Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, do you remember earlier this year there was a
Speaker 2: moment when everyone got really excited about Europe for the
Speaker 2: first time in probably decades.
Speaker 3: So, you know, I always think about is for the
Speaker 3: two of us for a long time of our careers.
Speaker 3: One of the many sub themes that we go it's like,
Speaker 3: when is the Europe going to turn on the fiscal taps?
Speaker 3: When did you start spending money in Germany? All these questions,
Speaker 3: when are they going to be less so focus on
Speaker 3: austerity or balanced budgets, et cetera. And then finally, and
Speaker 3: maybe Trump had something to do with it, and defense
Speaker 3: spending had something to do with it, or politics, it's
Speaker 3: finally we're getting spending. It was like five minutes and
Speaker 3: everyone was really excited about some of the defense docks
Speaker 3: and the Euro's raillying and it looked, you know, a
Speaker 3: little bit more politically stable perhaps than the US. What's happening, though,
Speaker 3: I like, how's that going? I'm not sure I followed
Speaker 3: it as closely as I should.
Speaker 2: Have I will say, I mean, the Europe is still
Speaker 2: pretty strong against the dollar, and if you look at
Speaker 2: the eurostocks that's still doing pretty well as well. So
Speaker 2: there is some optimism that is still circulating the market.
Speaker 2: But you're absolutely right, we should talk about what this means.
Speaker 2: What does it actually mean for Europe to quote unquote
Speaker 2: seize this moment, right, this very particular moment, and what
Speaker 2: exactly does Europe want to achieve totally.
Speaker 3: And you know, a lot of the conversations that we
Speaker 3: have in the US context certainly apply in the European context.
Speaker 3: So industrial competition with China, whatever we're feeling here in
Speaker 3: the US, certainly very heightened anxiety in Europe with the
Speaker 3: stress on the auto industry and the chemicals industry and
Speaker 3: so forth. Energy prices, obviously, electricity costs in the US
Speaker 3: becoming a major topic, et cetera, just as big in Europe,
Speaker 3: if not big or especially in the wake of the
Speaker 3: Ukraine War, the shutting off of the nuclear power plants
Speaker 3: in some countries, et cetera. So pretty much everything that
Speaker 3: we're sort of wrestling with here, the right.
Speaker 2: The sort of productivity regulation.
Speaker 3: The splintering of the traditional parties within domestic politics. Our
Speaker 3: parties have a bit more of a monopoly than the
Speaker 3: European ones do, but there's similar stresses going on. So
Speaker 3: anything that we're talking about here, it's very useful to
Speaker 3: see how it comes across from the European line.
Speaker 2: Absolutely, so I'm very happy to say we do, in
Speaker 2: fact have the perfect guest we're going to be speaking
Speaker 2: with Aliren. He is, of course the governor of the
Speaker 2: Bank of Finland. He is also a governing council member
Speaker 2: over at the ECB. So Ollie, thank you so much
Speaker 2: for coming on our thoughts.
Speaker 4: Thanks very much for the newittation. Great to be here.
Speaker 2: So from your seat in Europe, Wait, where are you
Speaker 2: actually based in Europe? Where do you spend most of
Speaker 2: your time?
Speaker 4: I have a do on life, not schizophrenic, do a life.
Speaker 4: I have two home fields, two home terrans. One is
Speaker 4: Hesink Finland. The Bank of Finland is the Central Bank
Speaker 4: of Finland. But we also at the same time we
Speaker 4: are member a member of the Eurosystem and my second
Speaker 4: home terranist Frankfurt and the Governing Council of the ECB.
Speaker 4: And the same goes for the large part of our
Speaker 4: civil servants. Economis and lawyers at the Bank of Finland
Speaker 4: like in the other nineteen national central banks. That's the
Speaker 4: eurosystem perfect.
Speaker 2: So from your seat in Helsinki and Frankfurt, does it
Speaker 2: feel like something's changed within Europe? Does it feel like
Speaker 2: there is the sense that maybe the current time period
Speaker 2: is some sort of opportunity.
Speaker 4: Certainly things have changed in Europe a lot for the
Speaker 4: verses we know because of Russia's unjustified brutal war in Ukraine,
Speaker 4: but second as a wake up to that situation, including
Speaker 4: the impact of President Trump as well. And I would
Speaker 4: say that if you look at the Europe for the moment,
Speaker 4: we have one issue which is above others, and that
Speaker 4: is common defense and spending on common defense, from air
Speaker 4: defenses to drone production and other elements of military technology
Speaker 4: and production. And that's also very much an economic issue. Actually,
Speaker 4: it's a finest opportunity in a sense that the best
Speaker 4: argument for safe assets in Europe is in the defense spending.
Speaker 4: We need both national and European funding. This is, in
Speaker 4: my view, a possibility to pave the way for a
Speaker 4: deep and liquid European capital market.
