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The urgent need for greater public investment – The Economist

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“WE’RE WORKING at the limit,” says Apostolos Tsalastras, treasurer of Oberhausen, a town in the Ruhr valley. Like many places in this region, Oberhausen sits on a vast debt pile, mostly accrued when the mines closed and the steel jobs went. Unemployment stands at 10.6%, almost twice the national rate. Last year Olaf Scholz, the SPD finance minister (and its chancellor-candidate), sought to relieve municipalities like Oberhausen of their old liabilities, but was thwarted by his CDU coalition partner. “It’s time for a fresh start,” pleads Mr Tsalastras. His town is locked in a vicious circle of declining investment, slumping tax revenue and a shrinking population.

A federal bail-out meant most municipalities avoided disaster last year. But by 2023 many will face a fiscal crunch, says Jens Südekum, economics professor at the University of Düsseldorf. The commercial taxes that are their main independent source of income are volatile, and covid-19 creates new demands. National laws limit their ability to cut current spending, one of Mr Tsalastras’s bugbears. That puts capital investment in the firing line.

The country’s 11,000-odd municipalities are responsible for a big chunk of public investment. The KfW, a state-backed development bank, puts the municipal-investment backlog at €149bn ($172bn), a number that has risen even as tax revenues pour in. School buildings account for nearly a third of the shortfall; roads just under a quarter. Endlessly delayed mega-projects like Berlin’s airport may have made the country a laughing stock, but it is rusting bridges, shaky phone signals and decrepit school toilets that are the staple of daily conversation.

Ask anyone in local government what the problem is, and the answer is always people. A report by the Friedrich Ebert Foundation, which is linked to the SPD, finds a huge decrease in municipal staff over 30 years. Immigration has helped, but a quarter of posts remain unfilled, says Henrik Scheller, one of the authors. Planning and engineering are especially affected, and local governments struggle to compete with private firms. Two-thirds of municipalities expect it to get even harder to find town planners. Surveys find construction companies working at capacity. With such supply constraints, spending more without proper planning merely risks stoking inflation.

Bureaucracy and nimbyism play a role. Companies struggle with a patchwork of planning and building rules. Opponents delay public-infrastructure projects with endless litigation. The number of projects blocked by citizens’ initiatives has doubled since 2000. This is problematic for roads, railways and bridges. But it is a “real hurdle” to climate transformation, says Mr Scheller. The recently revised climate law mandates a reduction in carbon emissions of 65% from 1990 levels by 2030, and their net elimination 15 years later. The share of renewables in electricity production must also reach 65%. And overall demand for electricity for batteries to power electric cars, for heat pumps in buildings, and for “green” hydrogen to help decarbonise industry may rise by a quarter.

Agora Energiewende, a think-tank, estimates that Germany will have to install an extra 5GW of onshore wind power every year until 2030, and 7GW a year after that. In 2020 it managed just 1.4GW. A visit to Schleswig-Holstein shows how hard it will be. As far back as the early 1990s, wind power in this northern state began to revitalise what had been some of the poorest communities in western Germany. Today turbines dot the landscape. Schleswig-Holstein has 8.5GW of installed wind-power capacity, and produces 160% of the electricity it consumes from renewables. It can export the excess via new power lines, including to Scandinavia.

In December the state government published new rules for wind-farm construction, after a five-year moratorium imposed amid growing local tensions. The new rules set aside 2% of land for wind energy, but this may not be enough to meet wind-power targets. Add long waiting times for permits and other restrictions and these targets seem unattainable, says Marcus Hrach of the Kiel branch of Germany’s Wind Energy Association. Industry insiders despair at all the hoops they must jump through. “Few people here oppose wind power, but those who do have loud voices,” says Anton Rahlf, a frustrated wind-farm owner on Fehmarn, an island in Schleswig-Holstein.

Other states are even more restrictive. Rules to protect endangered species vary from state to state. A few years ago litigation, regulation and complex tendering slowed the construction of wind farms to a crawl, although 2021 has offered flickering hints at a revival. The mismatch between the federal government’s ambitions and the reality of local regulation, says Mr Hrach, will make it impossible for Germany to reach its commitments under the Paris climate agreement.

Another difficulty, says Alexander Reitzenstein from Das Progressive Zentrum think-tank, is constructing the power lines needed to transport electricity from the windy north to southern industrial states like Baden-Württemberg and Bavaria. Local communities can be given a financial stake in wind farms, but that is harder to do for power lines simply transporting electricity. And under Germany’s federal system, states cannot be bossed around by the government in Berlin. “Lots of politicians who agree on climate in Berlin act differently when a line comes to their local community,” says Tim Meyerjürgens, chief operating officer of TenneT, an electricity-transmission operator, adding that the “salami-tactics” of regular legislative changes harm trust.

There is a near-consensus that the next government must do more to satisfy vast public-investment needs. The debate is over how. For some, tackling the country’s austerity bias is a priority. The debt brake now in the constitution limits opportunities for deficit spending. Critics of German tightfistedness are legion. The European Central Bank has long urged countries with “fiscal space” to exploit it. But all such suggestions have tended to run into an austere wall of fiscal orthodoxy.

Austerity excesses

Since 2013 the annual public-investment budget has risen from around €93bn to €137bn. This, argues Jens Weidmann, head of the Bundesbank, suggests the debt brake is “a bit of a straw man”. Better to tackle bureaucracy, capacity constraints and municipalities’ volatile revenues by changing the federal structure. But Sebastian Dullien at the IMK, a union-linked research group in Düsseldorf, counters that a guaranteed, long-term income stream of just the sort the debt brake inhibits might give municipal authorities, construction firms and engineers the planning certainty they need to reduce bottlenecks and increase staff.

Last year the government invoked an escape clause in the debt brake to finance corporate-support, furlough and other schemes during the pandemic, running up a deficit worth 4.2% of GDP. It will be bigger this year. The CDU/CSU wants to reimpose the debt brake once circumstances allow, probably in 2023. So does Mr Scholz, who presents himself as a safe pair of hands (plenty in his SPD would like a more expansive approach). The most interesting proposals come from the Greens, who want to add a “golden rule” allowing a debt-funded ten-year €500bn investment programme, focused on climate and digital infrastructure.

Yet the two-thirds parliamentary majority needed to change the constitution is a formidable hurdle. A more likely prospect is the establishment of public-investment companies, essentially off-budget special-purpose vehicles (SPVs), devoted to capital spending on, say, broadband provision in schools or upgrading railways. SPVs are legally complicated and democratically iffy, frets Mr Südekum. They would incur borrowing costs at a time when investors actually pay to lend to the federal government. But by not adding to the public-debt stock they offer a way of getting round the debt brake. The CDU/CSU chancellor-candidate, Armin Laschet, has flirted with what he calls Deutschlandfonds.

More radical ideas are afoot, notably a proposal by Dezernat Zukunft, a think-tank led by Philippa Sigl-Glöckner, a former finance-ministry official who calls SPVs “a declaration of defeat to silly fiscal rules”. Dezernat Zukunft wants to shift the fiscal debate away from arbitrary debt limits towards the goal of full employment. Low headline unemployment, the group notes, masks low labour-force participation rates among women and part-time workers seeking more hours.

Although the debt brake limits deficits to 0.35% of GDP, the calculations rely on a complex estimate of “potential” output. In the short run, Dezernat Zukunft reckons tweaks that require legal but not constitutional tampering could allow more deficit spending worth €50bn-60bn a year. In the long run Ms Sigl-Glöckner hopes to see off the debt brake for good. That such ideas now get a serious hearing suggests the fiscal debate has at last begun to shift.

Full contents of this special report
Germany: After Merkel
The public sector: The urgent need for greater public investment*
The car industry: A troubled road lies ahead
The demographic challenge: Parts of the country are desperate for more people
The European dilemma: The European Union will badly miss Angela Merkel
Merkelkinder: The young’s attitudes
Foreign and security policy: The world needs a more active Germany
The future: Germany needs a reforming government

This article appeared in the Special report section of the print edition under the headline “An infrastructure hole”

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Cushman Investment in WeWork Rests on Successful Stock Listing – BNN

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(Bloomberg) — Cushman & Wakefield Plc agreed to invest $150 million in WeWork Cos., contingent on the flexible work company successfully completing its forthcoming stock listing, a person familiar with the matter said. 

