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Economists’ proposal for up to €800bn of funding under review as part of coalition talks

Germany’s chancellor-in-waiting Friedrich Merz is considering unlocking hundreds of billions in extra funding for the country’s military and infrastructure as coalition talks with Social Democrats gather pace.

One option under review is a proposal by top German economists to raise up to €800bn in new public borrowing for two separate off-budget funds over a decade, said two people with knowledge of the matter.

A third person briefed on the early-stage negotiations said they were centred on a combined €500bn package. The people cautioned that other options could be examined.

Such a plan would mark a step-change in Germany’s traditionally conservative approach to public borrowing. Berlin in 2009 enshrined a debt brake in its constitution, which limits government borrowing and keeps the structural deficit at 0.35 per cent of GDP.

The economists’ proposal would be “a double bazooka”, said Armin Steinbach, professor of economics at HEC, referring to the term used for Chancellor Olaf Scholz’s stimulus during the Covid pandemic.

The proposal would stimulate a stagnating economy and signal that the EU’s largest democracy is serious about increasing defence capabilities at a time when the US administration is seeking to unwind the transatlantic alliance.

It could be “a very big one”, said Holger Schmieding, chief economist at Berenberg. “And it looks like the negotiations are going ahead very fast and that we could get a deal fast.”

The talks in Germany come as the EU commission outlined on Tuesday a joint debt instrument that would enable member states to fund military equipment.

The instrument would involve the commission borrowing on the markets against the EU budget, then lending to member states at cheap rates. It would require unanimous backing from EU countries. 

The €150bn in loans could buy “air and missile defence, the artillery system, missiles and ammunition drones and anti-drone systems, but also to address other means from cyber to military mobility”, said Ursula von der Leyen, president of the European Commission.

She added that lifting EU fiscal rules for defence investments would enable countries to spend €650bn on defence over four years, or about 1.5 per cent of GDP on average.

Countries will also be given the chance to redirect their regional development funding to defence, and the European Investment Bank will be asked to expand defence investments.

“This is Europe’s moment and we must live up to it,” von der Leyen said.

In Germany, Merz, whose CDU/CSU conservative bloc won elections on 23 February, has accelerated coalition talks with the SPD since Donald Trump publicly admonished Ukraine President Volodymyr Zelenskyy at the White House last week.

On Monday, Merz said he aimed for an agreement on defence funding with the SPD before Thursday, when EU leaders meet to discuss Ukraine and the continent’s security.

“From my point of view, the urgency is great,” he said, declining to comment on the two-fund proposal. “We should try to agree on this before the EU summit on Thursday.”

Merz declined to comment on the instruments or figures, saying: “That’s all open.”

Germany’s next chancellor has signalled he wants to use the outgoing parliament’s supermajority to pass the constitutional amendments that such borrowing would require, because his government would probably be blocked by the far-right Alternative for Germany and far-left Die Linke in the next parliament.

The outgoing parliament can be reconvened in an extraordinary session until March 25.

Speaking ahead of exploratory talks with the CDU/CSU, SPD co-leaders and negotiators Lars Klingbeil and Saskia Esken suggested on Monday they would request more funding for transport and energy infrastructure, which experts have said requires investment of about €600bn.

“Are we able to answer even the big questions now? This certainly includes the issue of external security and our country’s defence capabilities. But this also includes infrastructure, which has been neglected in recent years,” Esken said. “Too little has been invested in energy, network infrastructure, roads, railways, collapsing bridges, but also social infrastructure.”

Merz would also have to convince the Green party in order to secure a two-thirds majority. The Greens have pushed for a broader debt brake reform.

Caretaker Chancellor Scholz, who led the SPD to its worst result since the turn of the 20th century, campaigned on relaxing the debt brake. But such a reform would take months and probably face stiff opposition from some factions in the CDU/CSU.

A way to temporarily circumvent the debt brake is to set up off-budget funds in the constitution. Scholz set up a €100bn vehicle in 2022 to buy military equipment and weapons following Russia’s full-scale invasion of Ukraine.

More than 80 per cent of this fund, which expires in 2027, has been committed, but one option is to top it up. The two-fund package would be a rapid “political compromise” to avoid a more complex debt brake overhaul, Steinbach said.

The proposal was drafted last week by experts from the country’s economic institutes.

The unsolicited proposal was brokered by Jakob von Weizsäcker, a former academic economist and SPD politician who is the finance minister of Saarland. The experts argued that the need to increase defence capabilities quickly was a strong argument for using debt, said two people with knowledge of their thinking.

