1 00:00:03,760 --> 00:00:06,720 Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the 2 00:00:06,760 --> 00:00:16,720 Speaker 1: global economy to you. The Germans make everything difficult for 3 00:00:16,800 --> 00:00:20,960 Speaker 1: themselves and for everyone else, so said Geta, the great 4 00:00:21,120 --> 00:00:26,360 Speaker 1: German poet, whether it's producing cars or managing their public finances, 5 00:00:26,760 --> 00:00:30,400 Speaker 1: Germany holds itself to very high standards and expects others 6 00:00:30,440 --> 00:00:34,120 Speaker 1: to do the same. That's made things tough for businesses 7 00:00:34,120 --> 00:00:37,360 Speaker 1: trying to compete with German exports. President Trump, we know, 8 00:00:37,520 --> 00:00:39,960 Speaker 1: gets very cross with a number of German cars on 9 00:00:40,000 --> 00:00:43,639 Speaker 1: American streets. But it's worked up very well for the Germans, 10 00:00:44,000 --> 00:00:47,880 Speaker 1: or it has until recently. Now that famous German model 11 00:00:48,159 --> 00:00:52,280 Speaker 1: is being questioned inside and outside of Germany. I'm going 12 00:00:52,360 --> 00:00:55,760 Speaker 1: to talk about it with Bloomberg Star economic columnist Ferdinando 13 00:00:55,840 --> 00:00:59,000 Speaker 1: Giuliano in a minute. I'm also going to catch up 14 00:00:59,240 --> 00:01:02,160 Speaker 1: with the Frankfurt team on Germany's chances of running the 15 00:01:02,160 --> 00:01:07,360 Speaker 1: European Central Bank. But First, Eurozone Economy reporter Catherine Boseley 16 00:01:07,800 --> 00:01:10,360 Speaker 1: has this report. She starts with a blast from the 17 00:01:10,360 --> 00:01:35,080 Speaker 1: past that's going to really irritate President Trump. Have you 18 00:01:35,200 --> 00:01:39,880 Speaker 1: ever wondered how the man who drives a snowplow drives 19 00:01:39,880 --> 00:01:49,040 Speaker 1: to the snowplow. This one drives a Volkswagen, so you 20 00:01:49,080 --> 00:01:53,640 Speaker 1: can stop wondering. That's a classic folks Fang TV commercial 21 00:01:53,720 --> 00:01:58,360 Speaker 1: from nine. It reminds us that throughout the decades, one 22 00:01:58,440 --> 00:02:05,400 Speaker 1: thing has remained constant out Germany's economy engineering prowess. After all, 23 00:02:05,440 --> 00:02:08,280 Speaker 1: it was here that the first combustion engine vehicle was 24 00:02:08,320 --> 00:02:12,080 Speaker 1: invented more than a century ago. Today the country is 25 00:02:12,120 --> 00:02:16,560 Speaker 1: synonymous with famous brands like Poikeswagen, Mercedes and Zemens in 26 00:02:16,639 --> 00:02:21,959 Speaker 1: manufacturing accounts for over twenty of the economy. Old school 27 00:02:22,000 --> 00:02:25,960 Speaker 1: engineering for export has been Germany's recipe for success until now, 28 00:02:26,880 --> 00:02:30,280 Speaker 1: so much so that the country's trade surplus in dollar 29 00:02:30,440 --> 00:02:37,040 Speaker 1: terms is second only to China's among major economies. Now 30 00:02:37,080 --> 00:02:40,880 Speaker 1: that model is under threat thanks to today's reality of 31 00:02:40,919 --> 00:02:46,040 Speaker 1: protectionism and slowing global growth. Add to that factors like 32 00:02:46,120 --> 00:02:49,960 Speaker 1: Germany's aging population and creaky infrastructure due to years of 33 00:02:50,080 --> 00:02:53,480 Speaker 1: under investment, and you've got a big question mark hanging 34 00:02:53,480 --> 00:03:00,320 Speaker 1: over an economy that for years has been Europe's powerhouse. Yah. 35 00:03:04,680 --> 00:03:07,200 Speaker 1: These are the sounds of the factory floor at a 36 00:03:07,360 --> 00:03:11,000 Speaker 1: b M, perhaps a company I recently visited in Wolfing 37 00:03:11,080 --> 00:03:15,040 Speaker 1: In in the rolling hills of southern Germany. It has 38 00:03:15,080 --> 00:03:18,960 Speaker 1: got fifteen thousand employees and factories from the Black Forest 39 00:03:19,000 --> 00:03:24,520 Speaker 1: region nearby all the way to China. The company makes 40 00:03:24,600 --> 00:03:29,600 Speaker 1: motors and fans. Some are for building ventilation systems or trains, 41 00:03:30,120 --> 00:03:33,160 Speaker 1: while others are used to cool the electrical systems in 42 00:03:33,240 --> 00:03:37,119 Speaker 1: cars or even help keep seats comfortable so you don't 43 00:03:37,200 --> 00:03:41,880 Speaker 1: sweat when you're driving a b M perhaps. CEO Stefan 44 00:03:41,960 --> 00:03:45,800 Speaker 1: Brande said his business is doing okay thanks to its 45 00:03:45,840 --> 00:03:49,480 Speaker 1: focus on energy efficiency, but he's well aware of issues 46 00:03:49,520 --> 00:03:53,040 Speaker 1: that the whole factory sector is facing, especially if you 47 00:03:53,120 --> 00:03:55,680 Speaker 1: are living in a kind of a remote area like 48 00:03:55,760 --> 00:03:59,080 Speaker 1: we are here in wolfing in Um. Certainly there is 49 00:03:59,120 --> 00:04:03,920 Speaker 1: a big chair lynch on getting skilled workers for our 50 00:04:04,080 --> 00:04:10,240 Speaker 1: different manufacturing parts of our business, and then of course 51 00:04:10,320 --> 00:04:14,360 Speaker 1: also a digitalization if it is concerned. There is also 52 00:04:15,560 --> 00:04:19,200 Speaker 1: an infrastructure in Germany which in my opinion is absolutely 53 00:04:19,240 --> 00:04:23,560 Speaker 1: not appropriate. Car makers in particular are in for a 54 00:04:23,560 --> 00:04:29,480 Speaker 1: big shift because engines are going electric. Folkswagen has hatched 55 00:04:29,800 --> 00:04:33,640 Speaker 1: the most aggressive electric