Bertrand Benoit
Appearances
The Journal.
Germany's Economy Is Broken. There's No Plan B.
Europe's largest economy stands at a turning point.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So the economy has shrunk for the past two years. And these two years of recession in a row, it's not really something that German voters have any experience of. It's not something that they've lived through in the past. And the economy has been gaining in significance for voters for the past year. It's really been the dominant topic.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So the thinking among most economists is that there are some real structural challenges that the country is facing. Germany is used to selling its goods to the entire world. But the entire world is not as interested in buying Germany's goods as it used to be.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
In everything. It really is across the board. It's corporate investment. It's research and development. It's investment in factories and so on. But it's also state investment. It's also infrastructure investment. Infrastructure is very decrepit in Germany. Transport infrastructure. The trains famously no longer run on time. The power grid is outdated.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
It's struggling to transport power from A to B. you know, from where it's produced to where it's consumed. The education system is not performing. The government is largely analog and needs to be digitized. It's very inefficient. So a lot of this, there's a lot of catching up to do.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So she wants a smaller state, lower taxes, deregulation. She wants lower costs for companies. But she has also other ideas that are more controversial and that are more unique to the FDA. She wants Germany to leave the EU, the European Union, and give it the euro, return to its own currency.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
He is thinking, if you want to sum it up, it's that the German economic model is not entirely broken and doesn't need to be reinvented from scratch. It can be fixed through making it more competitive in decreasing the costs that are piling on business, decreasing taxes, red tape and so on.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So the main challenge, the way I see it, is that you need to do two things that are a little bit in conflict with one another. On the one hand, most economists think you need to apply some of the recipes that Merz is calling for. You need to remove some of the shackles on business. And for that, you need to make the state smaller. The state needs to retreat in terms of taxes.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
At the same time, and that's the contradiction, you need probably to make the state also bigger. And the reason is because there is a lack of investment in Germany. And if Germany is going to generate more of its growth internally... that is not just through exports. Right. It will need to spend more of its money at home.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
And that's something that's going to be very difficult for the parties that will be in the next government or that are likely to be in the next government to agree on.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So there's something tragic to the situation of Germany because it is a country that has been selling its products around the world that is quite unique in that way. If in the future, Germany has to rely more on its own growth, on consumption and investment at home, many of these businesses think that the market is just going to be too small for them to survive, you know.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
There is some concern here that at the end of the day, even if Germany has a more balanced economic model, relies a little bit less on exports and a little bit less on manufacturing, a bit more on consumption and services and domestic growth, it's just not going to be as wealthy as it has been so far.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
Well, it could mean a loss of economic might and influence for Europe. If Germany is not doing well, you know, German companies have manufacturing all across the EU, not just in Germany. And if jobs start getting lost, that's also going to affect neighboring countries. So what's bad for Germany is not going to be good for Europe.
WSJ What’s News
Trump Spurs European Race to Rearm
We've definitely started to see a real shift. And the main clue for this is that we're talking about real numbers now, not just intentions.
WSJ What’s News
Trump Spurs European Race to Rearm
The dynamic is important here because Germany is the biggest country in the EU and the biggest economy. And it's always been the one that was pulling in the other direction and telling others not to spend too much, not to run too high public debt. And now Germany suddenly is pulling in the other direction.
WSJ What’s News
Trump Spurs European Race to Rearm
And so the idea is that this will give cover for others to raise spending, even if it means borrowing more and running higher public debt for the time being.
WSJ What’s News
German Vote Boosts Europe’s Centrists
The meta picture here is that the whole country is lodged to the right, in a way much like the whole of Europe has.
WSJ What’s News
German Vote Boosts Europe’s Centrists
Merz is an establishment conservative. He has a pretty middle-of-the-road conservative agenda. But the twist now is that he has said that Europe would need to become more independent of the US. And that's, of course, related to the support that some people around Trump gave to the right-wing AFD, which is a rival of the CDU party, Merz's party, during the campaign.
