WEBVTT - Reinventing Germany's Economy 0:00:03.760 --> 0:00:06.720 Hello, and welcome to Stephanomics, the podcast that brings the 0:00:06.760 --> 0:00:16.720 global economy to you. The Germans make everything difficult for 0:00:16.800 --> 0:00:20.960 themselves and for everyone else, so said Geta, the great 0:00:21.120 --> 0:00:26.360 German poet, whether it's producing cars or managing their public finances, 0:00:26.760 --> 0:00:30.400 Germany holds itself to very high standards and expects others 0:00:30.440 --> 0:00:34.120 to do the same. That's made things tough for businesses 0:00:34.120 --> 0:00:37.360 trying to compete with German exports. President Trump, we know, 0:00:37.520 --> 0:00:39.960 gets very cross with a number of German cars on 0:00:40.000 --> 0:00:43.639 American streets. But it's worked up very well for the Germans, 0:00:44.000 --> 0:00:47.880 or it has until recently. Now that famous German model 0:00:48.159 --> 0:00:52.280 is being questioned inside and outside of Germany. I'm going 0:00:52.360 --> 0:00:55.760 to talk about it with Bloomberg Star economic columnist Ferdinando 0:00:55.840 --> 0:00:59.000 Giuliano in a minute. I'm also going to catch up 0:00:59.240 --> 0:01:02.160 with the Frankfurt team on Germany's chances of running the 0:01:02.160 --> 0:01:07.360 European Central Bank. But First, Eurozone Economy reporter Catherine Boseley 0:01:07.800 --> 0:01:10.360 has this report. She starts with a blast from the 0:01:10.360 --> 0:01:35.080 past that's going to really irritate President Trump. Have you 0:01:35.200 --> 0:01:39.880 ever wondered how the man who drives a snowplow drives 0:01:39.880 --> 0:01:49.040 to the snowplow. This one drives a Volkswagen, so you 0:01:49.080 --> 0:01:53.640 can stop wondering. That's a classic folks Fang TV commercial 0:01:53.720 --> 0:01:58.360 from nine. It reminds us that throughout the decades, one 0:01:58.440 --> 0:02:05.400 thing has remained constant out Germany's economy engineering prowess. After all, 0:02:05.440 --> 0:02:08.280 it was here that the first combustion engine vehicle was 0:02:08.320 --> 0:02:12.080 invented more than a century ago. Today the country is 0:02:12.120 --> 0:02:16.560 synonymous with famous brands like Poikeswagen, Mercedes and Zemens in 0:02:16.639 --> 0:02:21.959 manufacturing accounts for over twenty of the economy. Old school 0:02:22.000 --> 0:02:25.960 engineering for export has been Germany's recipe for success until now, 0:02:26.880 --> 0:02:30.280 so much so that the country's trade surplus in dollar 0:02:30.440 --> 0:02:37.040 terms is second only to China's among major economies. Now 0:02:37.080 --> 0:02:40.880 that model is under threat thanks to today's reality of 0:02:40.919 --> 0:02:46.040 protectionism and slowing global growth. Add to that factors like 0:02:46.120 --> 0:02:49.960 Germany's aging population and creaky infrastructure due to years of 0:02:50.080 --> 0:02:53.480 under investment, and you've got a big question mark hanging 0:02:53.480 --> 0:03:00.320 over an economy that for years has been Europe's powerhouse. Yah. 0:03:04.680 --> 0:03:07.200 These are the sounds of the factory floor at a 0:03:07.360 --> 0:03:11.000 b M, perhaps a company I recently visited in Wolfing 0:03:11.080 --> 0:03:15.040 In in the rolling hills of southern Germany. It has 0:03:15.080 --> 0:03:18.960 got fifteen thousand employees and factories from the Black Forest 0:03:19.000 --> 0:03:24.520 region nearby all the way to China. The company makes 0:03:24.600 --> 0:03:29.600 motors and fans. Some are for building ventilation systems or trains, 0:03:30.120 --> 0:03:33.160 while others are used to cool the electrical systems in 0:03:33.240 --> 0:03:37.119 cars or even help keep seats comfortable so you don't 0:03:37.200 --> 0:03:41.880 sweat when