Speaker 3: That's great, I'm glad you jump right into this question
Speaker 3: of further integration and some of the stakes here, particularly
Speaker 3: as it relates to defense, because this has been something
Speaker 3: that's been on my mind a lot, and I wanted
Speaker 3: to get in with you. When we think about industrial
Speaker 3: capacity or think about industrial competition, scale is really important.
Speaker 3: The size of the market is very important, and this
Speaker 3: is part of the whole premise of the euro Area,
Speaker 3: which is, let's have an integrated market. And yet, on
Speaker 3: the other hand, domestic politics are still a thing I
Speaker 3: have to imagine in defense specifically, there must be a
Speaker 3: lot of anxiety at each individual country. Do we want
Speaker 3: our national maker of X rolled up into some larger
Speaker 3: conglomerate to what degree, whether we're talking about defense or
Speaker 3: other any other industrial any other industrial sector, does there
Speaker 3: still remain attention between the scale required for competitiveness and
Speaker 3: the desire for some sovereignty within each country to have
Speaker 3: their maker of X or y.
Speaker 4: Yes, there is that tenstone. But that's why we do,
Speaker 4: we make policy, and that's why we try to change
Speaker 4: things in Europe. Actually, that brings to my mind an
Speaker 4: anecdote concerning precisely common defense. How things have changed. Okay,
Speaker 4: the country I know best, Finland in NATO in April
Speaker 4: twenty twenty three, and I recall my own time in
Speaker 4: military service in the early nineteen eighties in the SUBBA
Speaker 4: Brigade in eastern Finland, in the city which used to
Speaker 4: be the headquarters of US and manner Him during the
Speaker 4: Winter War. Today that garrison area is actually a regional
Speaker 4: sub headquarters of NATO. So you see the change in
Speaker 4: terms of defense in dissic caard in northern Europe. Talking
Speaker 4: about economies of scale, yes, we lack a genuine single
Speaker 4: market in many areas like services and to some extent capital,
Speaker 4: and that's why we are very committed to move forward with,
Speaker 4: for instance, the Savings an Investment Union, which aims at
Speaker 4: transforming the formidable savings of Europeans ten trillion. That's the
Speaker 4: estimate to productive investment by some kind of say popular capitalism. That's,
Speaker 4: in my view, one essential element of creating a more
Speaker 4: unified Europe and creating a more competitive Europe.
Speaker 2: The other thing, when it comes to building up a
Speaker 2: fence industry that is sometimes debated is this idea of
Speaker 2: should you spend money on investing in defense programs or
Speaker 2: should you spend money, you know, buying the products that
Speaker 2: these defense companies are actually producing because what's the point
Speaker 2: of building out this massive capacity if you don't have
Speaker 2: a dependable customer for the foreseeable future. How would you
Speaker 2: structure that sort of spending to make sure that it's durable,
Speaker 2: I guess and effective.
Speaker 4: That's a very critical question in the European context, and
Speaker 4: that's why as we are conducting joint European funding exercises
Speaker 4: in this like the one hundred and fifty billion euro
Speaker 4: Safe Instrument by the European Commission, it's a sense that
Speaker 4: we purchase those arms and arms technologies by common procurement
Speaker 4: and by investing in joint research and innovation projects. That's
Speaker 4: the way to get more bank for the euro and
Speaker 4: that's now the effort which the European countries and the
Speaker 4: Commission are engaged with. In fact, it is clear, it's
Speaker 4: quite clear that we are going to in Europe. We
Speaker 4: are going to purchase both say domestic European products and
Speaker 4: also American products. In some areas the US is more advanced.
Speaker 4: For instance, Finland is purchasing sixty four if thirty five
Speaker 4: to replace our existing fleet of sixty four eighteens which
Speaker 4: date from the early nineteen nineties.
Speaker 3: How costly is it I guess, to put it bluntly,
Speaker 3: I don't know that the US is not the reliable
Speaker 3: trading partner it might have seemed to be. I mean,
Speaker 3: I know there's still a lot of trading you just mentioned,
Speaker 3: you know, replaced the plain fleet, et cetera. But clearly
Speaker 3: we all read the news, we all know what's going on.
Speaker 3: How costly is it for Europe? And do you perceive
Speaker 3: there to be a lot of frankly unnecessary duplications of
Speaker 3: investment efforts across the Atlantic currently because of trade tensions.
Speaker 4: We do expect that, and that's having a negative impact
Speaker 4: on productivity and thus on the economy, growth and well being.
Speaker 4: As far as the impact of US tariffics is concerned,
Speaker 4: we have tried to estimate that. It's a bit difficult,
Speaker 4: as policy making is fairly volatile, so it depends on
Speaker 4: the day or the week when you take the cutoff data.
Speaker 4: You know that perhaps, But our estimate, which is roughly
Speaker 4: done on the basis of the current US study PHRASEM,
Speaker 4: is that it will hit growth in the Eurozone roughly
Speaker 4: by half a percent its point next year. But the
Speaker 4: good news is that the European economy is actually demonstrating resilience.
