Merz elected German Chancellor - at second time of asking
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Hello and welcome to World Business Report on the BBC World Service. I'm Will Bain. Great to have your company as always on the programme. Today, what was supposed to be a formality became a farce in Germany's parliament. We'll be live in the country's economic hub, Frankfurt, shortly to try and work out what it all means now.

Also today, Canada's former central bank governor turned prime minister enters something of a trade tariff lion's den. And it doesn't sound like Mark Carney is going to get that warm a welcome from President Trump.

I'm not sure what he wants to see me about, but I guess he wants to make a deal. Everybody does. Yeah, we'll have more on that shortly. And what does it mean now that OpenAI, the company behind ChatGPT, will remain a not-for-profit firm? We'll be taking a look before we leave you today on World Business Report.

Busy day, busy programme. As you can hear, lots of geopolitics, trade, economics about. We're also going to be talking about a trade deal that's been signed in the last hour or so between the UK and India. But we're going to kick off the programme today in Germany, where what was meant to be the first day for its new leader went sideways.

Well, that was the moment Friedrich Merz, the leader of Germany's centre-right Christian Democrats party, the winners of February's national elections in Germany, found out the vote hadn't

gone his way to become the country's next leader, its Chancellor. As the Speaker of Germany's Parliament, the Bundestag, explained there, lawmakers were deciding on whether Mr Mertz and his team up with the Social Democrats to form a coalition government could pass. It fell short by six votes, which meant for the first time in Germany's history Mr Mertz wasn't confirmed

as Chancellor. Cue a scramble, but in the past few minutes, quite literally, as you might have been hearing in the news headlines there, at the second time of asking, Mr Mertz has now been confirmed as Germany's new Chancellor and next leader. Bit of a messy start though, to say the least, for the new government. Carsten Breski joins us. Carsten's the Global Head of Macro for the bank ING Research. Joins us live from Frankfurt. Carsten, welcome back to World Business Report. What an afternoon.

Yeah, well, good afternoon. How much of this is just politically embarrassing and move on? How much of it is actually potentially damaging in terms of, I guess, you know, market confidence and all the type of things that you guys in those financial trading centers are looking for in terms of clear direction of travel for governments in business and economics terms?

It is clearly embarrassing. You know, I think we already lost leadership in manufacturing, maybe even in football. And now we lost leadership in stable and reliant politics. So this is clearly an embarrassing one.

Now they made it, but I think it also shows when you look at the economy, it shows on how much shaky grounds this coalition is built. And remember, this is a coalition that wants to spend 500 billion euro into infrastructure.

It's a coalition that wants to spend unlimited on defense. It is a coalition that needs to bring in some structural reforms because the German economy has been in de facto stagnation for five years in a row. And if they don't manage to get such a vote, which was actually a no-brainer this morning, if they don't get it done, this is clearly not boding well for all their

bold economic plans. Well, that's the point here, isn't it? And that's why we're talking about it on a business and economics program, isn't it? It's a secret vote, so we don't actually know which side of the coalition was potentially unhappy with some of those projects potentially that you were talking about.

But we know those are mega projects involving mega amounts of money. And it just puts little question marks, doesn't it? Which, again, investors, private investors don't like if they're being asked to kind of partner up with some of this too. No, correct. I think that private investors simply don't like uncertainty.

And I think, no, these were secret votes and we won't know who actually voted against him. I think my suspicion is that there were in Friedrich Merz's own party, the conservative Christian Democrats, that there were quite a few MPs that were not so happy with the U-turn on fiscal policy, with giving up on the fiscal debt. Right, so borrowing this amount of...

Borrowing that amount of money, getting rid of the debt breaks and potentially spending that amount of money. You should say that they're sort of a right of center party, aren't they, economically? Exactly, exactly. Plus that Friedrich Merz during the election campaign always ruled out that he would spend that much money. But now when you turn back to the future,

And I think for private investors, these 500 billion euro that are planned on infrastructure will come because they are put in a side budget in a so-called special purpose vehicle. So I would not have any concerns that these will not come. What I think to me is more concerning and more worrying is when I read the coalition agreement,

And when I read that there are plans to do corporate tax cuts and there are plans to accelerate write-down rules in order to get more investments done, that all these plans are subject to financing needs. And I think today's vote and the failed vote early this morning shows that money –

in the annual budget could still become a problem for this government. Fiona Sincotta is also with us. Fiona is the Senior Market Analyst at Citi Index here in London, as those regular listeners will know, always with us at the start of the week here on World Business Report to look through the financial markets. Fiona, great to have you back on the program. Just tell us then what's going on, the euro currency and the DAX, Germany's top stock market, both recovering a little bit because they were down pretty sharply after that first vote we played the sound from.