you're driving a b M perhaps. CEO Stefan 0:03:41.960 --> 0:03:45.800 Brande said his business is doing okay thanks to its 0:03:45.840 --> 0:03:49.480 focus on energy efficiency, but he's well aware of issues 0:03:49.520 --> 0:03:53.040 that the whole factory sector is facing, especially if you 0:03:53.120 --> 0:03:55.680 are living in a kind of a remote area like 0:03:55.760 --> 0:03:59.080 we are here in wolfing in Um. Certainly there is 0:03:59.120 --> 0:04:03.920 a big chair lynch on getting skilled workers for our 0:04:04.080 --> 0:04:10.240 different manufacturing parts of our business, and then of course 0:04:10.320 --> 0:04:14.360 also a digitalization if it is concerned. There is also 0:04:15.560 --> 0:04:19.200 an infrastructure in Germany which in my opinion is absolutely 0:04:19.240 --> 0:04:23.560 not appropriate. Car makers in particular are in for a 0:04:23.560 --> 0:04:29.480 big shift because engines are going electric. Folkswagen has hatched 0:04:29.800 --> 0:04:33.640 the most aggressive electric car plans in the auto industry. Well, 0:04:33.720 --> 0:04:37.719 BMW and Diamela are emerging their car sharing services to 0:04:37.880 --> 0:04:43.200 tackle the likes of Uber. The automotive sector is investing 0:04:43.279 --> 0:04:48.000 sixty billion euros or about sixty seven billion dollars over 0:04:48.080 --> 0:04:51.359 the next three years an electric cars and automated driving, 0:04:51.880 --> 0:04:57.719 according to v d A and Industry Association. Unfortunately, the 0:04:57.800 --> 0:05:02.480 most profitable segments and the most profitable models are precisely 0:05:02.480 --> 0:05:04.760 the ones which will generate the biggest problems in our 0:05:04.760 --> 0:05:07.559 regulatory sense, because they're going to be high emission petrol 0:05:07.600 --> 0:05:10.800 and diesel cars. That's Peter Wells, a professor at Cardiff 0:05:10.839 --> 0:05:14.919 Business School in the UK who studies global auto manufacturing 0:05:15.120 --> 0:05:17.680 and the trouble therefore that the industry faces over the 0:05:17.680 --> 0:05:20.479 next two or three years is the looming threat of 0:05:20.680 --> 0:05:24.640 government regulation EU regulation on CEO two emissions, which is 0:05:24.640 --> 0:05:26.520 going to make it very very difficult for them to 0:05:27.320 --> 0:05:32.640 continue to generate profits whilst investing heavily into these new technologies. YEA, 0:05:36.440 --> 0:05:41.080 the strains on the economy are undeniable. Manufacturing and exports 0:05:41.160 --> 0:05:44.200 play a much greater role for Germany the neighboring France. 0:05:44.360 --> 0:05:49.680 For example, growth in is forecast to be the weakest 0:05:49.839 --> 0:05:55.080 in six years. According to Economy Minister Peter Atmeyer, the 0:05:55.160 --> 0:05:59.000 economy's current soft patch is a wake up car, but 0:05:59.120 --> 0:06:02.200 the problems are to some degree homemade, with the German 0:06:02.240 --> 0:06:06.599 government for years focusing on reducing debt rather than investing 0:06:06.680 --> 0:06:10.640 in the future. At least that's the view of Adam Posen, 0:06:10.920 --> 0:06:14.800 who has studied Germany extensively and is president of the 0:06:14.800 --> 0:06:19.800 Peterson Institute for International Economics in Washington. There's been a 0:06:19.880 --> 0:06:24.400 complete shortfall of investment, first private sector, but in recent 0:06:24.480 --> 0:06:29.800 years public investment. And this is marked that an economy 0:06:30.000 --> 0:06:33.120 which is doing so well in terms of employment, in 0:06:33.200 --> 0:06:37.760 terms of generating surpluses, is not finding uses for all 0:06:37.800 --> 0:06:40.480 the capital it throws off, at least not at home. 0:06:41.160 --> 0:06:45.279 And the under investment by the public sector is stands 0:06:45.320 --> 0:06:49.040 out and is a choice, and it's frankly a bad choice. 