World Leaders Face Tough Budget Choices in 2025

Summary

WSJ What’s News: World Leaders Face Tough Budget Choices in 2025
Release Date: December 24, 2024
Host: The Wall Street Journal

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Overview

In the December 24, 2024 episode of WSJ What’s News, The Wall Street Journal delves into the pressing fiscal challenges facing world leaders as they navigate complex budgetary landscapes heading into 2025. The episode covers a range of topics from airline disruptions and international mergers to humanitarian crises and advancements in artificial intelligence. Central to the discussion is the exploration of how political leaders in industrialized democracies are grappling with stagnant economies, voter dissatisfaction, and the intricate balance of fiscal policies.

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Key News Stories

1. American Airlines Technical Outage

The episode opens with a report on a technical issue that temporarily grounded all American Airlines flights for about an hour on Christmas Eve.

• Alison Seider (Aviation Reporter) [01:04]:
  “So it seems like a big Christmas Eve crisis has kind of been averted. There are a lot of flights that got off to a late start and some delays have been mounting as the airline works through it.”
  [01:37]

Despite initial concerns, the outage did not lead to mass cancellations. Alison notes ongoing delays due to the technical hurdles and weather-related challenges, including thunderstorms in Dallas Fort Worth and icy conditions on the East Coast. Although American Airlines saw a drop in shares early in the day, losses were partially recovered as operations stabilized.

2. US Steel's Potential Takeover by Nippon Steel

President Biden faces a critical decision regarding Nippon Steel's bid to acquire U.S. Steel, a move under intense scrutiny for its national security implications.

• Deepa Sitharaman (Journalist) [02:43]:
  “The president has been saying for months that he felt that U.S. steel should be domestically owned, domestically operated. The expectation has been that he's against the deal.”
  [02:43]

Nippon Steel maintains confidence in the approval of their acquisition, emphasizing strategic economic security benefits and partnerships to counter Chinese competition. Conversely, US Steel argues that the merger would bolster the U.S. steel industry's resilience. The government panel reviewing the deal failed to reach a consensus, leaving the final decision to President Biden.

3. Famine Crisis in Sudan

A dire humanitarian situation unfolds in Sudan, where famine is rapidly spreading amidst ongoing conflict.

The International Panel of Experts on the Sudan (IPC) reports that over 600,000 people are now enduring catastrophic hunger. The United Nations and aid organizations accuse Sudan's military factions of obstructing essential humanitarian aid. In response, Sudan's Agriculture Ministry, controlled by the military, has suspended its participation in the IPC system, complicating efforts to monitor and address the crisis effectively.

4. AI Advancement: China vs. OpenAI

The episode highlights significant strides by Chinese startups in artificial intelligence, positioning themselves competitively against American counterparts.

Chinese companies like Deepseek, backed by prominent hedge fund managers, and Moonshot AI, supported by Alibaba and Tencent, claim their AI models rival OpenAI's GPT-1 reasoning model introduced in September. Despite challenges in evaluating these claims, U.S. specialists acknowledge the impressive progress made by these Chinese entities, particularly in optimizing AI training with limited computing resources.

Conversely, OpenAI faces delays with the anticipated GPT-5 model. According to Deepa Sitharaman, the development has stalled due to a shortage of high-quality training data, necessitating the use of synthetic data—an approach fraught with risks such as model collapse.

• Ryan Reynolds (AI Specialist) [05:09]:
  “There's a lot of data on the Internet, but everything good has pretty much been scraped. And so OpenAI and the researchers have had to figure out how do you fill that data gap.”
  [05:09]

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Main Discussion: Global Budget Challenges in 2025

The heart of the episode features an in-depth discussion with Wall Street Journal reporters David Luno (UK Bureau Chief) and Juan Ferrero (South America Bureau Chief) on the fiscal predicaments confronting leaders of industrialized democracies.

a. Global Budget Fights and Voter Dissatisfaction

David Luno provides a comprehensive analysis of the economic stagnation plaguing many developed nations. He attributes the rising budgetary conflicts to minimal economic growth, aging populations increasing governmental expenditure on pensions, and static tax revenues. This economic strain is compounded by widespread voter dissatisfaction with established political parties, leading to a surge in support for anti-establishment and far-right movements.

