An election supercycle could push Europe to the right

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0:32Good morning from the Financial Times. Today is Tuesday, October 13th, and this is your FT News Briefing. The IMF is issuing a stern warning, and Pakistan wants to avoid being dragged into a war. Plus, there are going to be a whole bunch of elections in Europe soon, and it could change the EU. I'm Mark Filippino, and here's the news you need to start your day.

1:07The International Monetary Fund meets in Thailand this week, and it's saying the quiet thing out loud. The world's largest economies have out-of-control debt. In its world economic outlook, the IMF predicts that government net borrowing by advanced economies would reach 5.2 % of GDP this year. That is the highest it's been since 2021 during the COVID pandemic. And it's even worse in China and in the U.S. The institution expects that deficits in both countries will hit or exceed 8 % of GDP in 2026. The IMF said that economies need to act fast to fix up their public finances. And this is all bad news for an already incredibly nervous bond market.

1:46Yields are above 5 % in the U.S. and elsewhere, partially because of worries over government debt levels. And the bond giant PIMCO said last week that the yield on the 10-year U.S. Treasury could hit 6 % for the first time since 2000.

2:05Pakistan is in a bit of a tricky situation. Its ally, Saudi Arabia, has been facing escalating tensions with Yemen's Houthi rebels. This includes multiple deadly strikes on the airport in Riyadh in the past week. Saudi Arabia wants Pakistan to deploy military forces to help, but doing that could be a problem domestically. Here to discuss is the FT's Hamza Jelani in Islamabad. Hi, Hamza. Hi, Mark. Okay, so why is Pakistan in a tough position here? Pakistan is sort of stuck between a rock and a hard place because they have committed themselves to the defense of Saudi Arabia now twice in the last year, first with what was called the Saudi-Pakistan Mutual Defense Agreement, where Pakistan said that they would treat, you know, an attack on Saudi Arabia as an aggression on itself.

2:53And then more recently, they signed this Mecca pact that also included Turkey. And again, it reaffirmed that it would be committed to Saudi Arabia's defense. And this isn't just simply, you know, words on a paper. Pakistan has a severe financial dependence on Saudi Arabia. Saudi loans comprise some 38 % of its central bank reserves. So it's not easy for it to just stay out of war. However, this is a theater that the Pakistani people are really not interested in getting involved in. Now, this is interesting because Pakistan has been really trying to avoid military involvement in the U.S.-Iran war.

3:28They've been playing peacekeeper there. But, you know, now they're stuck between the Houthis and Saudi Arabia. I wonder, is there any chance that they would try to mediate things here too? Yes, exactly. I mean, they have tried to build a lot of diplomatic goodwill with Tehran due to months of mediating between the U.S. and Iran. And they were hoping that that connection would have actually helped avert this war that they seem to be on the precipice of being dragged into. Iran exerts significant influence and provides significant support to Houthi rebels in Yemen. So Pakistan believed that their connection to Tehran would help Tehran sort of lean on the Houthis to scale back some of their attacks on Saudi Arabia.

4:08But things have only become significantly worse since then. And it seems like Iran has rebuffed Pakistan's efforts and said that it stands behind the Houthis' right to defend itself. Now, earlier, Hamza, you mentioned that a war wouldn't be popular at home. What would happen if Pakistan was dragged deeper into a war on behalf of Saudi Arabia? There's a real risk that this could inflame sectarian tensions in Pakistan. Pakistan not only has the world's second highest Shia Muslim population in the world after Iran, but the population across sectarian divides deeply admires Iran. So as a result, you know, any kind of operation against the Houthis that would effectively put Pakistan on the same side as the U.S.

4:47would not be welcome here. And in 2015, when this had last come to a vote, that fear of inflaming sectarian tensions, you know, an attack on Saudi Arabia as an aggression on itself. And then more recently, they signed this Makkah pact that also included Turkey. That was one of the main driving factors for parliament to vote down this operation. And I think those fears are still very much alive today. And what could this mean for Pakistan's already ailing economy? So Pakistan's economy is in a relatively difficult place. They were just coming out of a pretty generational economic crisis and a near default when the war between the U.S.

5:23and Iran suddenly hit. And that sent commodity prices soaring. And as a result, that's all trickling down to creating a lot of economic hardship and sending inflation back to double digits. So as a result, Pakistan is rather keen to see this war come to an end. And there's also the fact that Pakistan is intermixed with the Saudi economy in a very deep way, not simply because of the loans that Saudi Arabia provides, but also because about three million Pakistani citizens work as migrant laborers in Saudi Arabia and send back almost$10 billion in remittances to the country, which is the key backstop for its fragile central bank reserves.