0:06:49.279 --> 0:06:52.400 It's showing up now in the power grid, it's showing 0:06:52.480 --> 0:06:56.240 up now in transportation, it's showing up in the schools. 0:06:57.400 --> 0:06:59.680 When I lived in Germany in the early nineties and 0:06:59.760 --> 0:07:02.000 used to go back and forth all the time, you know, 0:07:02.120 --> 0:07:04.719 one thing you could count on was the punctuality of 0:07:04.760 --> 0:07:14.240 German trains and planes, and now that's not there. This 0:07:14.320 --> 0:07:17.920 past winter is the government in Berlin proposed an industrial 0:07:17.960 --> 0:07:22.120 strategy in response to fears that Germany will get squeezed 0:07:22.200 --> 0:07:25.760 by the US and China as the global economy shifts 0:07:25.760 --> 0:07:29.840 to new technologies. The program calls for defending the country's 0:07:29.920 --> 0:07:33.880 leadership and key sectors like metals and machinery, and investing 0:07:33.880 --> 0:07:38.400 in technologies such as artificial intelligence, which the report calls 0:07:38.440 --> 0:07:42.760 likely the best important development since the steam engine. In 0:07:42.960 --> 0:07:47.160 Posen's eyes, this plan is a non starter. Where Germany 0:07:47.240 --> 0:07:50.800 really needs is better use of available labor, the regulation 0:07:50.880 --> 0:07:55.440 of its service sector, and infrastructure investment. He says, just 0:07:56.000 --> 0:08:00.040 invest a few percent more of GDP at home and 0:08:00.160 --> 0:08:02.680 thanks that matter for German well being and that will 0:08:02.840 --> 0:08:07.080 live about. My colleague Chris Writer in Berlin spoke to 0:08:07.160 --> 0:08:10.960 labor union I GAMETI, which has two point two million members. 0:08:11.800 --> 0:08:14.600 They say not enough is being done to help retrain 0:08:14.680 --> 0:08:18.520 older workers for evolving jobs, and have scheduled a demonstration 0:08:18.600 --> 0:08:22.840 in June to highlight their predicament. Let's hear from board 0:08:22.880 --> 0:08:26.280 member oven Mine hearts all our members will be affected 0:08:26.400 --> 0:08:29.320 in the one kind or the other today or tomorrow. 0:08:30.000 --> 0:08:36.559 Everyone will be affected of this transformation, digitalization, of electrifying 0:08:36.679 --> 0:08:43.400 in the automotive industry and other transformations. Nothing will rest 0:08:43.640 --> 0:08:48.240 as it is today, So we have to face these 0:08:49.880 --> 0:08:56.960 huge dimension of transformation. So that's the problem that many 0:08:57.000 --> 0:09:02.200 employees as well as many managers just want circumstances to 0:09:02.280 --> 0:09:07.840 stay as they are now won't work. Who refuses the 0:09:07.960 --> 0:09:13.040 change today might be jobless tomorrow. The Union is calling 0:09:13.080 --> 0:09:17.720 for Germany's notoriously tight fisted government to increase investment in 0:09:17.800 --> 0:09:21.800 physical and digital infrastructure and training employees for the skills 0:09:21.840 --> 0:09:26.040 and jobs of tomorrow. Still, Germany has a long track 0:09:26.120 --> 0:09:29.400 record of adapting. It emerged from the ashes of World 0:09:29.480 --> 0:09:33.520 War Two to become Europe's leading economy, and the integration 0:09:33.559 --> 0:09:36.160 of the Communist East after the fall of the Berlin 0:09:36.200 --> 0:09:41.880 Wall has largely been successful. Germany's labor forces skilled in 0:09:41.920 --> 0:09:50.920 its education system includes several institutions of international renown. Ultimately, 0:09:51.040 --> 0:09:54.040 it may be a question of both economics and politics 0:09:54.760 --> 0:09:58.520 for the government in Berlin. Germany's industrial sector may