MNI INTERVIEW: AfD Success Puts Spotlight On Retirement Reform

The electoral success of the far-right Alternative for Germany should prompt the country’s governing coalition to look again at a proposal to scrap the right of those who have worked for 45 years to retire at 63, though the overall reform agenda will remain intact, an advisor to Finance Minister Lars Klingbeil told MNI.

Jens Suedekum, like Klingbeil a member of the Social Democratic Party, junior partners to Chancellor Friedrich Merz’s Christian Democratic Union, said Berlin needs to face up to the challenges thrown up by last weekend’s state election result in Saxony-Anhalt, where the AfD took 43.8% of the vote on an 80% turnout. His comments add to evidence of SPD nerves over Merz’s reform agenda.

Proposals such as ending retirement at 63 for workers with 45 years of social security contributions, known as “Rente mit 63” may now be up for debate, Suedekum said in an interview.

“What more can be done? That is the acute discussion after the election results in Sachsen-Anhalt. Some people consider that there is a risk the federal government will backpedal on their reform agenda. I don't think that this will happen, because both coalition partners are very clearly committed to moving in that direction,” Suedekum said. 

“That does not mean there won’t be discussions about single aspects of this reform agenda, such as the changes proposed to Rente mit 63, which is a very sensitive issue, especially in eastern Germany,” he said. “But that doesn't mean that you abolish the entire reform agenda. Too much backpedalling would lead to the whole reform package breaking down, and neither the CDU nor the SPD has any interest in allowing that.” (See MNI INTERVIEW: German Pensions Model For EU Reform - Rocholl)

Higher GDP projections suggest reforms enacted so far are starting to pay off, Suedekum said, calling a revision by the Munich-based ifo Institute to its 2026 German growth estimate to 1.4% from 0.8% a “substantive increase.”

Suedekum attributes the improvement to overall exports holding up – “despite a substantive decrease in exports to China and the U.S” and to public investment.

START UPS

Record startups, with more than 3,000 new firms registered this year, provide “further evidence that the German economy is restructuring, and slowly moving away from its old business mode, at the same time as we can see improving cyclical components,” Suedekum said.

However, insolvency rates remain elevated, and Germany’s car industry continues to lose market share and jobs, while private consumption and investment remain “muted.” 

The SPD has pushed for tougher action by the EU on Chinese imports including cars, but Merz and the CDU have been more cautious.

“I think Merz was more convinced by the merits of the old way of globalisation and maintaining good relations,” Suedekum said, pointing to reports that the Chancellor’s stance only toughened following publication in May of a paper warning that Germany could lose up to 70% of its manufacturing output to China over the medium term.

“Even if that figure is a bit too high -- even if it’s more like 50% -- that’s still a gigantic problem, and reforming the pension system and so on will not do anything to change that, or to support the auto industry. So the diagnosis is clear: we have to act.” (See MNI INTERVIEW: Germany To Lose 30% Industry Jobs In 10 Years)

ENERGY ISSUES

Despite European gas storage levels being at a multi-year low of around 64% through early September, the risk of supply shortages and higher prices to German industry should not be exaggerated, Suedekum said.

“I don’t expect the winter to bring any dramatic scenario -- not least because not only is the German economy more resilient in that respect, but we now have the LNG
terminals up and running, and experience of how to deal with acute energy crises if they do arise," he said.

While a jump in Bund yields to 15-year highs make Germany’s growth-driven investment agenda more expensive, that does not undermine the case for spending on renewable energy independence, infrastructure and defence, Suedekum said.

“We’re going to see an increase in the interest rate burden of the federal budget - we already have. But I firmly believe that Germany is not going to lose its AAA rating, given the recent positive surprise in the GDP growth figures.”

MNI INTERVIEW: Financial Stability At Risk From AI - Goldstein

Both the potential bursting of the AI bubble and the destabilizing effects of the technology' s expanding role in financial market trading pose risks to financial stability, Itay Goldstein, a Wharton finance professor who has consulted for regional Fed banks, told MNI. 

“The bubble with AI right now is a very imminent concern,” said Goldstein, who was a discussant at the Kansas City Fed Jackson Hole Symposium last month. 

“Clearly we see very high valuations of AI companies, companies that are exposed to AI and as a result the market as whole because they are so dominant in the market. We saw huge investments, it’s not clear if the business model is going to support the profitability of these investments. And there is a structure that is kind of circular where these firms are investing in each other, lending to each other.”

Goldstein, a former academic consultant at the Richmond and Philly Feds and an ex-visiting scholar at the New York Fed, said it’s always hard to know when an asset bubble is about to pop. But he added that “there is likely to be some correction at some point soon.” (See MNI INTERVIEW: US Financial Stability Risks Rising-Ghamami)

DESTABILIZING BEHAVIOR 

AI also poses risks to the financial system because of its growing integration into financial market trading systems, he said.

“We found in one paper that AI has this tendency to collude, which basically means to act not competitively in a financial market setting. In another paper, which is a little more troubling, we found they have a tendency to inflate bubbles and kind of go into a pattern of bubble and crash that they can profit from,” he said.

“My takeaway from that over time was that we might see a lot of destabilizing behavior coming from AI algorithms trading in the financial markets.”

Regulators will be forced to consider new ways to mitigate collusion and market manipulation, he said, because the old ways of finding hard evidence such as phone calls and emails will not exist when such behavior is coming from AI agents. 

“The detection will have to come from looking at patterns in the data, like what happens to prices, what happens to volume, and trying to form some conclusions from that on whether there is coordination, whether there is collusion or not,” Goldstein said.  

STABLECOINS

The professor’s Jackson Hole discussion focused on a paper about stablecoins. Goldstein remains skeptical about both their benefit as a financial innovation and the likelihood that the vehicle will displace the traditional banking system in any major fashion. 

He worries that the potential benefits of greater payment speeds and lower costs might not outweigh the risks posed to the system by increasingly instant payments. 

“I understand that in the big scheme of things if you get your money a little faster it's better for you. I think we need to ask ourselves what is the value of that, and if the value of that is really that high to sacrifice the stability and the safety of the system. I'm not sure,” he said. 

Goldstein concedes that the traditional banking systems payment plumbing had become a bit antiquated, but he sees the advent of fintechs as merely providing an incentive for banks to boost their competitiveness in the arena of payments. 

“We can’t really think that banks are just going to sit there and see how things are changing in front of their eyes, and they're not going to do anything to respond and to adjust. I think they will certainly take actions in the other direction,” he said.

MNI: China To Further Cut U.S. Treasury Holdings, Advisors Say

China’s holdings of U.S. Treasuries as a proportion of its total USD3 trillion in foreign exchange reserves are likely to continue to fall for several years before reaching a new equilibrium, as U.S. debt becomes riskier and offers lower returns, Chinese policy advisors and academics told MNI.

A backdrop of accelerating global de-dollarisation and growing U.S. debt strains has put China's U.S. Treasury holdings in a long-term, gradual downward channel, according to Tan Xiaofen, a professor at the School of Economics and Management of Beihang University.

Tan expects China's U.S. debt allocation to glide toward a baseline around 15% of total forex reserves, down from 18.5% in July 2026 and 37% in 2018. China will need to retain some U.S. Treasuries for liquidity purposes and strategic leverage, he said. (See MNI: Yuan Seen Appreciating Gradually Over Next Five Years)

China's stock of Treasuries fell to USD633.4 billion in June 2026, from a peak of USD1.32 trillion in 2013 and the lowest since September 2008. China’s holdings now rank third globally, behind Japan’s and the United Kingdom’s.

Tan said China will continue to trim its exposure to longer-term Treasuries, while increasing allocations to short-term Treasury bills, inflation-protected securities, and floating-rate instruments.

The overall reduction has been carried out mainly by not rolling over maturing bonds, while avoiding large active sales, advisors noted, with Wang Dong, a professor at the School of International Studies at Peking University, saying that China should avoid volatility which could further erode the value of its remaining holdings.

GOLD HOLDINGS

According to Tan, China will gradually build a foreign exchange reserve system characterised by "low U.S. Treasuries, high gold, multiple currencies, and broad asset categories.” The expansion of national strategic material reserves and investment and financing under the Belt and Road Initiative could be complementary measures, he said, though Wang said that commodities and Belt and Road projects could not substitute for reserve assets considering their price volatility, credit risk, and liquidity constraints.

The People’s Bank of China has increased its gold holdings for 22 consecutive months, from only 8.6% of total reserves to 10%, which Tan noted is still far below the global average of 27%.

The value of China’s Treasury holdings has declined by USD80-120 billion since 2022. Many of the bonds bear low coupons of 2-3%, meaning negative real returns in today’s inflationary environment, Tan said, pointing to measures including enhanced Supplementary Leverage Ratio rules finalised in late 2025, and the expansion of buybacks which he said were part of a pattern of financial repression.