Speaker 4: We are still growing this year, probably around one person
Speaker 4: or so one point two percent, and we are projective
Speaker 4: to grow by one point three percent in the next
Speaker 4: two years despite the headwinds of geopolitical tensions and thirty
Speaker 4: for wars.
Speaker 2: So you wrote something for Vox a few months ago
Speaker 2: called Europe must not Waste its currency moment, and you know,
Speaker 2: reading it, it sounds very much like there's perhaps an
Speaker 2: ambition to maybe replace some of the influencer, some of
Speaker 2: the global role of currently fulfilled by the US and
Speaker 2: the dollar with the Euro. Is that how we should
Speaker 2: be reading it? Is there like a conscious effort underway
Speaker 2: currently to expand the Euro's influence in the world.
Speaker 4: There is a deliberate, conscious effort to enhance the Euro's
Speaker 4: global role in the currently changing international monetary system. And
Speaker 4: if I put the background first, I think you're seeing
Speaker 4: the interestional monetary system or the global financial system in
Speaker 4: transformation for the moment, and you have two main drivers
Speaker 4: in broad sense. On one hand, the geopolitical confrontation and
Speaker 4: on the other hand, we have a technological disruption thanks
Speaker 4: to digital assets, stable coins, central bank digital currencies. How
Speaker 4: this will play out will be quite crucial as to
Speaker 4: the evolution of the monetary system. Concerning the geopolitical competition,
Speaker 4: we see China's efforts to strengthen the role of remimbiod
Speaker 4: or the yuan, for instance, with the rodent built initiative
Speaker 4: and linking trade agreements to an enhanced roll of the yuan.
Speaker 4: And there is a major but there are still capital
Speaker 4: controls in China, and there is no legal certainty in
Speaker 4: China in the western sense, so that creates quite significant
Speaker 4: limitations for the Remember, in the technological site, we've seen
Speaker 4: the growth of stable coins. More recently, we've seen certain
Speaker 4: volatility of cryptos last week, classified days just a little yes,
Speaker 4: And for instance stable coins, they are clearly intended to
Speaker 4: increase demand for US treasuries to feel the federal deficit
Speaker 4: of the United States of America and thus to enhance
Speaker 4: the roll of US dollar and US dollar dominance. I
Speaker 4: believe that on the basis of historical experience, let's say,
Speaker 4: for instance, by the writings of Professor Barry ahen Green
Speaker 4: of the Berkeley that historical shifts in the international monitary
Speaker 4: system take place slowly and on the basis of the
Speaker 4: structural chances in the economy and security structures. That's why
Speaker 4: I believe that US dollar dominance will prevail for quite long,
Speaker 4: perhaps less as a single unipolar hegemon in the monetary
Speaker 4: system than before, and we may move towards a more
Speaker 4: multipolar monetary system and their Europe can have a significant
Speaker 4: reserve on the condition that we can strengthen the foundations
Speaker 4: of the European economy in security, in terms of economic dynamic.
Speaker 4: In terms of.
Speaker 3: When it comes to economic dynamism, people are pretty pessimistic
Speaker 3: about Europe these days. They look at an industrial sector
Speaker 3: that is maybe being hobbled by a competition with China.
Speaker 3: They see the country, the various countries is not being
Speaker 3: at the forefront of the AI investments with tech in general,
Speaker 3: there's a perception that the economies are still overregulated, it's
Speaker 3: not a great place to have a startup and so forth.
Speaker 3: What is the sort of the Bowld case or maybe
Speaker 3: the sales pitch for sort of the euro inc the
Speaker 3: European economy, where does growth come from in the dynamic
Speaker 3: durable manner.
Speaker 4: There is a Wybrant stop community for instance in Finland.
Speaker 3: Finland is actually Finland's probably the exception you do hear
Speaker 3: about finished startups speed credit.
Speaker 4: In France, many other We actually we have a vibrant
Speaker 4: startup community in Europe. By the way, welcome to Slush,
Speaker 4: even though I'm not the organizer, but Slush is the
Speaker 4: well known major conference in inheriting Ky.
Speaker 3: We love to come to November. Introduce us next the
Speaker 3: major we love to come.
Speaker 4: That's the major startup that found great global startup even
Speaker 4: since early twenty tens. Okay, it's good to know the
Speaker 4: name Slush comes from November because you have so much
Speaker 4: slash in November. So that's why it's for slush. But
Speaker 4: it's a very bright event in the darkest.
Speaker 3: Why it goes into the saunas the rest of the
Speaker 3: time to get out of the slush.
Speaker 4: Yeah, well I do it twelve months per year, a
Speaker 4: few times per week.
Speaker 3: Sounds great, not bad, not bad.
Speaker 4: But even more seriously so, we have startups, We have
Speaker 4: some unicorns. But the general challenge in Europe is that
Speaker 4: in the scale up phase, many companies choose the US
Speaker 4: a Silicon Valley or or New York Stock Exchange or
Speaker 4: combination of both, because it's easier to get winsor capital.
Speaker 4: You have a large market which is culturally fairly similar,
Speaker 4: even though there are certain differences between California and think
Speaker 4: California and yeah, say South Carolina, right, yes, Okay, So
Speaker 4: in any case, it's the scale of phase and internationalization
Speaker 4: phase where we have to do better. And that's why,
Speaker 4: for instance, our government's efforts to enhance growth in Finland
Speaker 4: are films focused on funding of scale ups and growth companies.
Speaker 2: So when I think about a business being competitive, especially
Speaker 2: in the areas that people seem to be very excited
Speaker 2: about nowadays, things like AI data centers, I guess defense nowadays,
Speaker 2: I think about one aspect of competitiveness is price right,
Speaker 2: and if your input costs are higher than a lot
Speaker 2: of other people, then you're going to struggle to provide
Speaker 2: these things at a low cost. And in Europe the
Speaker 2: big input cost that people seem to struggle with is energy. Right,
Speaker 2: How in the world does Europe start to compete in
Speaker 2: terms of global competitiveness with energy prices so high? And
Speaker 2: what can you do about it?
Speaker 4: We have to go back. I have to go back
Speaker 4: to Finland metaphysically, mentally now again because we have an
Speaker 4: x number of data center investments coming in Finland, mostly
Speaker 4: with foreign direct investment thanks to the combination of relatively
Speaker 4: inexpensive electricity and relatively cool climate, which is conducive for
Speaker 4: data centers. So in that sense, there are differences within
Speaker 4: Europe as well. The key is very much to continue
Speaker 4: the green transition with consistency. For the moment, still, countries
Speaker 4: like Germany are suffering from higher electricity and energy costs.
Speaker 4: That is true largely because Germany was so dependent on
Speaker 4: Russian fossil fuel, especially because its energy intensive chemical and
Speaker 4: other industries who have been so dependent. But the green
Speaker 4: transition is moving forward. We lean much more on renewable
Speaker 4: energy than before. Of course, energy efficiency and smart electricity
Speaker 4: systems play also a key role here, and I would
Speaker 4: expect that this green transition will be I mean not concluded,
Speaker 4: but will be very far by the end of this decade,
Speaker 4: so that we have a much more competitive condition in Europe.
Speaker 4: In this card, I had one thing. Often, when you
Speaker 4: compare fossil energy and you compare you compare fossil energy
Speaker 4: to say, renewable energy. The capital costs in renewables are
Speaker 4: often higher, like say investing in wind parks or solo energy,
Speaker 4: but the running costs are quite low. Meanwhile, in fossil
Speaker 4: fuels it's often let's say the reverse, or that the
Speaker 4: capital costs sign not that's huge, but you have very
Speaker 4: significant running costs. So once you are far enough in
Speaker 4: the green transistion preferably supplemented by nuclear enocy in my view,
Speaker 4: than our cost competitiveness in terms of energy will also
Speaker 4: be what's better.
Speaker 3: It sounds like the solution to some of what l's
Speaker 3: Europe is that everyone needs to be more like Finland.
Speaker 3: Sounds like you guys haven't figured out and everyone else
Speaker 3: in Europe needs to be more like that.
Speaker 4: No.
Speaker 3: For really, when it comes to broad like like industrial pressure,
Speaker 3: can you like attribute and maybe this is more of
Speaker 3: a German specific question, but I think it probably applies
Speaker 3: more broadly. Is it possible to decompose the degree to
Speaker 3: which competition with China, especially things like chemicals. China's very
Speaker 3: competitive chemicals, though it doesn't get much attention obviously, cars
Speaker 3: globally is just a huge story when you look at
Speaker 3: like sort of the sputtering out of industrial production in
Speaker 3: Germany or just you'ree More broadly, it's possible to decompose
Speaker 3: how much of it is undercutting on price from China
Speaker 3: versus the higher costs that have surged particularly since early
Speaker 3: twenty twenty two.
Speaker 4: Wells, it is possible, but I don't have the figures
Speaker 4: of the cuff. But I recall that in twenty twenty two,
Speaker 4: which was the high point of energy costs in Europe,
Speaker 4: So we calculated with a friend of mine, and then
Speaker 4: we verified that by our economists that year Europe paid
Speaker 4: eight hundred billion euros for fossil fuels instead of the
Speaker 4: long term average of three hundred So we paid five
Speaker 4: hundred six hundred billion euros more that year, which then
Speaker 4: was roughly three percent of CDP. So in twenty two
Speaker 4: we had you can say that it was kind of
Speaker 4: an extra tax over every European of three percent of
Speaker 4: the income on average, which of course created quite a
Speaker 4: lot of popular opposition and criticism. Fortunately we have been
Speaker 4: it's not actually about fortunate, it's about political will and action.
Speaker 4: We have been able to broadly adds to the end
Speaker 4: of Russian gas in Europe, but we still have some
Speaker 4: work to do in many countries. You mentioned Germany. Germany
Speaker 4: still has a work to do in order to reduce
Speaker 4: its en itsy costs in its industrial production.
