This is an audio transcript of the FT News Briefing podcast episode: ‘Will Germany ban the far-right AfD?’
Sonja Hutson
Good morning from the Financial Times. Today is Thursday, May 22nd, and this is your FT News Briefing. Telegram’s profits beat the odds, and a jump in Japanese bond yields highlights a global risk. Plus, Germany is considering a controversial ban on the country’s far-right AfD party.
Laura Pitel
What do you do with a party that is anti-democratic, that is openly racist, but is also really popular?
Sonja Hutson
I’m Sonja Hutson, and here’s the news you need to start your day.
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Telegram’s profits jumped last year to $540mn. That’s despite the ongoing threat of a lawsuit against its founder, Pavel Durov. Durov faces charges from French authorities around the app’s alleged failure to address criminality on its platform. Telegram’s bumper earnings were shared with potential backers ahead of a $1.5bn debt sale this week. Documents seen by the FT suggest that Telegram has been boosted by a surge in paying users and gains from the cryptocurrency it founded.
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Yields on the Japanese bond market soared to a record high this week. It comes as the Bank of Japan has embarked on a normalisation of monetary policy. Now the effects of that are being scrutinised. The FT’s Ian Smith has been reporting on this and he joins me now. Hey Ian.
Ian Smith
Hello, hello.
Sonja Hutson
So, tell me what we saw on Tuesday in the bond sell-off in Japan. Break it down for me.
Ian Smith
So, as you say, long-dated yields in Japan hit a record high. It was partly because we had a bad auction of 20-year Japanese sovereign debt, and there were also concerns in the market about the Bank of Japan, which has been tapering its purchases of long-term debt. So you’ve had this long-running bond sell-off in Japan from the reawakening of inflation in the Japanese economy, and then you had these catalysts to make people particularly concerned about long-term debt.
Sonja Hutson
Yeah, you mentioned the Bank of Japan tapering its purchases of long-term debt. Can you tell me more about the pivot that we’re seeing from them?
Ian Smith
So, Japan for years ran ultra-loose monetary policy, negative interest rates. You had Japanese yields near zero or sub-zero territory and massive asset purchases from the Bank of Japan. Now, they’ve been trimming those bond purchases, but they’re also consulting with market participants about how much further they should go in that. And some people in the market are growing concerned about the level of demand for long-term Japanese sovereign debt and seeing the prices of that fall, pushing up yields sharply. And so how much further the Bank of Japan goes in terms of scaling back its purchases of that debt at a time where they’re also trying to normalise interest rates is critical for the market.
Sonja Hutson
And what was the global impact from the move on Japan’s bond yields?
Ian Smith
You did see yields in other sovereign bond markets get dragged higher, and what it fed into is this global creeping concern around demand for long-dated sovereign debt. So we’ve seen yields rise and sovereign yield curves, that’s the additional interest rate paid on long-term debt against short-term debt rise further. We’ve seen that steepening of yield curves in the UK, in the US, in Japan. So that it’s fed this broader concern. It’s also making people question whether Japanese investors, which have been big buyers abroad, will now bring more capital back into the home market because of those rising yields. And that could be a source of volatility and some people argue it already has in other markets as Japanese investors decide to use their money at home or bring home money from abroad because of the higher interest rates on offer in their home market.
Sonja Hutson
So, what are the broader implications then on the global debt market?
Ian Smith
That rise in long-term bond yields is a problem for countries that are trying to borrow at record levels. The steeper yield curves, the greater interest rate that they’re having to pay on long-term debt. We’ve seen the UK respond by shortening the maturity of its debt issuance, so issuing less long-term debt and more short-term debt as a proportion to try and improve value for money for the taxpayer. And you’ve seen some people call for Japan’s Ministry of Finance and the US Treasury to do the same. But that creates other challenges. Countries like to have a well-functioning government bond market at all points along the curve and to make sure that they are still providing enough long-term debt to the market. So it’s a delicate balance for debt managers in developed economies to strike.