The real yield on 30‑year Treasury Inflation‑Protected Securities (TIPS) currently exceeds 3%, near a 20‑year high, but Tan argued that these are still risky, and exposed to official U.S. efforts to suppress nominal interest rates alongside persistently high inflation.

INTERNATIONAL ROLE OF YUAN

Questions around the dollar have opened a strategic window of opportunity for promoting the international use of the yuan, advisors said, though they stressed that China still has to make significant policy adjustments to take advantage of this. (See MNI INTERVIEW: Shanghai Speeds Up Global RMB Assets Hub Push)

In the short term, the yuan is more likely to provide a supplementary option for global asset allocation rather than a fully‑fledged safe haven alternative to the dollar, according to Wang. Expanding the role of the yuan will require China to maintain policy stability, expand cross‑border settlement, enhance the depth and liquidity of its bond market, and provide a rich array of hedging tools for exchange rate and interest rate risks, he said.

While sovereign funds have increased holdings of yuan assets, with offshore yuan treasury bonds achieving oversubscription ratios of around 4.7 times, allocation among commercial foreign investors remains weak, Tan noted. Foreign holdings of onshore yuan bonds have declined for 12 consecutive months, with overseas holdings only 1.6%–1.8% of the total.

The wide U.S.-China yield spread of around 300 basis points continues to suppress overseas capital inflows, constraining the pace of yuan internationalisation, advisors noted.

China needs to further open its capital account, increase the flexibility of its managed exchange rate, scale up high‑credit‑quality safe assets and improve cross‑border payment infrastructure, according to Tan, adding the country should bolster the backing of its currency through steadily increasing gold reserves.

MNI POLICY: BOJ's Ueda To Strike Balanced Tone After Sept Call

Bank of Japan Governor Kazuo Ueda will aim to strike a balanced tone and prevent one-sided interpretations of the monetary policy outlook at his news conference following the expected rate hike to 1.25% at the Sept. 17-18 meeting, seeking to limit further yen and bond market volatility in either direction, MNI understands.

BOJ officials are worried a dovish interpretation of Ueda’s remarks could weaken the yen again, benefiting exporters and Prime Minister Sanae Takaichi, who favours easy monetary policy, but increasing upward pressure on inflation. The Bank wants to avoid the yen moving back towards JPY160 against the U.S. dollar. Meanwhile, the Bank wants long-term interest rates to reflect market views on monetary policy and the economy, but is concerned that surging rates could undermine the foundation for economic recovery.

Conversely, a hawkish interpretation could reinforce the yen’s recent appreciation to JPY153.4 and lead markets to price a higher terminal rate and faster hikes, despite the BOJ not yet deciding whether to accelerate the pace of increases. 

While Ueda is unlikely to elaborate on a specific terminal rate or the pace of future hikes – as these will depend on evolving economic and price conditions – his comments on the influence of past hikes on the economy and prices, the time lag before their effects are fully felt, and the cumulative impact of monetary tightening, including the hike expected this month, will represent a key market focus. Ueda is also unlikely to comment on the yen’s recent performance, instead pointing out that a stronger currency theoretically lowers import prices and inflation but can also dampen exporters’ corporate profits.

MARKET HOLIDAY 

Compounding the issue is that Japanese financial markets will close for public holidays following the Bank's policy decision from from Sept. 21-23.

Officials will finalise Ueda's anticipated questions and answers for the press conference after assessing the U.S. Federal Reserve’s policy decision on Sept. 16 and monitoring the market reaction.

MNI reported this week that the BOJ is paying more attention to the balance between accommodative financial conditions and upside price risks as underlying inflation approaches the 2% target, with officials assessing the impact of rate hikes on the economy and prices, including their timing and scale, as well as the conditions that would warrant further increases. (See MNI POLICY: BOJ Sees Scope For Flexible Rate Hikes) 

MNI INTERVIEW:Fed To Hike Once Or Twice, Timing Unclear-Chabot

The Federal Reserve will likely raise interest rates once or twice over coming months, a move that should be enough to ensure inflation stays on a path back to the central bank’s 2% target, Ben Chabot, a former economist and senior policy advisor at the Chicago Fed, told MNI. 

Chabot said the high degree of uncertainty posed by recurring supply shocks has left the Fed’s September meeting on a knife’s edge, with markets split almost evenly between the possibilities of a hike or a hold. That’s why this Friday’s CPI reading will be so crucial, he said. 

“It reflects legitimate division on the committee due to uncertainty about the economic outlook,” said Chabot, who now teaches economics at Northwestern University, in an interview. “The chair has talked about wanting less forward guidance, but committee members speak and give their opinions on the optimal path. In my opinion, we're uncertain because the committee is divided about the optimal path. By Friday we should know a lot more.” 

