Polarised politics in the wake of an economical downturn echo throughout modern history ...

Brad DeLong has a good pointer today on his blog.

Sebastian Doerr, José-Luis Peydró, and Hans-Joachim Voth: Failing Banks and Hitler's Path to power: "Polarised politics in the wake of financial crises echo throughout modern history, but evidence of a causal link between economic downturns and populism is limited. This column shows that financial crisis-induced misery boosted far right-wing voting in interwar Germany. In towns and cities where many firms were exposed to failing banks, Nazi votes surged. In particular, places exposed to the one bank led by a Jewish chairman registered particularly strong increases of support–scapegoating Jews was easier with seemingly damning evidence of their negative influence...

Despite low unemployment and a still booming economy Germany faces an upswing in right-wing voters. The immigration policy plays a major role (just replace 'Jews' with 'African/Muslim immigrants' and you have a similar scenario) as well as an increase in old-age poverty. Paltry interest on savings is not helping either. Inflation is picking up and way beyond the reported number. The whole Eurozone is in economical decline, as Draghi just days ago noted. A disastrous EU (non-)policy on how to deal with the influx of people coming via the Mediterranean Sea. Incidentally, Germany's former big bank Deutsche Bank is in serious crises. There is no danger it may fall as it would without a sliver of a doubt be bailed out by the government. Still, there are some good points for thought in

How failing banks paved Hitler's path to power: Financial crisis and right-wing extremism in Germany, 1931-33

Can financial crises fan the flames of fanaticism? The Great Recession of 2007-08 not only wrought havoc on employment and output, but its aftermath has seen the rise of populism across the Western world, from Sweden to Spain and from Germany to the US. Many cross-country studies claim that there is a direct link from financial crisis to right-wing populist movements (Mian et al. 2014, Algan et al. 2017, Eichengreen 2018). The Financial Times led its ‘10 years after’ editorial on the crisis of 2008 with the headline “populism is the true legacy of the financial crisis”.¹And yet, cross-country evidence is often inconclusive, and hard evidence of a causal link running from financial shocks to political catastrophe has been difficult to come by.  

 In a new study, we provide such evidence for the canonical case of Germany during the 1930s (Doerr et al. 2019). The country saw one of the worst depressions on record, with output contracting by more than a quarter, and sky-rocketing unemployment. Germany’s slump was aggravated by a severe banking crisis in the summer of 1931, which helped turn an ordinary recession into the Great Depression (Figure 1). The crisis was triggered by the collapse of Danatbank, one of Germany’s four big universal banks. ...

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Greater economic collapse was one important mechanism that links the banking crisis to Nazi voting. While unemployment did not affect Nazi votes, income declines driven by exposure to Danatbank and Dresdner Bank (DD) strongly increased support for the Nazi party (NSDAP) – a one standard deviation decline in income caused by DD was associated with a 4.3% rise in Nazi support (while the average change in NSDAP vote share from 1930 to 1933 was 22%). In contrast, a one standard deviation change in income (not predicted by DD exposure) increased Nazi votes by only 1.1%. 

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The Weimar Republic – Germany’s first experiment with democracy – did not only fail because an ageing and increasingly senile President signed over power to Adolf Hitler (Evans 2004). To be able to make a credible bid for power, millions and millions of voters had to support the Nazi party’s agenda. While few scholars believe that the Nazis’ meteoric rise to power would have been possible without the Great Depression, strong links between economics and radical voting during Germany’s slump has so far proven elusive (Falter 1991, Evans 2004, King et al. 2008). Our research establishes such a link, showing how misery spelled radicalised voting.

Full post here. 

Narrative-building in newspapers during the 2008 financial crises in the eurozone

Bruegel has a study on this subject.

Tales from a crisis: diverging narratives of the euro area

Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim

Who gets the blame for the crisis? How did narratives of the crisis develop since 2007? The authors of this paper tried to identify the key crisis-related topics in articles from four opinion-forming newspapers in the largest euro-area countries.

This paper focusses on an issue that is largely ignored by economic analyses: Europe’s fragmented public sphere, a feature that distinguishes the euro area from other major currency areas. At the national level, public opinion is formed through mass media, which provides a platforms for public discourse (McCombs et al, 2017), but the European Union and the euro area lack a common public sphere (De Beus, 2010). In the context of the euroarea crisis, it has been argued that the lack of common European communication channels constitutes a missing link that holds back national discourses from converging on common framings when it comes to economic policy priorities (Müller, 2016). Our analysis identifies historical trends in narrative building linked to the crisis in order to inform the current debate on euro-area governance reform.

We analysed a set of newspaper articles published between 2007 and 2016 in the four biggest euro-area countries – Germany, France, Italy and Spain. We were able to observe the evolution of newspaper coverage of economic policy topics over time and to compare similarities and differences between countries. Our specific objective is to dig deeper into the question of whether there is scapegoating underway in terms of responsibility for the crisis. More broadly, our analysis can help in understanding the difficulties euro-area policymakers face when it comes to formulating solutions that are both appropriate and commonly acceptable.

Executive summary

Economic analyses largely ignore Europe’s fragmented public sphere, a feature that distinguishes the euro area from other major currency areas.

This Policy Contribution identifies how narratives of the crisis developed since 2007, by identifying the key crisis-related topics in articles from four opinion-forming newspapers in the largest euro-area countries (Germany’s Süddeutsche Zeitung, France’s Le Monde, Italy’s La Stampa and Spain’s El País). In particular, the analysis considers where blame for the crisis has been laid with the aim of informing the current debate on euro-area governance reform. Such an exercise can help to understand the difficulties euro-area policymakers face when it comes to formulating solutions that are both appropriate and commonly acceptable.

The analysis showed that Süddeutsche Zeitung blames everyone but Germany, the chief suspects being Greece and the European Central Bank; the paper stresses the need to return to a perceived status quo of stability and fairness. Le Monde blames everyone including the French political class, but largely refrains from criticism of European institutions such as the European Commission and the European Central Bank. La Stampa sees Italy as the victim of unfortunate circumstances, including the European Union austerity measures promoted by Germany, and Italy’s own politicians. El País primarily blames Spain for misconduct during the boom years preceding the crisis.

This picture of differing narratives shows that each euro-area country faces different pressures from its respective public when discussing how to press ahead with effective euro-area governance reform. The global financial crisis and the subsequent recession had quite different effects in different euro-area countries. Therefore, it is unsurprising that the narratives differ in the four papers. National problems and solutions took centre stage in national discourses leaving systemic euro-area issues largely unmentioned.

Pdf here