Yes, that's right. So, I mean, the DAX was down around 2.1% earlier today and the MDAX, which is more domestically focused, was down 3%. But we have seen that recovery. We've seen now the DAX is just down around 0.5%. Interestingly, it hasn't turned positive. So, we're still in the negative, just not as much as before. But as far as the euro is concerned, we are up on the day. So, we're up around 0.4%.

Yeah.

Definitely because investors are – or they fear that this government will not be able to go bold on reforms and tax cuts. And that is something that is needed because as much as I do like the 500 billion euro infrastructure spending and as much as it would help the economy in the shorter run –

more is needed because we can have a nice fancy infrastructure again in Germany if we don't have the product, if we don't have the companies that are again world leaders. And to get these world leaders, we need more than only infrastructure spending. And I think this is exactly what markets are reflecting right now, concerns that there is not enough support, not even in the own parties of these coalition partners to really

push through with far-reaching reforms. Yeah, an extraordinary first day. Carsten, you've been on your toes as much as we have as well, because we originally lined you up to talk about that kind of economic intray for the government. That intray pretty much chucked up in the air, wasn't it, on day one? But great as always to get your insight. Carsten Breski there, the head of macroeconomics for the bank.

I'm joining us live from Frankfurt there. Fiona is going to be with us throughout the programme, of course, and be interested to get her thoughts on what's going on with the stock market here in the UK, perhaps in a moment, because it's been a busy few hours in global trade and economics.

In a moment, we're going to cross live to North America as Canada's recently elected prime minister and former central bank governor Mark Carney gets to meet with Donald Trump to talk trade and tariffs at the White House. But first, two other big economies forging closer trading ties because in the past couple of hours, India and the UK have announced they have struck a new free trade deal. Here's what the UK Prime Minister Keir Starmer had to say on the deal.

Well, this is a historic day for the United Kingdom and for India because this is the biggest trade deal that we, the UK, have done since we left the EU and it's the most ambitious trade deal that India has ever done. And this will be measured in billions of pounds into our economy and jobs across the whole of the United Kingdom. So it is a really important, significant day.

Well, for more, we're joined live from our Mumbai Business Bureau by our India business reporter, Archana Shukla. Archana, great to have you back on the programme. Lots and lots of details. What have you managed to digest so far about what the two sides have agreed?

Well, the first that this is the first free trade agreement being signed between two large economies since the tariff war started early this year. So it makes it very significant. Both India and UK have been wanting to secure newer markets. And it also kind of

lays out the path on what India could offer in other trade deals like with the US. But between India and UK, they have currently about £42 billion worth of trade relationships, which they feel would boost up another £25 billion by 2050. What is becoming cheaper? British cosmetics, chocolates, whiskies, cars. All of this would become cheaper for Indian consumers because India has significantly cut taxes on that.

You know, talk about whiskies and gins. You know, tariffs have been halved to 75% or for British cars where tariffs were about 100%, which has come down to 10% now, but under a quota. One big win that India has scored has been on social security, where the deal removes the need for companies to pay social security in multiple countries.

So it'll be a positive for IT companies that send employees to the UK on short-term visas. What the deal does not talk about is immigration, student visas, and the controversial UK's carbon tax that makes imports of steels, etc., more expensive. Yeah, fascinating. Let's come to some of those things still to be worked on or still to find out about Archana in a moment. But

three years in the making this deal as well. I want to give us some sense of kind of the reaction in India to it being got over the line because it was Prime Minister Modi who initially announced this first actually.