simply 0:09:58.559 --> 0:10:03.000 be too big to fail. The uncertainty has filtered through 0:10:03.040 --> 0:10:05.800 to voters already, is one can see from the rise 0:10:05.840 --> 0:10:08.960 of the populist a f D party and will definitely 0:10:09.000 --> 0:10:15.040 preoccupy whoever succeeds the active as chancellor. Here's how Peter 0:10:15.160 --> 0:10:18.840 Wells of Cardiff Business Squad put it. The transition I 0:10:18.880 --> 0:10:21.720 think has to happen at a manufacturing level first and foremost, 0:10:21.800 --> 0:10:24.800 and we're beginning to see that companies like Volkswagen are 0:10:24.800 --> 0:10:29.120 investing heavily in industry four point zero and related themes. 0:10:29.720 --> 0:10:32.360 If they can do that, then there's a chance that 0:10:32.400 --> 0:10:35.600 they can push productivity much much higher, and that will 0:10:35.720 --> 0:10:38.679 enable them to continue to survive as manufacturers in a 0:10:38.760 --> 0:10:41.439 high class location. But of course there is a downside, 0:10:41.480 --> 0:10:45.400 and that downside is reduced jobs. Companies like Volkswagen are 0:10:45.520 --> 0:10:50.000 already talking about taking headcamp out of their manufacturing operations, 0:10:50.080 --> 0:10:54.200 and that reduces their bargaining for politically. So it's a 0:10:54.280 --> 0:10:58.720 very difficult place to be in right now. And Katherine 0:10:58.760 --> 0:11:06.720 Boseley for bloomdern this now I'm very glad to say. 0:11:06.720 --> 0:11:09.920 I'm now joined down the line by Ferdinando Giuliano, the 0:11:10.400 --> 0:11:15.040 Bloomberg economic columnist. Ferdinando, you and I have been around 0:11:15.080 --> 0:11:18.200 in economics for long enough to know that there's these 0:11:19.080 --> 0:11:23.280 We often have rounds of questioning about the German model. 0:11:23.440 --> 0:11:27.200 You know, I remember in the nineties there was talk 0:11:27.280 --> 0:11:30.480 of the sick man of Europe being Germany. Do you 0:11:30.520 --> 0:11:34.640 think this is a real this round of questioning is 0:11:34.679 --> 0:11:37.880 really serious or is it just a little bit of angst. Well, 0:11:37.880 --> 0:11:40.520 I think it is pretty serious. I mean you've mentioned 0:11:41.200 --> 0:11:43.000 what happened at the end of the nineties. I think 0:11:43.040 --> 0:11:46.160 that was certainly more serious, and that's why the government 0:11:46.200 --> 0:11:49.319 of getting shure they introduced a number of very important 0:11:49.360 --> 0:11:53.200 labor market reforms which really helped growth in the coming 0:11:53.640 --> 0:11:56.439 decade and more. But I think, and I think at 0:11:56.440 --> 0:11:59.199 this stage where there are still more question marks than answers. 0:11:59.200 --> 0:12:01.000 I mean, as we know, the German economy has been 0:12:01.040 --> 0:12:04.120 slowing quite sharply at the end of last year, in 0:12:04.160 --> 0:12:07.840 the second half there was nearly fell into a technical recession. 0:12:08.280 --> 0:12:10.960 Is now bounced back in the first quarter of this 0:12:11.200 --> 0:12:13.520 year by growing by not point four percent on a 0:12:13.600 --> 0:12:16.400 quarterly basis. But I think there are still some questions 0:12:16.400 --> 0:12:20.160 over really the long term future of the country, and 0:12:20.240 --> 0:12:24.280 some of the question marks are actually pretty striking. I mean, 0:12:24.559 --> 0:12:27.360 one has obviously got to do with trade. The other 0:12:27.400 --> 0:12:29.559 one is the future of the car industry, and then 0:12:29.559 --> 0:12:31.800 there is the issue of the banking industry, which is 0:12:31.840 --> 0:12:35.319 really uh come back to the fore. After the failed 0:12:35.880 --> 0:12:39.000 merger between Commerce Bank and Deutsche Bank, so a number 0:12:39.000 --> 0:12:43.479 of question marks there for the politicians, not yet dramatic, 0:12:43.720 --> 0:12:45.440 but you know they still need to come up. They 0:12:45.880 --> 0:12:48.080 need to come up with some answers pretty quickly, I think. 