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Mike Johnson struggles with his own rasputitsa

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SPARE SOME pity for Mike Johnson, the stuck speaker of the House of Representatives. A relatively obscure congressman thrust into leadership six months ago when the ungovernable Republican majority threw out the former speaker, Kevin McCarthy, Mr Johnson may be defenestrated too if he does something that he seems to think that he must: provide additional military aid to Ukraine, over the objections of the isolationist wing of his party.

While the European Union and its member countries have contributed considerably to Ukraine’s budget and humanitarian needs, America has been Ukraine’s largest provider of military aid, amounting to $44bn since Russia’s invasion in February 2022. But further help has been stuck for months. In October 2023 President Joe Biden proposed that Congress appropriate $60bn for Ukraine as part of a security bill that would have spent a further $45bn on securing America’s southern border and on arming allies like Israel and Taiwan.

Six months of congressional Sturm und Drang ensued, but nothing has come to the president’s desk. One Republican senator, James Lankford of Oklahoma, spent months negotiating a harder-line compromise on the southern border to accompany the aid package, only for his own party to torpedo it in a matter of three days after its unveiling in February because Donald Trump, the party’s presumptive presidential nominee, rejected it for giving Mr Biden an election-year win. The Senate then passed a $95bn aid bill without any border provisions, which Mr Johnson then rejected and refused to bring up for a vote.

When foreign policy is subordinated to domestic politics, as has happened with Ukraine and Israel, incoherence often follows. You can see this in the short history of Mr Johnson’s own pronouncements. Before he was appointed speaker, Mr Johnson was a Trump-following Ukraine-sceptic, voting against a small $300m military-aid bill in September 2023. In October, after getting the top job, he sounded more supportive, saying that Vladimir Putin must not win. In December he said that this necessary aid must be paired with sweeping reforms to Mr Biden’s border policy, which would be his “hill to die on”. In February, when Mr Biden announced plans to secure the border through executive action after the failure of the bipartisan Senate deal, Mr Johnson denounced them as “election-year gimmicks”—despite having previously called for him to do exactly that. In March he said that he would unveil a new plan for Ukraine aid after Easter.

The eggs have stopped rolling, but Mr Johnson is yet to release his plan, the details of which are not being shared widely. Many of the rumoured components are designed to mollify the isolationists in his party: aid to Ukraine would be labelled as a forgivable loan rather than direct aid (following a suggestion of Mr Trump’s); some of the funding would be recouped by seizing Russian assets that are currently frozen (though many more of these are in the EU than the US); and Mr Biden would have to endure a poke in the eye by overturning his recently announced moratorium on new export projects for liquefied natural gas.

Democrats might grumpily accept even the environmental rollback; the real hindrance to Mr Johnson will be his own party. Marjorie Taylor Greene, a Republican congresswoman from Georgia, has filed a “motion to vacate” Mr Johnson from his leadership, were he to secure Ukraine funding by relying on Democratic support. Ms Greene is probably the most Putin-friendly member of the party—bizarrely saying in a radio interview this week that Ukraine was attacking Christianity while Russia was “protecting it”—but the Republican majority is razor-thin, meaning that a few defectors could cast off Mr Johnson.

Some think that Mr Johnson might simply have to accept that he cannot both arm Ukraine and keep his job. “Then he’ll go down in history as being a profile in courage who does the right thing. We need Winston Churchills right now, not [Neville] Chamberlains,” says Don Bacon, a Republican congressman representing Nebraska. Mr Bacon has been a staunch supporter of Ukraine funding, crafting a so-called discharge petition which could circumvent the speaker and bring a bill directly to the floor for a vote if a majority of House members were to sign on. The discharge petition, which has been closely watched by anxious European diplomats in Washington, is an unconventional parliamentary tool. It is still a long shot, but its existence gives Mr Johnson at least some leverage with his own hardliners.

Critics like Ms Greene are unlikely to be placated. But the cost of congressional dithering is in this case quite real. Last week Sergei Shoigu, Russia’s defence minister, announced that his army had captured 400 square kilometres of territory from the Ukrainians, who have been forced to conserve ammunition (Ukraine is over 600,000 square kilometeres, but the trend is not good). Volodymyr Zelensky, Ukraine’s president, has said that “if the Congress doesn’t help Ukraine, Ukraine will lose the war.”

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Economics

Donald Trump sacks America’s top military brass

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THE FIRST shot against America’s senior military leaders was fired within hours of Donald Trump’s inauguration on January 20th: General Mark Milley’s portrait was removed from the wall on the E-ring, where it had hung with paintings of other former chairmen of the joint chiefs of staff. A day later the commandant of the coast guard, Admiral Linda Fagan, was thrown overboard. On February 21st it was the most senior serving officer, General Charles “CQ” Brown, a former F-16 pilot, who was ejected from the Pentagon. At least he was spared a Trumpian farewell insult. “He is a fine gentleman and an outstanding leader,” Mr Trump declared.

