Germany’s pension crisis

0:29Good morning from the Financial Times.

0:36U.S. President Donald Trump said last night he's firing a governor at the Federal Reserve. It is a major escalation of his attacks on the central bank. Trump said on Monday there was, quote, sufficient reason to believe Lisa Cook had made false statements on mortgage agreements, which gave him cause to fire her. The Fed declined to comment. Cook has previously said she had, quote, no intention of being bullied to step down. The president has spent months threatening the independence of the central bank. He's threatened to fire Chair Jay Powell over the Fed's decision to hold rates steady this year.

1:10And separately, Trump did remove the head of the Bureau of Labor Statistics a few weeks ago after a weak jobs report. If Cook refuses to step down, it could trigger a constitutional standoff between the White House and the Fed.

1:31The Danish wind farm developer Orsted took a big hit yesterday. Its shares fell 16%. That was after the Trump administration said on Friday that it was stopping a nearly complete project. Here to talk to me about what's next for the company is the FT's Richard Milne. Hey, Richard. Yeah, hey there, Mark. So, Richard, this project the Trump administration stopped, this is the$1.5 billion revolution wind project. Tell me a little bit more about it. Yeah, so it was designed to provide power for the equivalent of 350 ,000 homes in Rhode Island and Connecticut. And it was four fifths complete. They completed all the foundations.

2:1045 of the 65 wind turbines were in place. So they were looking to start operations next year. They got all the permits. And then on Friday, something of a bolt out of the blue, they got told to stop work immediately on it. So they were so close. Why did the Trump administration put a stop work order on it? Well, the official reason was the regulator said they needed to address concerns related to the protection of national security interests, but they didn't elaborate what they meant by that. I think it's fair to say that the subtext here is Donald Trump himself really doesn't like renewable energy, and he's basically looking at how to stop project by project.

2:55And then added on top of that, Orsted is itself half owned by the Danish state. And obviously, the bad blood between Denmark and Trump due to Trump wanting to buy, well, take control of Greenland from Denmark is pretty strong. Yeah, not to mention that Rhode Island and Connecticut are both blue states. How big of a deal is this to Orsted? How is the company doing overall? I mean, it's doing pretty awfully. And a lot of that is due to problems in the US. As you mentioned, it shares fell a lot. They've fallen a lot recently before this. They're down nearly 90 % from their peak. They have a market cap just now of 75 billion Danish krona.

3:42And what they're trying to do right now is have a rights issue for 60 billion Danish krona. So almost their entire market capitalization, they want to raise in fresh equity. So it's going to be extremely painful for existing shareholders. Richard, what does this tell you about the state of the wind farm industry more broadly? Or is this kind of its own thing with Orsted? It's definitely not its own thing with Orsted. I mean, I think if this was any other country other than the US, I mean, you'd be there'd be think pieces about the investment climate and, you know, a government that has approved the project in every way that needs to be done and then arbitrarily just says at the last minute, no, it's a pretty awful signal for investment.

4:31I think certainly in terms of any green renewable investments right now in the U.S., everything has to be up in the air. Richard Milne is the FT's Nordic and Baltic correspondent. Thanks, Richard. Thanks so much.

4:53Elon Musk's artificial intelligence company is suing Apple and OpenAI. XAI is accusing the two companies of making a deal that breaks antitrust rules. That deal integrates ChatGPT into not only Siri, but also iPhone writing and camera features. XAI says the deal denies rival chatbots the same reach and access to users. It also accuses OpenAI of holding a monopoly in the AI chatbot market. Apple did not immediately respond to a request for comment. OpenAI said, quote,

5:39Germany's retirement system is facing a ticking time bomb. In the next decade, the country's labor force will decline by 9%. And that's going to put serious strain on Germany's, quote, pay-as-you-go pension plan. Now, instead of doing a complete overhaul of the pension system, German Chancellor Friedrich Merz is pushing people towards private savings and investing in stock markets. Verlass dich nicht nur auf die gesetzliche Rentenversicherung ein ganz klein bisschen zu sparen im Monat. 10 Euro, 20 Euro, 50 Euro. And giving them a little money to do so. Here to tell us more is the FT's Frankfurt bureau chief Olaf Storbeck.

6:16Hey Olaf. Hi there. So tell me, how big of a deal is it for a German chancellor to, you know, tell young people to invest in the stock market? Well, it's definitely a change of tone to the message that previous governments have been sending over the past decades, where the message always was, well, the public pension system is safe and people can rely on it. And I think one important thing to keep in mind is that investing in the stock market is quite an unpopular thing in Germany at the moment. Only 17 % of households actually own stocks, ETFs, or actively managed funds, compared to close to 40 % in the UK and more than 60 % in the US.

6:58Can you give me a little bit more detail about how poorly the pension system is doing? Like, what are the struggles that we're seeing right now? Yeah, the struggle in the German pension system, the current generation of workers is basically paying the pensions of the current generation of pensioners. And given the workforce is aging rapidly and people are at the same time living so much longer, the proportion of workers relative to the proportion of people in retirement is changing dramatically. And at the moment, about 100 workers have to support 30 pensioners and this will grow to more than 40 by 2040.

7:36So the burden for the current generation of workers is growing significantly, which obviously means either they have to pay more contributions or what pensioners will get out of the system will shrink and people may face up kind of poverty in retirement. And just the demographics is really going to bite badly over the next decade or two. Olaf, Merz's government also designed something really interesting, a program to give children an early start at building a pension. Tell me a little bit more about that. What does that consist of? Yes. So what they've committed to do is basically a subsidy of 10 euros a month for every child between 6 and 18, which then the parents can invest into broad stock market products like ETFs or pension funds.

8:27The key point is not that the money itself will then help to fill the pension gap, but it's more or less kind of an educational game. It's very much regarded as a casino by many people in Germany, the stock market. And the idea of this new subsidy is to basically give people an opportunity to learn this and experience this firsthand and see, well, it's neither complicated nor particularly risky if you do this over a period of like 10 or 20 years. And hence, then nudge them towards kind of broader and deeper investment in the stock market over time. Got it. So the idea is to encourage private investment in the stock market because people can't rely on the public pension system to fund their retirement.

9:15How have Germans reacted to this? It depends a bit on who you ask. The trade unions, which represent workers in Germany, are quite sceptical and they are kind of calling on the government to fix the pay-as-you-go pension system instead. Private pension experts at the same time are saying it's too little, too low and are calling on the government to do much more sweeping reforms to encourage private pensions. 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 when 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.

10:11When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts. Hey guys, it's Mark. If you enjoy the FT News Briefing, we're hoping you could spread the word about us. Tell a friend to give us a try, or anyone you think is interested in our brand of business and financial news analysis. Or if you've already told everyone you know about us, leave us a review on Apple, Spotify, or wherever you listen to the show. It really helps us reach more listeners like you. Thank you.

10:48As the new plans are too limited to really have an impact. So Olaf, are there any lessons that other countries should be learning based on what's happening in Berlin right now? A key lesson is not to ignore demographic trends for too long because the longer you wait, the more draconian has the response to be. And the other lesson, I think, is that encouraging people to invest in low-fee, diversified stock portfolios is something that governments should do early on and vigorously. That's the FT's Olaf Storbeck in Frankfurt. Thanks so much, Olaf. Cheers.

11:27You 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. Thank you.