Speaker 2: If you could waive a magic wand and do one
Speaker 2: thing to boost European either productiveness, productivity or competitiveness. Basically
Speaker 2: make all of Europe more like Finland. What would it
Speaker 2: be other than installing saunas and everyone's house that's a
Speaker 2: good idea actually even though fairly electricity.
Speaker 3: Let's not hope it would be energy.
Speaker 4: Depending depending if you use electricity or would in heating.
Speaker 4: I have both in the summer credits. Its would by
Speaker 4: the way, most seriously, most seriously, if I could do
Speaker 4: one thing, I would complete the single market without the
Speaker 4: delay and also create a genuine savings and Investment Union
Speaker 4: with a deep and liquid capital market, because this would
Speaker 4: help address the challenge of venture capital and financing of
Speaker 4: European startups and growth companies.
Speaker 2: What would it do? What would that sort of cohesive
Speaker 2: market do that you can't do right now at a
Speaker 2: national level? Would it just lower capital costs for everyone?
Speaker 4: Or for instance, concerning the Savings and Investment Union, you
Speaker 4: have actually a long list of concrete decisions that it
Speaker 4: will require. But the key things are in many ways,
Speaker 4: to have a safe asset, a European safe asset, which
Speaker 4: would facilitate the creation of genuine European capital market. And
Speaker 4: then in addition to that, there are quite reasonable proposals
Speaker 4: of creating either tax incentives or other decisions that encourage
Speaker 4: people to invest, people meaning individual citizens and households. Sweden
Speaker 4: actually is a very good example of this, so that
Speaker 4: in Sweden, for instance, you have a certain portion of
Speaker 4: your retirement payments that you have to invest to the
Speaker 4: stock market or funds oh I see yeh, which has
Speaker 4: helped to create a culture of investment in Sweden. And
Speaker 4: we are actually even though Finland was mentioned as a
Speaker 4: role model, but we are benchmarking in Sweden in basic
Speaker 4: card because they have the most vibrant to answer capital market.
Speaker 4: Also thanks to this quite well functioning capital market.
Speaker 3: It makes total sense that you know, I think of
Speaker 3: the Euro Area of the whatever version of it we
Speaker 3: want to talk about, is it's an ongoing project. It's
Speaker 3: always a work in progress. It will probably never be
Speaker 3: completely finished. There's always more to do. But this to
Speaker 3: my mind gets to the sort of like the challenge
Speaker 3: of domestic politics, right and like we also see what's
Speaker 3: happening here. We're October sixteenth, our government is shut down.
Speaker 3: But it feels like various versions of this stress are
Speaker 3: replicating themselves across the sort of rich developed Western countries. France,
Speaker 3: their government always seems to be like two weeks away
Speaker 3: from collapsing. Who knows if they'll have a government. I
Speaker 3: don't know if Belgium has a government these days. I
Speaker 3: think the Dutch have an election coming up. Who knows
Speaker 3: what's happening there. If you look at polls in Germany,
Speaker 3: we all know that parties like the AfD, which are
Speaker 3: in a very different trajectory, are doing very well in
Speaker 3: the polls there, etc. Like how much of the Yeah,
Speaker 3: it's great to say, like people here in d C
Speaker 3: these conferences and here Bloomberg, I love the idea of
Speaker 3: like integrated market, but how much is the roadblock that
Speaker 3: you foresee to get to where you want? Essentially the
Speaker 3: reality of domestic electoral politics in each of the member countries.
Speaker 4: It's a continuous silence. And you're right. So when you
Speaker 4: said that Europe or the European Union or Eurozone is
Speaker 4: a community or community of states that is in constant movement,
Speaker 4: I would wish that it would be in a more
Speaker 4: rapid movement, but it is indeed an unfinished business and
Speaker 4: will continue to be. So that's why it is actually
Speaker 4: so so fascinating and meaningful to work for Europe on
Speaker 4: these two brief points. First, the political battles or the
Speaker 4: political competition of the souls of the people are done
Speaker 4: in Europe in the member states. Yeah, national politics are
Speaker 4: key here and that's why I have a high regard
Speaker 4: for national politicians who face this silence in the town
Speaker 4: hall meetings and in the social media or elsewhere, and
Speaker 4: of course in terms of policy making. So we have
Speaker 4: to be able to do such concrete policies that help
Speaker 4: alleviate the concerns of the citizens and both sustainable growth
Speaker 4: and sub creation in Europe. That's the essence. Second comment
Speaker 4: is that it's quite interesting that even though we have
Speaker 4: had and continue to have populist movements challecing say, the
Speaker 4: most interested parties in almost all countries of Europe, still
Speaker 4: the European Union is holding together and it is structurally
Speaker 4: kind of it's.
Speaker 3: Still fairly popular, isn't it. Like actually the Pole still
Speaker 3: showed a fair amount of popularity of these like multinational
Speaker 3: it is.