WSJ What’s News
German Vote Boosts Europe’s Centrists
What should we make of that? So the meta picture here is that the whole country is lurched to the right in a way much like the whole of Europe has. So it's not just the rise of the AFD. Merz has pushed his party back to the right after Merkel pushed it to the center. and he's campaigned for a much more conservative agenda, including on the economy and immigration.
WSJ What’s News
German Vote Boosts Europe’s Centrists
The FDA is aligned with the CDU on some issues, but it's also very, very different on other issues. It's called for the lifting of sanctions on Russia. It's pretty Moscow-friendly. It's also in favor of Germany leaving the European Union and abandoning the euro. And it's a little bit ambivalent about Germany's culture of... Holocaust commemoration.
WSJ What’s News
German Vote Boosts Europe’s Centrists
The FDS called for Germany to stop emphasizing that part of its history, which again sits very uncomfortably with the CDU.
WSJ What’s News
German Vote Boosts Europe’s Centrists
So I think the market reaction reflects the thinking that Merz's path to forming a government is probably a little easier than it might have been had we had a more split parliament. Merz has called for tax cuts and lower regulation and generally a pro-business, supply-side economic program. The SPD, the likely coalition partner, wants the state to invest a lot more.
WSJ What’s News
German Vote Boosts Europe’s Centrists
And that could also boost growth. So the market is seeing an outcome that is likely to be favorable for them. Whether all the policies can be agreed quickly, we'll have to see.
WSJ What’s News
Boeing Wins Contract For Next-Generation Jet Fighter
It's not necessarily going to be a big fight. It's more going to be technically complicated. So you have two things. You have a 500 billion infrastructure fund, which is limited in size and in time. It runs over 12 years. And then on the other hand, we have the military spending. And there, what you have is unlimited in time and in scale. So essentially...
WSJ What’s News
Boeing Wins Contract For Next-Generation Jet Fighter
What the Germans have decided is that any spending that is higher than 1% of GDP is not going to be subject to the fiscal rules that the country has. And so essentially, Germany will be able to spend as much on the military going forward as investors are ready to lend to it.
WSJ What’s News
Boeing Wins Contract For Next-Generation Jet Fighter
That's a very interesting question, because initially we had an interview with Friedrich Merz, who was in line to become the next chancellor, just before the election. And one of his messages at the time was that he would encourage German military to invest more in U.S. hardware. Now the tables have turned a bit because there is this sense that
WSJ What’s News
Boeing Wins Contract For Next-Generation Jet Fighter
The security of Europe is no longer a priority for the U.S. and therefore that perhaps Europe should be looking after its defenses on their own. And that means supporting their own defense industry. And there's a higher likelihood that given the choice, the procurement will go to European defense companies and this being Germany to German defense companies.
WSJ What’s News
China Hits U.S. Goods With 125% Tariff
The Iranian wants to be back to the 2015 nuclear pact, which is curbing the enrichment of their civilian program and get sanctioned relief in exchange. The U.S. has a bigger view. They minimum wants no nuclear weapon and they'd like to discuss the ballistic program. There's been initial statements from the U.S. saying that they wanted even the civilian program to be dismantled.
WSJ What’s News
China Hits U.S. Goods With 125% Tariff
We're basically on a chess game and the end game is quite open-ended.
WSJ What’s News
China Hits U.S. Goods With 125% Tariff
I think Crick is not enough. For Iran, it's not enough. They had a little bit of breathing space with both China and with Russia, either for commodities, drones or banking. But it's never been a replacement for having an economic relationship with the West. which is really something guided by the dollar and the American banking system.
WSJ What’s News
China Hits U.S. Goods With 125% Tariff
And the evidence of that is basically since Trump was elected, the currency has fallen by 40%. So that brings aliens is a partial alternative. It's a bound aid, but it doesn't resolve the long-term issues that Iran is facing.