Germany’s Merz vows to stay despite ‘disaster’

0:00This episode is brought to you by Hard Lessons, a Morgan Stanley podcast. Iconic investors like Stan Druckenmiller, John Gray, and Rick Reeder break down calls that worked. I knew that this stock would go up for at least two or three years and go up a lot. Ones that didn't. I quite frankly thought the company could have reversed course. They didn't. And what they learned in between. When you buy everything and it goes up, it doesn't train you to be a great investor. It's these hard lessons that make all the difference. Listen to Hard Lessons wherever you get your podcasts. There are countless voices competing to break the news and tell you the what, the who, and the where.

0:36But to get a true understanding, you need to know the why. With over 700 of the best journalists in the world, The FT goes deeper to help you see the whole story and truly understand why it happened, why it's important, and why it matters. Subscribe to The FT today and save money on a standard annual digital subscription until October 28th. We'll have a link to that in our show notes. Good morning from the Financial Times. Today is Monday, September 21st, and this is your FT News Briefing. Germany's ruling party suffers a self-proclaimed disaster. And Volkswagen gets booted off Europe's most important stock market index.

1:21Plus, John Ossoff's centrist pitch to Democratic voters. I'm Josh Gabordoin, and here's the news you need to start your day.

1:37German Chancellor Friedrich Merz has vowed to stay in office and press on with economic reforms. That's despite big losses by the conservative Christian Democratic Union Party yesterday. The CDU lost in two new regional elections. the hard-right alternative for Germany party is set to win a majority in the state of Mecklenburg for Pomeran. Meanwhile, in the city-state of Berlin, the CDU is projected to come in second behind the hard-left De Linke party. In a speech after the polls closed, Meritz called his party's performance, quote, a disaster.

2:21Iconic German carmaker Volkswagen. is also facing bad news. They've fallen off Europe's most important blue chip stock market index for the first time in 15 years. Shares in the company behind the beetle have been in a tailspin, and now Volkswagen is set to be removed from the Eurostox 50, which tracks the Eurozone's leading publicly traded companies. Kana Inagaki reports on industry for the FT. She joins me now to discuss. Hi, Kana. Hi, Josh. So how bad are things at VW? I mean, Volkswagen is among the most cheaply traded global car stocks, and its shares have fallen more than three quarters from the levels they reached during the 2021 stock market rally.

3:04So the stock has been under pressure, and obviously there are various factors that are driving it. The European car industry in general has been under a lot of pressure from Chinese competition, and the company is undergoing historic restructuring that involves around 100 ,000 job cuts, mainly so that the company can stay competitive in this extremely difficult environment for the whole automotive industry. I mean, you mentioned European car makers are facing a lot of pressure across the board, but Volkswagen in particular has really been taking a beating. How did this happen? Yeah, so there are various factors that are leading up to the current challenges.

3:42All of the European car makers, including Volkswagen, are under pressure from the rising competition posed by Chinese competitors like BYD. Volkswagen is particularly exposed because the group also includes Porsche, which has seen tumbling sales in China, which is also the reason why late on Friday, the company also announced another write-down totaling around 10 billion euros, mainly because of the decline in sales in China. So, I mean, they have these consumer pressures. What about on the capital side with this Eurostoxx 50 exit? How is that going to affect Volkswagen? So I think it will add more pressure to Volkswagen's stock.

4:25There are around 30 exchange-traded funds ETFs with a combined market value of about 59 billion euros that replicate the Eurostoxx 50. So that means that some investors will be forced to sell stakes in Volkswagen once Volkswagen falls off the index. Okay, and I know that Volkswagen has said it's aiming to re-enter the Eurostoxx 50 as it restructures the company. But going back to the competitiveness question, which seems to be at the heart of this, what would a European carmaker like Volkswagen need to do to catch up with Chinese rivals? I think some of these carmakers are already taking these steps, but they need to become much faster in developing their vehicles.

5:06Chinese carmakers can develop vehicles in 18 months or even less than a year. And for a traditional carmaker, it's often said it takes about three to four years. So carmakers from Renault, Volkswagen as well, they're trying to develop these cars faster. And also the period is over when Volkswagen could export cars that were built in Europe to China or bring the same kind of models and build them in China and still expect them to be popular. I guess the era of globalization is over as well. So they need to make cars, you know, if it's for China, then they need to make cars that are attractive for Chinese consumers.

5:44Is there a lesson here for European manufacturing beyond the auto sector? I do think Volkswagen's crisis does represent a challenge for the broader Europe's manufacturing. The whole manufacturing model that led to the growth in the post-war period. One of the main challenges that European manufacturing in general faces is that they have such higher production costs. So they need to have that kind of nimbleness to be able to change their product development plans, investment plans very quickly to basically keep up with what's happening. Kana Inagaki reports on industry for the FT. Thanks, Kana.