Speaker 4: It is for instance, in France, the right wing party
Speaker 4: Aaron has torn down its criticism concerning the Europe in
Speaker 4: recent years, and Europe, or in this case, the European
Speaker 4: Union works as a glue that helps to keep together
Speaker 4: the policy making structure of Europe. So in that sense
Speaker 4: it has a certain impact, kind of second level reverse
Speaker 4: impact on domestic politics as well. Quite illustrative is that
Speaker 4: in Finland on Monday, after many years of his cousin,
Speaker 4: we were able to agree or the eight parliamentary parties
Speaker 4: were able to agree on a long term commitment to
Speaker 4: balance the budget and depth anchor, which is historic and
Speaker 4: it is also respecting the EU of his car rules.
Speaker 4: Even the parties that have been quite critical on Europe
Speaker 4: are part of this agreement, which in my views actually
Speaker 4: quite encouraged.
Speaker 2: Earlier this year everyone got very excited about Germany finally
Speaker 2: wanting to spend right. We weren't going to be terrized
Speaker 2: by the Black Zero, the Schwartz and Nule forever. Do
Speaker 2: you get the sense that things are changing in other countries,
Speaker 2: because again here in the US, the headlines we see
Speaker 2: for a place like France is worries over the deficit,
Speaker 2: political I don't want to say incoherence, but certainly a
Speaker 2: little bit of political chaos. Does it feel like all
Speaker 2: of the Eurozone is becoming more comfortable with the idea
Speaker 2: of spending for strategic purposes at this moment in time,
Speaker 2: or is it primarily still Germany.
Speaker 4: It is primarily maturity of other member states. But you
Speaker 4: are right, there is a certain variety of concerning the emphasis,
Speaker 4: and Germany plays a key role here. The decisions of
Speaker 4: the German government and in fact German government and opposition
Speaker 4: earlier this year are now taking effect. They abuceatory laws,
Speaker 4: so they will be implemented. That's critical. But so other countries,
Speaker 4: like all the Nodics. The Nordics together are twenty seven
Speaker 4: million people and relatively worth the area in the globe,
Speaker 4: and all the noted countries are expanding their defense expendits significantly,
Speaker 4: so all the Eastern European countries and several over the
Speaker 4: Western European countries. So overall, the pictories I would say encouraging.
Speaker 4: I don't sought for victory yet, but we are on
Speaker 4: the right road here.
Speaker 3: You know, it's really great to have you on the
Speaker 3: podcast because both Tracy and I covered the Eurozone crisis
Speaker 3: of the early the first half of the twenty tens
Speaker 3: quite intensely. There are numerous headlines that you would make news,
Speaker 3: and I saw your name and numerous headlines over time
Speaker 3: and maybe next time you come on, I'd love to
Speaker 3: just like do an hour and just talk about that time,
Speaker 3: provided we don't want to give you like euro crisis, PTSD, etc.
Speaker 3: But I do have one, you know, I have really
Speaker 3: good questions about what that time was really like. But
Speaker 3: I was talking about this as someone last night, you know,
Speaker 3: as the crisis metastasized over time and always were going
Speaker 3: to introduce a new bailout fund and I forget acronym
Speaker 3: after acronymiah, that's like, yeah, all the acronym soup.
Speaker 4: Yeah.
Speaker 3: But then the crisis ended essentially on the day that
Speaker 3: Mario Dragi said that sovereign spreads were an impediment to
Speaker 3: monetary transmission, and once he said that closing spreads were
Speaker 3: sort of mandate consistent with the ECB, from then on everything.
Speaker 4: So that was it.
Speaker 3: That was the moment that the crisis really turned. Couldn't
Speaker 3: that have happened a lot earlier? Was there a lot
Speaker 3: of unnecessary pain that was incurred in Europe because it
Speaker 3: took so long to sort of get to the point
Speaker 3: that the ECB could find a way that it was
Speaker 3: within its remit to close spreads.
Speaker 4: I think it's a legitimate question and I've been thinking
Speaker 4: about that quite a lot. I have actually answered to
Speaker 4: this question in my book quote Walking into the High
Speaker 4: Wire uter Zone Crisis. In fact, that it is through that.
Speaker 4: Once Mario said now let's send our reverts takes within
Speaker 4: our mandate UH to save the Euro, then the animal
Speaker 4: spirits that was it turned around and the market started
Speaker 4: to believe that the easy b is functioning as the
Speaker 4: central bank must function as the lender of last resort.
Speaker 3: That was the moment centralment central.
Speaker 4: Yeah, that's right, that's right, and that's why before that
Speaker 4: it was kind of incrementalist firefighting. This was not without
Speaker 4: value because we were able to keep the Euro a
Speaker 4: float and support many countries Greece, Portugal, Island, Spain with
Speaker 4: the funding of the European Stability Mechanism or its precursor.
Speaker 4: In fact, now the countries that then the then we're
Speaker 4: in the EU I m F programs have been in
Speaker 4: the past years. They have been one of.