0:12:48.760 --> 0:12:50.959 And do you see and mean we have a government 0:12:50.960 --> 0:12:54.240 that's got a little bit different complexion now, at least 0:12:54.559 --> 0:12:56.640 for those of us looking at the economic policies. We 0:12:56.679 --> 0:12:59.400 have a finance minister, all of shul Suits has is 0:12:59.400 --> 0:13:03.320 of a different character from his predecessor, who was what 0:13:03.400 --> 0:13:07.199 you might call a very characteristic in his economic policies. 0:13:07.240 --> 0:13:10.120 You know, he was the one Wolfgang Scheibler who would 0:13:10.280 --> 0:13:15.199 was didn't really believe in Greece being in the Eurozone 0:13:15.240 --> 0:13:18.000 and gave it a really tough time during the Eurozone crisis. 0:13:18.000 --> 0:13:20.120 You know, it was associated with a loss of those 0:13:21.520 --> 0:13:24.320 policies that we do associate with Germany, you know, tough 0:13:24.360 --> 0:13:28.040 fiscal policy and still wanting to have that very strong 0:13:28.080 --> 0:13:31.040 export performance and a reluctance to have a lot more 0:13:31.040 --> 0:13:34.560 public investment, something that was highlighted by Catherine in that piece. 0:13:34.640 --> 0:13:37.400 Do you see with this different finance minister, a slightly 0:13:37.400 --> 0:13:41.280 different government that we will have there's a more of 0:13:41.280 --> 0:13:43.680 an openness to this kind of change, like more public 0:13:43.720 --> 0:13:46.240 investment for example. Well, I think we've seen a little 0:13:46.240 --> 0:13:49.200 bit of a shift, to be honest, to the fiscal 0:13:49.240 --> 0:13:53.040 policies turned mildly expansionary over the last a few months. 0:13:53.800 --> 0:13:55.560 But there are still, you know, big questions. I mean, 0:13:55.600 --> 0:13:58.640 if you have a slowing economy and you are running 0:13:58.760 --> 0:14:02.640 a budget surplus, your debt is very low, and actually 0:14:03.160 --> 0:14:07.320 investors are willing to give you money at negative nominal rates, 0:14:07.320 --> 0:14:09.080 why why are you not investing more? I think these 0:14:09.160 --> 0:14:12.679 questions are still there. What's interesting is that, I think 0:14:12.800 --> 0:14:15.200 is that debate. The debate is starting to shift a 0:14:15.200 --> 0:14:18.400 little bit precisely because the economy is not doing so well. 0:14:18.440 --> 0:14:21.080 I mean, it's all well and good to kind of 0:14:21.360 --> 0:14:24.360 run a very tight fiscal policy if the economy is 0:14:24.360 --> 0:14:26.400 still growing. I mean, of course it could be growing more. 0:14:26.440 --> 0:14:30.040 Your productivity could be boosted by more public investment. But 0:14:30.080 --> 0:14:32.400 you know, it's harder to make a public case for 0:14:33.000 --> 0:14:35.840 more spending at this juncture. I think it's harder to 0:14:35.920 --> 0:14:40.160 sustain the physical you know, the case for physical discipline 0:14:40.760 --> 0:14:42.640 at the moment. So I think that that change in 0:14:42.680 --> 0:14:46.600 the debate is very very interesting. Now, of course, all 0:14:46.640 --> 0:14:51.280 of shots on his own does not mean very much 0:14:51.360 --> 0:14:54.960 because clearly, you know, we need to understand what's going 0:14:55.000 --> 0:14:58.040 through the mind of a k K, the successor to 0:14:58.160 --> 0:15:02.600 Angela Merkel, who's going through a difficult period to establish herself, 0:15:02.600 --> 0:15:06.160 and we don't really know what her economic policy thinking 0:15:06.600 --> 0:15:10.040 is deep down. So I think there are still a question. 