The investment was born of a partnership the two companies unveiled Aug. 9. They said at the time that they were discussing a potential investment but hadn’t signed a definitive agreement.

A spokesman for Cushman said the company was pleased with the progress of the WeWork partnership but declined to comment on the investment. A spokesperson for WeWork also declined to comment on the investment. WeWork is preparing to go public via a $9 billion blank-check merger in late October.

The companies cited the effects of the Covid-19 pandemic as a catalyst for their accord. For many businesses, the return to the office has been a stilted process. Widespread vaccines in the U.S. brought some workers back, but the return stalled, along with vaccination rates, and outbreaks of new variants played a role.

“The partnership we announced with Cushman & Wakefield in August is a testament to WeWork’s long-term value proposition and we remain incredibly excited about the opportunities that lie ahead as we team up with one of the leading real estate firms in the world,” WeWork said in a statement Sunday.

The deal represents a marriage of old real estate and new. Cushman & Wakefied is more than a century old and one of the largest commercial real estate services companies in the world. WeWork is barely a decade old.

©2021 Bloomberg L.P.

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Turkey's Erdogan says U.S. proposed F-16 sales in return for its F-35 investment – Reuters

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A U.S. Air Force F-16 jet fighter takes off from an airbase during CRUZEX, a multinational air exercise hosted by the Brazilian Air Force, in Natal, Brazil November 21, 2018. REUTERS/Paulo Whitaker

ISTANBUL, Oct 17 (Reuters) – President Tayyip Erdogan said on Sunday that the United States had proposed the sale of F-16 fighter jets to Turkey in return for its investment in the F-35 programme, from which Ankara was removed after purchasing missile defence systems from Russia.

Reuters reported earlier this month that Turkey made a request to the United States to buy 40 Lockheed Martin-made F-16 fighter jets and nearly 80 modernization kits for its existing warplanes. read more

Speaking to reporters before departing for a trip to West Africa, Erdogan said Turkey wants a return for its investment in the F-35 programme and that talks on the issue are ongoing.

“There is the payment of $1.4 billion we have made for the F-35s and the U.S. had such a proposal in return for these payments,” Erdogan said.

“And regarding this, we said let’s take whatever steps are needed to be taken to meet the defence needs of our country,” he said, adding that the new F-16 jets would help develop its fleet.

Ankara had ordered more than 100 F-35 jets, made by Lockheed Martin Corp (LMT.N), but the U.S. removed Turkey from the programme in 2019 after it acquired Russian S-400 missile defence systems.

The decades-old partnership between the NATO allies has gone through unprecedented tumult in the past five years over disagreements on Syria policy, Ankara’s closer ties with Moscow, its naval ambitions in the eastern Mediterranean, U.S. charges against a state-owned Turkish bank and erosion of rights and freedoms in Turkey.

Ankara’s purchase of the S-400s has also triggered U.S. sanctions. In December 2020, Washington blacklisted Turkey’s Defence Industry Directorate, its chief, Ismail Demir, and three other employees.

Since then the U.S. has repeatedly warned Turkey against buying further Russian weaponry. But Erdogan has indicated Ankara still intends to buy a second batch of S-400s from Russia, a move that could deepen the rift with Washington.

The request for the jets will likely have a difficult time getting approval from the U.S. Congress, where sentiment towards Turkey has soured deeply over recent years.

There is bipartisan support in U.S. Congress to push the Biden administration to put further pressure on Ankara, primarily over its purchase of Russian weapons and its human rights track record.

Ankara has said it hopes for better ties under U.S. President Joe Biden.

Reporting by Ali Kucukgocmen
Editing by Raissa Kasolowsky;

Our Standards: The Thomson Reuters Trust Principles.

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Guest column: Long-term investment only way to resolve homeless and needy crisis – Windsor Star

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Have you ever found yourself walking along a walkway in Montreal, Toronto, Windsor or any city in Canada, where you come face to face with a person holding their hands out or a cup hoping for some change?