Speaker 3: The best performance in everything, totally flipped since the twenty tens.
Speaker 4: So they have reformed their economic structures to a lots
Speaker 4: extent and they are much more competitive for the moment,
Speaker 4: and their public finances are on his own basis, But.
Speaker 3: There were years of pain in Greece and particularly Italy
Speaker 3: as well, like truly, like like incredible economic damage and
Speaker 3: by some measures they would say, like on par with
Speaker 3: the Great Depression in the United States? Could Europe have
Speaker 3: gotten to that point? Could Mario Draggy have given the
Speaker 3: whatever it takes speech in two thousand and nine? Did
Speaker 3: it have to wait as long as it did? And
Speaker 3: all these other mechanisms have to try first?
Speaker 4: Mario drague Is started as ECB president in November two.
Speaker 3: Well, you're right, so there's no way he could have
Speaker 3: given the speech in two thousand and nine. Could Jean
Speaker 3: claud Trichet have given the speech in two thousand and nine?
Speaker 4: You have to ask him. But I think that's my.
Speaker 3: Point is did it did all?
Speaker 2: Could they have moved faster?
Speaker 4: Did?
Speaker 3: Were all of these steps necessary in which the before
Speaker 3: the ECB as an institution got comfortable with its role,
Speaker 3: that it would be much like the FED and other
Speaker 3: central banks, some sort of backstop or lender of last resort?
Speaker 3: Did there all? Did everything else need to be tried first?
Speaker 4: Like I was talking to my wife in the sauna
Speaker 4: during the Eurozone crisis from two thousand and nine onwards,
Speaker 4: so pretty much I share your you and if you
Speaker 4: take more. It's a historical view of that. So when
Speaker 4: the Euro was created, then the kind of majure event
Speaker 4: like the Eurozone depth crisis was not perceived apparently in
Speaker 4: the mindset the creators of the Euro, because there was
Speaker 4: no stability mechanism like the IMF. The European stability mechanism
Speaker 4: is the IMF in the European context. Actually, the sm
Speaker 4: has more capital than the IMF total capital, so that
Speaker 4: was not in existence when the crisis hit. We had
Speaker 4: to create in the run on the flight. And the
Speaker 4: second problem was that among the economists there was much
Speaker 4: discussion about whether the Eurozone or the Economic Monetary Union
Speaker 4: is an optimal currency area, but macroeconomic imbalances and finances
Speaker 4: stability is used. We're kind of forgotten at the time
Speaker 4: from focus also in the economists community. I think that's
Speaker 4: something that deserves some self criticism among the economists as well.
Speaker 2: We have to do an episode just about the Eurozone
Speaker 2: crisis at some point, but we can't do it right now.
Speaker 2: So just our five minutes left, in our five minutes left,
Speaker 2: so just going back to the start of this conversation
Speaker 2: which was about you know whether or not this is
Speaker 2: a moment potentially for Europe. If Europe doesn't, the Eurozone
Speaker 2: doesn't successfully mount some of the changes that you've discussed,
Speaker 2: if it wastes this current opportunity, what's the most likely
Speaker 2: path for the block as a whole. And then secondly,
Speaker 2: how would you know that Europe has kind of achieved
Speaker 2: this global success? Are there things that you look out for?
Speaker 2: Is it share of currency used in global trade or
Speaker 2: something like that.
Speaker 4: Well, first, what's the miser or what's the yardstick of
Speaker 4: measuring success of say European economic policy. I think fundamentally
Speaker 4: that is the well being of European citizens and say freedom, entrepreneurship,
Speaker 4: well being, also social protection of europe as access to sunances,
Speaker 4: that's a basic human rights are essential civil liberty.
Speaker 2: My mom had a sauna when she was in Estonia
Speaker 2: and it was amazing.
Speaker 4: That's to the second part. But then the first part,
Speaker 4: what if Europe won't be able to do the necessary
Speaker 4: things in order to become stronger in terms of security
Speaker 4: and the economy. I guess some kind of muddling through
Speaker 4: will will continue, and that is a very gloomy future
Speaker 4: for the Europeans, So I would very much prefer us
Speaker 4: stay united, have the capacity of renewal and reform, and
Speaker 4: thus gain the required self confidence to also gain a
Speaker 4: stronger role in global terms. Finally, I want to add
Speaker 4: that we are very committee despite the current headweans we
Speaker 4: are facing in terms of geopolitical tensions and trade wars.
Speaker 4: So we as Europeans, we are committed to multilateral international
Speaker 4: cooperation and we want to work together with our partners,
Speaker 4: the US, Global SALFA and beyond.
Speaker 3: I just have one last question. It feels like here
Speaker 3: in the US I sort of expect that for the
Speaker 3: rest of my life that we will continue with some
Speaker 3: sort of ongoing divorce with China, that we're never going
Speaker 3: to go back to the early twenty tens of the
Speaker 3: two thousands where it seemed like we could just be
Speaker 3: like friends. Maybe I'm wrong, maybe I'm being too pessimistic,
Speaker 3: et cetera. When you think about the future of relationship
Speaker 3: with Europe and China, where do you see that going?