They also endorsed an overhaul of the debt brake during the next legislature. But politicians needed to act quickly and at scale, they wrote. “There is no point in discussing €100bn or €200bn,” said one of the people.

Airports are repositioning to cater to rising demand for dining but face lower fee income and big investment bills

Hungry travelers may determine the future of airport finance.

In 2024, more fliers than ever passed through London’s Heathrow Airport, spending more at its stores, the company running it said last week. Yet total revenue declined as Britain’s aviation regulator lowered the maximum fees the airport can charge to airlines.

This comes as Heathrow—owned by private-equity firm Ardian and sovereign-wealth funds in Qatar and Saudi Arabia, among others—prepares for an investment spree, including a third runway. Funding remains a question, as airlines such as British Airways and Virgin Atlantic complain about aeronautical fees being too high.

Globally, expanding airports face huge bills and will rely on passengers splurging to cover costs. Their big pitch: cocktails and fine dining.

JFK International Airport’s Terminal 4 recently announced a New York-themed lineup of food and beverage concessions, including Dos Toros Taqueria and Villa Russo Café. Orlando International Airport in January awarded Barcelona-based caterer Areas a $10 million tender for six new establishments.

European airports undergoing refurbishments, including Frankfurt, Vienna, Edinburgh and Madrid, are making similar moves.

Despite pandemic-era worries that people would stop eating at airports, the opposite has happened. Two weeks ago, Lagardère MMB -1.19%decrease; red down pointing triangle reported a 25% jump in earnings before interest and taxes in its Travel Retail division, which operates in airports in the U.S., Canada and Europe. Figures from earlier in the year suggest that the largest bump happened in restaurants, outpacing “duty free” stores—which also sell snacks and drinks—and fashion.

More travelers are also frequenting VIP lounges, no longer reserved for business-class fliers and elite frequent travelers thanks to credit-card perks, paid memberships and airline day passes. Airports and airlines are investing heavily in these spaces, offering tiered experiences from basic comfort lounges to ultrapremium dining areas.

In some cases, food and beverage are replacing lost demand for luxury and apparel, largely from China. The clearer trend, however, is toward blending dining with shopping.

Swiss firm Avolta AVOL -2.07%decrease; red down pointing triangle, formerly Dufry, is behind several of these coming launches, including an Eataly market at JFK and a Starbucks market at Sacramento International Airport. Lagardère helped launch a “hybrid” offering in the Lego store at Barcelona’s airport and is joining with Groupe ADP ADP -0.94%decrease; red down pointing triangle, the owner of Paris’s Charles de Gaulle, to blend retail and eating spaces. Excluding one-offs, ADP’s profit rose 16% last year, the company said in February.

Meanwhile Aena AENA -0.28%decrease; red down pointing triangle, the operator of Spain’s airports, announced last Wednesday that net income grew 19% in 2024. Since 2019, revenue has increased 29%, with fees rising 8% and commercial sales, a whopping 41%. Sales per square meter have risen 23% in duty-free stores, 21% in other stores, and 30% in bars and restaurants.

Aena’s commercial business rose to above 30% of revenues for the first time. And, because it is the highest-margin business that airports have, it is now half of the company’s profit. As airlines push back against higher airport charges, analysts expect this dynamic to continue.

Is there a way for investors to play the trend? Unlike in the U.S., where airports are mostly government-owned, many European airports are privatized and some operators, such as Aena, ADP and Fraport, are listed.

While their shares have struggled since the pandemic, they remain a better bet than travel retailers such as Lagardère, Avolta and SSP Group SSPG -1.73%decrease; red down pointing triangle. Many of those stocks also missed out on the late 2010s air-travel boom, a telltale sign that airports have leverage over their retailers.

The risk is that, even if passenger numbers surge, extra income will go toward airport infrastructure. Debt issuance among U.S. airports has tripled in the past decade. Even accounting for passenger fees and federal funding, the required expansions and maintenance still leave an $18 billion annual funding gap between 2023 and 2027, according to a January report by Morningstar DBRS.

Some European operators have more flexibility to raise fees, but their aggregated capital-investment needs are projected at a massive 360 billion euros (equivalent to $378 billion) by 2040. The key question, then, is whether revamped retail spaces will squeeze more spending out of each passenger. At the moment, airports seem to be betting that the answer is yes.

“Back when I started, I was shown a few spare square meters and told to do what I could,” said Maria José Cuenda, Aena’s commercial and real-estate head, who has been with the company for more than 30 years. “Now I am involved from the start of a terminal being designed.”