car plans in the auto industry. Well, 56 00:04:33,720 --> 00:04:37,719 Speaker 1: BMW and Diamela are emerging their car sharing services to 57 00:04:37,880 --> 00:04:43,200 Speaker 1: tackle the likes of Uber. The automotive sector is investing 58 00:04:43,279 --> 00:04:48,000 Speaker 1: sixty billion euros or about sixty seven billion dollars over 59 00:04:48,080 --> 00:04:51,359 Speaker 1: the next three years an electric cars and automated driving, 60 00:04:51,880 --> 00:04:57,719 Speaker 1: according to v d A and Industry Association. Unfortunately, the 61 00:04:57,800 --> 00:05:02,480 Speaker 1: most profitable segments and the most profitable models are precisely 62 00:05:02,480 --> 00:05:04,760 Speaker 1: the ones which will generate the biggest problems in our 63 00:05:04,760 --> 00:05:07,559 Speaker 1: regulatory sense, because they're going to be high emission petrol 64 00:05:07,600 --> 00:05:10,800 Speaker 1: and diesel cars. That's Peter Wells, a professor at Cardiff 65 00:05:10,839 --> 00:05:14,919 Speaker 1: Business School in the UK who studies global auto manufacturing 66 00:05:15,120 --> 00:05:17,680 Speaker 1: and the trouble therefore that the industry faces over the 67 00:05:17,680 --> 00:05:20,479 Speaker 1: next two or three years is the looming threat of 68 00:05:20,680 --> 00:05:24,640 Speaker 1: government regulation EU regulation on CEO two emissions, which is 69 00:05:24,640 --> 00:05:26,520 Speaker 1: going to make it very very difficult for them to 70 00:05:27,320 --> 00:05:32,640 Speaker 1: continue to generate profits whilst investing heavily into these new technologies. YEA, 71 00:05:36,440 --> 00:05:41,080 Speaker 1: the strains on the economy are undeniable. Manufacturing and exports 72 00:05:41,160 --> 00:05:44,200 Speaker 1: play a much greater role for Germany the neighboring France. 73 00:05:44,360 --> 00:05:49,680 Speaker 1: For example, growth in is forecast to be the weakest 74 00:05:49,839 --> 00:05:55,080 Speaker 1: in six years. According to Economy Minister Peter Atmeyer, the 75 00:05:55,160 --> 00:05:59,000 Speaker 1: economy's current soft patch is a wake up car, but 76 00:05:59,120 --> 00:06:02,200 Speaker 1: the problems are to some degree homemade, with the German 77 00:06:02,240 --> 00:06:06,599 Speaker 1: government for years focusing on reducing debt rather than investing 78 00:06:06,680 --> 00:06:10,640 Speaker 1: in the future. At least that's the view of Adam Posen, 79 00:06:10,920 --> 00:06:14,800 Speaker 1: who has studied Germany extensively and is president of the 80 00:06:14,800 --> 00:06:19,800 Speaker 1: Peterson Institute for International Economics in Washington. There's been a 81 00:06:19,880 --> 00:06:24,400 Speaker 1: complete shortfall of investment, first private sector, but in recent 82 00:06:24,480 --> 00:06:29,800 Speaker 1: years public investment. And this is marked that an economy 83 00:06:30,000 --> 00:06:33,120 Speaker 1: which is doing so well in terms of employment, in 84 00:06:33,200 --> 00:06:37,760 Speaker 1: terms of generating surpluses, is not finding uses for all 85 00:06:37,800 --> 00:06:40,480 Speaker 1: the capital it throws off, at least not at home. 86 00:06:41,160 --> 00:06:45,279 Speaker 1: And the under investment by the public sector is stands 87 00:06:45,320 --> 00:06:49,040 Speaker 1: out and is a choice, and it's frankly a bad choice. 88 00:06:49,279 --> 00:06:52,400 Speaker 1: It's showing up now in the power grid, it's showing 89 00:06:52,480 --> 00:06:56,240 Speaker 1: up now in transportation, it's showing up in the schools. 90 00:06:57,400 --> 00:06:59,680 Speaker 1: When I lived in Germany in the early nineties and 91 00:06:59,760 --> 00:07:02,000 Speaker 1: used to go back and forth all the time, you know, 92 00:07:02,120 --> 00:07:04,719 Speaker 1: one thing you could count on was the punctuality of 93 00:07:04,760 --> 00:07:14,240 Speaker 1: German trains and planes, and now that's not there. This 94 00:07:14,320 --> 00:07:17,920 Speaker 1: past winter is the government in Berlin proposed an industrial 95 00:07:17,960 --> 00:07:22,120 Speaker 1: strategy in response to fears that Germany will get squeezed 96 00:07:22,200 --> 00:07:25,760 Speaker 1: by the US and China as the global economy shifts 97 00:07:25,760 --> 00:07:29,840 Speaker 1: to new technologies. The program calls for defending the country's 98 00:07:29,920 --> 00:07:33,880 Speaker 1: leadership and key sectors like metals and machinery, and investing 99 00:07:33,880 --> 00:07:38,400 Speaker 1: in technologies such as artificial intelligence, which the report calls 100 00:07:38,440 --> 00:07:42,760 Speaker 1: likely the best important development since the steam engine. In 101 00:07:42,960 --> 00:07:47,160 Speaker 1: Posen's eyes, this plan is a non starter. Where Germany 102 00:07:47,240 --> 00:07:50,800 Speaker 1: really needs is better use of available labor, the regulation 103 00:07:50,880 --> 00:07:55,440 Speaker 1: of its service sector, and infrastructure investment. He says, just 104 00:07:56,000 --> 00:08:00,040 Speaker 1: invest a few percent more of GDP at home and 105 00:08:00,160 --> 00:08:02,680 Speaker 1: thanks that matter for German well being and that will 106 00:08:02,840 --> 00:08:07,080 Speaker 1: live about. My colleague Chris Writer in Berlin spoke to 107 00:08:07,160 --> 00:08:10,960 Speaker 1: labor union I GAMETI, which has two point two million members. 