Speaker 3: And especially again because our presidents has obviously thrown up
Speaker 3: trade barriers between the United States and the euro Area,
Speaker 3: is there a pivot to China in the works. Could
Speaker 3: you see that relationship over time actually deepening. Like, what
Speaker 3: are you thinking about in terms of the trajectory of
Speaker 3: that relationship, because here it seems terrible.
Speaker 4: There is an ongoing discussion on that in Europe, both
Speaker 4: at the European level and in the Member States. You
Speaker 4: have two sides of the coin. On one hand, Europe
Speaker 4: is trading a lot with China, and it's quite dependent
Speaker 4: on China, but it's a mutual dependency in many ways,
Speaker 4: and it's a broadly free trade, not always so fair,
Speaker 4: but free trade. On the other hand, in China, the
Speaker 4: Communist Party has taken stronger political control and China is,
Speaker 4: let's not forget, China is supporting Russia in its military actions,
Speaker 4: military aggression in Ukraine, and that has clearly, I'm not
Speaker 4: sure if that Chinese have fully realized this, but that
Speaker 4: has clearly seriously damaged the imits of China in Europe
Speaker 4: because we see that they are an ally of Russia
Speaker 4: and they are to be that alliance day trying to
Speaker 4: destroy all our freedoms in Europe.
Speaker 2: All Right, Olivrian, thank you so much for coming on
Speaker 2: all thoughts, really enjoyed it.
Speaker 4: Thank you very thanks for these question.
Speaker 2: Joe that was really interesting to get a European perspective.
Speaker 2: I gotta say, you know, saying that the EU could
Speaker 2: have acted quicker on the debt crisis, I think you
Speaker 2: could almost always level that criticism at central banks and
Speaker 2: to some respect. I mean, this is what we saw
Speaker 2: during the financial crisis, right, So two thousand and eight,
Speaker 2: it took a while for the FED and everyone else
Speaker 2: to realize what was going on, and then they came
Speaker 2: up with all these programs, and then when you had
Speaker 2: subsequent crises, they could roll them out really quickly.
Speaker 3: You know, it's like a cliche, Oh, you try everything
Speaker 3: else until you get to the right answer. Yeah, it
Speaker 3: is total logical, isn't it isn't it? I guess I
Speaker 3: guess by definition, when you get to the last thing right,
Speaker 3: you stop. By that point, associates like they took a while,
Speaker 3: And I have certainly never been I've never asked a
Speaker 3: guest a question and then been told, oh, I talked
Speaker 3: about this in the sauna with my wife, this very
Speaker 3: same topic. So that was sort of a response.
Speaker 2: I wasn't expecting you don't talk in the sauna with
Speaker 2: your wife.
Speaker 3: I just don't expect guests to have had the same
Speaker 3: conversation with their wife.
Speaker 2: But I do think in general it does feel like
Speaker 2: things are changing enormously, and I know a lot of
Speaker 2: it is still talk at this point, but certainly speaking
Speaker 2: with Ali, you do get the sense that there is
Speaker 2: a conception in Europe that now is the time when
Speaker 2: actually you kind of have a newspeg or an opportunity
Speaker 2: to actually do some of the things you've said you
Speaker 2: were going to do for a long time.
Speaker 3: It's funny to think about policymakers having a newspeg is
Speaker 3: if they're like, oh, let's do a podcast on this episode.
Speaker 2: But they're just waiting for the headline now that.
Speaker 3: They're gonna do. But like, it does feel like whatever
Speaker 3: cliche you want to use, the rubber is hitting the road.
Speaker 3: There are serious constraints right The industrial economy is deeply stressed,
Speaker 3: the energy situation is stressed. President Trump is putting trade stress.
Speaker 3: They have industrial powerhouses that are like being undercut by
Speaker 3: China or facing very stiff competition with China. There is
Speaker 3: a war going on in Europe, and as you mentioned
Speaker 3: when thinking about the future of China is the fact
Speaker 3: that China has been an important trading partner that was
Speaker 3: really interesting, very interesting. So you know, there are a
Speaker 3: lot of big issues that are being forced upon Europe
Speaker 3: right now in multiple directions, whether we're talking about the war,
Speaker 3: whether we're talking about trade, whether we're talking about President Trump.
Speaker 3: So if they're going to do something that sort of
Speaker 3: changes the trajectory of the European project, I see why.
Speaker 4: It now is the time.
Speaker 2: It's not the rubber hitting the road, Joe, it's a
Speaker 2: birch branch hitting back. Yeah, in this Saana, that's what's happening.
Speaker 3: Ali. We had the title Ali Wren on the birch
Speaker 3: branch hitting the back, and you're a, that's our title.
Speaker 2: Let's leave it there before we go any further.
Speaker 3: Let's leave it there. Okay.
Speaker 2: This has been another episode of the aud Lots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
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