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Checks and Balance newsletter: The journalist’s dilemma of covering Trump

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Checks and Balance newsletter: The journalist’s dilemma of covering Trump

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Germany’s election will usher in new leadership — but might not change its economy

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Production at the VW plant in Emden.

Sina Schuldt | Picture Alliance | Getty Images

The struggling German economy has been a major talking point among critics of Chancellor Olaf Scholz’ government during the latest election campaign — but analysts warn a new leadership might not turn these tides.

As voters prepare to head to the polls, it is now all but certain that Germany will soon have a new chancellor. The Christian Democratic Union’s Friedrich Merz is the firm favorite.

Merz has not shied away from blasting Scholz’s economic policies and from linking them to the lackluster state of Europe’s largest economy. He argues that a government under his leadership would give the economy the boost it needs.

Experts speaking to CNBC were less sure.

“There is a high risk that Germany will get a refurbished economic model after the elections, but not a brand new model that makes the competition jealous,” Carsten Brzeski, global head of macro at ING, told CNBC.

The CDU/CSU economic agenda

The CDU, which on a federal level ties up with regional sister party the Christian Social Union, is running on a “typical economic conservative program,” Brzeski said.

It includes income and corporate tax cuts, fewer subsidies and less bureaucracy, changes to social benefits, deregulation, support for innovation, start-ups and artificial intelligence and boosting investment among other policies, according to CDU/CSU campaigners.

“The weak parts of the positions are that the CDU/CSU is not very precise on how it wants to increase investments in infrastructure, digitalization and education. The intention is there, but the details are not,” Brzeski said, noting that the union appears to be aiming to revive Germany’s economic model without fully overhauling it.

“It is still a reform program which pretends that change can happen without pain,” he said.

Geraldine Dany-Knedlik, head of forecasting at research institute DIW Berlin, noted that the CDU is also looking to reach gross domestic product growth of around 2% again through its fiscal and economic program called “Agenda 2030.”

But reaching such levels of economic expansion in Germany “seems unrealistic,” not just temporarily, but also in the long run, she told CNBC.

Germany’s GDP declined in both 2023 and 2024. Recent quarterly growth readings have also been teetering on the verge of a technical recession, which has so far been narrowly avoided. The German economy shrank by 0.2% in the fourth quarter, compared with the previous three-month stretch, according to the latest reading.

Europe’s largest economy faces pressure in key industries like the auto sector, issues with infrastructure like the country’s rail network and a housebuilding crisis.

Dany-Knedlik also flagged the so-called debt brake, a long-standing fiscal rule that is enshrined in Germany’s constitution, which limits the size of the structural budget deficit and how much debt the government can take on.

Whether or not the clause should be overhauled has been a big part of the fiscal debate ahead of the election. While the CDU ideally does not want to change the debt brake, Merz has said that he may be open to some reform.

“To increase growth prospects substantially without increasing debt also seems rather unlikely,” DIW’s Dany-Knedlik said, adding that, if public investments were to rise within the limits of the debt brake, significant tax increases would be unavoidable.

“Taking into account that a 2 Percent growth target is to be reached within a 4 year legislation period, the Agenda 2030 in combination with conservatives attitude towards the debt break to me reads more of a wish list than a straight forward economic growth program,” she said.

Change in German government will deliver economic success, says CEO of German employers association

Franziska Palmas, senior Europe economist at Capital Economics, sees some benefits to the plans of the CDU-CSU union, saying they would likely “be positive” for the economy, but warning that the resulting boost would be small.

“Tax cuts would support consumer spending and private investment, but weak sentiment means consumers may save a significant share of their additional after-tax income and firms may be reluctant to invest,” she told CNBC.  

Palmas nevertheless pointed out that not everyone would come away a winner from the new policies. Income tax cuts would benefit middle- and higher-income households more than those with a lower income, who would also be affected by potential reductions of social benefits.

Coalition talks ahead

Following the Sunday election, the CDU/CSU will almost certainly be left to find a coalition partner to form a majority government, with the Social Democratic Party or the Green party emerging as the likeliest candidates.

The parties will need to broker a coalition agreement outlining their joint goals, including on the economy — which could prove to be a difficult undertaking, Capital Economics’ Palmas said.

“The CDU and the SPD and Greens have significantly different economic policy positions,” she said, pointing to discrepancies over taxes and regulation. While the CDU/CSU want to reduce both items, the SPD and Greens seek to raise taxes and oppose deregulation in at least some areas, Palmas explained.

The group is nevertheless likely to hold the power in any potential negotiations as it will likely have their choice between partnering with the SPD or Greens.

“Accordingly, we suspect that the coalition agreement will include most of the CDU’s main economic proposals,” she said.

Germany is 'lacking ambition,' investor says

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