108 00:08:11,800 --> 00:08:14,600 Speaker 1: They say not enough is being done to help retrain 109 00:08:14,680 --> 00:08:18,520 Speaker 1: older workers for evolving jobs, and have scheduled a demonstration 110 00:08:18,600 --> 00:08:22,840 Speaker 1: in June to highlight their predicament. Let's hear from board 111 00:08:22,880 --> 00:08:26,280 Speaker 1: member oven Mine hearts all our members will be affected 112 00:08:26,400 --> 00:08:29,320 Speaker 1: in the one kind or the other today or tomorrow. 113 00:08:30,000 --> 00:08:36,559 Speaker 1: Everyone will be affected of this transformation, digitalization, of electrifying 114 00:08:36,679 --> 00:08:43,400 Speaker 1: in the automotive industry and other transformations. Nothing will rest 115 00:08:43,640 --> 00:08:48,240 Speaker 1: as it is today, So we have to face these 116 00:08:49,880 --> 00:08:56,960 Speaker 1: huge dimension of transformation. So that's the problem that many 117 00:08:57,000 --> 00:09:02,200 Speaker 1: employees as well as many managers just want circumstances to 118 00:09:02,280 --> 00:09:07,840 Speaker 1: stay as they are now won't work. Who refuses the 119 00:09:07,960 --> 00:09:13,040 Speaker 1: change today might be jobless tomorrow. The Union is calling 120 00:09:13,080 --> 00:09:17,720 Speaker 1: for Germany's notoriously tight fisted government to increase investment in 121 00:09:17,800 --> 00:09:21,800 Speaker 1: physical and digital infrastructure and training employees for the skills 122 00:09:21,840 --> 00:09:26,040 Speaker 1: and jobs of tomorrow. Still, Germany has a long track 123 00:09:26,120 --> 00:09:29,400 Speaker 1: record of adapting. It emerged from the ashes of World 124 00:09:29,480 --> 00:09:33,520 Speaker 1: War Two to become Europe's leading economy, and the integration 125 00:09:33,559 --> 00:09:36,160 Speaker 1: of the Communist East after the fall of the Berlin 126 00:09:36,200 --> 00:09:41,880 Speaker 1: Wall has largely been successful. Germany's labor forces skilled in 127 00:09:41,920 --> 00:09:50,920 Speaker 1: its education system includes several institutions of international renown. Ultimately, 128 00:09:51,040 --> 00:09:54,040 Speaker 1: it may be a question of both economics and politics 129 00:09:54,760 --> 00:09:58,520 Speaker 1: for the government in Berlin. Germany's industrial sector may simply 130 00:09:58,559 --> 00:10:03,000 Speaker 1: be too big to fail. The uncertainty has filtered through 131 00:10:03,040 --> 00:10:05,800 Speaker 1: to voters already, is one can see from the rise 132 00:10:05,840 --> 00:10:08,960 Speaker 1: of the populist a f D party and will definitely 133 00:10:09,000 --> 00:10:15,040 Speaker 1: preoccupy whoever succeeds the active as chancellor. Here's how Peter 134 00:10:15,160 --> 00:10:18,840 Speaker 1: Wells of Cardiff Business Squad put it. The transition I 135 00:10:18,880 --> 00:10:21,720 Speaker 1: think has to happen at a manufacturing level first and foremost, 136 00:10:21,800 --> 00:10:24,800 Speaker 1: and we're beginning to see that companies like Volkswagen are 137 00:10:24,800 --> 00:10:29,120 Speaker 1: investing heavily in industry four point zero and related themes. 138 00:10:29,720 --> 00:10:32,360 Speaker 1: If they can do that, then there's a chance that 139 00:10:32,400 --> 00:10:35,600 Speaker 1: they can push productivity much much higher, and that will 140 00:10:35,720 --> 00:10:38,679 Speaker 1: enable them to continue to survive as manufacturers in a 141 00:10:38,760 --> 00:10:41,439 Speaker 1: high class location. But of course there is a downside, 142 00:10:41,480 --> 00:10:45,400 Speaker 1: and that downside is reduced jobs. Companies like Volkswagen are 143 00:10:45,520 --> 00:10:50,000 Speaker 1: already talking about taking headcamp out of their manufacturing operations, 144 00:10:50,080 --> 00:10:54,200 Speaker 1: and that reduces their bargaining for politically. So it's a 145 00:10:54,280 --> 00:10:58,720 Speaker 1: very difficult place to be in right now. And Katherine 146 00:10:58,760 --> 00:11:06,720 Speaker 1: Boseley for bloomdern this now I'm very glad to say. 147 00:11:06,720 --> 00:11:09,920 Speaker 1: I'm now joined down the line by Ferdinando Giuliano, the 148 00:11:10,400 --> 00:11:15,040 Speaker 1: Bloomberg economic columnist. Ferdinando, you and I have been around 149 00:11:15,080 --> 00:11:18,200 Speaker 1: in economics for long enough to know that there's these 150 00:11:19,080 --> 00:11:23,280 Speaker 1: We often have rounds of questioning about the German model. 151 00:11:23,440 --> 00:11:27,200 Speaker 1: You know, I remember in the nineties there was talk 152 00:11:27,280 --> 00:11:30,480 Speaker 1: of the sick man of Europe being Germany. Do you 153 00:11:30,520 --> 00:11:34,640 Speaker 1: think this is a real this round of questioning is 154 00:11:34,679 --> 00:11:37,880 Speaker 1: really serious or is it just a little bit of angst. Well, 155 00:11:37,880 --> 00:11:40,520 Speaker 1: I think it is pretty serious. I mean you've mentioned 156 00:11:41,200 --> 00:11:43,000 Speaker 1: what happened at the end of the nineties. I think 157 00:11:43,040 --> 00:11:46,160 Speaker 1: that was certainly more serious, and that's why the government 158 00:11:46,200 --> 00:11:49,319 Speaker 1: of getting shure they introduced a number of very important 159 00:11:49,360 --> 00:11:53,200 Speaker 1: labor market reforms which really helped growth in the coming 160 00:11:53,640 --> 00:11:56,439 Speaker 1: decade and more. But I think, and I think at 161 00:11:56,440 --> 00:11:59,199 Speaker 1: this stage where there are still more question marks than answers. 162 00:11:59,200 --> 00:12:01,000 Speaker 1: I mean, as we know, the German economy has been 163 00:12:01,040 --> 00:12:04,120 Speaker 1: slowing quite sharply at the end of last year, in 164 00:12:04,160 --> 00:12:07,840 Speaker 1: the second half there was nearly fell into a technical recession. 