Illuminating the Arts-Policy Nexus 

By Peter W. Atwater

Over the weekend, The New York Times reported that a public referendum to change the German constitution “to allow Germans to relinquish some executive authority” to European policymakers in Brussels was gaining support from German political leaders and policymakers.

What German leaders do not fully appreciate is that the more they see a referendum as a political necessity, the less likely the referendum itself is to pass. Worse, referenda do not signal leadership strength.

Public referendums almost always accompany weak social mood.  For those not familiar with socionomics, social mood can be thought of as a group’s underlying level of confidence and a measurement of how positive or negative that group feels.  While consumer confidence indices are helpful in measuring social mood, major stock market indices are even better real-time measures. During periods of rising mood, voters’ growing confidence naturally transfers greater and greater authority to increasingly centrist political leaders.  Power becomes concentrated in a small group of political elite. Consider, for example, that a decade ago as European social mood (and the regions's major market indices such as the Eurostoxx 600) were peaking, one could use the term “European leadership” without knowing its specific composition, and with little doubt in that class's authority to not only act, but act in a cohesive, unified manner.

Today, European leadership is increasingly fragmented, both in the European Parliament and inside member states. As witnessed by the  extreme dispersion of votes from far left to far right in the Greek elections earlier this spring, voters have become much more individualistic. Thanks to very weak social mood, political decisions are reflecting a “me, here, now” attitude in which short-term self-interest is paramount.

That German policymakers, like Greek leaders before them, are responding to this societal fragmentation—if  not outright atomization of interests—with a proposed referendum is not at all surprising. During weak social mood periods, representative governments are forced to play “Mother may I” with voters out of political necessity. Those who don’t play risk near-certain expulsion.

The problem with the rumored German referendum is that it runs counter to the country’s increasingly weak social mood on two fronts.

First, as The New York Times article itself suggests, Germans are being asked to “relinquish” control. During periods of weak social mood, immediate losses of all kinds weigh far more on the minds of voters than any long-term gains. With weak mood comes a sense of finiteness.  Voters perceive a zero-sum game devoid of collective success, where my “relinquishment” is someone else’s certain gain. As we see in so many situations today, convincing voters of short-term sacrifices for long-term benefits (even their own personal benefit) is politically challenging.

Compounding this challenge for German policymakers is the fact that voters are not only being asked to “relinquish” control but are also being asked to voluntarily pass that control to non-Germans. As European leaders have seen over the past 60 years—even during periods of rising mood—these kinds of transfers are a challenge. (Even at the peak of European social mood in 2000, European policymakers could only achieve a monetary union; political union was unattainable.) With mounting weak social mood-driven nationalism, if not outright tribalism, the odds of German voters opting to voluntarily “relinquish” control to Brussels is not just remote, but near-impossible. Unless German voters clearly see the dire consequences of their own failure to act in front of them, there is very little chance of voter approval.

Finally, by proposing a referendum, German political leaders may have also inadvertently exposed their own increasing, weak social mood-driven, political impotence. “German leadership,” just like “European leadership,” now lacks a clear definition. Rather than speaking as one unified voice, German policymakers’ increasingly conflicting messages are today coming from all branches of national and regional government, not to mention the Bundesbank. And the “me, here, now” choices are becoming obvious. 

Market participants and global policymakers would be wise to consider what it means for the road ahead if those in the driver’s seat feel they must pull to the side and poll the passengers before putting the car back in gear. Unfortunately, trends around the globe today suggest that thanks to weak social mood, Germany won’t be the only country to pull over.

As for passengers, I’d suggest buckling up.

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Peter Atwater is the President of Financial Insyghts LLC. and the author of Moods and Markets (FTPress).

[Photo courtesy of S. Borisov]