This is an audio transcript of the FT News Briefing podcast episode: ‘Germany’s debt brake problem’
Marc Filippino
Good morning from the Financial Times. Today is Tuesday, February 25th and this is your FT News Briefing.
The US and Europe squared off at the UN yesterday. And Germany’s incoming leader has a pretty big to-do list. Plus, lots of US companies are putting their sustainability projects on the back burner, but not the commodities giant ADM. I’m Marc Filippino, and here’s the news you need to start your day.
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The US voted against a UN resolution condemning Russia’s full-scale invasion of Ukraine yesterday. Since Donald Trump returned to the White House, the US has almost done a complete 180 on its stance on the conflict. Yesterday’s vote was the latest move in that turnaround. Trump has been trying to negotiate with Moscow to end the war. He said yesterday that he was open to forging an economic deal with Russia.
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Friedrich Merz might have just won Germany’s high-stakes election, but he won’t have a ton of time to celebrate. The leader of the Christian Democrats has a lot on his plate. He needs to pull his country out of its economic slump, wrangle a divided Europe and figure out how to support Ukraine. But in order to do all of that, Merz will first have to tackle something called the debt break. The FT’s Laura Pitel joins me now from Berlin to explain. Hey, Laura.
Laura Pitel
Hey, Marc.
Marc Filippino
OK, so first things first. Just explain this whole debt break thing. What is it exactly? And why is it so important?
Laura Pitel
So the debt break has become a kind of national institution, or as its critics call it, a fetish. It was enshrined in the constitution after the financial crisis, and it basically limits the amount that the German government can borrow to 0.35 per cent of GDP. So basically, it ties the hands of any government and really seriously limits how much they can borrow. Germans are very funny about taking on debt, and they’ve spent many years preaching to others in Europe about how they mustn’t take on too much debt. But the problem is that Germany badly needs all kinds of different investments, and a lot of economists just think they can’t do that without reforming this rule.
Marc Filippino
And what sort of role has the debt brake played in German politics up until this point?
Laura Pitel
Well, it became a huge bone of contention during the government that is on its way out, led by Chancellor Olaf Scholz. The government had huge challenges because its period was dominated by Vladimir Putin’s full-scale invasion of Ukraine, which created an energy crisis and also massively increased the country’s defence spending needs. So after the invasion, Scholz announced a special €100bn fund to support the German armed forces. That required a change in the constitution to allow that to happen. But it didn’t stop the three parties and his coalition government from constantly bickering about spending and ultimately it triggered their downfall. Scholz fired his finance minister in November, and that triggered early elections, which finally happened this weekend.
Marc Filippino
So if this €100bn fund couldn’t get approved without bickering, that means any additional spending by Merz is definitely going to be contentious. The problem is, Laura, he needs to push through these changes on the debt break. Can he do it?
Laura Pitel
Well, the first thing to say is that Merz’s CDU has always been very fiscally hawkish, and their manifesto says that they are opposed to changing the debt brake in any way. That has changed pretty dramatically less than 24 hours after the election result.
The configuration of the new German Bundestag is such that it means that parties opposed to changing the debt brake to fund higher defence spending control a third of the seats in parliament. It matters because to alter the debt brake, you need a supermajority of two-thirds of the Bundestag because it’s constitutional change, and Merz doesn’t have that. And yesterday, he suggested that he might be open to doing something really quite unusual, which is using the old Bundestag majority, the one that’s about to be a thing of the past, to vote through a change in the debt brake because he’d have the votes in the old parliament, but not in the new one.
Marc Filippino
But how can he do that if Merz is not yet chancellor?
Laura Pitel
So there’s a slow transition of power. Merz has to try now to form a government, almost certainly with Scholz’s Social Democrats as the junior partner. That’s gonna take some time. And there’s a 30-day window where the old German Bundestag can still be convened and vote on any urgent matters.
Marc Filippino
OK, so there’s this narrow window where Merz, with the help of Scholz, might be able to just push this debt brake change through. But I guess I’m wondering, what’s at stake more broadly if Merz isn’t able to do it?