165 00:12:08,280 --> 00:12:10,960 Speaker 1: Is now bounced back in the first quarter of this 166 00:12:11,200 --> 00:12:13,520 Speaker 1: year by growing by not point four percent on a 167 00:12:13,600 --> 00:12:16,400 Speaker 1: quarterly basis. But I think there are still some questions 168 00:12:16,400 --> 00:12:20,160 Speaker 1: over really the long term future of the country, and 169 00:12:20,240 --> 00:12:24,280 Speaker 1: some of the question marks are actually pretty striking. I mean, 170 00:12:24,559 --> 00:12:27,360 Speaker 1: one has obviously got to do with trade. The other 171 00:12:27,400 --> 00:12:29,559 Speaker 1: one is the future of the car industry, and then 172 00:12:29,559 --> 00:12:31,800 Speaker 1: there is the issue of the banking industry, which is 173 00:12:31,840 --> 00:12:35,319 Speaker 1: really uh come back to the fore. After the failed 174 00:12:35,880 --> 00:12:39,000 Speaker 1: merger between Commerce Bank and Deutsche Bank, so a number 175 00:12:39,000 --> 00:12:43,479 Speaker 1: of question marks there for the politicians, not yet dramatic, 176 00:12:43,720 --> 00:12:45,440 Speaker 1: but you know they still need to come up. They 177 00:12:45,880 --> 00:12:48,080 Speaker 1: need to come up with some answers pretty quickly, I think. 178 00:12:48,760 --> 00:12:50,959 Speaker 1: And do you see and mean we have a government 179 00:12:50,960 --> 00:12:54,240 Speaker 1: that's got a little bit different complexion now, at least 180 00:12:54,559 --> 00:12:56,640 Speaker 1: for those of us looking at the economic policies. We 181 00:12:56,679 --> 00:12:59,400 Speaker 1: have a finance minister, all of shul Suits has is 182 00:12:59,400 --> 00:13:03,320 Speaker 1: of a different character from his predecessor, who was what 183 00:13:03,400 --> 00:13:07,199 Speaker 1: you might call a very characteristic in his economic policies. 184 00:13:07,240 --> 00:13:10,120 Speaker 1: You know, he was the one Wolfgang Scheibler who would 185 00:13:10,280 --> 00:13:15,199 Speaker 1: was didn't really believe in Greece being in the Eurozone 186 00:13:15,240 --> 00:13:18,000 Speaker 1: and gave it a really tough time during the Eurozone crisis. 187 00:13:18,000 --> 00:13:20,120 Speaker 1: You know, it was associated with a loss of those 188 00:13:21,520 --> 00:13:24,320 Speaker 1: policies that we do associate with Germany, you know, tough 189 00:13:24,360 --> 00:13:28,040 Speaker 1: fiscal policy and still wanting to have that very strong 190 00:13:28,080 --> 00:13:31,040 Speaker 1: export performance and a reluctance to have a lot more 191 00:13:31,040 --> 00:13:34,560 Speaker 1: public investment, something that was highlighted by Catherine in that piece. 192 00:13:34,640 --> 00:13:37,400 Speaker 1: Do you see with this different finance minister, a slightly 193 00:13:37,400 --> 00:13:41,280 Speaker 1: different government that we will have there's a more of 194 00:13:41,280 --> 00:13:43,680 Speaker 1: an openness to this kind of change, like more public 195 00:13:43,720 --> 00:13:46,240 Speaker 1: investment for example. Well, I think we've seen a little 196 00:13:46,240 --> 00:13:49,200 Speaker 1: bit of a shift, to be honest, to the fiscal 197 00:13:49,240 --> 00:13:53,040 Speaker 1: policies turned mildly expansionary over the last a few months. 198 00:13:53,800 --> 00:13:55,560 Speaker 1: But there are still, you know, big questions. I mean, 199 00:13:55,600 --> 00:13:58,640 Speaker 1: if you have a slowing economy and you are running 200 00:13:58,760 --> 00:14:02,640 Speaker 1: a budget surplus, your debt is very low, and actually 201 00:14:03,160 --> 00:14:07,320 Speaker 1: investors are willing to give you money at negative nominal rates, 202 00:14:07,320 --> 00:14:09,080 Speaker 1: why why are you not investing more? I think these 203 00:14:09,160 --> 00:14:12,679 Speaker 1: questions are still there. What's interesting is that, I think 204 00:14:12,800 --> 00:14:15,200 Speaker 1: is that debate. The debate is starting to shift a 205 00:14:15,200 --> 00:14:18,400 Speaker 1: little bit precisely because the economy is not doing so well. 206 00:14:18,440 --> 00:14:21,080 Speaker 1: I mean, it's all well and good to kind of 207 00:14:21,360 --> 00:14:24,360 Speaker 1: run a very tight fiscal policy if the economy is 208 00:14:24,360 --> 00:14:26,400 Speaker 1: still growing. I mean, of course it could be growing more. 209 00:14:26,440 --> 00:14:30,040 Speaker 1: Your productivity could be boosted by more public investment. But 210 00:14:30,080 --> 00:14:32,400 Speaker 1: you know, it's harder to make a public case for 211 00:14:33,000 --> 00:14:35,840 Speaker 1: more spending at this juncture. I think it's harder to 212 00:14:35,920 --> 00:14:40,160 Speaker 1: sustain the physical you know, the case for physical discipline 213 00:14:40,760 --> 00:14:42,640 Speaker 1: at the moment. So I think that that change in 214 00:14:42,680 --> 00:14:46,600 Speaker 1: the debate is very very interesting. Now, of course, all 215 00:14:46,640 --> 00:14:51,280 Speaker 1: of shots on his own does not mean very much 216 00:14:51,360 --> 00:14:54,960 Speaker 1: because clearly, you know, we need to understand what's going 217 00:14:55,000 --> 00:14:58,040 Speaker 1: through the mind of a k K, the successor to 218 00:14:58,160 --> 00:15:02,600 Speaker 1: Angela Merkel, who's going through a difficult period to establish herself, 219 00:15:02,600 --> 00:15:06,160 Speaker 1: and we don't really know what her economic policy thinking 220 00:15:06,600 --> 00:15:10,040 Speaker 1: is deep down. So I think there are still a question. 