Sonja Hutson
Ian Smith is the FT’s senior markets correspondent. Thanks, Ian.
Ian Smith
Thank you.
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UK inflation rose more than expected in April. It’s now at 3.5 per cent. In March, the consumer price index figure clocked in at 2.6 per cent. Higher utility bills and taxes contributed to the jump. And analysts say the Labour government’s increase in an employer national insurance programme also stoked April’s prices. Traders are now pricing in just one interest rate cut from the Bank of England over the next year, before they were betting on two.
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Germany’s Alternative for Deutschland party could be on the brink of a ban. The country’s domestic intelligence agency labelled the AfD a far-right extremist organisation earlier this month. And now some prominent lawmakers say it’s time for the party to be outlawed. But others are worried the AfD might be too big to ban. It won more than 20 per cent of the votes in Germany’s recent election. Here to talk through the decision is my colleague Laura Pitel in Berlin. Hi, Laura. (Hi) OK, so newly elected chancellor Friedrich Merz and the Bundestag have to decide whether to ask the constitutional court to start the process of a ban. Walk me through why that is such a sensitive issue.
Laura Pitel
Well, the first thing to say is that this all goes back to Germany’s Nazi past. The postwar constitution which was partly aimed at preventing the rise of a far-right party again in the way that the Nazis rose to power using democratic means and then taking them over and undermining democracy from within. So the starting point is to understand that Germany has this provision. With the AfD, the problem is that they won 21 per cent of the vote in February’s election. They’re the second most popular party. So, what do you do with a party that is anti-democratic, that is openly racist, sees migrants and Muslims as second-class citizens, but is also really popular? And that’s the dilemma that German politicians now find themselves in.
Sonja Hutson
Well, let’s parse through that dilemma a little bit. What is the argument for the ban?
Laura Pitel
They say, first of all, Germany’s constitution has this provision, you know, why would we have it if we didn’t want to use it? And they say that democracies need to fight to protect themselves, including from parties that want to destroy them from within. A more pragmatic argument is that it could split the party. There are different currents within the party, some more radical, some more moderate, and the idea that a ban or a threat of a ban could break off the more radical elements. It could also stymie their funding, you know, put practical obstacles in front of them and make it harder for them to operate. At least take the sting out of it a little bit. That is what you hear from some of the advocates of the ban.
Sonja Hutson
And what do critics of the ban say?
Laura Pitel
There’s lots of critics of the ban. I mean, Friedrich Merz, the new chancellor, is one of them. He says, you can ban a party, but you can’t ban 10mn voters. You know, getting rid of the party doesn’t get rid of the grievances that are there. There are lots of practical considerations. Banning a party is actually a very difficult thing to do in Germany. There are very high hurdles. I’ve heard some experts warn that they’re trying to ban the party and then failing would be also a huge coup for the AfD by saying, we tried to ban them, but it didn’t work, so clearly, they’re a legitimate party. So there are quite a lot of arguments out there against the ban.
Sonja Hutson
Yeah, it sounds like it could just potentially add more fuel to the fire. Laura, I’m also curious, you know, we’ve seen this rise of the far-right over the past decade across Europe. How does what’s happening in Germany with the AfD fit into that larger narrative?
Laura Pitel
Well, obviously, in some ways, it’s part of this bigger picture, this bigger trend, a backlash against mainstream parties. A rise of more extreme groups on the far-right. But there are also other ways in which it’s, like, fascinatingly different. So I think one discrepancy that you see versus, say, France with Marine Le Pen or with Italy and Giorgia Meloni is that the AfD has actually been radicalising, Whereas those leaders and groups have been moderating in an effort to reach out to more voters, and that’s caused some other European parties to shun them. You see them embracing really hardcore figures. They play with former Nazi slogans. So they’re a party that has been bucking the trend in that regard.
Sonja Hutson
Laura Pitel is the FT’s Berlin correspondent. Thanks, Laura.
Laura Pitel
Thanks for having me.
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Sonja Hutson
You 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.