0:15:10.080 --> 0:15:11.880 I would like to add one more thing. Yes, all 0:15:11.920 --> 0:15:15.360 of Shorts has been a good shift in terms brought 0:15:15.360 --> 0:15:17.680 a good shift in terms of fiscal policy. There is 0:15:17.720 --> 0:15:21.520 stuff going on in terms of industrial policy and banking 0:15:21.600 --> 0:15:24.360 policy which I think is a little bit more suspicious. 0:15:24.400 --> 0:15:26.160 German is going back to the kind of go the 0:15:26.160 --> 0:15:29.080 old way, you know, to the kind of marrying the 0:15:29.160 --> 0:15:33.360 French approach to industrial policy, gains competition policy. All of 0:15:33.360 --> 0:15:36.120 Shorts was a supporter of this national champion idea in 0:15:36.120 --> 0:15:38.840 the banking industry. While all of that is something which 0:15:38.880 --> 0:15:43.080 I think as an economist I'm quite worried about, you know, 0:15:43.280 --> 0:15:46.360 when you step back from these debates, and obviously we 0:15:46.400 --> 0:15:48.800 look at what happens to German GDP, you know week 0:15:48.840 --> 0:15:50.920 to week or months to month, of course to course, 0:15:51.240 --> 0:15:56.840 but over the years Germany has often been criticized for 0:15:57.480 --> 0:16:02.280 being a bit too successful exports in not saving too much. 0:16:02.320 --> 0:16:06.200 It's household save save too much, not taking enough risks, 0:16:06.280 --> 0:16:09.480 and these all have a field of being pretty long 0:16:09.600 --> 0:16:12.720 term characteristics of Germany. Is what's what's the odds of 0:16:12.720 --> 0:16:14.840 it really changing? I mean, it's always been said. I 0:16:14.880 --> 0:16:18.080 think that the German people, German households spend more on 0:16:18.160 --> 0:16:20.880 flowers every year than they do on shares. You know, 0:16:20.960 --> 0:16:23.880 is that really going to change? Well, I think what's 0:16:24.000 --> 0:16:26.520 changing is the landscape. I mean you were talking about 0:16:27.280 --> 0:16:31.240 the trading surpluses which Germany has been recording throughout the years, 0:16:31.280 --> 0:16:34.960 and the model which is really based on experts. I mean, 0:16:35.520 --> 0:16:37.880 what's changing is the landscape. What we have is this 0:16:38.200 --> 0:16:40.360 now this you know not even not no longer a 0:16:40.400 --> 0:16:43.160 trade skirmish, but then outright trade war. It would see 0:16:43.160 --> 0:16:46.680 in between the US and China, the US is being 0:16:46.800 --> 0:16:53.320 very confrontational with with Europe, threatening to slap tarifts on cars, 0:16:53.320 --> 0:16:56.360 which is Germany by the way. So I think in 0:16:56.440 --> 0:17:00.760 this shifting landscape where globalization is at risk, global commerce 0:17:00.880 --> 0:17:05.399 is at risk, the model which Germany has um you know, 0:17:05.640 --> 0:17:07.600 established and which has been you know to be fair 0:17:07.920 --> 0:17:12.520 very successful over the past few years of rising globalization 0:17:12.680 --> 0:17:17.359 and you know, strong Boord trade is increasingly at risk. 0:17:17.880 --> 0:17:21.240 And so even though you know us as some you 0:17:21.240 --> 0:17:24.919 know as as economists have been doubtful of this model 0:17:25.040 --> 0:17:27.240 for some time, but you know, the kind of the 0:17:27.320 --> 0:17:30.760 man on the street wasn't really seeing the problem with 0:17:30.800 --> 0:17:33.160 it because you know, after all, unemployment was very low 0:17:33.240 --> 0:17:37.600 and the economy is doing fine. But now that these 0:17:37.720 --> 0:17:40.960 risks are rising and are actually there present and are 0:17:41.000 --> 0:17:44.320 taking a hit on economic growth, I think politicians will 0:17:44.359 --> 0:17:48.679 start asking themselves some hard questions because hey, you know, 0:17:48.720 --> 0:17:51.960 maybe Donald Trump will disappear in a few years and 0:17:52.000 --> 0:17:54.600 we will go back to the good old days of globalization. 