Japan’s transformational coalition deal

0:02Good morning from the Financial Times. Today is Tuesday, October 21st, and this is your FT News Briefing. European governments are rallying behind Vladimir Zelensky, and Japan is entering a new era. Plus, the CEO of Apollo thinks that Europe is having a hard time getting out of its own way. I see Europe a little bit at war with itself with respect to financial regulation. I'm Mark Filippino, and here's the news you need to start your day.

0:38Leaders in Europe are scrambling to secure a deal on the use of Russia's frozen assets. They're hoping to use them for a 140 billion euro loan to Ukraine. This comes after U.S. President Donald Trump and his Ukrainian counterpart Vladimir Zelensky held a tense meeting on Friday. Trump pressured Zelensky to accept Russia's deal to end its war. This apparent shouting match lit a real fire under European leaders. EU foreign ministers met in Luxembourg yesterday and said the bloc must, one, agree to the use of Russian frozen assets, and two, hit Moscow with another round of sanctions. European leaders will hold a summit on Thursday in Brussels to discuss the potential loan.

1:27Japan's parliament is set to confirm Sinai Takeichi as the country's first female prime minister today after a week of uncertainty. Her liberal Democratic Party had to find a new coalition partner after its longtime ally, Komeito, pulled out last week. But the LDP struck a last-minute deal on Monday with the Japan Innovation Party. I'm joined by the FT's Tokyo Bureau Chief Leo Lewis to discuss this rocky road to power. Hi, Leo. Hi. So just tell us about the last minute hitch to Takeichi's plans. So Sanaya Takeichi has been attempting several times to become a leader of the Liberal Democratic Party and therefore prime minister.

2:10And she succeeded in early October in becoming the president of the LDP. The party has had for 26 years a coalition partner called Kometo. And rather to everyone's surprise, Kometo pulled out of that coalition. And without that coalition partner, there was a chance that the opposition parties in parliament could have proposed their own alternative prime minister and all voted for that person and just about managed to keep her out of becoming prime minister. That would have been absolutely extraordinary. And it left the LDP and Takeichi scrambling, really, to find another viable coalition partner.

2:53So how did she manage to find a new coalition deal? Yeah, Takeichi has spent the last week or so negotiating with the Japan Innovation Party. It's reformist and it's right-leaning. It actually does have a certain number of overlaps with the LDP. and it does command enough votes in both the upper and lower houses that mean that she will definitely now get through the vote to become prime minister. And so this is a victory for Takahichi, not just makes her prime minister, but also it gives her scope to govern as she probably would like with a few concessions to this new coalition partner. What kind of concessions has she had to make to the Japan Innovation Party, Leo?

3:40The Japan Innovation Party had a few demands. One of them is that the number of MPs in Japan's parliament should be reduced by about 10%. Another one is that Osaka should officially become the deputy capital of Japan. The Japan Innovation Party, its political base is Osaka and the Kansai region and the leader of the party is the governor of Osaka. So Osaka wants a more elevated status in terms of what kind of central government functions should be there and that it should officially be recognized as the place that would be the seat of government if some big disaster did hit Tokyo. So yeah, I think that the Japan Innovation Party does have other sort of policy goals that it's over the years.

4:29And this unique turmoil that we've had over the last few weeks has provided a rare opportunity and they have jumped on it. Now, how have investors, the markets, how have they reacted to all this? On Monday, when the markets came back from the weekend and from the news that this coalition deal was pretty close to being signed, there was a really big spike for equities. And the Nikkei 225 average, which is the index that everyone looks at, That went to an all-time high. And so the markets are guessing, based on what she said in the past, that she's going to open up the fiscal taps. There's going to be lots of stimulus spending, that she's going to spend big on defense.

5:09And that's something that the new coalition partner will support her in. So the markets are just guessing at this point. But at the moment, they just like the idea of a stable government led by somebody who is probably going to be good for markets. Leo Lewis is the FT's Tokyo Bureau Chief. Thanks for your time, Leo. Thank you. Great to talk.