• David Luno [07:47]:
  “Economies in a lot of these places really aren't growing enough. Coming after the pandemic where economies fell sharply, inflation went through the roof. A lot of ordinary people are feeling poorer after that.”
  [07:47]

b. Case Studies

• Germany and France: Both nations are experiencing political instability. In Germany, conflicting budget priorities between the center-left and center-right parties have led to difficulties in passing budgets, while France grapples with frequent changes in its prime ministerial leadership, complicating fiscal policymaking.

• United Kingdom: Despite having a stable political majority, the UK's Labour Party faces backlash over unpopular budget proposals, including tax increases and subsidy cuts, leading to public unrest and political fatigue.

• Argentina: Contrastingly, Argentina under President Javier Milei showcases a different trajectory. Milei's aggressive economic reforms, including significant regulatory cuts and austerity measures, have begun to yield positive outcomes such as reduced inflation and a budget surplus. However, his administration seeks an IMF loan to sustain these reforms and foster economic growth through increased foreign investment.

c. Insights from Reporters

• Juan Ferrero [10:30]:
  “Argentina is one place where economic pain has weighed very heavily on politics and where the leader, Javier Milei, seems to have taken quite a different approach.”
  [11:30]

• David Luno [10:30]:
  “In the UK, the Labour party won about 34% of the vote. So they came in and very soon thereafter they had to propose a new budget and people didn't like what was proposed.”
  [10:30]

• Daniel Bok:
  “In Argentina, Milei had inherited a pretty disastrous situation... inflation has now fallen quite dramatically. There's now a budget surplus and Milei is talking about trying to get an IMF loan.”
  [11:30]

The discussion emphasizes the universal challenges of balancing economic growth with fiscal responsibility, the rising influence of non-traditional political forces, and the diverse strategies leaders employ to address economic crises.

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Notable Quotes

• David Luno [07:47]:
  “Economies in a lot of these places really aren't growing enough... Populations are getting older and that means more money from the government needs to be allocated for things like pensions.”

• Ryan Reynolds [05:09]:
  “There's a lot of data on the Internet, but everything good has pretty much been scraped... It's also a source of risk if the wrong type of data is introduced.”

• Deepa Sitharaman [02:43]:
  “The president has been saying for months that he felt that U.S. steel should be domestically owned, domestically operated.”

• Daniel Bok [11:30]:
  “Inflation has now fallen quite dramatically. There's now a budget surplus and Milei is talking about trying to get an IMF loan.”

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Conclusion

As 2025 looms, world leaders must navigate a complex web of economic stagnation, demographic shifts, and political volatility. The WSJ What’s News episode underscores the critical fiscal decisions ahead and the potential for significant political repercussions based on how these challenges are addressed. From Germany and France grappling with internal political conflicts to Argentina's bold economic reforms, the global landscape is poised for transformative shifts as nations strive to stabilize and grow amidst adversity.

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Produced by Daniel Bach with supervising producer Christina Rocca. Reporting by David Luno and Juan Ferrero. For more detailed analysis, listeners are encouraged to access previous episodes and related reports.

Transcript

[Gemini]

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[Luke Vargas]

A brief holiday travel snafu after a technical issue temporarily grounds all American Airlines flights plus US Steel's potential takeover by Japan's Nippon Steel goes to President Biden for review and why 2025 could spell more trouble for political incumbents contending with tricky fiscal math around the world.

[David Luno]

In country after country, you're starting to have worse budget fights. At the same time, voters are just unh with their political leadership. This is something that both Europeans and Americans and really voters across the industrialized world can agree on.

[Luke Vargas]

It's Tuesday, December 24th. I'm Luke Vargas for the Wall Street Journal, and here's today's edition of what's news, the top headlines and business stories moving your world today. American Airlines says its flights are resuming after a technical outage led it to halt them for about an hour this morning. However, aviation reporter Alison Seider says that the outage, which affected systems critical to launching flights, hasn't resulted in mass cancellations.

[Alison Seider]

So it seems like a big Christmas Eve crisis has kind of been averted. You know, it obviously takes some time to kind of spool back up. There are a lot of flights that got off to a late start and some delays have been mounting as the airline works through it. But there's also a lot of weather today. Dallas Fort Worth is seeing some thunderstorms and some snow and icy conditions on the East Coast. People are probably a little bit scarred by two Christmases ago and Southwest Airlines had kind of a big meltdown, but so far things seem to be more or less back on track today.