0:17:55.000 --> 0:17:59.280 But what if we don't, How will Germany keep growing? 0:17:59.320 --> 0:18:02.480 How will keep giving prosperity to its people. That's a 0:18:02.520 --> 0:18:06.880 real question which politicians need to ask themselves. And Germany 0:18:06.920 --> 0:18:10.160 has been so dominant in Europe, in the Eurozone over 0:18:10.200 --> 0:18:13.199 the last ten twenty years. What does it mean for 0:18:13.280 --> 0:18:16.880 Europe if it's now going through a phase of being 0:18:16.920 --> 0:18:20.000 on the defensive and a bit insecure and its economic 0:18:20.040 --> 0:18:24.080 model well, I think, paradoxically, from a certain point of view, 0:18:24.320 --> 0:18:30.240 and it's slightly weaker, German economy could be interesting from 0:18:30.240 --> 0:18:34.400 a political point of view, because it may make Germany 0:18:34.440 --> 0:18:39.440 a little bit more understanding towards some form of expansionary policies, 0:18:39.560 --> 0:18:44.800 especially fiscal policies, which Germany has traditionally been skeptical of. 0:18:44.880 --> 0:18:47.240 I mean, we've heard many times you're confirming some of 0:18:47.240 --> 0:18:49.640 the paranoia that the Germans themselves have that the other 0:18:49.640 --> 0:18:52.399 countries are just willing for them to fail. When you 0:18:52.440 --> 0:18:53.960 say that, oh yes, I mean I think, you know, 0:18:54.000 --> 0:18:57.800 I was more thinking about their their own domestic policy 0:18:57.840 --> 0:19:00.960 and the repercussions for the for the EU. In terms 0:19:00.960 --> 0:19:05.199 of the broader debate, I mean, frankly, it's been stuck 0:19:05.240 --> 0:19:08.560 for you know, at least a year and a half now. 0:19:08.560 --> 0:19:12.040 I mean, after the election of President Emmanuel Mcron and 0:19:12.119 --> 0:19:14.760 the idea that there would be a grand bargain between 0:19:14.800 --> 0:19:18.640 France and Germany, there was some enthusiasm about the reform 0:19:18.720 --> 0:19:21.879 of the Eurozone and making sure that those are the 0:19:21.960 --> 0:19:25.480 building blocks, especially for example, in setting up some form 0:19:25.560 --> 0:19:30.040 of joint fiscal capacity or completing the banking union project, 0:19:30.040 --> 0:19:32.200 which has been advancing for some time. And then it's 0:19:32.240 --> 0:19:35.199 tolled where there was hope that this could happen, but 0:19:35.240 --> 0:19:38.920 at the moment everything has tolled and I suspect that 0:19:39.040 --> 0:19:43.800 the rise of some populist governments, for example in Italy, 0:19:43.880 --> 0:19:48.880 which you know, are taking very irresponsible attitude towards economic 0:19:48.920 --> 0:19:52.719 policy making, is going to make the German public just 0:19:53.000 --> 0:19:57.120 more defensive. And another big question I think is over 0:19:57.560 --> 0:20:02.000 the European Central Bank. Mario Dragging has been and extraordinarily effective, 0:20:02.040 --> 0:20:04.959 not just in implementing policy, but also in selling it 0:20:05.000 --> 0:20:09.200 to the German politicians, especially Angela Mercle. But we now 0:20:09.359 --> 0:20:11.440 his term is coming. We know his term is coming 0:20:11.480 --> 0:20:13.440 to an end at the end of October. Who will 0:20:13.480 --> 0:20:16.720 replace him? And will this person be just as effective 0:20:17.000 --> 0:20:20.480 in terms of making the easyb you know, a powerful 0:20:20.520 --> 0:20:25.720 tool in fighting slowdowns recessions. Or are we going back 0:20:25.760 --> 0:20:31.280 to less