221 00:15:10,080 --> 00:15:11,880 Speaker 1: I would like to add one more thing. Yes, all 222 00:15:11,920 --> 00:15:15,360 Speaker 1: of Shorts has been a good shift in terms brought 223 00:15:15,360 --> 00:15:17,680 Speaker 1: a good shift in terms of fiscal policy. There is 224 00:15:17,720 --> 00:15:21,520 Speaker 1: stuff going on in terms of industrial policy and banking 225 00:15:21,600 --> 00:15:24,360 Speaker 1: policy which I think is a little bit more suspicious. 226 00:15:24,400 --> 00:15:26,160 Speaker 1: German is going back to the kind of go the 227 00:15:26,160 --> 00:15:29,080 Speaker 1: old way, you know, to the kind of marrying the 228 00:15:29,160 --> 00:15:33,360 Speaker 1: French approach to industrial policy, gains competition policy. All of 229 00:15:33,360 --> 00:15:36,120 Speaker 1: Shorts was a supporter of this national champion idea in 230 00:15:36,120 --> 00:15:38,840 Speaker 1: the banking industry. While all of that is something which 231 00:15:38,880 --> 00:15:43,080 Speaker 1: I think as an economist I'm quite worried about, you know, 232 00:15:43,280 --> 00:15:46,360 Speaker 1: when you step back from these debates, and obviously we 233 00:15:46,400 --> 00:15:48,800 Speaker 1: look at what happens to German GDP, you know week 234 00:15:48,840 --> 00:15:50,920 Speaker 1: to week or months to month, of course to course, 235 00:15:51,240 --> 00:15:56,840 Speaker 1: but over the years Germany has often been criticized for 236 00:15:57,480 --> 00:16:02,280 Speaker 1: being a bit too successful exports in not saving too much. 237 00:16:02,320 --> 00:16:06,200 Speaker 1: It's household save save too much, not taking enough risks, 238 00:16:06,280 --> 00:16:09,480 Speaker 1: and these all have a field of being pretty long 239 00:16:09,600 --> 00:16:12,720 Speaker 1: term characteristics of Germany. Is what's what's the odds of 240 00:16:12,720 --> 00:16:14,840 Speaker 1: it really changing? I mean, it's always been said. I 241 00:16:14,880 --> 00:16:18,080 Speaker 1: think that the German people, German households spend more on 242 00:16:18,160 --> 00:16:20,880 Speaker 1: flowers every year than they do on shares. You know, 243 00:16:20,960 --> 00:16:23,880 Speaker 1: is that really going to change? Well, I think what's 244 00:16:24,000 --> 00:16:26,520 Speaker 1: changing is the landscape. I mean you were talking about 245 00:16:27,280 --> 00:16:31,240 Speaker 1: the trading surpluses which Germany has been recording throughout the years, 246 00:16:31,280 --> 00:16:34,960 Speaker 1: and the model which is really based on experts. I mean, 247 00:16:35,520 --> 00:16:37,880 Speaker 1: what's changing is the landscape. What we have is this 248 00:16:38,200 --> 00:16:40,360 Speaker 1: now this you know not even not no longer a 249 00:16:40,400 --> 00:16:43,160 Speaker 1: trade skirmish, but then outright trade war. It would see 250 00:16:43,160 --> 00:16:46,680 Speaker 1: in between the US and China, the US is being 251 00:16:46,800 --> 00:16:53,320 Speaker 1: very confrontational with with Europe, threatening to slap tarifts on cars, 252 00:16:53,320 --> 00:16:56,360 Speaker 1: which is Germany by the way. So I think in 253 00:16:56,440 --> 00:17:00,760 Speaker 1: this shifting landscape where globalization is at risk, global commerce 254 00:17:00,880 --> 00:17:05,399 Speaker 1: is at risk, the model which Germany has um you know, 255 00:17:05,640 --> 00:17:07,600 Speaker 1: established and which has been you know to be fair 256 00:17:07,920 --> 00:17:12,520 Speaker 1: very successful over the past few years of rising globalization 257 00:17:12,680 --> 00:17:17,359 Speaker 1: and you know, strong Boord trade is increasingly at risk. 258 00:17:17,880 --> 00:17:21,240 Speaker 1: And so even though you know us as some you 259 00:17:21,240 --> 00:17:24,919 Speaker 1: know as as economists have been doubtful of this model 260 00:17:25,040 --> 00:17:27,240 Speaker 1: for some time, but you know, the kind of the 261 00:17:27,320 --> 00:17:30,760 Speaker 1: man on the street wasn't really seeing the problem with 262 00:17:30,800 --> 00:17:33,160 Speaker 1: it because you know, after all, unemployment was very low 263 00:17:33,240 --> 00:17:37,600 Speaker 1: and the economy is doing fine. But now that these 264 00:17:37,720 --> 00:17:40,960 Speaker 1: risks are rising and are actually there present and are 265 00:17:41,000 --> 00:17:44,320 Speaker 1: taking a hit on economic growth, I think politicians will 266 00:17:44,359 --> 00:17:48,679 Speaker 1: start asking themselves some hard questions because hey, you know, 267 00:17:48,720 --> 00:17:51,960 Speaker 1: maybe Donald Trump will disappear in a few years and 268 00:17:52,000 --> 00:17:54,600 Speaker 1: we will go back to the good old days of globalization. 269 00:17:55,000 --> 00:17:59,280 Speaker 1: But what if we don't, How will Germany keep growing? 