Stock in Spain’s Aena is up around 150% from a decade ago and is narrowing the gap with broader European indexes measured since the end of 2019. Perhaps airports in culinary hot spots will serve up the best returns.

Safe Superintelligence has become one of the most valuable companies in tech thanks to the reputation of former OpenAI researcher Ilya Sutskever

Silicon Valley’s hottest investment isn’t a new app or hardware product. It’s one man.

AI researcher Ilya Sutskever is the primary reason venture capitalists are putting some $2 billion into his secretive company Safe Superintelligence, according to people familiar with the matter. The new funding round values SSI at $30 billion, making it one of the most valuable AI startups in the world.

Sutskever became one of the industry’s most revered AI researchers as chief scientist at OpenAI, where he helped develop the technology behind ChatGPT. He left OpenAI last year following a painful rupture with the company’s chief executive, Sam Altman.

SSI says it doesn’t plan to release any products until it develops super intelligence—an industry term for an AI that can outsmart experts in nearly every field. Competitors like Google, OpenAI and Anthropic are trying to develop similarly advanced systems, but are releasing consumer chatbots and business applications in the interim to generate revenue and demonstrate their progress.

Sutskever has told associates he isn’t developing advanced AI using the same methods he and colleagues used at OpenAI. He has said he has instead identified a “different mountain to climb” that is showing early signs of promise, according to people close to the company.

“Everyone is curious about exactly what he’s pushing and exactly what the insight is,” said James Cham, a partner at venture firm Bloomberg Beta, which hasn’t invested in SSI. “It’s super-high risk, and if it works out, maybe you have the potential to be part of someone who is changing the world.”

Top secret

Most AI startups work hard to get attention, hoping it will help attract employees and investors in a highly competitive space. SSI operates as secretly as it can out of offices in Silicon Valley and Tel Aviv.

Its bare-bones website contains little more than a 223-word mission statement. Its approximately 20 employees—a fraction of the 1,000-plus at OpenAI and Anthropic—are discouraged from mentioning SSI on their LinkedIn profiles, according to knowledgeable people.

Candidates who secure an in-person interview are instructed to leave their phone in a Faraday cage, a container that blocks cellular and Wi-Fi signals, before entering SSI’s offices, one of the knowledgeable people said.

Most of its staffers aren’t well known in Silicon Valley because the company is looking for promising technologists whom Sutskever can mentor, rather than experienced people likely to jump between employers and take what they have learned with them.

Still, Silicon Valley’s top investors, including Sequoia Capital and Andreessen Horowitz, have poured money into the company. The latest financing, which marks a sixfold increase from its $5 billion valuation in September, is being led by Greenoaks Capital.

SSI’s talks to raise funding at a $30 billion valuation, which doesn’t include the new cash it is collecting, were previously reported by Bloomberg.

Sutskever was born in the former Soviet Union, grew up in Israel, and made his name as a graduate student in Canada, after co-authoring a paper about deep-learning AI algorithms, which use a process called scaling to become smarter by processing massive amounts of data.

He later joined Google, but left in 2015 to become one of the first employees at OpenAI. He was attracted to Altman and fellow co-founder Elon Musk’s vision of a nonprofit dedicated to developing artificial general intelligence—AI as capable as most people at most things—for the public good.

Colleagues jokingly described Sutskever as a prophet prone to musing about what a world with AGI might look like and how to prevent it from causing catastrophic disasters.

“Our goal is to make a mankind-loving AGI,” he said at the company’s 2022 holiday party.

Splitting with Sam Altman

After ChatGPT was released as a test in late 2022 and became a worldwide sensation, OpenAI became less of a pure research lab and more of a traditional company focused on products and revenue. Sutskever and members of his team felt that left them with fewer resources for studying advanced AI and curbing its potential risks.

His relationship with Altman, who became OpenAI’s CEO, deteriorated. In November 2023, Sutskever delivered a message to his boss that would change both their lives: OpenAI’s board was firing Altman after determining he hadn’t been consistently candid with them.

The move backfired when hundreds of employees threatened to quit and Microsoft offered to hire them along with the deposed CEO. Sutskever said he regretted “my participation in the board’s actions.”

Altman was rehired in under a week. Sutskever remained officially employed, but stopped working.

He resigned last May and started SSI with former OpenAI researcher Daniel Levy and investor Daniel Gross. By focusing entirely on creating a safe super intelligence, the new company hopes to avoid the tension between products and research at OpenAI as it works toward a goal even more ambitious than AGI.