He believes a single hike from the Fed would probably do the trick in ensuring inflation gets back on track to 2%. 

“I think we’re on the right path. We might not even need two hikes,” he said.

APOLITICAL

Chabot said the Trump administration’s ongoing pressure on the Fed to lower interest rates will not deter the central bank’s decision making process. (See: MNI INTERVIEW: Fed On Hold For 'Quite Some Time' - Wright) 

“I’m not sure what the president wants will play a role at all. The committee knows that independence is important, so if anything it might raise the chances of rate hikes.”

Despite volatility around market expectations for specific meetings, Chabot noted the market has been more or less consistently expecting two rate increases through early next year. 

“They’re anchored at basically two hikes sometime by the end of the year, early next year. Maybe they think it comes later, after the election," he said referring to the Fed's October meeting. "Although it’s not political and they don’t say, I’d be shocked if they want to change right then."

NOT WORRIED

This highlights why Friday’s CPI reading is unusually key, despite the Fed’s desire not to be overly dependent on a single data point. 

“If we got inflation and then we didn't raise, expectations might become unanchored. The market is thinking ‘I'm not worried because the Fed is going to do two hikes in the next six months and that is going to be enough.’”

Chabot said the spike in long-term yields is related to a spike in the term premium linked to uncertainty over supply shocks ranging from the energy restrictions due to the Iran and Ukraine wars, as well as fresh expectations of a surge in AI-related corporate debt issuance. 

“Risk averse investors are demanding more to hold interest rate risk,” he said. “We have a huge supply shock in issuance.”

MNI: Global GDP Sees Bigger Revisions Post Covid- StatsCan

Global GDP faces larger revisions as geopolitical disruptions add volatility, according to Statistics Canada documents obtained by MNI after markets swung on revised first-quarter data and outside economists criticized its work.

"Revisions to GDP have indeed become slightly larger in the post-pandemic period, whether for monthly GDP, quarterly GDP, or sub-annual survey programs such as manufacturing and wholesale," according to a report in 75 pages of internal files MNI obtained through a freedom of information request. 

"This is a challenge that is observed across national statistics offices in general -- it may be that persistent economic volatility and uncertainty in the post-pandemic period, due to supply chain disruptions, trade tensions and geopolitical shocks, have made economic measurement more difficult." 

StatsCan reviewed Q1 figures that shook up markets when flash GDP published April 30 showed growth of 0.4% on a quarter-over-quarter basis. More detailed GDP from national accounts published May 29 showed output was unchanged. When annualized, those weaker figures showed output fell at a 0.1% pace, while an earlier estimate suggested a 1.7% gain.

"Revisions reflect a commitment to timeliness, precision, transparency and producing the best possible evidence, rather than a sign of error," according to a statement from agency spokesman Carter Mann.

THE STORY REMAINS CONSISTENT

Output also contracted about 1% annualized in Q4 and officials were aware the Q1 surprise raised questions about a recession. StatsCan's reports reiterated it doesn't date recessions and its communication lines urged caution. (See: MNI INTERVIEW: Canada Nowhere Near Recession- Ex BOC Adviser)

"The difference between quarterly and monthly GDP in this quarter was 0.1 percentage points, which is considered minimal," one report said. "It is common for these measures to differ, generally within the range of 0.3 percentage points in any given quarter. Despite this current difference, the story remains consistent: there was little to no growth in the economy at the start of 2026." 

"Some researchers look at GDP through an annualized lens, which assumes that the quarterly change will persist for four straight quarters," one document showed. "Annualized rates may not necessarily be indicative of future trends and could be misleading." 

Doubts were cleared when StatsCan's Q2 figures published Aug. 28 showed 3.3% annualized growth and switched Q1 GDP to a 0.3% annualized gain.

Investors pared bets on the Bank of Canada raising rates this year following weak Q1 data, driving them back up on improved Q2 results. Bets on hikes jumped last Wednesday as Governor Tiff Macklem said firms are adjusting to tariffs while high oil prices boost inflation risk.

The Bank and some global peers switched from forecasts to scenario analysis in recent years amid geopolitical strains. Officials have seen credibility eroded as mechanical inflation targets and policy rules were tested by pandemic inflation. Fed Chair Kevin Warsh has refused to participate in the FOMC's dot plot and is seeking more real-time data over standard GDP. 