270 00:17:59,320 --> 00:18:02,480 Speaker 1: How will keep giving prosperity to its people. That's a 271 00:18:02,520 --> 00:18:06,880 Speaker 1: real question which politicians need to ask themselves. And Germany 272 00:18:06,920 --> 00:18:10,160 Speaker 1: has been so dominant in Europe, in the Eurozone over 273 00:18:10,200 --> 00:18:13,199 Speaker 1: the last ten twenty years. What does it mean for 274 00:18:13,280 --> 00:18:16,880 Speaker 1: Europe if it's now going through a phase of being 275 00:18:16,920 --> 00:18:20,000 Speaker 1: on the defensive and a bit insecure and its economic 276 00:18:20,040 --> 00:18:24,080 Speaker 1: model well, I think, paradoxically, from a certain point of view, 277 00:18:24,320 --> 00:18:30,240 Speaker 1: and it's slightly weaker, German economy could be interesting from 278 00:18:30,240 --> 00:18:34,400 Speaker 1: a political point of view, because it may make Germany 279 00:18:34,440 --> 00:18:39,440 Speaker 1: a little bit more understanding towards some form of expansionary policies, 280 00:18:39,560 --> 00:18:44,800 Speaker 1: especially fiscal policies, which Germany has traditionally been skeptical of. 281 00:18:44,880 --> 00:18:47,240 Speaker 1: I mean, we've heard many times you're confirming some of 282 00:18:47,240 --> 00:18:49,640 Speaker 1: the paranoia that the Germans themselves have that the other 283 00:18:49,640 --> 00:18:52,399 Speaker 1: countries are just willing for them to fail. When you 284 00:18:52,440 --> 00:18:53,960 Speaker 1: say that, oh yes, I mean I think, you know, 285 00:18:54,000 --> 00:18:57,800 Speaker 1: I was more thinking about their their own domestic policy 286 00:18:57,840 --> 00:19:00,960 Speaker 1: and the repercussions for the for the EU. In terms 287 00:19:00,960 --> 00:19:05,199 Speaker 1: of the broader debate, I mean, frankly, it's been stuck 288 00:19:05,240 --> 00:19:08,560 Speaker 1: for you know, at least a year and a half now. 289 00:19:08,560 --> 00:19:12,040 Speaker 1: I mean, after the election of President Emmanuel Mcron and 290 00:19:12,119 --> 00:19:14,760 Speaker 1: the idea that there would be a grand bargain between 291 00:19:14,800 --> 00:19:18,640 Speaker 1: France and Germany, there was some enthusiasm about the reform 292 00:19:18,720 --> 00:19:21,879 Speaker 1: of the Eurozone and making sure that those are the 293 00:19:21,960 --> 00:19:25,480 Speaker 1: building blocks, especially for example, in setting up some form 294 00:19:25,560 --> 00:19:30,040 Speaker 1: of joint fiscal capacity or completing the banking union project, 295 00:19:30,040 --> 00:19:32,200 Speaker 1: which has been advancing for some time. And then it's 296 00:19:32,240 --> 00:19:35,199 Speaker 1: tolled where there was hope that this could happen, but 297 00:19:35,240 --> 00:19:38,920 Speaker 1: at the moment everything has tolled and I suspect that 298 00:19:39,040 --> 00:19:43,800 Speaker 1: the rise of some populist governments, for example in Italy, 299 00:19:43,880 --> 00:19:48,880 Speaker 1: which you know, are taking very irresponsible attitude towards economic 300 00:19:48,920 --> 00:19:52,719 Speaker 1: policy making, is going to make the German public just 301 00:19:53,000 --> 00:19:57,120 Speaker 1: more defensive. And another big question I think is over 302 00:19:57,560 --> 00:20:02,000 Speaker 1: the European Central Bank. Mario Dragging has been and extraordinarily effective, 303 00:20:02,040 --> 00:20:04,959 Speaker 1: not just in implementing policy, but also in selling it 304 00:20:05,000 --> 00:20:09,200 Speaker 1: to the German politicians, especially Angela Mercle. But we now 305 00:20:09,359 --> 00:20:11,440 Speaker 1: his term is coming. We know his term is coming 306 00:20:11,480 --> 00:20:13,440 Speaker 1: to an end at the end of October. Who will 307 00:20:13,480 --> 00:20:16,720 Speaker 1: replace him? And will this person be just as effective 308 00:20:17,000 --> 00:20:20,480 Speaker 1: in terms of making the easyb you know, a powerful 309 00:20:20,520 --> 00:20:25,720 Speaker 1: tool in fighting slowdowns recessions. Or are we going back 310 00:20:25,760 --> 00:20:31,280 Speaker 1: to less effective presidents? This is another big questions And 311 00:20:31,280 --> 00:20:33,560 Speaker 1: of course you know Yains Vitman, the president of the Bundesbank, 312 00:20:33,640 --> 00:20:36,800 Speaker 1: is one of the leading candidates. So will we see 313 00:20:36,880 --> 00:20:41,600 Speaker 1: a more Germanic monetary policy in the Eurozone and what 314 00:20:41,600 --> 00:20:44,760 Speaker 1: what would that mean for for the currency union? You know, 315 00:20:44,880 --> 00:20:48,120 Speaker 1: this is this is a big doubt which I think 316 00:20:48,600 --> 00:20:51,400 Speaker 1: many investors would want to ponder on well. And I'm 317 00:20:51,480 --> 00:20:54,439 Speaker 1: very glad you mentioned that. For another because I'm going 318 00:20:54,480 --> 00:20:56,000 Speaker 1: to be talking about that in a second, getting the 319 00:20:56,080 --> 00:21:00,160 Speaker 1: latest on that horse race to run the European Central Bank. 320 00:21:00,960 --> 00:21:04,280 Speaker 1: Just after talking to you, But ferdinandod and thank you 321 00:21:04,359 --> 00:21:13,359 Speaker 1: very much for sharing your thoughts. Thank you well. I 322 00:21:13,400 --> 00:21:18,000 Speaker 1: mentioned with Fernando there the battle to see who's going 323 00:21:18,040 --> 00:21:22,000 Speaker 1: to replace Mario drag the Italian who has been running 324 00:21:22,000 --> 00:21:25,200 Speaker 1: the European Central Bank for the last eight years, and 325 00:21:25,240 --> 00:21:27,800 Speaker 1: I wanted to check in with Paul Gordon, who runs 326 00:21:27,800 --> 00:21:30,720 Speaker 1: our central bank team out of Frankfurt on it. Paul, 327 00:21:31,240 --> 00:21:36,600 Speaker 1: the Germany's never had one of its nationals run the 328 00:21:36,680 --> 00:21:41,160 Speaker 1: European Central Bank. Is this sits moment? Well, the head 329 00:21:41,200 --> 00:21:43,919 Speaker 1: of the bonders Bank, Ends Viedman, is a contender, but 330 00:21:44,000 --> 00:21:47,639 Speaker 1: it is very wide open field, wider than we've ever seen. Really. 