The startup assembled some small seed funding to get started before raising $1 billion in September.

Rumors have since swirled about SSI’s business and technological strategy. In a rare public appearance at the NeurIPS AI conference in December, Sutskever discussed the kind of super intelligence he is trying to develop.

He told thousands of fellow researchers that when such systems emerge, they could be unpredictable, self-aware and may even want rights for themselves.

“It’s not a bad end result if you have AIs and all they want is to coexist with us,” he said.

Google Gemini users can now access the AI chatbot directly from the iPhone’s lock screen, thanks to an update released on Monday first spotted by 9to5Google. Users can now call up Gemini Live, Google’s relatively real-time voice feature for its AI chatbot, before they unlock their phone by adding a Gemini widget to their lock screen.

As Apple’s version of an AI-enabled Siri reportedly faces delays until 2027, competitors in the AI space are stepping in to supply iPhone users with AI assistants of their own. These features may give iPhone users a sense of what’s possible with LLMs and voice assistants, though Apple’s version of an LLM-powered Siri may be far more integrated with the iPhone’s other functions when it ultimately ships.

ChatGPT’s iOS app also lets users call up OpenAI’s near real-time voice feature, Advanced Voice Mode, from the lock screen.

Besides Gemini Live, the updated Gemini app also includes several other lock screen widgets, including one for taking pictures using the iPhone camera and uploading them to Gemini; one for setting reminders and calendar events; or another that lets users jump straight to a text chat with Gemini.

Google also announced on Monday that later in March, it would allow Gemini users on Android to ask its AI chatbot questions about video and onscreen content, and get answers in real time. These features were first unveiled as part of Project Astra, Google DeepMind’s multimodal AI project that is slowly making its way into the Gemini app. To start, these features will be available for subscribers to Google’s $20-a-month Gemini Advanced plan.

French broadcaster posts higher revenue in first results since UK listing last year

The boss of Canal+ has said that the French media group does not regret picking the London stock market despite a sharp drop in its market value since listing in December.

Maxime Saada, chief executive of the Paris-based group, said he had expected selling pressure to weigh down the stock — given the need for some French shareholders to exit after it was spun out from parent company Vivendi — but “not this low”. 

Shares in the group opened trading in London last year at about 290p, below the level some analysts had expected, and have since fallen to 173p, giving it a market value of £1.7bn. That makes it smaller than British broadcaster ITV, which is worth about £2.7bn despite having lower revenues than its French rival.

Saada said the company had no regrets about its decision, however, adding that new UK and US investors were starting to appear in the shareholder register. “We are not in a hurry”, he told the Financial Times. “It’s a three-year story”.

He said some investors were also waiting for the completion of a “transformational” deal to acquire MultiChoice, the African pay-TV company, which would enable Canal+ to give better forward-looking guidance. The transaction is expected to be finalised later this year.

Saada said the group was not seeking any large-scale M&A while it waited for the MultiChoice deal to complete. He added that he was not interested in buying ITV Studios, the TV production arm of the British broadcaster that has attracted interest from private equity groups and other rivals.

In its first set of results since listing in London, Canal+ on Tuesday reported a 3.6 per cent rise in revenue to €6.45bn in its 2024 financial year, buoyed by successes from its film studio arm, as well as a rise in direct subscriptions. Earnings before interest and taxes before exceptional items rose 5.4 per cent to €503mn, at a 7.8 per cent margin. 

The group said on Monday it had struck a deal with France’s cinema industry that will enable it to remain the only pay-TV company to broadcast films six months after their theatrical release in the country. 

Canal+ will pay a minimum of €480mn over the three-year term of the agreement to support French films, compared with €220mn per year previously, after Disney+ secured a deal that enabled it to broadcast its films and other French productions on its streaming platform nine months — rather than 17 — after their theatrical release. 

Other US streamers are held back by more than a year before they can show movies that have been in the cinema. 

Studiocanal, the group’s studio arm, also released several successful films last year, including Amy Winehouse’s biopic Back to Black, Wicked Little Letters and Paddington in Peru, which has taken more than $160mn in global box sales so far.

However, the group’s revenues are expected to be impacted this year by its decision to remove its paid channels from terrestrial TV in France, as well as the termination of several third-party content contracts in the country, including Disney.

Saada said the company would be focused on cash generation in future, with bonuses for the management to be redrawn to have stronger links to cash and earnings.