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

Good 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. To stable coins. There's a real feeling that the US 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.

The U.S. Senate confirmed Kevin Walsh 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 two thousands. US President Donald Trump is expected to sign off on his confirmation, but Walsh has to sell off more than$130 million in assets before he steps into his new job.

Jay Powell could remain chair until that settled. Walsh enters the role with an American economy that's facing high inflation. Data from this week showed sharp price rises in April.

The 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, Sonya. So Martin, I said that the BOE is planning to soften its proposed restrictions on stable coins. What would that look like?

Yeah. So there's two key areas that the Bank of England is is planning to revise its proposals on. The first one is on holding limits. So the central bank has proposed that individuals will be restricted to owning no more than twenty thousand pounds per coin.

and businesses will be uh limited to owning up to ten million pounds. The second proposal that the Bank of England is looking at is its requirement for at least forty percent 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 forty percent requirement somewhat. And what's behind this pivot, Martin? This is being driven by concern that the UK is too restrictive here on stable coins and he's going to miss out on the opportunity that digital assets and stable coins 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 that went through Congress last year and ninety eight percent of stable coins in the world being US dollar based. And there's a a real danger that we could be left behind here in in Britain. So, 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 th 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 stable coins have too much of their assets invested in securities, that could increase

the volatility of those securities if stable coins become unstable, but it could also make stable coins more unstable. So 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. One is That banks represent seventy, eighty percent of the funding of credit to the economy, whereas in the US,

uh it's thirty or forty percent. So a much greater reliance on banks here. So we have to be more careful. And the second point is that in the US 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 US Martin Arnold is the FT's financial regulation editor. Thanks, Martin. Thanks very much.

The war in Iran has rattled Germany's relationship with the US, 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 US-led conflict. The party is now pulling ahead of the ruling Christian Democrat. Anne Sylvain Chassiny 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, Ann Sylvain. 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? And so the alternative for Germany is not a good thing. Really far right. If you look at the spectrum uh in Europe, it has campaigned on mass deportation. I mean they use the term remigration in German, it has connotation it from the Third Reich.

So they have attracted um some very far right elements in their party. So um Alternative uh for Germany has over the past few years really tried to get closer to the MAGA movement. But we've seen um a very big shift since the Iran war actually, where you know the AFD is now really disa 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 US Vice President JD Vance.

Why has the war in Iran changed that relationship? Because uh I mean the Iran war is really hitting people's wallet here. I mean it has very concrete Uh 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 and so the the AFD was very quick in spotting that actually.

In the eastern side of the country, where the there are elections very soon in September, you have a deep seated anti American sentiment that's been there forever, you know, the former communist state.

And this message criticizing the Iran war and the Trump administration is actually a message that is um 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 US-led conflict, but only the AFD seems to have been able to capitalize on it. Why is that? Because Matt is taking the brunt of uh 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%. Yeah. Uh going back to the alternative for Germany, you know, uh 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 it's interesting so the AFD, contrary to other your right wing purpose movements in Europe, it does not feel the need to uh go mainstream, uh actually it's classified as extremist um 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 um has sixteen federal states and there's one Saxony and Hart which is holding elections in September.

And 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 uh upper house, the Bundesrat. And uh yeah, this would be a big, big political earthquake, even though uh we're talking about very small state, two million people out of eighty four million, you know, in total. An Sylvain Chassiny is the FT's Berlin Bureau Chief. Thanks, Anne Sylvain. Thank you.

Before 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.

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 In business. Innovation because it's not a good thing. of imagination. It's what defines us. That's why we're number two in the QS World Rankings. Your study business alongside brilliant minds in technology, engineering, and medicine. To spark ideas. Pathways for the leaders of tomorrow. Search in Pyrrhus.

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