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The US Supreme Court is primed to recalibrate government power

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TWO WEEKS before America’s Supreme Court considers whether Donald Trump may constitutionally remain on the presidential ballot, it will tackle a question closely tied to Mr Trump’s deregulatory plans for a second term. The power of some 436 federal agencies that do the bulk of the work of the federal government—from food safety to banking rules to pollution control—comes under the justices’ scrutiny on January 17th.

Herring—a silvery fish of the North Atlantic that can be smoked, pickled or, when young, tinned—is the unlikely star of Loper Bright Enterprises v Raimondo and Relentless v Department of Commerce. Both cases involve herring fishermen upset with the National Marine Fisheries Service (NMFS), a federal agency charged with safeguarding America’s ocean resources and habitat.

Drawing on a line in a statute giving the agency licence to make regulations that are “necessary and appropriate…to prevent overfishing and rebuild overfished stocks”, in 2020 the NMFS required fishermen to bring an observer along with them on their boats—and to pay that person’s per-diem fee themselves. Space on these vessels is a “scarce and precious resource”, the fisheries’ lawyer argues, making the NMFS’s rule (which was suspended in April 2023) an “enormous imposition”. Making the fishermen foot the bill “adds insult to injury”.

The rule nevertheless found receptive audiences at two of America’s appellate courts. In allowing the agency to impose the regulation, three-judge panels on both courts turned to a Supreme Court decision, Chevron USA v Natural Resources Defence Council, that has managed the inter-branch balance of power since 1984.

Chevron has two steps. First, judges determine if a law governing an administrative agency speaks clearly. If it does, judges interpret it themselves and tell the agencies what the law means. But if judges believe the law is ambiguous, they give bureaucrats the benefit of the doubt. At this second step, if the court sees the agency’s interpretation as reasonable—even if it is not the interpretation the court thinks best—it defers to the agency. In Loper Bright and Relentless, the circuit courts concluded that the law in question is ambiguous and that the NMFS’s interpretation of it is reasonable.

Chevron was popular among conservative justices in its early days. Five years after it was decided, Antonin Scalia (an arch-conservative justice who died in 2016) gave a lecture at Duke Law School in which he predicted that agency deference would endure as it “reflects the reality of government” and “serves its needs”. Yet two justices on the court today—Neil Gorsuch and Clarence Thomas—have made clear their deep disdain for what has become known as “Chevron deference”.

In a 2015 case involving the Environmental Protection Agency, Justice Thomas wrote that the wide berth Chevron afforded bureaucrats meant the court was “blithely giving the force of law” to “agency ‘interpretations’ of federal statutes” (note the scare quotes) and thereby straying “further and further from the constitution”. For Justice Gorsuch, who was railing against Chevron when he was still a judge on the 10th circuit court of appeals, agency deference is akin to “judicial abdication”.

The plaintiffs in Loper Bright and Relentless are banking on at least three more justices keen on reining in the administrative state. It may be a good bet. Brett Kavanaugh, two years before he became a justice, raised critical questions about Chevron in an article in the Harvard Law Review. The conservative majority has not invoked Chevron since 2016. The plaintiffs write that the doctrine has been “the-case-which-must-not-be-named” at the high court for years; the conservative court may see this as the moment to give Chevron, as Justice Gorsuch put it in 2022, “a tombstone no one can miss”.

Dozens of friend-of-the-court briefs urge the justices to do just that: bury-Chevron filings outnumber save-Chevron briefs by a ratio of four to one. But the implications of ditching the 40-year-old precedent are contested. For the plaintiffs, “Chevron’s primary victim is the citizenry” because the approach “literally gives the tie to their regulators in every close case”.

Not all regulations, though, are as hard to swallow as forcing fishermen to dole out up to a fifth of their profits to an on-board observer. Federal agencies, staffed by some 2.2m civil servants with expertise that judges often lack, protect workplace safety and respond to natural disasters. They keep aeroplanes and financial markets aloft. The government warns that abandoning Chevron—which lower courts continue to rely on even as the Supreme Court has quietly ignored it—would “threaten settled expectations in virtually every area of conduct regulated by federal law”.

Stay on top of American politics with Checks and Balance, our weekly subscriber-only newsletter, which examines the state of American democracy and the issues that matter to voters.

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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