INFLATION AND CONSTRUCTION CULPRITS

StatsCan also reviewed its work after Desjardins economists reported GDP is becoming less reliable. The agency began publishing "flash" GDP around the pandemic and its review and found no recent bias. 

Concerns about some survey data related to lower response rates are overstated, the documents suggested, because participation remains high and other methods ensure quality. Key reports are also excluded from recent cost-cutting, according to the documents. U.S. economists have questioned whether cutbacks hurt data quality in the world's largest economy.

Canada’s GDP revisions are larger since Covid. For monthly data the first revision grew to an average of 5.2bps from 3.4 before the pandemic, the agency estimates. For quarterly GDP it rose to 12bps from 4, and the pattern also holds for manufacturing and wholesale reports.  

"One factor that may explain higher revision rates in economic measures is the increase in inflation," one report said. "Greater price variation may reflect more frequent and pronounced shocks."

In the end, the downgrade to Q1 GDP was led by construction. That industry is changing as Canada aims to double homebuilding and military spending while building infrastructure to reduce reliance on U.S. trade.

Excerpt of freedom of information package released to MNI:

RPT-MNI INTERVIEW: Trump CAD Talk Won't Trim Deficit-Exporters

(Repeats story first published Sept. 8.)

The U.S. trade deficit will be little changed by President Donald Trump's seeking to revalue the Canadian dollar while the American economy will be strained more directly by the administration's own 50% tariffs, Canadian Manufacturers & Exporters President Dennis Darby told MNI Tuesday as Prime Minister Mark Carney's counter-tariffs take effect. 

Trump over the weekend said the "imbalance" between the Canadian and U.S. dollars is unacceptable and he will no longer tolerate it. While in past decades some exporters relied on a weak currency, that opportunity has faded as global customers write contracts in U.S. dollars. 

“If you want to buy a chiller or a heat exchanger, the price is the price, and it tends to always be denominated in U.S. dollars," Darby said. “It sounds like there's some magic, that Canada is suddenly producing lower cost stuff, it's just not true.” The currency trades at about CAD1.38 today and over the last decade has been more stable, a break from past bouts of weakness that allowed for arbitrage.

The advantage of producing with cheaper Canadian workers has also faded because of changes in the industry over time, he said. “The cost of labor isn't as big a deal in manufacturing as say it would have been 25 or 30 years ago, because you know there has been a lot more automation.”

DOUBLE WHAMMY

Trump has said the U.S. trade deficit with Canada amounts to a USD200 billion annual subsidy, but most economists note America has a surplus excluding commodities largely priced in global markets. “Our biggest export to the U.S. is oil and gas. And it sells at a discount relative to world markets,” Darby said, referring to Alberta's heavy crude oil.

Manufacturers now face a "double whammy" where goods created by shuttling parts across the Canada-U.S. border are likely to face double taxation, Darby said in an interview. U.S. producer prices for targeted products like autos, aluminum and steel have already been climbing since the tariff dispute emerged early last year, he said. (See: MNI INTERVIEW: US Will Bend On Aluminum Tariffs- Charest)

Firms on both sides of the border are also curtailing investment as they await a resolution, hurting North America's competitiveness against overseas rivals, he said. Canadian firms polled within Darby's 2,500-member group report investment plans are down 30% and there are signs U.S. spending outside of data centers is down by a quarter. 

“This is not sustainable,” said Darby, whose previous roles included six years living Cincinnati and working for Procter & Gamble. “This is not sustainable for the U.S. either.”

Even with that pressure for a deal Darby said the two countries aren't returning to the zero or low tariff world of USMCA. "What we've seen with this Administration around the world is that, I’ll use their words, there is a price to enter the U.S. market,” Darby said. “The question is, what is that level of tariff on goods that that doesn't end up being hurtful to Canada or inflationary to the U.S.?”

TALKS SEEM FAR AWAY 

Canada needed to break off talks as Prime Minister Mark Carney recently did according to Darby, because the reported terms would have been destructive than the pain of seeking a better deal. “You'll continue to see some layoffs in some areas where companies are trying their best to not close a plant, but just sort of throttle them down a bit, so we can get through this period.”

To protect domestic firms against new U.S. tariffs, Canada imposed tariffs at midnight matching USD20 billion of U.S. levies. Over the weekend Trump posted a set of memes showing for example the President playing hockey and bodychecking Carney -- who played goal at Harvard -- to the ice. 

“For now, it doesn't seem like the parties are ready to renegotiate that deal, even though (USTR) Jamieson Greer has said more than once, and in meetings I’ve been in, said they ultimately do want to renegotiate it," Darby said. "It seems like a long way away right now.”