[Luke Vargas]

American Airlines shares started the day lower but clawed back losses over the course of the morning. President Biden is set to decide the fate of Nippon Steel's plan to acquire U.S. steel after a government panel reviewing the deal for national security risks failed to reach consensus. Nippon Steel said it is confident that the transaction should be approved if fairly evaluated, while US Steel argued that its takeover by a Japanese firm would enhance U.S. economic security by forging an alliance in steel to combat competition from China. Journal reporter Bob Tita has more.

[Deepa Sitharaman]

The president has been saying for months that he felt that U.S. steel should be domestically owned, domestically operated. The expectation has been that he's against the deal. Of course, Nippon Steel could try to keep advocating for this under the new Trump administration, although as Trump has already said, he's opposed to the deal multiple times during the campaign as well as after the campaign.

[Luke Vargas]

Hundreds of thousands of people are facing starvation in Sudan, where famine has spread to more areas of the war torn country. That's according to an international panel known as the IPC, which said today that more than 600,000 people are now suffering catastrophic hunger and war. Warned that more parts of the country are likely to face famine as soon as this month, the United nations and other aid groups have accused both Sudan's military and its rival, the rapid support forces, of obstructing the delivery of vital humanitarian aid. Sudan's Agriculture ministry, which is controlled by the military, disputed the IPC's findings and said it's suspending its participation in the IPC system, a step that will likely make it even harder to monitor the hunger crisis going forward. Chinese startups are showing signs of catching up with America's leading artificial intelligence models, and fast. In recent weeks, Deepseek, a startup founded by one of China's most successful hedge fund managers, and Alibaba and Tencent backed Moonshot AI have both said that the capabilities of their models Compare favorably with OpenAI's O1 reasoning model, which came out in preview form in September. Evaluating the claims is difficult, but some US Specialists say they're impressed by this progress. Without access to advanced chips, the companies have found ways to train their models with less computing power, including by mimicking the human trial and error approach. Well, China's advances are coming as OpenAI's promised next great leap in AI is behind schedule and running up huge bills. GPT5, as it's known, has been in the works for more than 18 months, and according to people with knowledge of the matter, Microsoft, OpenAI's largest investor, had expected it around mid 2024. But Journal AI reporter Deepa Sitharaman says that researchers have essentially run out of available data to train the model.

[Ryan Reynolds]

There's a lot of data on the Internet, but everything good has pretty much been scraped. And so OpenAI and the researchers have had to figure out how do you fill that data gap? And one key way is by making it. This is called synthetic data. It's when AI makes data and then you give it back to the AI in hopes of it growing. It's also a source of risk if the wrong type of data is introduced. A lot of research that's shown that certain types of synthetic data actually cause the model to fully deteriorate. They call it model collapse. So it's not without risk to do something like that.

[Luke Vargas]

And for a lot more on that story, check out yesterday's Tech News Briefing podcast. And in markets news, Asian stocks have ended the day mixed. European stocks were mostly higher in afternoon trading. And in the US stocks are inching up ahead of a 1pm early close. Coming up, after a testing year for a number of Democratic leaders trying to spur economic reform, our editors discuss what to watch in 2025. That's after the break.

[Deepa Sitharaman]

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[Gemini]

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[Luke Vargas]

2024 has proved to be a trying year for the leaders of industrialized democracies, with voters in a host of nations, including the US Taking ruling parties to task over their perceived failures to improve economic fortunes. And that theme could continue in 2025 as key economic tests and potential ballot box consequences await a number of leaders. For Daniel Bok spoke to Journal UK Bureau chief David Luno and South America bureau chief Juan Ferrero.

[Juan Ferrero]

David, you've recently written about just how unpopular some leaders are in rich nations. There are a number of standout examples in the European Union, and in two cases, we've seen non confidence votes pass against governments in France and in Germany. Can you talk to us about the dynamics that these countries are facing and why it's so difficult for governments to pass their own budgets?