331 00:21:48,400 --> 00:21:52,040 Speaker 1: He's up against, at least according to our surveys to Frenchmen, 332 00:21:52,480 --> 00:21:55,240 Speaker 1: the head of the French Central Bank and the and 333 00:21:55,320 --> 00:21:58,119 Speaker 1: one of the executive board members, and two Finns the 334 00:21:58,119 --> 00:22:00,400 Speaker 1: current ahead of the Finnish Central Bank and form ahead 335 00:22:00,440 --> 00:22:02,520 Speaker 1: of the Finnish Central Bank. It's very hard at this 336 00:22:02,560 --> 00:22:05,600 Speaker 1: point to see whether Germany will have what it takes 337 00:22:05,640 --> 00:22:08,040 Speaker 1: to win the political support to get you inspiber And 338 00:22:08,119 --> 00:22:12,320 Speaker 1: into the position. Now, if you're an outsider looking at 339 00:22:12,320 --> 00:22:15,440 Speaker 1: the Ourizon, particularly if you're in sitting working in the 340 00:22:15,440 --> 00:22:18,240 Speaker 1: financial markets in New York, say, what you really care 341 00:22:18,280 --> 00:22:21,160 Speaker 1: about who runs the European Central Bank is whether they'll 342 00:22:21,160 --> 00:22:23,320 Speaker 1: support growth in Europe and whether they'll be able to 343 00:22:23,320 --> 00:22:25,560 Speaker 1: do the right thing in a crisis. Is there any 344 00:22:25,600 --> 00:22:27,480 Speaker 1: chance that the right person is going to be in 345 00:22:27,480 --> 00:22:29,639 Speaker 1: the job for either of those things or that is 346 00:22:29,720 --> 00:22:34,320 Speaker 1: where the German nomination should the inspiber and be That 347 00:22:34,400 --> 00:22:37,639 Speaker 1: nominee is potentially the problem because Vibraan has been an 348 00:22:37,680 --> 00:22:42,040 Speaker 1: opponent of a lot of the CBS crisis era measures 349 00:22:42,040 --> 00:22:44,480 Speaker 1: in the past. You have to remember that Mario Draggy, 350 00:22:44,720 --> 00:22:47,080 Speaker 1: although he was something of a controversial candidate when he 351 00:22:47,160 --> 00:22:50,520 Speaker 1: came in eight years ago, pledged in twenty twelve to 352 00:22:50,560 --> 00:22:53,720 Speaker 1: do whatever it takes and the market believed him, and 353 00:22:53,800 --> 00:22:57,040 Speaker 1: he's continued to make these pledges and to come up 354 00:22:57,040 --> 00:22:59,760 Speaker 1: with fairly original measures in order to try to get 355 00:22:59,840 --> 00:23:02,919 Speaker 1: him inflation back on track. It's not there yet and 356 00:23:02,960 --> 00:23:06,159 Speaker 1: the economy is showing signs of stuttering. So you have 357 00:23:06,280 --> 00:23:09,879 Speaker 1: to wonder whether the next ECB president, if they haven't 358 00:23:09,920 --> 00:23:12,879 Speaker 1: supported some of those measures as vibe and hasn't will 359 00:23:12,960 --> 00:23:15,720 Speaker 1: have the credibility to get the job done. And the 360 00:23:15,720 --> 00:23:18,240 Speaker 1: credibility matters. It has an impact on the markets, that 361 00:23:18,359 --> 00:23:21,880 Speaker 1: has an impact on inflation expectations. So that's the biggest 362 00:23:21,920 --> 00:23:25,240 Speaker 1: challenge for Germany. One has to say, and you've mentioned 363 00:23:25,280 --> 00:23:27,920 Speaker 1: there some of those sort of key phrases that came 364 00:23:27,920 --> 00:23:30,000 Speaker 1: out of Marrow drugging. I mean, is that why it 365 00:23:30,080 --> 00:23:34,240 Speaker 1: does really matter who runs this organization? It's not you know, 366 00:23:34,320 --> 00:23:36,960 Speaker 1: some people will say, well, it's just one vote or 367 00:23:37,040 --> 00:23:40,080 Speaker 1: men of many on the council. It doesn't doesn't matter 368 00:23:40,119 --> 00:23:43,080 Speaker 1: who's in that job. It matters how the council vote 369 00:23:43,080 --> 00:23:45,320 Speaker 1: goes goes. But then if we look at something like 370 00:23:45,359 --> 00:23:47,480 Speaker 1: the FED, we know that, you know, it does matter 371 00:23:47,600 --> 00:23:50,000 Speaker 1: who's chairman of the Fed, even though technically the FED 372 00:23:50,080 --> 00:23:53,120 Speaker 1: chair only has one vote. Is that also the case 373 00:23:53,160 --> 00:23:55,119 Speaker 1: in the European Central Bank? I mean, remember we've got 374 00:23:55,119 --> 00:23:57,240 Speaker 1: a lot of countries represented around the table. It's not 375 00:23:57,320 --> 00:24:01,119 Speaker 1: just those regional banks that you have represented in the US, No, 376 00:24:01,359 --> 00:24:04,760 Speaker 1: I mean the the the governing council chamber in the 377 00:24:04,760 --> 00:24:07,040 Speaker 1: European Central Bank is a very crowded place. There are 378 00:24:07,080 --> 00:24:12,360 Speaker 1: twenty five policy makers, nineteen central bank governors, six board members. 379 00:24:12,400 --> 00:24:15,960 Speaker 1: But the board does have undue influence, if you like, 380 00:24:16,119 --> 00:24:18,880 Speaker 1: it has much more influence than the others. Yes, there's 381 00:24:18,920 --> 00:24:21,760 Speaker 1: one vote per person doesn't normally come to a vote 382 00:24:21,760 --> 00:24:24,800 Speaker 1: in the governing Council. A consensus is reached and that 383 00:24:24,920 --> 00:24:29,200 Speaker 1: consensus is heavily swayed by whatever proposal the executive boarders 384 00:24:29,240 --> 00:24:32,360 Speaker 1: put on the table for everyone to discuss. So the President, 385 00:24:32,480 --> 00:24:34,800 Speaker 1: as one of those board members, matters. So does the 386 00:24:34,840 --> 00:24:37,959 Speaker 1: Chief Economists that currently is Peter Prett, but that changes 387 00:24:38,000 --> 00:24:40,119 Speaker 1: as well as a first of June Philip Lane of 388 00:24:40,160 --> 00:24:43,240 Speaker 1: Ireland will come in. And also another influential figure is 389 00:24:43,280 --> 00:24:46,480 Speaker 1: Benoir Currey. He's the head of market Operations. He leaves 390 00:24:46,560 --> 00:24:48,160 Speaker 1: at the end of the year, though as I say, 391 00:24:48,240 --> 00:24:51,760 Speaker 1: he is potentially one of the contenders to replace Mario Draggy, 392 00:24:51,920 --> 00:24:54,840 Speaker 1: so it's not really one vote per person. It doesn't 393 00:24:54,960 --> 00:24:57,040 Speaker 1: quite work that way. Well, and you've mentioned something that 394 00:24:57,040 --> 00:24:58,760 Speaker 1: I think we're going to come back to in the 395 00:24:58,800 --> 00:25:01,160 Speaker 1: next few weeks on the podcast, the fact that you've 396 00:25:01,160 --> 00:25:04,920 Speaker 1: got so many senior jobs changing hands in Europe. Three 397 00:25:05,000 --> 00:25:08,679 Speaker 1: of the key European central bank jobs changing hands in 398 00:25:08,680 --> 00:25:11,080 Speaker 1: twelve months, but also all of the European Commission jobs 399 00:25:11,119 --> 00:25:12,800 Speaker 1: and everything else. It's a mess. It's at there's a 400 00:25:12,840 --> 00:25:15,800 Speaker 1: lot of hallse trading going on. I'm gonna put you 401 00:25:15,840 --> 00:25:18,080 Speaker 1: on the spot, Paul, who do you think it's going 402 00:25:18,119 --> 00:25:19,800 Speaker 1: to be and when do you think we're going to 403 00:25:19,880 --> 00:25:23,040 Speaker 1: find out? On just on the ECB president job. Yeah, 404 00:25:23,080 --> 00:25:25,480 Speaker 1: it's it's quite a confluence of events. I mean, the 405 00:25:25,920 --> 00:25:28,679 Speaker 1: political post tend to last for five years, the clans 406 00:25:28,760 --> 00:25:31,960 Speaker 1: for eight years, so only once every forty years. Any 407 00:25:31,960 --> 00:25:34,840 Speaker 1: student of maths will tell you do you get that coincidence? 408 00:25:35,280 --> 00:25:38,000 Speaker 1: So it could take some time. It may not be 409 00:25:38,080 --> 00:25:42,920 Speaker 1: resolved until shortly before potentially where every the ECB president 410 00:25:43,280 --> 00:25:46,080 Speaker 1: post expires at the end of October. And as for 411 00:25:46,119 --> 00:25:49,720 Speaker 1: who it is, well, I'll give you two basic assumptions 412 00:25:49,760 --> 00:25:52,040 Speaker 1: most people are making. It's probably going to be a 413 00:25:52,040 --> 00:25:55,119 Speaker 1: Northern European, although you would have to include France in 414 00:25:55,160 --> 00:25:58,720 Speaker 1: that mix. Not everybody sees Frances nor the European but 415 00:25:59,200 --> 00:26:02,159 Speaker 1: it's it's in the shot of the chances been deciding 416 00:26:02,200 --> 00:26:04,520 Speaker 1: for a while whether it's a Southern European or it 417 00:26:04,520 --> 00:26:08,000 Speaker 1: still isn't there exactly right, And the second point is 418 00:26:08,080 --> 00:26:11,040 Speaker 1: it's very very unlikely to be a woman. Well, that 419 00:26:11,240 --> 00:26:13,240 Speaker 1: is definitely true when you look at who's in leadership 420 00:26:13,240 --> 00:26:17,360 Speaker 1: positions across central banks across Europe. Oh for Shane. Thank 421 00:26:17,400 --> 00:26:20,160 Speaker 1: you very much, Paul. I know what is going to continue. 422 00:26:20,200 --> 00:26:22,200 Speaker 1: This horse race is going to produce lots of great 423 00:26:22,200 --> 00:26:24,359 Speaker 1: stories for us, and we do have that ongoing pole 424 00:26:24,440 --> 00:26:28,360 Speaker 1: you mentioned of economists for who they think is going 425 00:26:28,400 --> 00:26:31,560 Speaker 1: to replace Mario Druggie, which involves a nice graphic with 426 00:26:31,600 --> 00:26:34,080 Speaker 1: little bouncy heads, which I gather as quite popular in 427 00:26:34,440 --> 00:26:37,320 Speaker 1: the corridors of Frankfurt in the Central Bank as well. 428 00:26:37,400 --> 00:26:48,760 Speaker 1: Thank you very much, Paul. Thank you, thanks for listening 429 00:26:48,760 --> 00:26:51,240 Speaker 1: to Stephanomics. Come back next week for more on the 430 00:26:51,280 --> 00:26:54,639 Speaker 1: ground insights into the global economy. In the meantime, you 431 00:26:54,680 --> 00:26:57,639 Speaker 1: can find us on the Bloomberg Terminal, website, app or 432 00:26:57,680 --> 00:27:00,400 Speaker 1: wherever you get your podcast. We'd love if you took 433 00:27:00,440 --> 00:27:02,359 Speaker 1: the time to rate and review our show so it 434 00:27:02,400 --> 00:27:05,760 Speaker 1: can reach more people. For more news and analysis from 435 00:27:05,760 --> 00:27:10,320 Speaker 1: Bloomberg Economics, follow at Economics on Twitter. You can also 436 00:27:10,359 --> 00:27:14,239 Speaker 1: find me on at my Stephanomics. The story in this 437 00:27:14,280 --> 00:27:17,560 Speaker 1: episode was reported and written by Katherine Bosley and Chris 438 00:27:17,640 --> 00:27:21,960 Speaker 1: writer Helmuth Tromp assisted. It was produced by Magnus Hendrickson 439 00:27:22,040 --> 00:27:25,000 Speaker 1: and edited by Scott Lamman, who is also the executive 440 00:27:25,000 --> 00:27:28,919 Speaker 1: producer of Stephanomics. Chris and Katherine's original article on this 441 00:27:28,960 --> 00:27:33,080 Speaker 1: topic was edited by David Rocks. Special thanks to Ferdinando 442 00:27:33,160 --> 00:27:37,280 Speaker 1: Giuliano in Milan, Agatha Krantrall in Berlin, and Paul Gordon 443 00:27:37,359 --> 00:27:41,440 Speaker 1: in Frankfurt. Francesco Leviy is the head of Bloomberg Podcasts.