5:58So should the Saudi economy see a major pullback as a result of this war, that's going to be felt on Pakistani pocketbooks and in the Pakistani banks. Yeah, there's just a ton on the line here. Hamza Jelani covers Pakistan for the FT from Islamabad. Thanks, Hamza. Thanks for having me.

6:18Meta CEO Mark Zuckerberg told the FT in an interview that the company has caught up with its rivals at the, quote, frontier of AI. Yesterday, Meta released its new model. It's called the Muse Wonder. The company says for certain tasks, it performs better than comparable models released by Anthropic and OpenAI. eye. This is a big milestone for Zuckerberg. He's committed billions of dollars in the past year to try to catch up to his competitors. That push made investors squirm a little bit at first, but yesterday, after the model's release, Metashare price rose more than 3%.

6:55The next 12 months for Europe are chock full of elections, and the outcomes could drastically change how the EU looks. Four of the five biggest EU member states by population will go to the ballot box. That's France, Spain, Italy, and Poland, and so will four smaller ones. Joining me now to discuss is the FT's Europe editor, Ben Hall. Hey, Ben. Hi. So give me the rundown of this election super cycle. Why is it so significant? It's so significant because it's so unusual to have so many elections crammed into a relatively short period of time. I think it's just a pure coincidence, a sort of calendar effect.

7:34And then the other reason is that the forces that are sort of shaping politics in these countries are unusually similar, I would say. And what we're seeing is a strong dragging of the political spectrum to the right. We're seeing a breaking down of this sort of policy of firewalls whereby by the center-right has refused to work with the far-right. And what we're seeing is the far-right itself is becoming more radical because now we're seeing new upstart kind of parties that are coming in to the right of more established far-right parties. And why is the shift to the right that you're describing happening now?

8:16It's happening now, I think, because so many of the forces at play in political systems are now the same across many countries. We've seen a kind of large degree of fragmentation of the party system, polarization of the party system, and obviously social media is having an effect there. But also I think the far-right parties are very skilled in the way they pitch their messages. Their messages are very simple, they're very straightforward, and they have a lot of appeal to a lot of voters in confusing, fast-changing times. times. By contrast, mainstream parties are finding it so difficult to identify solutions to complicated policy problems.

9:01And also their ideology has become very ambiguous. Let's just say for a second that these countries, you know, do put the far right in power in these elections. What would that mean for the European Union? Well, I think it could have quite a profound effect on the way the EU works. What you could have is a much stronger caucus of Eurosceptic voices at Europe's top table. They're going to be more sceptical towards helping Ukraine. They're certainly going to be sceptical about enlarging the EU to take in Ukraine and other countries in the Western Balkans. And I think we'll probably see a certain amount of kind of pushback against the EU moving forward or integrating more closely, for example, on economic reform or market integration.

9:47What really matters, I think, for the future of the EU is what happens in France and whether Marine Le Pen is elected president and then gets a parliamentary majority afterwards. She wants to unilaterally cut France's contribution to the EU budget by half. And she wants to change the constitution to make French law supreme over EU law. These would be revolutionary disruptions in the way the EU works, assuming she follows through on everything she says she's going to follow through on. Ben Hall is the FT's Europe editor. Thanks, Ben. Thank you.

10:29The UK is punishing Iran for a security incident at a Royal Air Force base. Prime Minister Andy Burnham said it was highly likely that Tehran coordinated an alleged plot at RAF Fairford a few weeks ago. It's led to seven arrests by UK counterterror police. Britain put new sanctions on the Islamic Republic yesterday. The Foreign Office said those sanctions included asset freezes and travel bans on an official with the Revolutionary Guard Corps. The US, UK and 27 other countries released a joint statement afterwards. It said they strongly condemn Iran's use of violent attacks and the countries are, quote, united and remain committed to safeguarding our sovereignty and strengthening our international coordination.

11:16India's cockroach protesters are back with a vengeance. This time, they're demonstrating against the election system. Now, we've talked before on the show about the cockroach jaunta party. The youth-led movement started as a bit of a joke online, but it's grown. Its protests in the summer over exam leaks even forced India's education minister to resign. DFT's Andres Shipani has more on the people behind the most recent unrest. Since last week, a string of protests led by young people has rocked New Delhi, and they demand the resignation of the chief election commissioner of India. Their complaints center on a controversial revision of the voter rolls that began last year, and which saw about 130 million names purged from those voter rolls.

12:01They alleged that the commission wrongly deleted those tens of millions of voters, particularly Muslims, at the behest of Prime Minister Narendra Modi, Hindu Nationalist Party, an accusation that the BJP party denies. Over the weekend, the government responded with force. I mean, they deployed tens of thousands of security forces who arrested scores of protesters. That's the FT's South Asia correspondent, Andras Shiphani in New Delhi.

12:33You 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.

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