6:23Thank you.

6:28The U.S. Democratic Party has been going through something of an identity crisis. On one side are progressive Democrats like New York Mayor Zoran Mamdani and Congresswoman Alexandria Ocasio-Cortez. They've been hammering the message that Democrats need a new vision for the party. Presidents, come and go. No Senate House seats, elected officials come and go. But single-payer health care is forever. A living wage is forever. Many progressives made headlines this summer by winning primary races ahead of the upcoming midterms. But on the other side are the moderates. Many of their talking points ahead of this fall are focused on President Donald Trump's administration.

7:16Now, I know many of you are here today because you just can't stand what's been done to our country. That's Senator John Ossoff speaking at a rally in Georgia. He's running for re-election in the traditionally red state. Our whole government made a corrupt tool of one man's vengeance and power and wealth. The FT's Washington Bureau Chief James Politi was at that rally. And he's here to tell me why Ossoff is being singled out as someone who could potentially unite the Democrats. Hi, James. Hi. So, James, tell me about Ossoff. Well, he's considered a rising star because he's apparently handily winning re-election in Georgia, which is a southern battleground state that Joe Biden had won in 2020 but lost to Trump in 2024.

8:07and overall in the Senate map, he seems to be the Democrat who is doing the best to the point where it looks like his own re-election is pretty much his to lose. And it looks like he's found a way to convey the right message to voters that is able to get beyond some of the divisions within the Democratic Party. What exactly is that message to voters? So he's very focused on the issue of corruption and how the corruption insider dealing of the Trump administration is all coming at the expense of ordinary households, the cost of living, and the Iran war. So he's been able to send a message that they're not concerned about improving people's affordability, but they are much more concerned about their own kind of financial future and themselves generally.

9:03OK, so James, you went to Georgia recently. What did potential voters have to say about that message? Well, it depends. There are some who are, you know, very enthusiastic about it. One person was Isabel Reuter. She's 29 years old. She works at the University of Georgia. I spoke to her the day after the rally, and she thought that he was the best chance the Democrats might have to move back out of the trenches. He seems like someone who is earnest and cares about the people in Georgia. it's a tough act for anybody coming up after the current administration to kind of reinstate that kind of respect.

9:38So I feel like he's the best chance we have at slowly moving back up. But there were others who are not so convinced. I spoke to one man, his name was Vin Rainwater. He was a Trump voter in the past, but he was there to see John Ossoff in person. And he said he was not so fired up about Ossoff. I don't think the adhering to an anti-Trump rhetoric is going to serve us moving forward. Trump's going to be gone in a couple of years. We really need to be based on fundamental social issues. Interesting. Did you get a sense of whether Ossoff would be able to reach across to any Trump voters at all? So there was really a mix.

10:21One conversation that I had was with a 21-year-old libertarian. His name was Logan. He voted for Trump in 2024, but he said that he would vote for Ossoff for president. He's like centrist enough where he could garner like both sides of it. And he was even talking about in his speech like, like, I don't care about your political party. He's able to work with bipartisanship. OK, so it sounds like Ossoff's centrism is definitely part of the appeal for some voters. But a lot of progressive Democrats want to see their party move away from the middle ground, right? Are we at an inflection point now between these two factions?

11:01We are at an inflection point because the progressive wing has been on the ascendancy in a certain sense. They've had, you know, a lot of energy on their side. They've been able to mobilize the base. And so now we're at a real test of whether it'll be the progressives who are able to notch enough victories to improve their standing within the party, or whether it's just the moderates who kind of carry the party through the midterms. It seems that the most centrist moderate candidates have the edge at the moment. Some of the ideological differences within the party are being kind of overcome by Trump's own difficulties.

11:36But after the midterms, we'll see which candidates do well and which struggle. And I think that will set the tone for the presidential primary contest, which will really start kicking into gear in the first half of next year. James Politi is the FT's Washington Bureau Chief. Thanks, James. Thank you. Good to be with you. You can read more on all of these stories for free when you click the link in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

12:22The new episode of The Next Five is all about CFOs in an AI world. Patrick Villanova at Blackline joins me. CFOs are inherently risk averse. We have to be very prudent when we implement AI. As does Olya Brasi at Highgate. My rule is no human owner means no go live. And Gina Gutsight at FTI Consulting. There's no excuse. You're the CFO. You're signing the name to the financial statements. Listen to The Next Five wherever you get your podcasts. Enjoy. Capital raising is being redefined in real time, from macro disruptions and shifting investor expectations to AI-driven demand and the rise of private credit.

13:02When headlines can tilt markets overnight, how can companies stay on course? Strategic Alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts.