EUROPE’S CENTER ISN’T HOLDING ANYMORE Despite recent election wins for moderates in the Netherlands, Germany and the U.K., the far right is stronger than ever. By TIM ROSS in Jaywick, England Illustration by Merijn Hos for POLITICO In recent elections, voters in Europe have given hope to embattled centrist politicians across the Western world.   Donald Trump may have romped back into the White House, but the international movement of MAGA-aligned populists has run into trouble across the Atlantic. At elections in the U.K., France, Germany, the Netherlands, Romania — and in a sprawling vote across 27 EU countries for the European Parliament — mainstream candidates defeated populist hardliners and far-right nationalists.  “There remains a majority in the center for a strong Europe, and that is crucial for stability,” European Commission President Ursula von der Leyen said, after the EU Parliament elections last year. “In other words, the center is holding.”   Sixteen months later, that hold is looking anything but secure.    Hard-right and far-right politicians are now leading the polls in France, the U.K. and even Germany. British Prime Minister Keir Starmer’s approval rating is a dire 21 percent. His French counterpart, Emmanuel Macron, is even lower, at 11 percent — and the mood is so grim that this fall’s spectacular theft at the Louvre is being treated by some as a giant metaphor for a country unable to manage its challenges.   Even von der Leyen’s own EU conservatives now rely on the votes of far right lawmakers to get her plans approved in Brussels. One outraged centrist likened the shift to those German politicians who enabled Adolf Hitler to take power. Populists at the extremes, meanwhile, cast themselves as the obvious alternative for populations that want change. And now they can expect Trump to help: In a brutal rupture of transatlantic norms, a new U.S. National Security Strategy aims to use American diplomacy to cultivate “resistance” to political correctness in Europe — especially on migration — and to support parties it describes as “patriotic.” Trump himself told POLITICO he would endorse candidates he believed would move Europe in the right direction. On that rightward trajectory, in the next four years the political map of the West faces its most dramatic upheaval since the Cold War. The implications for geopolitics, from trade to defense, could be profound.   “What [Europeans are] getting from Trump is the strategy of maximum polarization that hollows out the center,” said Will Marshall from the Progressive Policy Institute, the centrist American think tank that backed Bill Clinton in the 1990s. “The old established parties of left and right that dominated the post war era have gotten weaker,” he said. “The nationalist or populist right’s revolt is against them.”  Nowhere is this recent transformation more dramatic than in the U.K.   As the sun sinks toward the horizon over a calm sea one Thursday evening in November, half a dozen regulars huddle around the bar in the Never Say Die pub, a few yards from the beach at Jaywick Sands, on the east coast of England.   Built in the 1930s as a resort 70 miles from London, Jaywick is now the most deprived neighborhood in the country. The area had such a bad image that in 2018 a U.S. MAGA ad used a photograph of a dilapidated Jaywick street to warn of the apocalyptic future facing America if Trump’s candidates were not elected.   Jaywick was named England’s most deprived neighbourhood in October — for the fourth time since 2010. | Tolga Akmen/EPA It is here among the pebbledashed bungalows and England flags hanging limp from lampposts that a new political force — Nigel Farage’s rightwing Reform UK — has built its heartland.   At the bar, Dave Laurence, 82, says he doesn’t vote, as a rule, but made an exception for Farage, who was elected to represent the area last year. “I quite like him. He’s doing the best he can,” Laurence says as he sips his pint of lager, with ’80s pop hits playing in the background. “I’ll vote for him again.”  Laurence freely describes himself as “racist” and says he would never vote for a Black person, such as the center-right Conservative Party’s leader Kemi Badenoch. What troubles him most, he says, is the number of immigrants who have arrived in the U.K. during his lifetime, especially those crossing the Channel in small boats. Soon, Laurence fears, the country will be “full of Muslims and they’ll fucking rebel against us.”  With its anti-establishment, immigration-fighting agenda, Farage’s Reform UK offers voters a program tightly in tune with far-right parties that have gained ground across the West. According to opinion polls, Farage now has a real chance of becoming the U.K.’s next prime minister if the vote were held today. (A general election is not due until 2029).   It’s startling to note that as recently as July 2024, Starmer’s Labour Party won a historic landslide and some of his triumphant election aides traveled to the U.S. to advise Democrats on strategy. Today, Starmer is derided as “First Gear Keir” as he fights off leadership rivals rumored to be trying to oust him. And Reform isn’t the only force remaking British party politics. To the left of Labour, the Greens have also made recent gains in the polls under a new leader calling himself an “eco-populist.”   Farage’s stunning rise from the sidelines to the front of a political revolution carries lessons well beyond Britain’s borders. Europeans raised in the old school of mainstream politics fear that the traditional centerground — their home turf — will not hold.   ‘DURABLY UNSTABLE’   Macron, for his part, tried to counter the rise of the hard right by calling a snap election for the French National Assembly last year. The gamble backfired, delivering a hung parliament that has been unable to agree on key economic policies ever since. Macron is now historically unpopular.   French lawmakers’ clashes over the budget have toppled three of Macron’s picks as prime minister since the summer of 2024. A backlash against his plan to raise the pension age has forced ratings agencies to mull a damaging downgrade. Macron, who himself became president by launching a new centrist movement to rival the political establishment, now has no traditional party machinery to help bolster his position. “He’ll leave a political landscape that is perhaps durably unstable. It’s unforgivable,” said Alain Minc, an influential adviser and former mentor to the French president.  The chaos gives populists their chance. The main politicians making any running in conversations about the next presidential election belong to the far-right National Rally of Marine Le Pen and its youthful party president Jordan Bardella, who are riding high in the polls at 34 percent.   In Germany, too, the center ground is steadily eroding.   Though Chancellor Friedrich Merz’s conservatives won a snap election in February, his ideologically uneasy coalition, which consists of his own conservative bloc and the center-left Social Democratic Party (SPD), holds one of the slimmest parliamentary majorities for a government since 1945, with just 52 percent of seats. That leaves the Merz coalition vulnerable to small defections within the ranks and makes it hard for him to achieve anything ambitious in government. The far-left Die Linke party and the far-right Alternative for Germany (AfD) both surged at the last election, too, with AfD winning the best result in a national election for any far-right party since World War II.  Merz’s attempt to defang the AfD by moving his conservatives sharply to the right on the issue of migration seems to have backfired. The AfD has only continued its rise, surpassing Merz’s conservatives in many polls.   The rise of the far-right is a cultural shock to many centrist Germans, given the country’s deeply entrenched desire to avoid repeating its past. “For a long time in Germany we thought with our history, and the way we teach in our schools, we would be a bit more immune to that,” one concerned German official said. “It turned out we are not.”   Even in the Netherlands, where centrist Rob Jetten won a famous but narrow victory over the far-right firebrand Geert Wilders in October, there are reasons for mainstream politicians to worry. Wilders’ Freedom Party is still one of the biggest forces in the land, winning the same number of seats as Jetten’s D66. He could well return next time, just as Trump did in the U.S.   WHERE DID ALL THE VOTERS GO?   According to polling firm Ipsos, a large proportion of voters in many Western democracies now have little faith in the political process. While they still believe in democratic values, they are dissatisfied with the way democracy is working for them.   A large survey questioning around 10,000 voters across nine countries found 45 percent were dissatisfied, fueling support for the extremes. Among voters on the far left (57 percent) and the far right (54 percent), levels of dissatisfaction were highest of all.   The countries with the highest rates of dissatisfaction in the Ipsos study were France and the Netherlands, where political upheaval has taken its toll on faith in the system.   Anti-riot police officers stand next to a demonstration called by far-right activist Els Rechts against the Netherlands’ current asylum policy, in September in The Hague. | Josh Walet/ANP via Getty Images Alongside the coronavirus pandemic and the aftermath of lockdowns, the biggest drivers of dissatisfaction were the cost of living, immigration and crime, according to Gideon Skinner from Ipsos. Trust in politics fell in the 90s and took another hit in the late 2000s at the time of the financial crash, he said.   “There may be specific things that have made it worse over the last couple of years but it’s also a long-term condition,” Skinner told POLITICO. “It’s something we do need to worry about and there is not a silver bullet that can fix it all.”  Perhaps the greatest problem for incumbent centrists is that in most cases their economies are so moribund that they lack the fiscal firepower to spend money addressing the issues disillusioned voters care about most — like high living costs, ailing public services and migration.  THE INEQUALITY EMERGENCY   The financial crisis of 2008 and the coronavirus lockdowns of 2020-21 left many governments strapped for cash. In the U.K., for example, the economy was 16 percent smaller than it should have been a decade after the 2008 crash if prior growth trends had continued, according to Anand Menon, professor of European politics at King’s College London.   “Crucially, the impact of the financial crisis, like the impact of so much else in our politics, was massively unequal,” Menon said. “Prosperous places with high productivity, with well-educated workforces suffered far, far less than poorer parts of the country.”   Nobel Prize-winning economist Joseph Stiglitz submitted a study to the G20 in November warning that the world was facing an “inequality emergency.” Fueled by war, pandemic and trade disruptions, the crisis risks preparing the ground for more authoritarian leaders, his report said.   In many Western countries, the centerground is more than just a metaphor. It is in capital cities like London, Paris and Washington that power and money accumulate and the economic and political elites seek to maintain their grip on the status quo.   The further you travel from these centers out to areas in decline, the more likely you are to find support for radical politics.   As Menon notes, Britain’s 2016 revolution — the referendum vote to leave the European Union after almost half a century of membership — can be mapped onto the culinary geography of the country.   “Pret a Manger” is a smart national chain of sandwich and coffee shops, catering for hungry commuters and office workers in wealthy, successful British cities. “Places that had a Pret voted Remain,” Menon said. Parts of the U.K. where median wages were lower were disproportionately likely to vote to leave the EU.   IMMIGRATION, IMMIGRATION, IMMIGRATION   After the Brexit vote in 2016, immigration slid from the top of the priority list for British voters and Farage himself took a step back. Both have now returned, as Farage rides a wave of headlines about irregular migrants landing in small boats from France.   From January to May this year, there were a record 14,800 small boat crossings, 42 percent more than in the same period in the previous year, according to Oxford University’s Migration Observatory.   For Laurence, in the Never Say Die pub, the small boats represent the biggest issue of all. “What’s going to happen in 10 years’ time? What’s going to happen in 20 years’ time when the boat people are still coming over?” he asked.   A decade ago, German Chancellor Angela Merkel opened the doors to hundreds of thousands of refugees arriving into Europe from Syria, as well as Afghanistan and Iraq. The AfD surged in the months that followed, permanently changing German politics. At February’s election, the AfD won a record 21 percent of the vote, finishing in second place behind Merz’s conservative bloc.  “The fundamental failure that is common to the whole [centrist] transatlantic community is on immigration,” said Marshall from the Progressive Policy Institute. “All of the far-right movements have made it their top issue.”   It is the perceived threat that waves of migration pose to traditional national cultures which drives much of the support for the far right. Trump’s White House is now primed to join the European nationalists’ fight. According to a new U.S. National Security Strategy document released in December, Europe is facing “civilisational erasure” from unrestricted immigration, as well as falling birthrates. The analysis draws on the so-called great replacement theory, a racist conspiracy theory. Free speech — in the MAGA definition, at least — is another casualty of conventional centrist rule in Europe, as political correctness veers into “censorship,” the U.S. document said. Protesters demostrate under the motto “Loud against Nazis” in early February in Berlin. After years of decline, The Left party  pulled off a stunning revival in the general election later that month. | John MacDougall via AFP/Getty Images In his interview with POLITICO earlier this week, Trump aligned himself fully with the strategy paper. European nations are “decaying” and their “weak” leaders can expect to be challenged by rivals with American support, he said. “I’d endorse,” he added. In Brussels, the double-punch of the president’s interview and the strategy document left diplomats and officials feeling bruised and alarmed all over again, after a period in which they allowed themselves to hope that the transatlantic alliance wasn’t dying. One EU diplomat was blunt in assessing Trump’s new method: “It’s autocracy.” THE STOLEN JEWELS  Sometimes, it takes a random news event — ostensibly unconnected to politics — to crystalize the national mood. In Paris, the theft of France’s priceless crown jewels from the Louvre provided just such an opportunity, morphing into an indictment of an establishment that can’t get the job done, even when the job simply involves thoroughly locking the windows at the world’s most famous museum. National Rally leader Jordan Bardella called the incident a “humiliation” before asking: “How far will the breakdown of the state go?”   In Britain, just a month after Starmer’s victory last year, riots broke out across the country, fueled by far-right extremists. The catalyst was the murder of three young girls aged 6, 7 and 9, in Southport, northwest England, by a Black teenager wrongly identified at the time on social media — in posts amplified by the far-right — as a Muslim.   At the time, Farage suggested the police were withholding the truth about the suspect, earning him the fury of mainstream politicians. While stressing he did not support violence, Farage railed against what he called “two-tier policing,” a phrase popular among far-right commentators who claim police treat right-wing protesters more harshly than those on the left.  It’s an opinion that resonates in Jaywick. Chennelle Rutland, 56, is walking her two dogs along the beachfront, admiring the view as the sun sets, flaring the sky orange, then purple. The colors catch the surface of the flat sea. “It’s one rule for one and one rule for the other,” she says. “The whites have got to shut up because if you do say anything, you’re ‘racist’ and ‘far right.’”   Far-right activist Tommy Robinson invited his supporters to attend the “Unite The Kingdom” rally in September. | Christopher Furlong/Getty Images It would be wrong to characterise residents of Jaywick as simply ignorant or full of rage. Many who spoke to POLITICO there were cheerful, happy with their community and up to speed with the news. But, just as they’d soured on their country’s centrist establishment, they were also tuning out its favored news sources.   In Jaywick, some of Farage’s voters prefer GB News, Britain’s answer to Fox News, which launched in 2021, or learn about current affairs from YouTube and other social media. The BBC — for decades the mainstay of the British media landscape — has lost a portion of its audience here. Right-wing commentators and politicians attack it as biased. Trump has lately joined in, threatening to sue over a BBC edit that he said deceptively made it look as if he was explicitly inciting violence. The BBC’s director general and head of news both resigned. In the process, another piece of Britain’s onetime centerground was giving way.   WHAT NEXT?   There are reasons for centrists to hope. In Rome, Giorgia Meloni’s hard-right Brothers of Italy party has become less extreme in power, and the worst fears of moderates about a group with its historic roots in neo-fascism have not come to pass. She remains popular, and while pushing a culture war at home, she has avoided the wrath of the EU leadership and kept Trump onside.   Populists and nationalists don’t always win. Trump lost in 2020. In the Netherlands, Wilders lost in October this year, though only by a whisker. Romania’s Nicușor Dan won the presidency as a centrist in May, but again only narrowly defeating his far-right opponent.   Structural obstacles may also slow the radicals’ progress. The U.K.’s first-past-the-post voting system makes it hard for new parties to do well. The two-round French system has so far stopped Le Pen’s National Rally from gaining power as centrists combine to back moderates. In Germany, a similar “firewall” exists under which center parties keep the far-right out.   After the Brexit vote in 2016, immigration slid from the top of the priority list for British voters and Farage himself took a step back. Both have now returned. | Tolga Akmen/EPA Even as he enjoys a sustained lead in the polls and wins local elections in the U.K., Farage has not convinced voters that Reform would do a good job. Even some of his supporters worry he will be out of his depth in government.   The problem, for the centrists who are in power, is that a lot of voters seem to think they, too, are out of their depth. And, whether that involves dealing with migration, combatting inequality, or just boosting the security around the Mona Lisa, it’s a reputation they’ll need to fix in order to survive — no easy task given the intractability of the challenges facing the rich world.  The next year will see more elections at which the centrists — and their populists rivals — will be tested. In Hungary Prime Minister Viktor Orbán, long seen as the far-right bad boy of EU politics, is fighting to keep power at an election expected in April. There are regional votes in Germany where the AfD is on track to prosper. France may require yet another snap election to end its political paralysis. Trump’s diplomats and officials will be ready to intervene. Farage’s party, too, will be on the ballot in 2026: It is expected to make gains in Wales, Scotland and local votes elsewhere next spring. After that, his sights will be on the U.K. general election expected in 2029, by which time European politics may look very different.   “Of course I know Mr. Orban and of course I know Giorgia Meloni, of course I know these people,” Farage told POLITICO at a recent Reform rally. “I suspect that after the next election cycle in Europe there will be even more that I know.” Natalie Fertig in Washington, Clea Caulcutt in Paris and James Angelos in Berlin contributed to this report.  

European Central Bank officials are growing increasingly jittery as Kevin Hassett — a close ally of President Donald Trump with very little central bank experience — emerges as the frontrunner to lead the U.S. Federal Reserve. A report last week by Bloomberg described Hassett, whom Trump picked at the start of the year to head the White House National Economic Council, as the “emerging front-runner” to replace current Fed Chair Jerome Powell.  Hassett’s rise has set off alarm bells in Frankfurt. European officials fear Hassett, under pressure from his boss in the White House, could push the Fed into cutting interest rates far more aggressively than Powell — even though that might risk unleashing another wave of inflation that could ripple out across the world. “If markets obtain a firm belief that the new [Fed chair] is subject to fiscal or any other dominance at the expense of the inflation target, there will be capital flight from the U.S. and an erosion of the value of the dollar with serious consequences worldwide — including higher inflation,” one ECB official said.  Like others interviewed for this story, the official spoke on condition of anonymity to discuss internal deliberations. “There is a possibility that the U.S. will have some inflationary bias … because of the political involvement,” a second ECB official warned. The Bloomberg report came just before Thanksgiving, after Treasury Secretary Scott Bessent had whittled down a long roster of candidates into a shorter list. Later during the holiday weekend, aboard Air Force One, Trump told reporters that “I know who I’m gonna pick,” but he told a cabinet meeting on Tuesday that he wouldn’t announce his decision until early in the new year.  Prediction markets such as Polymarket have made Hassett the odds-on favorite since then.  “For Trump, Hassett would be the best choice,” a third ECB official agreed, noting the candidate’s political proximity to the White House.  PRESSURE CAMPAIGN Trump has repeatedly attacked the Fed since returning to office in January, blasting Powell — whom he appointed as Chair during his first term — as a “numbskull” and a “major loser” for not cutting interest rates more quickly. The Fed withstood the pressure until September, when signs of a slowdown in the labor market emerged. It cut rates again in October, but Powell upset those expecting more easing soon by warning that another cut in December is by no means “a done deal.” Since then, several of his colleagues on the Federal Open Markets Committee have expressed reluctance to cut any further in December, pointing to an inflation rate stuck above the 2 percent target. More recently, as Jerome Powell has come under fire from the White House, European colleagues have rushed to defend him. Usually, when the labor market weakens, so does inflation, but that hasn’t happened this time. At both of his last two press conferences, Powell noted that the Fed’s dual mandate of keeping prices stable while pursuing full employment were currently “in tension” with each other.  Hassett has presented a very different view, telling CNBC in November that “inflation has come way down” from the 5 percent that it averaged during Joe Biden’s presidency andthat “the trajectory is really, really, really good if you look at it.” That’s despite U.S. headline inflation actually rising in four of the last five months.  MY GOOD FRIEND BEN That is why many in Frankfurt see alternative candidates — including the dovish but experienced Fed Governor Christopher Waller — as far safer choices. Also still in the running, according to various sources, are former Fed Governor Kevin Warsh, BlackRock fixed-income chief Rick Rieder, and sitting Governor Michelle Bowman. For decades, relations between the Fed and the ECB have been collegial and cooperative. Members of the small, globally connected circle of central bankers have long seen themselves as a kind of fraternity. During the height of the 2008 financial crisis, then-ECB President Jean-Claude Trichet liked to emphasize that closeness by repeatedly referring to Fed Chair Ben Bernanke as “my good friend Ben.” More recently, as Powell has come under fire from the White House, European colleagues have rushed to defend him. Lagarde told a Washington Post event in April that “I have … enormous respect for Chair Powell, and I know that he’s doing exactly what’s expected of him to serve the American people.”  Deutsche Bundesbank President Joachim Nagel echoed such comments more recently. Outside the eurozone, Bank of England Governor Andrew Bailey — another central banker anxious about the risk of financial volatility — called Powell “a man of the utmost integrity.” With Powell’s departure looming, ECB officials increasingly fear that this long-standing, trust-based relationship may be nearing its end, a fourth official told POLITICO. These concerns have already begun to influence the ECB’s strategic considerations in other areas, including liquidity policies and its own leadership succession. The ECB declined to comment. (Additional reporting by Ben Munster)

When the Franco-German summit concluded in Berlin, Europe’s leaders issued a declaration with a clear ambition: strengthen Europe’s digital sovereignty in an open, collaborative way. European Commission President Ursula von der Leyen’s call for “Europe’s Independence Moment” captures the urgency, but independence isn’t declared — it’s designed. The pandemic exposed this truth. When Covid-19 struck, Europe initially scrambled for vaccines and facemasks, hampered by fragmented responses and overreliance on a few external suppliers. That vulnerability must never be repeated. True sovereignty rests on three pillars: diversity, resilience and autonomy. > True sovereignty rests on three pillars: diversity, resilience and autonomy. Diversity doesn’t mean pulling every factory back to Europe or building walls around markets. Many industries depend on expertise and resources beyond our borders. The answer is optionality, never putting all our eggs in one basket. Europe must enable choice and work with trusted partners to build capabilities. This risk-based approach ensures we’re not hostage to single suppliers or overexposed to nations that don’t share our values. Look at the energy crisis after Russia’s illegal invasion of Ukraine. Europe’s heavy reliance on Russian oil and gas left economies vulnerable. The solution wasn’t isolation, it was diversification: boosting domestic production from alternative energy sources while sourcing from multiple markets. Optionality is power. It lets Europe pivot when shocks hit, whether in energy, technology, or raw materials. Resilience is the art of prediction. Every system inevitably has vulnerabilities. The key is pre-empting, planning, testing and knowing how to recover quickly. Just as banks undergo stress tests, Europe needs similar rigor across physical and digital infrastructure. That also means promoting interoperability between networks, redundant connectivity links (including space and subsea cables), stockpiling critical components, and contingency plans. Resilience isn’t theoretical. It’s operational readiness. Finally, Europe must exercise authority through robust frameworks, such as authorization schemes, local licensing and governance rooted in EU law. The question is how and where to apply this control. On sensitive data, for example, sovereignty means ensuring it’s held in Europe under European jurisdiction, without replacing every underlying technology component. Sovereign solutions shouldn’t shut out global players. Instead, they should guarantee that critical decisions and compliance remain under European authority. Autonomy is empowerment, limiting external interference or denial of service while keeping systems secure and accountable. But let’s be clear: Europe cannot replicate world-leading technologies, platforms or critical components overnight. While we have the talent, innovation and leading industries, Europe has fallen significantly behind in a range of key emerging technologies. > While we have the talent, innovation and leading industries, Europe has fallen > significantly behind in a range of key emerging technologies. For example, building fully European alternatives in cloud and AI would take decades and billions of euros, and even then, we’d struggle to match Silicon Valley or Shenzhen. Worse, turning inward with protectionist policies would only weaken the foundations that we now seek to strengthen. “Old wines in new bottles” — import substitution, isolationism, picking winners — won’t deliver competitiveness or security. Contrast that with the much-debated US Inflation Reduction Act. Its incentives and subsidies were open to EU companies, provided they invest locally, develop local talent and build within the US market. It’s not about flags, it’s about pragmatism: attracting global investments, creating jobs and driving innovation-led growth. So what’s the practical path? Europe must embrace ‘sovereignty done right’, weaving diversity, resilience and autonomy into the fabric of its policies. That means risk-based safeguards, strategic partnerships and investment in European capabilities while staying open to global innovation. Trusted European operators can play a key role: managing encryption, access control and critical operations within EU jurisdiction, while enabling managed access to global technologies. To avoid ‘sovereignty washing’, eligibility should be based on rigorous, transparent assessments, not blanket bans. The Berlin summit’s new working group should start with a common EU-wide framework defining levels of data, operational and technological sovereignty. Providers claiming sovereign services can use this framework to transparently demonstrate which levels they meet. Europe’s sovereignty will not come from closing doors. Sovereignty done right will come from opening the right ones, on Europe’s terms. Independence should be dynamic, not defensive — empowering innovation, securing prosperity and protecting freedoms. > Europe’s sovereignty will not come from closing doors. Sovereignty done right > will come from opening the right ones, on Europe’s terms. That’s how Europe can build resilience, competitiveness and true strategic autonomy in a vibrant global digital ecosystem.

PARIS — A generational reckoning is brewing in Paris and Berlin, where a new wave of younger politicians is putting pensioners on notice: The system is buckling and can’t hold unless retirees do more to help fix it. Culture, language and local politics may add a distinct flavor to each debate, but the European Union’s two biggest economies are dealing with the same issue — how to pay for the soaring costs associated with the retirement of baby boomers.   The problem is both demographic and financial. Declining birthrates mean there aren’t enough young people to offset the boom in retirees at a time when economic growth is sluggish, salaries have stagnated and purchasing power isn’t evolving at the same rate as it did for previous generations. And with the cost of real estate skyrocketing, young people feel that buying a home and other opportunities afforded to their parents’ generation are increasingly out of reach.  With budgets already strapped thanks to priorities such as rearmament in the face of Russian aggression, reindustrialization and the green transition, a growing number of young politicians from the center to the right of the political spectrum are calling out retirees for not contributing to the solution.  Some lawmakers in Germany, like 34-year-old Johannes Winkel, are calling for greater “intergenerational justice.” The 38-year-old French MP Guillaume Kasbarian is going a step further, arguing France should rethink its pay-as-you-go system — similar to Germany’s — in which current workers fund retirees’ pensions through taxes. The 38-year-old French MP Guillaume Kasbarian is going a step further, arguing France should rethink its pay-as-you-go system — similar to Germany’s — in which current workers fund retirees’ pensions through taxes. | Amaury Cornu/Hans Lucas/AFP via Getty Images Targeting pensioners is a politically dangerous proposition. They are a reliable voting constituency, heading to the ballot box in greater numbers than younger generations — and they lean centrist. German Chancellor Friedrich Merz’s conservative bloc got an estimated 43 percent of the vote among people aged 70 and above in February’s general election, and older voters helped Macron secure reelection in 2022.  French Budget Minister Amélie de Montchalin told lawmakers last month that she didn’t “want to trigger a generation war” over the government’s fiscal plans for next year.  But she — and her counterparts across the Rhine — may not have a choice. ‘FAIR TO ALL GENERATIONS’ Lawmakers in France are sparring this week over a highly contentious plan to freeze inflation adjustments on pension payments next year, part of a wide-ranging effort to trim billions of euros from the budget and get the deficit below 5 percent of gross domestic product. The debate in France echoes similar conversations in Germany, where Winkel is among a group of young conservatives who rebelled against a pension reform package put forth by Merz’s government, saying current benefits for older people are too generous and asking for a plan that is “fair to all generations.”   A group of leading economists argued in an op-ed in German newspaper Handelsblatt that Merz’s proposed pension package would be “to the detriment of the younger generation, who are already under increasing financial pressure.”   The leaders of Germany’s coalition set out to resolve the dispute last week, with Merz vowing to take on a second, more far-reaching set of pension reforms as early as next year.   Winkel is among a group of young conservatives who rebelled against a pension reform package put forth by Merz’s government, saying current benefits for older people are too generous and asking for a plan that is “fair to all generations.”  | Photo by Nadja Wohlleben/Getty Images But it’s unclear whether that proposal has appeased all young conservatives. In a letter this week, the group said its 18 lawmakers would decide individually how they will vote on the immediate pension package, which is set to go for a vote on Friday. Every vote will matter, as Merz’s fragile coalition has a majority of only 12 parliamentarians. On Tuesday, Merz’s center-right bloc held a test vote to see if there was enough conservative support to pass the pension reform package. The results of the internal vote were unclear. Opinion surveys in Germany and France show that much of the public favors protecting existing pension systems and benefits. Leftist parties in both countries have also strongly pushed back against measures that would freeze or lower pension benefits, arguing that the public pension system is a core element of social cohesion. But intergenerational cracks are emerging.  “Measures on pensions show a generational cleavage: They are massively rejected by pensioners but supported by nearly one out of two in the younger generation (18-24),” according to an analysis from French pollster Elabe published in October.  In another poll from Odoxa, a small majority of working-age people in France agreed that current pensioners are “better off because they were able to leave earlier than those still working.” KEY DIFFERENCES There are key differences between France and Germany, however. Pension benefits in France are far more generous than in Germany, and help keep the poverty rate among people aged 65 and above lower than that of the general population.  The opposite is true in Germany, where the over-65 population is worse off than those younger than 65, in part because public pensions became comparatively lower after pension reforms passed in the 2000s.  Ultimately, however, demographics and economics vary so much from one generation to another that it’s almost impossible to make a pension system “fair,” according to Arnaud Lechevalier, an economist at the Paris 1 Panthéon-Sorbonne University. The idea that each generation can have the same return on investment on their working-aged contributions is, in Lechevalier’s words, “a deeply stupid idea.”

BRUSSELS — The European Commission will provide a financial band-aid next year to Baltic nations suffering collateral economic damage from EU sanctions against Russia. The region is being hit particularly hard because of falls in tourism and investment, along with the collapse of cross-border trade. Regions Commissioner Raffaele Fitto is leading the plan, which aims to kickstart the economies of Finland and its Baltic neighbors, according to diplomats and Commission officials who were granted anonymity to speak freely. The intended recipients are also heading to Brussels with a lengthy wish list, hoping Fitto’s plan will reignite their economies. Their concerns will take center stage during a summit of leaders from Eastern European countries in Helsinki on Dec. 16. “We want to have special attention to our region — the eastern flank, including Lithuania — because we see the negative impact coming from the geopolitical situation,” Lithuania’s Europe minister, Sigitas Mitkus, said in an interview with POLITICO earlier this month. “Sometimes it’s difficult to convince [investors] that … we have all the facilities in place.” But skeptics warn that any immediate financial support Fitto can provide will be meager, given the scale of the challenge and with the bloc’s seven-year budget running low. The EU has agreed 19 sanction packages against Moscow in a bid to cripple the Russian war economy, which has bankrolled the Kremlin’s invasion of Ukraine since February 2022. In doing so, Finland, Estonia, Latvia, and Lithuania have all taken a hit. While the threat of a Kremlin invasion has deterred tourists and investors, the sanctions have choked off cross-border trade with Russia, and everything has been made worse by skyrocketing inflation after the pandemic. Dwindling housing prices have also made it more difficult for businesses to provide collateral to secure loans from banks. “People who had cross-border connections with some economic consequences have lost them,” Jürgen Ligi, Estonia’s finance minister, told POLITICO. A native of Tartu on Estonia’s eastern flank, Ligi has witnessed these problems first-hand as he owns a house only four kilometers from the Russian border. “Estonia’s economy has suffered the most from the war [which caused] problems with investments and jobs,” Ligi added. According to the Commission’s latest forecast, Estonia is expected to grow by only 0.6 percent in 2025 — well below the EU average — even though economic activity is expected to pick up in 2026 and 2027. The EU has agreed 19 sanction packages against Moscow in a bid to cripple the Russian war economy, which has bankrolled the Kremlin’s invasion of Ukraine since February 2022. | Sefa Karacan/Getty Images In another sign of financial strain, Finland breached the Commission’s spending rules in 2025 due to excessive spending and an economic slowdown caused by the war. “We will be acknowledging the difficult economic situation Finland is facing, including the geopolitical and the closure of the Russian border,” EU Economy Commissioner Valdis Dombrovskis, said on Tuesday. SCRAPING THE BARREL But Fitto’s options could be limited until the bloc’s new seven-year budget, known as the multi-annual financial framework (MFF), is in place by 2028. “My sense is that the communication won’t come with fresh money but with ideas that can be pursued in the next MFF,” said an EU diplomat who was granted anonymity to discuss upcoming legislation. Mindful of dwindling resources in the EU’s current cash pot, Lithuania’s Mitkus is demanding that Baltic firms get preferential access to the EU’s new funding programs from 2028 — something that is currently lacking in the Commission’s budget proposal from July. Officials from the frontline states are exploring other options. These include Brussels loosening state aid rules so they can subsidize struggling firms, and getting the European Investment Bank to provide guarantees to companies that want to invest in the region. While the upcoming strategy will draw attention to these problems, officials privately admit that it’s unlikely to mobilize enough cash to solve them immediately. “It will build the narrative that in the next MFF you can do something for [pressing issues for Eastern regions such as] drones production,” said the EU diplomat quoted above. But until 2028, “I don’t expect any new money.”

LONDON — Financial markets gave a cautious welcome to Chancellor Rachel Reeves’ budget — to the extent that they could make sense of it. The presentation of the U.K. government’s fiscal plans for the next year was badly disrupted when the Office for Budget Responsibility accidentally published its analysis of the bill before Reeves had even announced it in parliament. That forced investors into a frantic search for its key details. As the initial uncertainties lifted, the pound rose by 0.2 percent against the dollar and a little more against the euro, on the key takeaway that the annual tax take will rise by £26 billion by the 2029-2030 fiscal year. That will squeeze the budget deficit and give Reeves more room for maneuver in the event of a fresh downturn. “The Chancellor more than doubled her fiscal headroom from around £10 billion to just under £22 billion,” Deutsche Bank analyst Sanjay Raja said in a note to clients. Such considerations should reduce the U.K.’s vulnerability to swings in global financial markets, which has been exposed more than once in a year when U.S. President Donald Trump has upended the global trading order. Investors had worried all year that a global economic slowdown could push Britain in the direction of a debt crisis. But Reeves now estimates the budget deficit will fall to 1.9 percent of GDP by 2030, from 4.5 percent of GDP in the current year. That will stabilize the debt ratio well below 100 percent of GDP, but at a cost. By freezing income tax thresholds for the rest of this parliament, and by a host of smaller measures, Reeves will raise the overall tax take to a record 38 percent of gross domestic product, according to the OBR. The new debt trajectory generated a measure of relief in bond markets, visible in a drop of 0.05 percentage points in the government’s key 10-year borrowing cost to 4.44 percent by 2 p.m. in London. That was the lowest since the leak of Reeves abandoning her planned increase in income tax rates two weeks ago. It also fed through into slightly stronger expectations of interest rate cuts from the Bank of England. The two-year gilt yield, which closely tracks expectations of the Bank Rate, fell 0.03 percentage points to a 15-month low of 3.74 percent. Reeves was careful to avoid the mistakes of her last budget which, by raising regulated prices sharply, drove headline inflation back to 4 percent over the summer. In her statement on Tuesday, she went in the other direction, freezing rail and bus fares and removing some of the government-directed charges on energy bills. The OBR said these measures would take 0.4 percent off the rate of inflation over the next year. “I have cut the cost of living with money off bills and prices frozen,” Reeves said. Deutsche’s Raja said the measures would have a “modest but meaningful” impact on inflation, making the Bank’s job “slightly easier” for the next 12 months. The Bank of England held off from cutting the key Bank Rate at its latest Monetary Policy Committee meeting this month, despite increasingly signs of the job market weakening. Most analysts had said at the time they would expect a cut in December, as long as the budget didn’t add to inflationary pressures.

BRUSSELS — The European Commission on Tuesday slapped a red flag on Finland for spending too much and warned others to tighten their belts to avoid getting the same treatment.  The EU executive unveiled the full list of countries that are overspending, as part of the Commission’s biannual “European Semester” that checks whether governments are within the EU’s rules for public spending.  Red flags, known as excessive deficit procedures (EDPs), signal concerns about countries’ financial health to investors. Brussels can impose a fine if governments refuse to adopt measures to bring their finances back in line. Brussels reintroduced the EU’s rules for public spending last year after the Commission gave capitals free license during the pandemic, which plunged the EU’s economy into the worst recession since the Second World War. While the bloc’s economy has picked up this year, many governments are struggling to comply with the EU’s rules amid trade tensions with the U.S. and mounting defense budgets to deter Russian aggression. One of the countries on Russia’s doorstep, Finland, was reprimanded for exceeding the EU’s cap on budget deficits, which limits how much a country can spend beyond what it collects in taxes.  Economy Commissioner Valdis Dombrovskis. | Thierry Monasse/Getty Images The rules limit the deficit to 3 percent of a country’s economic output. Recent tweaks to the rules allow governments to spend an additional 1.5 percent of GDP on defense. But the numbers still don’t add up for Helsinki. “The deficit in excess of 3 percent of GDP is not fully explained by the increase in defense spending alone,” Economy Commissioner Valdis Dombrovskis told reporters in Strasbourg. Germany narrowly avoided the same punishment. Separately, the Commission checked whether governments’ expected spending in 2026 complies with their five or seven-year plans that were approved by Brussels. So far, Croatia, Lithuania, Slovenia, Spain, Bulgaria, Hungary, the Netherlands, and Malta aren’t doing enough. Failure to act could see Brussels reprimand the eight countries at the next European Semester in June.  POLITICO took a deeper look at some of the key countries and graded their current performances. FINLAND: E The Nordic state got a slap on the wrist from Brussels as its deficit is set to exceed the EU’s limit for the next two years. Once a paragon of fiscal stability, Finland is now in the same EDP basket as the indebted nations of France, Italy, and Belgium. As a result, Helsinki will have to reduce the deficit. That’s a tall order for a country facing overstretched social and health budgets, as well as a ballooning defense bill. ROMANIA: D+ Romania can breathe a sigh of relief after today’s announcement. Dombrovskis praised the country’s recent economic reforms and ruled out triggering the nuclear option — a suspension of the country’s payouts from the EU budget, which are worth billions.  But the country is not out of the woods. At 8.4 percent of GDP, its 2025 deficit remains by far the highest in the EU, and painful domestic reforms will be required to reduce it significantly in the years to come. GERMANY: C The country’s budget deficit is expected to reach 3.1 percent of GDP this year. That’s technically a breach of the rules. But Brussels refrained from punishing the bloc’s economic powerhouse, because the breach is “fully explained by the increase in defense spending,” the Commission said in a statement. But there is trouble ahead. Germany plans to continue its spending spree next year to juice growth, only curbing expenditure later. That won’t be easy, as China threatens the country’s export-driven economy and Chancellor Friedrich Merz’s grand coalition needs to deliver reforms to revive growth. Berlin is taking a huge gamble. Brussels too. FRANCE: C- France is in the middle of a budget crisis and is not even sure that it will manage to adopt the 2026 budget by the end of this year. That doesn’t seem to worry Brussels too much for the time being, especially considering that France received its EDP red flag in 2023. The Commission found that the French budget plans for next year are compliant with its recommendations and encouraged Paris to continue on this path.  But not even France’s prime minister knows what his budget for next year will look like. Sébastien Lecornu has pledged to bring the deficit down to 5 percent of GDP. But that goal is at risk, as contradictory amendments to the draft budget in parliament undermine the chances of a deal before Christmas. HUNGARY: F  Hungary is facing a worrying situation because it’s not making the necessary cuts in 2026 to exit the EDP. For now, the Commission has merely warned Hungary to cut spending in 2026. But if Budapest ignores such calls, Brussels might threaten to issue fines during its next budget review in Spring. Hungarian Prime Minister Viktor Orbán is unlikely to heed Brussels’ calls as the country is heading to the polls next spring and he faces the risk of losing power after almost a decade.  ITALY: B- Has Europe’s perennial fiscal bad boy turned good? That’s what it looks like, with Italy’s deficit set to fall to 2.6 percent of GDP next year, while government spending is forecast to stay below the limits imposed by the EU’s fiscal rules. That puts it on track to exit its EDP, if it can prove that debt is set to trend lower in the long term. Other good news: Rome’s tax take is trending above economic growth, helping to fill its coffers and pay down debt.  It’s not all good news. Italy remains the second-most indebted country in the EU. That isn’t changing next year, with government debt expected to increase to 137.9 percent of GDP. But any positive change is welcome, especially when it’s the class clown who is finally hitting the books.

BRUSSELS — The EU’s economy is set to expand by 1.4 percent this year, driven in large part by Poland’s and Spain’s growth. That’s according to the European Commission’s forecasts, presented on Monday. Outperforming most European countries, Warsaw and Madrid are set to grow by 3.2 percent and 2.9 percent in 2025. The EU’s economic outlook is a slight improvement from last spring’s forecast at 1.1 percent. The Commission expects the bloc’s economy to continue growing at a rate of 1.4 percent next year, despite the U.S.’ slapping 15 percent tariffs on European exports. In further good news, the unemployment rate is set to remain below 6 percent through 2027, while inflation will shrink to 2.2 percent within the same time period. Economy Commissioner Valdis Dombrovskis urged the bloc to capitalize on the momentum. “Now, given the challenging external context, the EU must take resolute action to unlock domestic growth,” such as “simplifying regulation, completing the Single Market, and boosting innovation,” Dombrovskis said in a statement. In a striking reversal, the poster boys of the eurozone crisis — Portugal, Greece, Cyprus, Ireland, and Spain — are set to outperform countries such as Germany, Finland, and Austria that were once seen as economic models. In a worrying sign for Europe, its three largest economies — Germany, France, and Italy — are set to experience weak growth over the coming years. Once the engine of European growth, Germany is set to expand by 0.2 percent in 2025 and 1.2 percent in 2026 and 2027. Italy is estimated to grow at an even more sluggish pace — 0.4 percent in 2025 and 0.8 percent in 2026 and 2027 — despite being the main beneficiary of the EU’s post-COVID recovery program. This stands in contrast to the strong economic growth in 2025 in Southern and Eastern countries such as Malta (4 percent), Bulgaria (3 percent), Lithuania (2.4 percent) and Croatia (3.2 percent).

BELÉM, Brazil — Gavin Newsom can’t get out of a meeting or a talk at the international climate talks here without being swarmed by reporters and diplomats eager for a quote, a handshake, a photo. On a tour Tuesday of a cultural center with Gov. Helder Barbalho, the leader of the Brazilian state hosting the talks, a passerby recognized them both. “There’s the governor,” he exclaimed. “And there’s the California governor.” Later in the day, as Newsom rode up an escalator packed with reporters and international officials on his way to deliver a speech, a bystander shouted: “The escalator’s not broken for you!” — a dig at President Donald Trump, who once had an escalator malfunction on him at the United Nations. Newsom grinned wide: “Oh, I like that.” The adulation was gold for a governor with presidential aspirations as he steps into a power vacuum. The Trump administration is trying to dismantle climate policies both at home and abroad, and other likely Democratic presidential contenders are absent from the United Nations climate talks. Seeing a chance to plant his green flag on an international stage, Newsom is embracing the role of climate champion as his own party backs away at home and the politics of the issue shift rightward. It’s a role fitting Newsom’s instincts: anti-Trump, pro-environment and pro-technology, and with a political antenna for the upside of picking fights, finding opportunity in defiance. “We’re at peak influence because of the flatness of the surrounding terrain with the Trump administration and all the anxiety,” he told POLITICO from the sidelines of a green investor conference in Brazil on Monday. Newsom’s profile has never been higher. Just days before traveling to Brazil, he celebrated a decisive win in his redistricting campaign to boost Democrats in the midterms. He is polling at or near the top of presidential primary shortlists, and is amassing an army of small-dollar donors across the states. The governor couldn’t walk down the hallway at the conference without getting swarmed, undeniably the star of the talks on their second formal day. At one point, security officials had to physically shove away one man repeatedly. Conference attendees yelled out “Keep up the social media!” and “Go Gavin!” (and the occasional “Who is that?”). The first question by the Brazilian press: Are you running for president? And from business people: Are you coming back? Yet in touching down here — and in emphasizing his climate advocacy more broadly — Newsom is assuming a significant risk to his post-gubernatorial ambitions. The rest of the world may wish America were more like California, but the country itself — even Democrats who will decide the 2028 primary — are far more skeptical. What looks like courage abroad can read as out-of-touch back home, in a country where voters, including Democrats, routinely rank any number of issues, including the economy, health care, and cost-of-living, as more pressing than global warming. THE STAGE IS SET Other blue states were already backing away from Newsom’s gas-powered vehicle phase-out even before Congress and Trump ended it this summer, and another possible Democratic contender for president, Pennsylvania Gov. Josh Shapiro, may pull his state out of a regional emissions trading market as part of a budget deal, a move seen as tempering attacks from the right on climate. Even in California, where a new Carnegie Endowment for International Peace poll finds that Californians increasingly want their state government to play a bigger role on the international stage, trade trumped climate change as voters’ top priority for international talks for the first time this year. “There’s not a poll or a pundit that suggests that Democrats should be talking about this,” Newsom acknowledged in an interview. “I’m not naive to that either, but I think it’s the way we talk about it that’s the bigger issue, and I think all of us, including myself, need to improve on that and that’s what I aim to do.” In his 2020 presidential campaign, Joe Biden prevailed not after embracing — but rather, distancing himself from — the “Green New Deal,” which Newsom acknowledged this month had become a “pejorative” on the right. Four years later, Trump pilloried Kamala Harris in the general election for her past positions on climate change. Newsom is already facing relentless attacks from the right on energy: two years ago, in what was seen at the time as a shadow presidential debate, Florida Gov. Ron DeSantis was skewering Newsom for his phase-out of gas-powered vehicles: “He is walking his people into a big-time disaster,” DeSantis said. And that was before Republicans began combing Newsom’s social media posts for material to weaponize in future ads. Even Newsom’s predecessor, former Gov. Jerry Brown, who made climate change his signature issue, acknowledged “climate is not the big issue in South Carolina or in Maine or in Iowa.” “Climate is important,” Brown said in an interview. “But it’s not like immigration, it’s not like homelessness, it’s not like taxes, it’s not like inflation, not like the price of a house.” Still, Brown cast climate as an existential issue. “It’s way beyond presidential politics. It is about our survival and your well being for the rest of your life,” he said. “I think he’s doing it because he thinks it’s profoundly important, and certainly politics is not divorced entirely from reality.” Newsom’s inner circle senses a political upside, too. His first-ever visit to the climate talks comes not just from his own or California’s ambitions, but from the vacuum left by Trump. “The more that Trump recedes, like a tide going out, the more coral is exposed. And that’s where Newsom can really flourish,” said Jason Elliott, a former deputy chief of staff and an adviser since Newsom’s early days in elected office. Newsom is “going against the grain,” he continued. “It’s easier to be some of these purple or red state governors in other places in the United States that just wash their hands of EVs the minute that the going gets tough. But that’s just not Newsom.” On climate, Newsom’s attempts to stand alone sit well within the California tradition. Brown and Arnold Schwarzenegger — the Democrat and the Republican who preceded him — both made international climate diplomacy central to their legacies. “We have been at this for decades and decades, through Republican and Democratic administrations,” Newsom said. “That’s an important message at this time as well, because we’re so unreliable as a nation, and we’re destroying alliances and relationships.” Also in Brazil for part of the talks were Govs. Tony Evers of Wisconsin and Michelle Lujan Grisham of New Mexico, both Democrats, and mayors of several major U.S. cities, like Kate Gallego of Phoenix. But their pitch didn’t land with quite the same heft as California’s, a state filled with billion-dollar tech companies that, as Newsom frequently boasts, recently overtook Japan as the world’s fourth-largest economy. He attributed his environmental streak to his family, citing his father, William Newsom, a judge and longtime conservationist. As mayor of San Francisco, Newsom signed a first-in-the-nation composting mandate and plastic bag ban. As lieutenant governor to Brown, Newsom called himself “a solution in search of a problem” because Brown had embraced climate so prominently. But Brown said Newsom has made the issue his own. “I think Newsom comes to this naturally,” he said. Newsom pulls from a wide range of influences; prolific texting buddies include former Washington Gov. Jay Inslee, who ran for president largely on a climate platform, and former Secretary of State John Kerry. He frequently cites the example of President Ronald Reagan, the Republican — and former California governor — who embraced an environmental agenda. “I talk to everybody,” Newsom said. He spoke in almost spiritual terms about his upcoming trip deeper into the Amazon, where he’s scheduled to meet with community stewards and walk through the forest. “When we were all opening up those first books, learning geography, one of the first places we all learn about is the Amazon,” he said. “It’s so iconic, so evocative, so it informs so much of what inspires us as children to care about the Earth and Mother Nature. It connects us to our creator.” THE MID-TRANSITION HURT As governor, Newsom hasn’t had the luxury his predecessors enjoyed of setting ambitious emissions targets, but instead is working in a period beset by natural disasters and tensions with both the left and moderate wings of his party. His aides have dubbed it the remarkably un-sexy “mid-transition”: The deadlines to show results are here, they’re out of reach — and in the interim, voters are mad about energy prices. As a result, he’s pushed to ban the sale of new gas-powered cars by 2035 and directed billions toward wildfire prevention and clean-energy manufacturing — but also reversed past positions against nuclear and Big Oil, including extending the life of California’s last nuclear power plant, pausing a profit cap on refineries and expanding oil drilling in Kern County. Inside the administration, those moves are seen as not a tempering of environmental ambition but a pragmatic recalibration. “We’re transitioning to the other side, and