Well, yes. And in fact, industries on both sides have been looking forward to this deal because this would open newer markets. We know that with Donald Trump's tariffs in the way, you know, there is a lot of uncertainty and countries like India have been wanting to secure and have trade deals, which

which secure newer markets for their businesses. So it has been taken up in a positive manner. However, the question mark on things like immigration and student visas, particularly, which have been contentious issues, not still being cleared up in the trade deal, is something that industries are looking forward to because that kind of is a big issue.

question mark, especially for companies like the, you know, the IT companies that send a lot of employees. India, a big exporter, a bit like the UK, actually, of sort of people and ideas, those services, those workers in those kind of sectors, isn't it?

Yes, absolutely. And in fact, that has been a contentious issue in most of the trade deals that India has been negotiating, including with the United States. So what comes out between India and UK could also lay out the path on what could be offered or what could be presented in the other deals as well. So migration has been a major issue. Social security was another issue.

where India actually has got something and they've pushed through in this negotiation. But migration is something that we still... And also the carbon tax that UK levies, which makes it more expensive for steel companies and other metal companies especially.

to export to the UK. Archana, thanks so much for the details that we know so far. Archana Shukla there, our India business reporter in Mumbai, Fiona Sincotister from Citi Index. And Fiona, the first thing Archana mentioned there was whiskey. And as she was doing so, I stuck through the screens next to me what Diageo, owner of a lot of those big whiskey brands and spirits brands in particular, listed here on the London Stock Exchange, what its shares were doing up

pretty sharply right now. Those are going to be big winners potentially companies like that presumably from a deal like this.

Yes, this is really good news. Now, as you said, you've seen the sharp rise in their share price. The more domestically focused FTSE 250 is actually trading higher on the day, whereas the sort of more international FTSE 100 is down on the day. And then also, I think the pound is also always a good barometer of sort of optimism and the mood towards the UK economy. And actually, we have seen the pound trading sharply higher against both

the US dollar and the euro this afternoon. Yes, interesting sticking points in there, but certainly the immediate market reaction from us, Fiona says, sounds positive here in the UK as well. Well, as I mentioned, from closer trade ties being forged to a trade relationship in need of a fair bit of repair work, Canada's Prime Minister Mark Carney in the next few minutes is set to sit down with President Trump

trying to ease some of those trade tensions, of course, between the two North American neighbours. You might remember this was the Canadian Prime Minister ahead of travelling to the US. Our focus will be on both immediate trade pressures and the broader future economic and security relationship between our two sovereign nations. My government will fight to get the best deal for Canada. We will take all the time necessary, but not more, in order to do so.

In parallel, we will strengthen our relationships with reliable trading partners and allies. Canada has what the world needs, and we uphold the values the world respects. It does seem like the former central bank governor, they might be heading into something of a tariffs lion's den, because this was President Trump ahead of their meeting. I'm not sure what he wants to see me about, but I guess he wants to make a deal. Everybody does. They all want to make a deal because we have something that they all want.

We have something that they all want. China wants to make a deal very badly. You see what's happening to China. China is being decimated, and I don't want that to happen. But they have to make a fair deal. Well, Per Mbiti is with us. He was briefly Canada's foreign minister, also president of the Canadian Chamber of Commerce for a much longer period, almost two decades there. Left that role in August last year, and he's currently Tenio Senior Advisor. He's joining us live from Ottawa in Canada. Per, welcome to World Business Report. Thanks so much for being with us.

Thanks, Will. Glad to be with you. We heard Mr. Carney there talking about immediate trade pressures. There's a few of them, aren't there? But what do you think the most acute ones are in the Canadian economy right now? Well, the most immediate one as it relates to the United States is these bogus tariffs that have been put on allegedly because of a flood of fentanyl and illegal immigrants across the northern border of the United States. It

it makes it very difficult to deal with because there is no such emergency and nothing that you do is going to satisfy Mr. Trump. So what we'll be looking for certainly is for him to lift those tariffs before we get into substantive discussions on other issues. What sort of impact have you seen impact on the ground, you know, in terms of businesses laying people off, making decisions about where they're

They're sending goods where workers are being hired, etc. Have you seen any kind of immediate moves since even the kind of noise around these tariffs has begun? Yes, certainly with regard to the auto tariffs, we're seeing layoffs taking place in Canada and some in the United States as well because we have a deeply integrated system.

manufacturing sector and the auto sector. The other though is that it's put a chill on investment. It's the chaos that is so particularly difficult. What business needs more than anything else is certainty. They need to know what the rules are and they need to be able to plan what you have with a serratic treatment on tariffs that we're seeing, not just in Canada, but with the rest of the world.

