During a public speech in April, German Finance Minister Wolfgang Schäuble famously attacked the ECB’s expansive monetary policy, accusing it of fueling rancor among eurosceptic voters. Negative interest rates were painful for thrifty German households, who were becoming increasingly susceptible to the appeals of Alternative for Germany—the new xenophobic political formation currently scuppering the German political system. Although many interpreted his words through the lens of German nationalist overtones, Schäuble may have unconsciously captured one of the most critical factors determining political dynamics throughout the Eurozone. The sense of decline gripping the middle class is stoking radicalism and eroding the consensus for democracy and a unified Europe. It is important to acknowledge and address the implications of a destabilized middle class, reassuring voters of the long-term prospects for average individuals in a tumultuous economic and social landscape.
There are many structural reasons for the erosion of the central layer of European (and, even more so, American) society. One of them is globalization. Job automation and demographic factors are also endangering the sustainability of the welfare state. However, lax monetary policy is currently playing an unusual and amplifying role. Although very low interest rates are ultimately necessary for rekindling consumption and investment, they can also contribute to the erosion of the sense of economic stability highly valued by the middle class, particularly in Germany. This can happen in three ways: interest rates close to zero endanger the stability of pension systems; lower yields on personal savings heighten uncertainty over the future value of today's earnings; finally, the decline in financial yields disproportionately increases the wealth accumulated by the upper class and widens the income gap.