there’s a lot of white water in that. And that’s reality. You’ve got to deal with cards that are dealt,” Newsom said in an interview in São Paulo. But it also exposes him to criticism from both the left and moderate wings of his own party. Newsom’s 2023 speech excoriating oil companies to the United Nations in New York City was one of his proudest moments of his career. This year, he faced banners attacking him: “If you can’t take on Big Oil, can you take on Trump?” At the same time, former Los Angeles Mayor Antonio Villaraigosa, a Democrat, has seized on high gas prices in his campaign to succeed Newsom as governor in 2026 — and is partly blaming past governors’ climate policies. Adding to the crunch are the record-setting wildfires that have beset Newsom’s tenure as governor. They’ve not only devastated communities from Paradise in Northern California to Altadena in Los Angeles County but buoyed both electricity prices as utilities spend billions on fire-proofing their grid and property insurance prices as insurers flee the state. It’s this duality that informs Newsom’s approach. “We’ve got to address costs or we’ll lose the debate,” Newsom said. “This is the hard part.” A business moderate known to hand out personal phones programmed with his number to tech CEOs, Newsom is now pitching his climate fight as one focused on economic competitiveness and jobs. Lauren Sanchez, the chair of the state’s powerful air and climate agency, the California Air Resources Board, called the state’s international leadership the governor’s “north star” on climate change. “He is in the business of ensuring that California is relevant in the future economy,” she said. In Brazil, Newsom made the time to stop by a global investors summit in São Paulo, where he held an hour-long roundtable with green bankers, philanthropists and energy execs. They told him they wanted his climate pacts with Brazilian governments to do more on economic ties. So, Newsom said, he started drafting a new agreement there and then, throwing a paper napkin on the table in reference to the cocktail napkin deal that formed Southwest. “Let’s get this done before I leave,” Newsom said he told his Brazilian counterparts. “We move quickly.” If the moment reflected California’s swagger, it also laid bare its limitations. The Constitution limits states from contributing money to international funds, like the tropical rainforest preservation fund that is the Brazilians’ signature proposal at the talks. And even at home, Trump is still making Newsom’s balancing act hard: Newsom floated backfilling the Trump administration’s removal of electric vehicle incentives with state rebates, then backtracked, conceding the state doesn’t have enough funds. And on Tuesday, reports came out that the Trump administration was planning to offer offshore oil and gas leases for the first time in decades off the coast of California — putting Newsom on the defensive. Newsom called those plans “dead on arrival.” “I also think it remarkable that he didn’t promote it in his backyard at Mar-a-Lago; he didn’t promote it off the coast of Florida,” Newsom added.

VIENNA — Donald Trump’s trade war has been less damaging for Europe’s economy than widely feared, and there is a hope that a stable recovery is underway, European Central Bank governing council member Martin Kocher said.  “We have not seen the strong reduction in growth rates and the inflationary effects of the trade conflicts that were anticipated in March and April,” the Austrian National Bank governor told POLITICO in an interview on Wednesday. On the same day that a closely-watched business survey pointed to an unexpected and marked pickup in activity in October, Kocher suggested there were emerging signs of an economic pickup. Kocher, who served as economy minister before joining the central bank in September, nonetheless warned against complacency. “I don’t want to sugarcoat what we are seeing,” he said. “This is the highest level of tariffs since the 1930s, and there will be effects on the world economy.” The impact on the eurozone will be exceptionally difficult to predict because we have not experienced anything similar in nearly 100 years, Kocher said, adding that this was the primary reason for diverging views about the ideal monetary policy path ahead on the ECB’s governing council. Falling inflation has allowed the ECB to cut its key deposit rate eight times since the middle of last year, bringing it down from a record-high 4 percent to 2 percent currently — a level that the Bank says is no longer restricting the economy. A behavioral economist rather than a monetary one, Kocher is one of the newest faces on the governing council, having succeeded Robert Holzmann earlier this year. Most analysts expect a more moderate approach from him than from the veteran hawk Holzmann, who was often the lone dissenter on the rate-setting body. The governor’s office leaves no doubt there is a change in style underfoot — the wooden desk replaced by a modern, height-adjustable table and new, colorful paintings by Austrian artists Wolfgang Hollegha and Hans Staudacher on the wall. While policymakers unanimously agreed to keep interest rates on hold last week, ECB President Christine Lagarde revealed that “there are different positions and different views” on whether the Bank may yet have to cut them one more time. “The difficulty is to assess whether most of the effects of the trade conflicts have already materialized or whether we will see them trickle down in the economy over the next couple of months and perhaps even years,” he said. “I’m convinced that we’ll see more effects over time. But whether they will be overall inflationary, or rather disinflationary in the euro area, is difficult to tell.” RISKY OUTLOOK Kocher explained it’s reasonable to expect deflationary pressure from the rerouting of trade from China to Europe that was flowing to the U.S. before the trade conflict began, but it’s equally plausible that geopolitical conflicts may hamper supply chains and boost prices. And things can change very fast. “Last week’s APEC summit with some interim agreement between the U.S. and China might have changed the outlook again,” he noted. While policymakers unanimously agreed to keep interest rates on hold last week, ECB President Christine Lagarde revealed that “there are different positions and different views” on whether the Bank may yet have to cut them one more time. | Nikolay Doychinov/AFP via Getty Images At the summit, the U.S. and China committed to lowering the temperature in their trade and tech rivalry. The so-called “Gyeongju Declaration” called for “robust trade and investment” and committed leaders to deepen economic cooperation. In this environment, “we have to wait and see to what extent [risks] materialize” as it’s difficult to take rate decisions “primarily based on the risk outlook,” Kocher said. As things stand, he said, the ECB would need to “see some risk materializing that would reduce … the GDP projection to a significant extent, and that would lead perhaps to some disinflationary effects” before it discussed cutting again. The governing council next meets in December, when a new set of forecasts will include estimates for growth and inflation in 2028 for the first time. Kocher warned against placing too much emphasis on the 2028 numbers, which many economists and investors focus on as an indication of whether the Bank is on track to meet its medium-term inflation target. While the forecast will offer more certainty about the outlook for 2026 and 2027, that for 2028 will be little more than “indicative,” he argued. “You always have to take projections with a grain of salt. And the further away the projection horizon, the larger the grain of salt.” GREEN BATTLE CONTINUES Kocher was speaking on the day that a majority of the EU’s 27 governments decided to water down their collective target for pollution reduction, seen by many as a sign that political momentum has swung after half a decade of green victories on climate policy. But Kocher fiercely defended the ECB’s commitment to green central banking. “Whatever is decided today, there’s no significant change in the targets of the European Union to become climate neutral in the near future,” Kocher said. And so long as it does not interfere with the ECB’s inflation-targeting mandate, the ECB has the “freedom” to support those objectives. He said the governing council had reaffirmed the view, even in the last couple of months, that it is essential to take climate risks into account in its projections, citing the massive impact that extreme weather events can have on growth and inflation. In contrast to his predecessor, Kocher also backs the inclusion of a climate criterion in the Bank’s collateral framework, a step that could one day make it more expensive for polluting companies than for green ones to borrow money. Critics of green central banking have argued that it is up to elected politicians, rather than central bankers, to create incentives for green business. But Kocher, a former downhill racer who has seen Austria’s key tourism sector struggle with an ever-shorter ski season, is unconcerned. “As long as it does not create a trade-off with our inflation target, I am perfectly fine with it,” he said.