Germany’s far-right boosted by stance against Iran war

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0:17Good morning from the Financial Times. Today is Thursday, May 14th, and this is your FT News Briefing. The Federal Reserve is set to have a new chair at last, and Germany's far-right party is now leading in opinion polls. Plus, the Bank of England wants to roll out the welcome mat to stablecoins. There's a real feeling that the U.S. has stolen a march in this industry, and there's a real danger that we could be left behind. I'm Sonia Hudson, and here's the news you need to start your day.

0:58The U.S. Senate confirmed Kevin Warsh as the next Federal Reserve chair yesterday. It was a turbulent journey, but lawmakers ultimately voted 54 to 45 in favor of his appointment. Warsh is no stranger to the Fed. He served as a governor in the mid-2000s. U.S. President Donald Trump is expected to sign off on his confirmation, but Warsh has to sell off more than$130 million in assets before he steps into his new job. Jay Powell could remain chair until that's settled. Warsh enters the role with an American economy that's facing high inflation. Data from this week showed sharp price rises in April.

1:47The Bank of England is loosening its stance on crypto. The central bank is preparing to water down its planned restrictions on stablecoins. The move comes after crypto companies criticize the UK for being too conservative in its approach to digital assets. The FT's Martin Arnold broke this story. He covers financial regulation for us. Hi, Martin. Hi, Sonia. So Martin, I said that the BOE is planning to soften its proposed restrictions on stablecoins. What would that look like? Yeah, so there's two key areas that the Bank of England is planning to revise its proposals on. The first one is on holding limits.

2:28So the central bank has proposed that individuals will be restricted to owning no more than£20 ,000 per coin. and businesses will be limited to owning up to£10 million. The second proposal that the Bank of England is looking at is its requirement for at least 40 % of the assets backing a UK stablecoin to be put on deposit at the central bank, earning no interest. Now, this is very different to the US. So the stablecoin operators say this is making the UK very unattractive for them. And I think what's going to happen here is that the Bank of England is going to reduce that 40 % requirement somewhat.

3:15And what's behind this pivot, Martin? This is being driven by concern that the UK is too restrictive here on stablecoins and is going to miss out on the opportunity that digital assets and stablecoins as part of that could bring to the city of London, but also to the UK economy. and the Bank of England's really been on a journey here. They started off with a very restrictive, skeptical approach to stable coins and they've been progressively diluting it because there's a real feeling that the US has stolen a march in this industry with the Genius Act that went through Congress last year and 98 % of stable coins in the world being US dollar based and there's a real danger that we could be left behind here in Britain.

4:09So Martin, as the UK has been on this journey, as you said, of looser and looser stablecoin regulation, what are some of the risks associated with that? Yeah, so there are risks. I mean, one is that there could be a sizable outflow of deposits from the banking system into stablecoins. And that could weaken the banking system, but also reduce the flow of credit to the economy. There's also a concern that if stablecoins have too much of their assets invested in securities, that could increase the volatility of those securities if stablecoins become unstable. But it could also make stablecoins more unstable.

4:57So by requiring them to have a certain amount of their assets on deposit at the central Bank, which is seen as one of the safest places to put the money, that is designed to give them an element of security, but also to make them repay anybody who wants to take their money out very easily. Do you think that the approach they're taking now of watering down some of these regulations will ultimately make a difference in the country's ability to attract or retain digital investment? I think it will. I think they're moving in the right direction. But I would say that, you know, the Bank of England feels like the UK is different to the US.

5:38One is that banks represent 70, 80 % of the funding of credit to the economy, whereas in the US, it's 30 or 40%. So a much greater reliance on banks here. So we have to be more careful. And the second point is that in the U.S., there is a much more liquid capital market sector. And that is different here because we don't have quite as liquid and deep capital markets as the U.S. does. Martin Arnold is the FT's financial regulation editor. Thanks, Martin. Thanks very much.

6:17the war in iran has rattled germany's relationship with the u.s and now it's impacting the country's domestic politics support for the far-right alternative for germany party or afd has surged since it spoke out against the u.s-led conflict the party is now pulling ahead of the ruling Christian Democrats. Anne-Sylvaine Chasseney is the FT's Berlin bureau chief. She joins me now to make sense of how the war in Iran might be driving Germans further to the right. Hi, Anne-Sylvaine. Hello. So give us a little background on the alternative for Germany. How does it stack up against other populist movements like MAGA in the US?

6:59So the alternative for Germany is really far right. If you look at the spectrum in Europe, it has campaigned on mass deportation. I mean, they use the term Remigration in German. It has connotation from the Third Reich. So they have attracted some very far right elements in their party. So Alternative for Germany has, over the past few years, really tried to get closer to the MAGA movement. But we've seen a very big shift since the Iran war, actually, where, you know, the AFD is now really distancing itself from Trump. Yeah. Tell me a little bit about why that is. I mean, during Germany's last federal election, the AFD got the attention of Elon Musk and U.S.

7:54Vice President J.D. Vance. Why has the war in Iran changed that relationship? Because, I mean, the Iran war is really hitting people's wallet here. I mean, it has very concrete effect. People see the price of fuel rising above two euros a liter. I mean, you know, Germans love their cars. And all of a sudden, they see this, and this is crazy. And so the AfD was very quick in spotting that, actually. And in the eastern side of the country, where there are elections very soon in September, you have a deep-seated anti-American sentiment that's been there forever, you know, former communist states.

8:37And this message, criticizing the Iran war and the Trump administration, is actually a message that is tapping into this deep-seated anti-American sentiment and actually politically pays off. So something that I find really interesting is that the current chancellor, Friedrich Merz, has also criticized the U.S.-led conflict, but only the AFD seems to have been able to capitalize on it. Why is that? Because Mertz is taking the brunt of the population's criticism. He promised to revive the economy, and it hasn't happened at all. They were hoping to get 1 % growth this year. And because of the Iran war, they're only expecting 0.5%.

9:24Yeah. Going back to the alternative for Germany, you know, my understanding is that the party is still kind of taboo in the country. Is this the moment that it maybe starts to go mainstream? So it's interesting. So the AFD, contrary to other right-wing populist movements in Europe, it does not feel the need to go mainstream. Actually, it's classified as extremist by the intelligence agencies here in Germany. What's happening is that for the first time, they could win a state, a federal state. So Germany has 16 federal states and there's one, Saxony and Hall, which is holding elections in September.

10:05And for the first time, they could have a regional prime minister. They could control the regional parliament. And that would be unprecedented. The prime minister would be able to sit on the upper house, the Bundesrat. And yeah, this would be a big, big political earthquake, even though we're talking about a very small state, too many people out of 84 million, you know, in total. Anne-Sylvaine Chasseney is the FT's Berlin bureau chief. Thanks, Anne-Sylvaine. Thank you.

10:41Before we go, someone may be ready to challenge Keir Starmer's position as UK prime minister. Yesterday, we talked about health secretary Wes Streeting, who guilt investors really like. Well, there are growing expectations that he might quit his gig and try to topple Starmer as soon as today. But Starmer said he won't back down if Streeting tries his luck.

11:11You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

12:03We'll be right back.

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