WSJ What’s News - World Leaders Face Tough Budget Choices in 2025

Episode Date: December 24, 2024

Dec. 24 Edition. The WSJ’s David Luhnow and Juan Forero say next year could spell trouble for leaders contending with tricky fiscal math. Plus, American Airlines briefly halts all flights, but a holiday travel meltdown is averted. And Nippon Steel’s plan to buy U.S. Steel is referred to President Biden for review. Luke Vargas hosts. Programming note: The next episode of What's News will be released midday Thursday. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

With Uber Reserve, you can book your Uber ride in advance. 90 days in advance. Perfect for all you forward thinkers and planning gurus. Reserve your Uber ride up to 90 days in advance. Uber Reserve. See Uber app for details. A brief holiday travel snafu after a technical issue temporarily grounds all American Airlines flights. Plus, U.S. Steel's potential takeover by Japan's Nippon Steel goes to President Biden for review, and why 2025 could spell more trouble for political incumbents contending with tricky fiscal math around the world. In country after country, you're starting to have worse budget fights.

At the same time, voters are just unhappy with their political leadership. This is something that both Europeans and Americans and really voters across the industrialized world can agree on. It's Tuesday, December 24th and business stories moving your world today. American Airlines says its flights are resuming after a technical outage led it to halt them for about an hour this morning. However, journal aviation reporter Alison Sider says that the outage, which affected systems critical to launching flights, hasn't resulted in mass cancellations.

So it seems like a big Christmas Eve crisis has kind of been averted. You know, it obviously takes some time to kind of spool back up. There are a lot of flights that got off to a late start and some delays have been mounting as the airline works through it. But there's also a lot of weather today. Dallas-Fort Worth is seeing some thunderstorms and some snow and icy conditions on the East Coast. People are probably a little bit scarred by two Christmases ago when Southwest Airlines

had kind of a big meltdown. But so far, things seem to be more or less back on track today. American Airlines shares started the day lower, but clawed back losses over the course of the morning. President Biden is set to decide the fate of Nippon Steel's plan to acquire U.S. Steel after a government panel reviewing the deal for national security risks failed to reach consensus.

Nippon Steel said it is confident that the transaction should be approved if fairly evaluated, while U.S. Steel argued that its takeover by a Japanese firm would enhance US economic security by forging an alliance in steel to combat competition from China. Journal reporter Bob Tita has more. The president has been saying for months that he felt that US Steel should be domestically owned, domestically operated. The expectation has been that he's against the deal. Of course, Nippon's deal could try to keep advocating for this under the new Trump administration,

although as Trump has already said, he's opposed to the deal multiple times during the campaign as well as after the campaign. Hundreds of thousands of people are facing starvation in Sudan, where famine has spread to more areas of the war-torn country. That's according to an international panel known as the IPC, which said today that more than 600,000 people are now suffering catastrophic hunger and warned that more parts of the country are likely to face famine as soon as this month. The United Nations and other aid groups have accused both Sudan's military and its rival,

the rapid support forces of obstructing the delivery of vital humanitarian aid. Sudan's agriculture ministry, which is controlled by the military, disputed the IPC's findings and said it's suspending its participation in the IPC system, a step that will likely make it even harder to monitor the hunger crisis going forward. Chinese startups are showing signs of catching up with America's leading artificial intelligence models and fast. In recent weeks, DeepSeek, a startup founded by one of China's most successful hedge fund managers, and Alibaba and Tencent-backed Moonshot AI have both said that the capabilities of their models compare favorably with OpenAI's O1 reasoning model, which came out in preview form in September.

Evaluating the claims is difficult, but some US specialists say they're impressed by this progress. Without access to advanced chips, the companies have found ways to train their models with less computing power, including by mimicking the human trial and error approach. Well, China's advances are coming as OpenAI's promised next great leap in AI is behind schedule and running up huge bills. GPT-5, as it's known, has been in the works for more than 18 months and according to people with knowledge of the matter, Microsoft, OpenAI's largest investor, had expected it around mid-2024.

But journal AI reporter Deepa Sitaraman says that researchers have essentially run out of available data to train the model. There's a lot of data on the internet, but everything good has pretty much been scraped. And so OpenAI and the researchers have had to figure out how do you fill that data gap. And one key way is by making it. This is called synthetic data. It's when AI makes data and then you give it back to the AI in hopes of it growing. It's also a source of risk if the wrong type of data is introduced. A lot of research that's shown that certain types of synthetic data actually cause the model to fully deteriorate. They call it model collapse. So it's not without risk to do

something like that. Soterios Johnson And for a lot more on that story, check out yesterday's Tech News Briefing Podcast. And in markets news, Asian stocks have end of the day mixed. European stocks were mostly higher in afternoon trading. And in the US, stocks are inching up ahead of a 1pm early close. Coming up after a testing year for a number of democratic leaders trying to spur economic reform, our editors discuss what to watch

in 2025. That's after the break. As a Fizz member, you can look forward to free data, big savings on plans, and having your unused data roll over to the following month, every month. At Fizz, you always get more for your money. Terms and conditions for our different programs and policies apply. Details at fis.ca. 2024 has proved to be a trying year for the leaders of industrialized democracies, with voters in a host of nations, including the U.S., taking ruling parties to task over their perceived failures to improve economic fortunes. And that theme could continue in 2025, as key economic tests and potential ballot box

consequences await a number of leaders. For more, our Daniel Bach spoke to Journal UK bureau chief David Lunaud and South America bureau chief Juan Ferraro. David, you've recently written about just how unpopular some leaders are in rich nations. There are a number of standout examples in the European Union, and in two cases, we've seen non-confidence votes pass against governments in France and in Germany. Can you talk to us about the dynamics that these countries are facing and why it's so difficult for governments to pass their own budgets?