Laura Pitel
So I think there’s two sets of consequences. One is for Germany itself, the country badly needs investment in its infrastructure. At the same time, this incredibly challenging geopolitical environment, with basically the threat that decades-long security guarantees provided by the US to Europe are not gonna exist any more. Both of those challenges require money, billions and billions of euros. And although Merz has said in the past that he can find the money through savings, and also by boosting economic growth and thus generating more revenues, not many experts actually think that he can pull that off. Just the entire future of the continent of Europe is at stake here.
Marc Filippino
Yeah, no big deal. That’s the FT’s Laura Pitel in Berlin. Thank you, Laura.
Laura Pitel
Thank you, Marc.
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Marc Filippino
President Donald Trump is all about bringing more manufacturing back to the US. And it looks like Apple is trying to tap into that. The company said yesterday it would hire 20,000 people in the US over the next four years and invest at least $500bn domestically. That includes spending on American suppliers and data centres, plus new initiatives like a training academy in Michigan. But Apple still relies heavily on suppliers and manufacturers in China to produce iPhones and other devices. That means the company is particularly vulnerable to Trump’s additional 10 per cent tariffs on Chinese imports.
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The US commodities trader Archer Daniels Midland, or ADM, is doing something . . . well, it’s kind of doing something unusual these days. It’s sticking to its climate commitments. Now, a lot of companies have been doing the opposite. There’s been a lot of backlash against the green transition. And now we’re seeing looser regulations under President Donald Trump. The FT’s Susannah Savage is here to tell me what it means and why ADM is bucking the trend. Hi, Susannah.
Susannah Savage
Hey.
Marc Filippino
All right, so tell me more about ADM’s thinking here. What sort of sustainability commitments is it sticking to and why?
Susannah Savage
The main way it’s doing this is with regenerative agriculture. So this is a farming approach which is designed to improve soil health and also capture and store carbon in the soil. So according to ADM, so far, they’ve rolled out regenerative programs in around 3mn acres, which has captured about 500,000 metric tons of CO₂ annually, the equivalent of taking 135,000 cars off the road. And they’re going to extend this to a further 2mn acres. So this is the main way that they’re cutting CO₂.
I was speaking to Ismael Roig, ADM’s president for Europe, Middle East and Africa. He said that, you know, climate change is here to stay. He said he doesn’t think it’s a thing that you can just shrug off and forget about. So I think the thinking there is that companies are going to be affected by climate change. It’s not going to go away. And so they have to continue to take action on it.
Marc Filippino
And how unusual is ADM’s move here? I mean, to what extent are other companies walking back some of their green targets?
Susannah Savage
So we have seen some companies sort of deprioritise sustainability and climate change, or say that it’s no longer a focus for them. Now this is all happening in the wake of the Trump administration rolling back a lot of green commitments. The major part of this is that the US is now no longer part of the Paris climate accord, and that makes the environment a lot more relaxed for companies operating in this space to ease off on their sustainability commitments. There have also been other things, like the halting of the IRA funding, which was funding things like sustainable agriculture programs.
Now, the agrifood industry is a really big contributor to global emissions, one of the largest. If you take it as a whole, you know, including farming and transport, from farm to fork, then it accounts for up to 37 per cent of global emissions, according to the Intergovernmental Panel on Climate Change. That’s a huge contribution as a whole.
Marc Filippino
And ADM is a big part of that industry. To be clear, it is a massive company. But is what it’s doing enough to offset other companies backtracking from their climate goals? I mean, where can environmental advocates look for help?
Susannah Savage
So one thing that Ismael did point out in our discussion was that where there have been companies looking at stepping back their commitments, that tends to be in the US. So somewhere you might look for hope is Europe. Europe has seen a political shift as well. But I think generally companies based in Europe or have a significant footprint in Europe are going to remain committed to their sustainability goals, or at least according to those who I’ve spoken to.
Marc Filippino
Susannah Savage is the FT’s commodities correspondent. Thanks so much, Susannah.
Susannah Savage
Thanks very much.
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Marc Filippino
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 latest business news.