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How did you react? Ignore them, stare in disgust, feel sorry for them, but not donate to their cause of survival?

Don’t feel bad about your response. I believe ignoring those before you is often the top option taken by people, perhaps next followed by a limited drop of change that may buy them a coffee.

Feeling bad about what you do or did not do is both naturally human and conscience driven.

But I believe our Canadian cities have not done very well for the homeless and destitute of our society.

I do not mean Canadians have not spent large amounts of money to help these individuals because all levels of our governments have spent hundreds of millions of dollars doing just that.

I suggest the empathy we have for these individuals has not been thought out very well — or at least not expanded to where support should have gone.

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We naturally react to problems before us. We recognize a challenge, possibly study it, then go to our experts and ask what should we do.

Well, we have reacted on this issue many times, gone to the “specialists” to be directed towards a quick, temporary “make us feel good” solution.

But what I feel is needed is a planned long-term response to this challenge.

The homeless, destitute, mentally ill and transient often make tent cities in our urban centres. We try to do much to assist them and dissuade them from staying in these areas.

After every attempt to assist them, almost inevitably our police are directed by political leaders to empty those parks. Sometimes violence and misunderstandings abound. Then the rich versus the poor becomes a rallying cry for the sector that cares for these people.

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Years ago, the Ontario government closed many mental health institutions throughout the province I feel creating part of the problem. Services and shelters are offered to people, but often not used by many.

I believe our governments either totally misunderstand these individuals or just don’t care enough. Shelters can be very crowded places to live, rules impossible to follow and violence happens often among clients.

The very stresses and mishaps that lead individuals to homelessness and mental problems becomes more pronounced.

The problem I feel is nearly every effort made by a government is intended to be temporary.

These issues need to be better thought out and then act. Long-term strategies are usually more effective and less costly over time. Let’s invest in people, don’t coddle them and offer trinkets of consolation.

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When it comes to homelessness, a multi-governmental effort must be made with direct ownership investments by municipal, provincial and federal governments to develop and build real affordable housing.

We have seen what private developers have to offer us — solutions that are never really affordable, always centred upon immediate profitability.

We must instead focus efforts upon our neighbours first and possible long-term profits later. Call upon our “specialists” to offer how and what affordable housing should look like for young, old, disadvantaged and disabled clients. Then find pre-existing governmental properties where building housing is an immediate asset.

When it comes to those mentally challenged I feel the most pronounced question has been what can we do for these clients?

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What indeed. First off we need to get many of these people off the street. In freezing winters staying outside can be suicidal. Police and medical teams should have powers to “arrest” if necessary those individuals truly in need of assistance. A firm protocol must be established where clients enter our programs.

Next steps should include an initial evaluation of the person’s situation, full evaluation of their medical and mental health, then placement to respectful accommodation with supervision.

If needed, a three-month program to assist initial addiction, mental and associated conditions. Then provide follow-up evaluations to each individual’s progress.

If more help is needed it should be provided. Multiple hiring of therapists, psychologists, specialty teachers, social workers and trades personnel newly graduating from our colleges and universities will be required. But instead of putting bandages upon each individual’s life we will put full investments into each and every one.

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Pathways to further education, personal development will be encouraged. Many of those without homes I feel will respond well to affordable housing that can be rented or owned in time.

Those that are unemployable due to their physical, developmental state in life can be given opportunities not based upon stereotypes. A person’s offered gifts and abilities will be used to our societal benefit.

If you were to compare the costs of maintaining these people as we have been doing for multiple generations and what the cost would be should we invest in long-term solutions for our neighbours in need, I believe there will be no doubt how we should proceed.

For those asking how are we going to afford these services and investments, I’d like to believe most Canadians would prefer investing in community/persons before investing in a thing. Governmental or public corporate bonds with good returns could also possibly be offered.

All these acts I believe could show the world that Canadians can and will stand above the rest as empathic innovators of what is humanly excellent.

Steven Kaszab is a resident in Bradford, Ontario, a community north of Toronto.

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