[David Luno]

Yeah. Well, the bottom line is really economies in a lot of these places really aren't growing enough. So France, Germany, Europe as a whole has faced the last few years where economic growth's been between sort of 0 and 1%. So coming after the pandemic where economies fell sharply, inflation went through the roof. A lot of ordinary people are feeling poorer after that. For governments, this poses a challenge because in a lot of these places, populations are getting older and that means more money from the government needs to be allocated for things like pensions. And so if you think of it as a business, the government's costs are rising, but their revenues aren't rising because the economies aren't growing, which means they're not getting more tax revenue. So in country after country, you're starting to have worse budget fights. At the same time, voters are just unhappy with their political leadership. This is something that both Europeans and Americans, and really voters across the industrialized world can agree on. The established parties really aren't addressing their anxieties about the economy, about growing levels of immigration, and they sort of feel lied to or they feel that the traditional parties aren't really addressing their concerns. So increasingly their votes are going for anti establishment figures, either Trump in the US or far right parties in Europe, for example, and a splintering of the vote that's making these governments less stable. So you end up with a lot of uncomfortable bedfellows. So, for example, in Germany, you've had the center left with the center right that proved not stable because they each had different diagnoses for what they wanted and different priorities for the budget. Scholes, who's center left, said, well, I want to stimulate the economy, which hasn't grown there for more than two years, by throwing government money to subsidize energy for businesses. We can save jobs in the German auto industry and subsidize investments. But the center right party there was saying, no, let's cut corporate and income taxes and then do reforms like labor market reforms, cut welfare spending and let's have deregulation and that's how we'll get the economy going. Where Germany's going to end up on that, nobody really knows. But that's the debate that's increasingly going to be happening in lots of these countries.

[Juan Ferrero]

Definitely something to watch in 2025, with Germany, of course, headed for a snap election and France's fourth prime minister in a year, faced with the task of getting the country out of budgetary limbo. Obviously, these countries illustrate the difficulty of trying to govern in a coalition. But in other places, even where there is more of a mandate or a strong majority, things are still proving difficult. I think of the UK in this example where you're the bureau chief.

[David Luno]

Yeah, the Labour party won about 34% of the vote. So they came in and very soon thereafter they had to propose a new budget and people didn't like what was proposed. There were some tax increases in there. There were some cuts to subsidies, for example, winter fuel payments for the elderly started to be means tested in other words, wealthy elderly would pay a non subsidized price for their winter fuel. And the press went wild over this. People got really upse. And so even in a place where, as you point out, there's a stable political outlook, I mean, labor will be in power for years to come, they're not popular, and voters are sort of restless in looking for answers that politicians aren't able to provide. Because really looking forward, this is all about trade offs. Somebody's going to have to commit to some level of pain.

[Juan Ferrero]

Juan, I want to bring you in here because Argentina is one place where economic pain has weighed very heavily on politics and where the leader, Javier Milei, seems to have taken quite a different approach.

[Daniel Bok]

Yes. Well, in Argentina, Milei had inherited a pretty disastrous situation. A year ago when he came into office, he was facing a sort of stagnant economy, very high inflation, which was at 25% a year, zero investment, and problems also tapping financial markets. And he came in with a chainsaw, promising to just cut fat, cut workers, cut ministries, cut agencies, subsidies. And so he made a lot of these brutal cuts. And we were thinking that he would have a lot more trouble, but he was able to press forward on a lot of cuts to regulations. Argentina is one of the most heavily regulated countries in the world and one of the most closed economies of all the big democracies in the world too. So he's been working on that. And now in the last few weeks and months, we've started to see some changes there. So inflation has now fallen quite dramatically. Dramatically. It's still very high, but it's a dramatic fall. There's now a budget surplus and Milei is talking about trying to get an IMF loan. I mean, he needs this to sort of carry Argentina forward, which if Argentina grows and starts bringing in a lot of foreign investment, then he can talk about ending a couple of things that really hamstrung the lot of businesses, which are currency controls and also like export taxes, things of that nature. So that's kind of the next key thing that everyone is watching. Will he be able to sort of get the country on track to be able to make those kinds of changes?

[Juan Ferrero]

Very well said. Juan Ferrero is the Journal's South America bureau chief and David Lino is our UK bureau chief. Gentlemen, thank you so much for your time.

[Daniel Bok]

This has been great.

[David Luno]

It's a pleasure.

[Luke Vargas]

And that's it for what's news for this Tuesday. Today's show was produced by Daniel Bach with supervising producer Christina Rocca. And I'm Luke Vargas for The Wall Street Journal. We'll be taking a little break for the Christmas holiday and be back with a brand new show on Thursday at midday. Until then, thanks for listening.