5:35You might have noticed some glitches online yesterday. Amazon's cloud computing services had a major outage. It disrupted a wide range of apps and websites, from ride-hailing app Lyft to Lloyd's Bank and even the UK Tax Authority. The outage shows just how dependent the internet is on a handful of big tech companies. Amazon Web Services said the underlying problem was, quote, fully mitigated a few hours after it reported an operational issue in its data center hub. AWS leads Microsoft and Google in cloud computing services and is a big profit driver for Amazon. Analysts think it will generate more than$126 billion in revenue this fiscal year.

6:21Apollo Global Management CEO Mark Rowan says Europe is at war with itself over financial regulation, and that stifles growth and undermines competitiveness with the U.S. Rowan told EFT's Antoine Gara this at our private capital summit. Antoine joins me now to discuss it. Hey, Antoine. Hi, thanks for having me. Good to have you. So tell me a little bit about your conversation with Rowan, why does he think Europe is at war with itself? Well, what Rowan was saying was that there's a real political will in Europe now to make the the bloc an easier place to do business. On the political side, you have all the signals of embracing risk-taking, equitization, private markets.

7:05And that simplification would allow for the attraction of new capital coming into the Eurozone, which would help propel growth. On the regulatory side, eh, not so much. Unfortunately, what he was saying was that the regulatory side of Europe has really not met that political side in terms of having the will to simplify. So the regulatory burdens are still there. Well, you know, just how big of an issue does Rowan think regulation is for the EU? Some of Rowan's comments were basically saying, you know, of course, there are inflation problems all over the world. There's all kinds of different human capital problems.

7:44There are lots of problems to look at in the U.S. Every problem that we have in the U.S. is worse here. Every single problem. When you compare Europe to the U.S., really a lot of the key economic issues that all developed economies are facing, you know, every issue is accentuated in

8:08from Mario Draghi, the former head of the European Central Bank. A few years ago, he put out this explosive report on the sort of lack of competitiveness of the continent. And he said, basically, Europe was facing an existential challenge. And if it didn't improve its productivity, it would really like fall structurally behind places like the US with a better business environment. And so he laid out like 400 kind of key recommendations for Europe to adopt to improve its competitiveness. Let me ask you this, Antoine. Rowan certainly is not the first person to criticize Europe for its regulation.

8:46Obviously, Mario Draghi is a big one. Why do we care that he is saying it? We care because he has an enormous amount of money to invest. And I think he's reflecting the broader investment community, which wants to buy into the idea that Europe is reforming, but are also really waiting to see real evidence to come through for the investment to really come meaningfully. What does that evidence look like, though? I mean, what do Rowan's thoughts tell us about how private capital firms are handling Europe? Well, it's interesting, Even though he was saying it's a really sort of jury still out on the Draghi report, and he cited the figure that only about 11 % of the recommendations have been put in, his firm and all of his firm's rivals are really earmarking an enormous amount of money to invest in Europe.

9:40And it's actually because there's this huge capital gap to meet Europe's future infrastructure challenges like digital infrastructure, like data centers for all the AI models. And then also this kind of reindustrialization of Europe and the shoring up of key supplies of energy. So actually, Apollo, Apollo's rivals Blackstone and Brookfield, they're all setting aside hundreds of billions of dollars, if not more, to invest in Europe. And actually, the gap for financing is biggest in their eyes in Europe of almost any developed market. So maybe one day, but not quite yet. I think their view is that their money is going to be needed no matter what.

10:26But, you know, the idea that the reforms really kick in and get the European economy going in a way it hasn't for over a decade is still to be seen. Antoine Gara is the FT's U.S. private equity and deals editor. Thanks, Antoine. Thank you. You can read more on all these stories for free when you click the links on our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

10:56Thank you.