Yeah. Well, the bottom line is really economies in a lot of these places really aren't growing enough. So France, Germany, Europe as a whole has faced the last few years where economic growth's been between 0% and 1%. So coming after the pandemic where economies fell sharply, inflation went through the roof, a lot of ordinary people

are feeling poorer after that. For governments, this poses a challenge because in a lot of these places, populations are getting older, and that means more money from the government needs to be allocated for things like pensions and healthcare. So if you think of it as a business, the government's costs are rising, but their revenues aren't rising because the economies aren't growing, which means they're not getting more tax revenue. So in country after country, you're starting to have worse budget fights. At the same time, voters are just unhappy with their political leadership. This is something that both Europeans and Americans and really voters across the industrialized world can

agree on. The established parties really aren't addressing their anxieties about the economy, about growing levels of immigration, and they sort of feel, lie to, or they feel that the traditional parties aren't really addressing their concerns. So increasingly their votes are going for anti-establishment figures, either Trump in the US or far right parties in Europe, for example, and a splintering of the vote that's making these governments less stable. So you end up with a lot of uncomfortable bedfellows. So for example, in Germany, you've had the center left with the center right that proved

not stable because they each had different diagnoses for what they wanted and different priorities for the budget. Scholes, who's center-left, said, well, I want to stimulate the economy, which hasn't grown there for more than two years, by throwing government money to subsidize energy for businesses. We can save jobs in the German auto industry and subsidize investments.

But the center-right party there was saying, no, let's cut corporate and income taxes and then do reforms like labor market reforms, cut welfare spending and let's have deregulation. And that's how we'll get the economy going. Where Germany is going to end up on that, nobody really knows, but that's the debate that's increasingly going to be happening in lots of these countries. Definitely something to watch in 2025 with Germany, of course, headed for a snap election and France's fourth prime minister in a year faced with the task of getting the country out of budgetary limbo. Obviously these countries

illustrate the difficulty of trying to govern in a coalition, but in other places even where there is more of a mandate or a strong majority things are still proving difficult. I can think of the UK in this example where you're the bureau chief. Yeah, the Labour Party won about 34% of the vote. So they came in and very soon thereafter, they had to propose a new budget and people didn't like what was proposed. There were some tax increases in there. There were some cuts to subsidies. For example, winter fuel payments for the elderly started to be means tested. In other words, wealthy elderly would pay a non-subsidized price for their winter fuel. The press went wild over this.

People got really upset. Even in a place where, as you point out, there's a stable political outlook, labor will be in power for years to come. They're not popular and voters are sort of restless and looking for answers that politicians aren't able to provide. Because really looking forward, this is all about trade-offs. Somebody's going to have to commit to some level of pain. Juan, I want to bring you in here because Argentina

is one place where economic pain has weighed very heavily on politics and where the leader, Javier Millet, seems to have taken quite a different approach. Yes. Well, in Argentina, Millet had inherited a pretty disastrous situation a year ago when he came into office. He was facing a sort of stagnant economy, very high inflation, which was at 25% a year, zero investment, and problems also tapping financial markets.

And he came in with a chainsaw promising to just cut fat, cut workers, cut ministries, cut agencies, subsidies. And so he made a lot of these brutal cuts. And we were thinking that he would have a lot more trouble, but he was able to press forward on a lot of cuts to regulations. Argentina is one of the most heavily regulated countries in the world and one of the most closed economies of all the big democracies in the world too. So he's been working on that and now in the last few weeks and months, we've started to

see some changes there. So inflation has now fallen quite dramatically. It's still very high, but it's a dramatic fall. There's now a budget surplus. And Millet is talking about trying to get an IMF loan. I mean, he needs this to sort of carry Argentina forward, which if Argentina grows and starts bringing in a lot of foreign investment,

then he can talk about ending a couple of things that really hamstrung a lot of foreign investment, then he can talk about ending a couple of things that really hamstrung a lot of businesses, which are currency controls and also like export taxes, things of that nature. So that's kind of the next key thing that everyone is watching. Will he be able to sort of get the country on track to be able to make those kinds of changes? Very well said. Juan Ferraro is the Journal of South America bureau chief

and David Linow is our UK bureau chief. Gentlemen, thank you so much for your time. This has been great. It's a pleasure. And that's it for what's news for this Tuesday. Today's show was produced by Daniel Bach with supervising producer Christina Rocca and I'm Luke Vargas for the Wall Street Journal.

We'll be taking a little break for the Christmas holiday and be back with a brand new show on Thursday at midday. Until then, thanks for listening.