It is complete uncertainty. And it means that investors pull back. Yeah, and we should stress that point, shouldn't we? Because Karsten Breski was talking about this as well in relation to Germany. We're talking about massive changes in a lot of these industries too, aren't we? You point to the auto industry, obviously the change to electric vehicles, the shift there that we've talked about involves…

massive amounts of financing, the shift perhaps in terms of energy. So we kind of need more investment than ever before in a lot of areas, don't we, around the world? And yet, as you say, that chilling effect is there. And when he talks about moving jobs to the United States, these factories aren't on wheels. It takes years to build a new modern factory and lots of capital. And as a consequence, then the belief that somehow you snap your fingers and all of this changes is just false.

The other thing is the irrationality. I mentioned fentanyl and illegal immigration when, you know, which was an invented problem. You're seeing it today and where he is claiming it's a national security emergency that Marvel movies get made in Britain.

Yeah. To those points then, Perrin, the urgency of these talks, I suppose, in terms of getting started on that work of rebuilding these supply chains and the urgency and what would look like a good result at the end of this trip, do you think, from Mr Carney and Canada's perspective?

I think it's going to be very important for us to have realistic expectations. The single most important thing in having a face-to-face meeting with Mr. Trump is that nothing goes off the rails, that there isn't another Zelensky-like meeting. The second that I would certainly like to see is that we start to move the discussions to the level of officials, where you can have a much more rational discussion. I was going to say, do you think there's a real danger of that, of this going as sideways as that?

There is. And we'll know within a couple of hours whether that's going to happen or not. We're hopeful that it won't. But you just don't know when you're dealing with Donald Trump. Perrin Beattie, long-term president of the Canadian Chamber of Commerce. Thanks so much for your time here on World Business Report. Fiona Sincotta, just sort of on the backdrop, I suppose, or the head of those meetings between those two men. Interesting numbers.

out of the US on its trade deficit. Perhaps not a surprise that that widened to a record high, i.e. it was importing more than it was exporting at kind of record levels, because it sounds like, as we've heard on the programme too, US companies were trying to get a lot of inventory, a lot of stuff in before the tariffs began to bite.

Exactly that. Yes, that's what we saw. We saw those companies really rushing to import products ahead of Trump's trade tariffs. The goods and services trade gap actually increased by 14%. So that's to 140.5 billion. Interestingly, it was very much a record amount of...

the largest ever inflows of pharmaceuticals. We haven't had the announcement yet on tariffs on pharmaceuticals, but Trump has said that they will be coming or he'll make an announcement in the next two weeks. So very much still watching that. And a final quick one on tariffs, because we had two bits of interesting company news on the stock market. Stock market listed firms in terms of tariffs, Barbies, Maker, Mattel and Ford, the car company talking autos there with Perrin Beatty, both with interesting outlooks, didn't they, on the impact of tariffs already? Yeah.

Yeah, completely. I mean, Ford actually pulled their guidance, which saw the share price falling sharply lower, or a couple of percentage points lower at least, because of the lack of guidance. So, you know, and that's just really highlighting the uncertainty that there is. And then Mattel have accelerated efforts to move production from China as those tariffs are set to hit toys as well. So, you know, it does give us a sense there really is sort of, you know,

a very wide range of products and companies that are being affected. Yeah, and Ford is setting aside what could cost them as much as $1.5 billion. So not just the breadth of that impact, but the depth of it as well, as Fiona was saying. I want to get your thoughts on our final story as well, Fiona. So stay with us.

OpenAI, parent of the Artificial Intelligence Service, ChatGPT, that large language AI model that you may have had a play around with at home, has announced a new governance plan after a bit of power struggle over the business. Its boss, Sam Altman, said OpenAI would remain under the control of its not-for-profit partners.

