ING.

The confidence of investors in France is not affected so much by the material damage caused by the protests. But rather because of the concern that the government in Paris does not have its population under control. However, this control would be necessary to implement cuts in state services and social spending - the current budget draft for 2027 envisages measures amounting to 43 billion euros to reduce the deficit.

"The government has to satisfy both the population and the markets."

As an alternative to cuts, the government could also access private wealth. After all, the proportion of millionaires in the population is higher in France than in Germany. And according to economist Thomas Piketty, France's total net worth - the sum of private and public assets minus private and public debt - has never been higher. "In other words: France has never been richer," writes Piketty in the business magazine "Surplus." But the French government rejects further taxation, as it would further reduce the country's attractiveness as an investment destination compared to Germany, for example.

One way out of the dilemma would be to increase France's national debt. But this is already considered too high by the financial markets, and an expansion would also run counter to EU debt rules. This means that “the state has almost no scope to respond to the protests with additional spending or tax cuts,” explains ING. Without concessions, it could be difficult for him to restore calm. "Any attempt to defuse tensions through measures that further weaken public finances could in turn increase investor concerns and drive up French borrowing costs."

With the protests, the government is now faced with a “delicate balancing act,” according to Commerzbank. "It has to satisfy both the population and the markets." The bank sees a similar problem in Germany, where there is also "eroding political stability." In France, the government now lacks the “majority for the necessary budget consolidation and for reforms, for example in pensions”. In Germany, the coalition of the Union and the Social Democrats still has a slim majority, but they are divided when it comes to economic policy. “Accordingly, the federal government is not making a breakthrough with urgently needed reforms.”

Here too, the government has to decide whose needs it satisfies – those of investors or those of wage earners. “Apparently the federal government does not yet have a strategy for implementing long-term positive measures that are rejected by large parts of the population,” comments Joachim Ragnitz from the Ifo Institute. Nevertheless, it must now implement the planned reforms, "even if this may lead to a loss of votes in the upcoming state elections." However, this should not lead to “ungovernability of the Federal Republic as a whole”.

Centrist politics created the affordability crisis and now wants to exacerbate it through cuts and reforms in order to win investor trust and strengthen growth. The government in Paris does not blame itself for the protests, but rather the left-wing spectrum - it is driving an "irresponsible escalation" of the situation and misusing the students' anger for "party political purposes," said French Prime Minister Sébastien Lecornu. The French right, for its part, presents itself as the guardian of peace and order and balanced state finances: Marine Le Pen promises tough austerity measures and a tough crackdown on the protests: “Without security there is no freedom. “There is no justice without authority,” said the right-wing populist presidential candidate this week.

Affordability or return on investment – ​​the German federal government is also making it clear whose side it is on. At its “investment summit” this week, it rolled out the “red carpet for investments” and welcomed a large number of international companies and donors, from US chip manufacturer Nvidia to Amazon and Microsoft. According to Merz, 230 billion euros in investment commitments have been made. "I am grateful to the investors for their trust in our country," said the Chancellor. "We want and we will live up to this trust."

Federal Economics Minister Katherina Reiche made it clear what this looks like in concrete terms: She cited the social security systems, the costs of which make work more expensive, as obstacles to investment. She also promised a more flexible labor market, relaxed protection against dismissal and longer working hours as well as a reduction in energy costs.

The measures show what the desired investments are: not gifts, but a demand on society. Ingrid Hengster, Germany head of investment banking at the British bank Barclays, quantified this demand this week: "Depending on the sector, international investors quote returns of between six and twelve percent," she said in an interview with the news service "Table.Briefings." For riskier investments, expectations would be even higher. It is particularly important to her that the planned pension reform is implemented. “If that doesn’t happen, it would be a debacle,” says Hengster. The reform is a signal to international investors that Germany is serious.

Although the French government has announced local curfews, demonstrations have been announced again in several cities for the coming weekend. The yellow vest movement wants to take to the streets in Paris. The CGT union has announced that it will join the protests. In Italy, the government of Giorgia Meloni wants to send another 500 soldiers to Milan to prevent further clashes between demonstrators and security forces. Protests are expected in the Lombard capital, particularly around the Piazza del Duomo. Demonstrations have also been announced in several other cities, including Rome, Turin and Florence. Topics range from the rising cost of living and fuel prices to peace and education. For months, young people in particular have been protesting in Albania for better educational conditions and measures against corruption. Another youth demonstration is planned in Tirana on Saturday in front of the official residence of Prime Minister Edi Rama. In the Spanish capital Madrid, the older generation demonstrated on Saturday for pensions that are enough to live on. Several pensioner initiatives and the CGT union have called for this. The protest movement against the housing shortage also wants to continue its actions in Lisbon. After clearing a protest camp in Rossio Square and arresting 55 people on Tuesday, activists announced further protests for the weekend. sot

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