Swatting 'Locusts': Germany and the EU Take Aim at Investment Funds

“For the locusts in the finance sector, a new age is dawning.” This is how German Social Democrat and Member of the European Parliament Udo Bullmann commented on the prospect of new EU-wide regulations for hedge funds.

Bullmann is the spokesperson on economic matters for the delegation of German Social Democrats in the parliament. Bernhard Rapkay is the chair of the Social Democratic group, and Rapkay is quoted saying exactly the same thing in his own press release. “It is high time that we get serious about regulating highly speculative funds,” Bullmann and Rapkay continued unisono. “Europe cannot look on without doing anything when financial gamblers are driving whole countries or branches of industry to the wall.” Party discipline in the German Social Democratic Party appears to be very strong indeed!

The comments were made last Tuesday after the parliament’s Committee on Economic and Monetary Affairs voted in favor of a new European Union directive regulating “alternative investment fund managers.” Later that day, the finance ministers of the 27 EU member states likewise gave their nod to the directive. The action had long been resisted by the United Kingdom, where some 80% of Europe’s hedge funds are said to be based. But on the urging of Germany, the matter was now brought to a vote. “That’s the way it is in Europe,” German Finance Minister Wolfgang Schäuble remarked dryly. “There are decisions that are taken against [the will of] a single member state.” A final version of the law has still to be approved by the full parliament.

The move came amidst widespread talk in Europe of a full-blown “euro-crisis” and vague accusations that financial actors were guilty of “speculation” against the securities of highly indebted EU states like Greece and/or against the euro itself.

The Social Democrats’ “locusts” comment harks back to April 2005, when then party chairman Franz Müntefering launched an attack on investment funds, charging that:

Some finance investors don’t waste a moment’s thought for the people whose jobs they are destroying. They remain anonymous, faceless, they descend on enterprises like swarms of locusts, pick them bare and then move on.

The Social Democratic group in the German Bundestag would subsequently put together a so-called “locust list” naming the financial investors targeted by Müntefering’s remarks: KKR, Apax, BC Partners, Carlyle, Advent, Permira, Blackstone, CVC, and Saban Capital. Almost all of the named firms were U.S.- or UK-based private equity firms. KKR, or Kohlberg Kravis Roberts, would reportedly come in for particular criticism in the document: notably, for a deal that it made in conjunction with none other than Goldman Sachs. (Although the list was not published, its contents were revealed in reports from the Frankfurter Allgemeine Zeitung and Stern, here and here respectively.)

The comparison sparked controversy, especially after historian Michael Wolffsohn accused Müntefering and the Social Democrats of using rhetoric reminiscent of Nazi screeds. Indeed, as the German journalist Ulrich Speck pointed out at the time in a (no longer available) blog post, the “swarm of locusts” metaphor had a long history in anti-Semitic discourse dating back to at least the early 19th century. It is used, moreover, in the infamous Nazi propaganda film Jud Süß (“The Jew Süss”). In the film, the Jews are said “to descend upon our country like locusts.” Implicit in the German discussion -- though rarely if ever stated openly -- was the fact the Nazis had, of course, always associated Jews with finance, and vice-versa, and that this association was indeed an essential part of their anti-Semitism. (The “Jew Süss” to whom reference is made in the title of the eponymous film, for instance, is the 18th Century Jewish financier Joseph Süss Oppenheimer.)

The Social Democrats reacted indignantly to the criticisms. But it did not help the credibility of their cause when Germany’s biggest trade union, IG Metall, published a cartoon depicting the famous “swarm” of financial investors as seen below. (For a discussion, see my contemporaneous blog post here.)

That the Social Democrats would triumphantly bring out their “locust” bon mot again now is particularly troubling when one considers that the EU’s current offensive against hedge funds appears to be all about offering up a convenient scapegoat to public opinion, as opposed to addressing the fundamental problems underlying Europe’s debt crisis. Anti-Semitism, after all, has always been a matter of finding a scapegoat.

Thus Hans-Peter Burghof, professor of economics at the University of Hohenheim, bluntly told the German daily Die Welt, “Greece is having difficulties because of excessive debt, not because of any hedge funds.” As to the question why, then, German and European authorities appear so eager to regulate hedge funds, Burghof added, “One wants now to place someone else in the line of fire.”