An unlikely alliance in Brazil

This is an audio transcript of the FT News Briefing podcast episode: ‘An unlikely alliance in Brazil’

Marc Filippino
Good morning for the Financial Times. Today is Tuesday, August 29th. This is your FT News Briefing.

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Goldman Sachs is saying goodbye to consumer banking. The president of Brazil wants to team up with his opponents. And Ukraine is asking for way more ammunition than Europe can produce.

Richard Milne
It would be an irony if, as western governments are donating things like F-16 fighter jets, if the thing that is holding Ukraine back is just the shells that go into it.

Marc Filippino
Plus, what would a bigger European Union look like? The bloc is thinking about accepting new members. I’m Marc Filippino and here’s the news you need to start your day.

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Goldman Sachs is selling off one of its financial planning units. The team is made up of about 200 employees and offers financial planning to customers who are well-off but not exactly super wealthy. This sale is not a good look for Goldman’s chief executive, David Solomon. He’s faced a lot of criticism recently for his push into mass market financial planning. This is now the second Solomon-era deal that Goldman is undoing. The bank also put up its online lending service, GreenSky, for sale this year.

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There is an unlikely alliance forming between Brazil’s leftwing and rightwing parties. Leftwing president Luiz Inácio Lula da Silva, also known as Lula, is close to finalising a pact with political opponents. Here to explain is the FT’s Michael Pooler in Brasília. Hi, Michael.

Michael Pooler
Hi, Marc.

Marc Filippino
So, Michael, how did this potential deal come about?

Michael Pooler
So if we just go back, Lula was elected last year. He narrowly beat rightwing president Jair Bolsonaro. But since Lula took power at the start of the year, he has struggled with some of his agenda to get it through parliament. And that’s because his Workers’ party leads a coalition, but he doesn’t have a majority in Brazil’s parliament. So the deal that’s taking place here is essentially two rightwing parties are expected to trade congressional support in exchange for two cabinet posts in Lula’s government. Now, what makes it quite remarkable is that these two same rightwing parties actually supported Jair Bolsonaro previously, and they were in his government.

Marc Filippino
So what does Lula get out of this policy-wise? What is he hoping to pass with this new support that he’s going to gain potentially?

Michael Pooler
So Lula was elected on a fairly leftwing progressive platform that included policies such as higher public spending, which he believes is necessary to reduce inequality and poverty in the country. Now, with this coalition, it’s hoped that he will be able to finish off tax reform, which business and investors have said is direly needed for years now. And also he should be able to get his budget approved, which will have more public expenditure in there. And it should help to fulfil his promises of greater social welfare spending.

Marc Filippino
So what do other people you spoke to think about the coalition?

Michael Pooler
A lot of investors and business people were quite relieved with the outcome of last year’s congressional elections because conservative forces dominated the congress. And many people in the financial community believed that it would act as a brake upon Lula’s more radical instincts. So you might think that investors would be concerned about this new alliance, which will give Lula a much stronger and stable majority. However, the people I’ve spoken with, they said, well, actually it’s a kind of a marriage of convenience. And Lula will still have to negotiate things. They think that the inclusion of these parties in the parliament will still act as something of a moderating force on Lula.

Marc Filippino
Michael Pooler covers Brazil for the FT. Thank you, Michael.

Michael Pooler
Thanks, Marc.

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Marc Filippino
The weather pattern El Niño is expected to be back soon and it could raise global food prices even higher than they already are. That could lead to higher household inflation and that could cause some central banks to keep interest rates higher for longer. El Niño happens twice a decade and usually peaks between November and February. This year, it’s expected to hit south Asia and Central America, which could bring extreme heat and confuse crops. That could put even more strain on global food supplies. They’re already being affected by the disruption of Ukraine’s grain exports and India’s export ban on certain types of rice.

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Ukraine has fought its way through Russia’s first line of defence in the southern part of the country. Kyiv said yesterday that its troops took control of a strategic village not far from the Dnipro river. It’s a sign that Ukraine’s lacklustre counteroffensive might be accelerating. But the European defence industry is barely keeping up with demands for ammunition. Ukraine can fire more rounds of artillery in a month than all of Europe can produce in an entire year. The FT’s Richard Milne says that’s because there’s been relatively little investment in the defence sector for decades.

Richard Milne
I think we sort of have to have a bit of a look at history. You know, after the cold war there was this idea that there was a peace dividend in much of the west. And so defence spending generally was taken down. Now things like artillery, ammunition last a long time. So most countries had great stocks of this. So they’ve been able to use those stocks for a long time, meaning that, you know, ammunition producers have been making much less. And then suddenly the Ukraine war started and suddenly this gap between what the companies can produce and what Ukraine and other western companies want is just enormous.

Marc Filippino
One big factor is that government contracts for ammunition tend to be annual, which is short in the grand scheme of things.

Richard Milne
But obviously when you’re building a factory, the pay-off time can be a decade, can be two decades. You want to know that the demand is there for some time, and manufacturers are kind of worried that governments are a bit fickle and that maybe if the war in Ukraine was to stop in a year or two or they would suddenly decide that they didn’t want that type of artillery, but they wanted something else, that they might change. And so, you know, it’s a lot of risk and could potentially bankrupt them.

Marc Filippino
The European Union has promised to buy €2bn worth of ammunition for Ukraine this year. But Richard says so far it’s all just talk, and that’s making the defence industry a little jittery.

Richard Milne
Well, it’s a bit of a tango between the two sides, really. The government and the defence industry. The defence industry is saying we’re willing to invest, but we need either money from the government or some kind of long-term commitments in terms of contract level. I think there’s a feeling from the defence industry side the governments have maybe been a bit slow on the uptake over this, but it’s kind of slowly filtering through. And you know, it would be an irony if as western governments are donating things like F-16 fighter jets and Leopard tanks and all sorts of heavy artillery systems, if the thing that is holding Ukraine back is just the shells that go into it.

Marc Filippino
That’s the FT’s Richard Milne.

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Before we go, it might be time to add a new buzzword to your vocab.

Charles Michel
Ladies and gentlemen, dear friends. Today I want to talk about enlargement.

Marc Filippino
Enlargement. Yesterday, European Council president Charles Michel proposed a target date for adding new members to the European Union.

Charles Michel
The window of opportunity is open. We need to act on it. I believe we must be ready on both sides by 2030 to enlarge.

Marc Filippino
Michel’s speech kicks off debate about the future of the EU. Leaders will have their first dedicated discussion on enlargement in Spain in early October. Russia’s war against Ukraine has resurrected talks that had basically been dormant for years. Candidate countries include Ukraine, Moldova and Albania, and there are potentially five more in the running.

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You can read more on all of these stories at FT.com for free when you click the links in our shownotes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.