Board, sorry, for-profit board while becoming known as what is a US public benefit corporation. Well, Paige Headley is going to try and untangle all of that for us. Paige is a former policy and ethics advisor at OpenAI and joins us now. Thanks for being with us on World Business Report, Paige. Thank you for having me. So the reasons, first of all, that OpenAI wanted to be a not-for-profit business, what were those?

It was concern about what would happen if people pursued artificial general intelligence, which people at OpenAI believe could be the most powerful technology humans ever create, with profit motivations. That that could lead to concentration of power and wealth and endanger the public. And why did the question marks come in, I guess, about that model?

Well, they need to raise capital in order to be at the frontier of AI. So it's a balance between its charitable purpose to proceed cautiously and benefit the public and actually have the capital to be where they need to be. Yeah. And can it do that, do you think? I mean, you know this well, but you've obviously had to weigh these things up in your former role there. When we see the likes of, well, just about every technology company you can name throwing not just millions, billions at

AI and trying to get into this race, how difficult will it be for OpenAI to stay competitive with this model? Well, by all accounts, it's currently the world leader in AI with a $300 billion valuation, and that's with its current structure. So it seems to be doing okay.

I suppose long term, though, is it that the pressure comes on when you see the likes of, you know, we're talking about the biggest companies on the planet, aren't we? The Metas and the Amazons and Microsoft themselves really chucking money at this. It's kind of evolved so fast you can't afford to stand still for a moment, even in financial terms.

That's right. It's possible that with its current structure, it could not be the best. It could not beat out Google and Meta and XAI, but that's not its purpose. Its purpose is not to be the

best AI company or to beat out those other competitors. It is a nonprofit. Its purpose is to ensure this technology is developed safely and for the benefit of the world. It doesn't need to out-compete them in order to do that. Right. Sorry, I was just going to say, it's actually about how many users kind of get their hands on it and feel comfortable using it more than the amount of cash it makes necessarily. Among other things, yes.

Yeah, interesting. Going to be a fascinating one to keep following. Paige, thanks so much for your time. Really interesting to get your insight. Paige Headley there, former policy and ethics advisor at OpenAI. Fiona, quick thought on that because, as I say, it is a bit of a financial arms race, that space at the moment.

It feels like it, doesn't it? You know, it definitely does feel that there's an area that regulation needs to remain pretty strong on. And yeah, definitely going to be watching this space to see what happens there. Interesting area. Another place where there's been a race, almost quite a literal one in terms of bikes and motorbikes trying to deliver food to our doors has been in this particular area. Wicked savings with member perks like free delivery and delivery plus. Genius.

Wicked savings, apparently so. But now the British Food Delivery Service delivery has been gobbled up by its US-based peer DoorDash in a deal worth over $3.8 billion. Fiona, this was the big kind of UK stock market story of the day, wasn't it?

Yes, completely. And I mean, the price that works out at around 180p per share, which is a 44% premium, so 44% more than what the value of Deliveroo was on the day that the offer was made on April the 4th. So really, really strong price there as well. Big news, we've seen the share price obviously has been rising on the

back of this and it's going to create a company which now operates in 40 countries. Deliveroo operated in nine countries. DoorDash is now going to be operating in 40 countries as a result of this takeover. Interesting area, isn't it? We thought maybe the ceiling for it was during the pandemic when we were all at home ordering takeaways left, right and centre, but there's sort of been

very fast winners and losers in that space, hasn't it? Deliveroo going very quickly, but then super fast ones, Gorilla and Getty here in Europe came in, then they sort of disappeared out the space. It's certainly one with a lot of fluctuation. Yes, intense competition, very, very fast pace. And it does almost seem like sort of the public and consumers have their preferred ones to work with. I know I do. So I think that really does come

And that's presumably to do with the roster of kind of restaurants that they can get on board. I guess that's what that's all about. Exactly. Just the amount of diverse or different restaurants that they can use and the food available, the proximity. So that's what it's going to be all about. And that speed, as we talked about, literally a race. Fiona, go off and enjoy your favourite delivery app now. Thanks so much for your time as always. Fiona Sincotta there.

Senior Market Analyst at Citi Index here in London looking through the financial markets. Big thanks to all of you as well for listening to us here on World Business Report.