effective presidents? This is another big questions And 0:20:31.280 --> 0:20:33.560 of course you know Yains Vitman, the president of the Bundesbank, 0:20:33.640 --> 0:20:36.800 is one of the leading candidates. So will we see 0:20:36.880 --> 0:20:41.600 a more Germanic monetary policy in the Eurozone and what 0:20:41.600 --> 0:20:44.760 what would that mean for for the currency union? You know, 0:20:44.880 --> 0:20:48.120 this is this is a big doubt which I think 0:20:48.600 --> 0:20:51.400 many investors would want to ponder on well. And I'm 0:20:51.480 --> 0:20:54.439 very glad you mentioned that. For another because I'm going 0:20:54.480 --> 0:20:56.000 to be talking about that in a second, getting the 0:20:56.080 --> 0:21:00.160 latest on that horse race to run the European Central Bank. 0:21:00.960 --> 0:21:04.280 Just after talking to you, But ferdinandod and thank you 0:21:04.359 --> 0:21:13.359 very much for sharing your thoughts. Thank you well. I 0:21:13.400 --> 0:21:18.000 mentioned with Fernando there the battle to see who's going 0:21:18.040 --> 0:21:22.000 to replace Mario drag the Italian who has been running 0:21:22.000 --> 0:21:25.200 the European Central Bank for the last eight years, and 0:21:25.240 --> 0:21:27.800 I wanted to check in with Paul Gordon, who runs 0:21:27.800 --> 0:21:30.720 our central bank team out of Frankfurt on it. Paul, 0:21:31.240 --> 0:21:36.600 the Germany's never had one of its nationals run the 0:21:36.680 --> 0:21:41.160 European Central Bank. Is this sits moment? Well, the head 0:21:41.200 --> 0:21:43.919 of the bonders Bank, Ends Viedman, is a contender, but 0:21:44.000 --> 0:21:47.639 it is very wide open field, wider than we've ever seen. Really. 0:21:48.400 --> 0:21:52.040 He's up against, at least according to our surveys to Frenchmen, 0:21:52.480 --> 0:21:55.240 the head of the French Central Bank and the and 0:21:55.320 --> 0:21:58.119 one of the executive board members, and two Finns the 0:21:58.119 --> 0:22:00.400 current ahead of the Finnish Central Bank and form ahead 0:22:00.440 --> 0:22:02.520 of the Finnish Central Bank. It's very hard at this 0:22:02.560 --> 0:22:05.600 point to see whether Germany will have what it takes 0:22:05.640 --> 0:22:08.040 to win the political support to get you inspiber And 0:22:08.119 --> 0:22:12.320 into the position. Now, if you're an outsider looking at 0:22:12.320 --> 0:22:15.440 the Ourizon, particularly if you're in sitting working in the 0:22:15.440 --> 0:22:18.240 financial markets in New York, say, what you really care 0:22:18.280 --> 0:22:21.160 about who runs the European Central Bank is whether they'll 0:22:21.160 --> 0:22:23.320 support growth in Europe and whether they'll be able to 0:22:23.320 --> 0:22:25.560 do the right thing in a crisis. Is there any 0:22:25.600 --> 0:22:27.480 chance that the right person is going to be in 0:22:27.480 --> 0:22:29.639 the job for either of those things or that is 0:22:29.720 --> 0:22:34.320 where the German nomination should the inspiber and be That 0:22:34.400 --> 0:22:37.639 nominee is potentially the problem because Vibraan has been an 0:22:37.680 --> 0:22:42.040 opponent of a lot of the CBS crisis era measures 0:22:42.040 --> 0:22:44.480 in the past. You have to remember that Mario Draggy, 0:22:44.720 --> 0:22:47.080 although he was something of a controversial candidate when he 0:22:47.160 --> 0:22:50.520 came in eight years ago, pledged in twenty twelve to 0:22:50.560 --> 0:22:53.720 do whatever it takes and the market believed him, and 0:22:53.800 --> 0:22:57.040 he's continued to make these pledges and to come up 0:22:57.040 --> 0:22:59.760 with fairly original measures in order to try to get 0:22:59.840 --> 0:23:02.919 him inflation back on track. It's not there yet and 0:23:02.960 --> 0:23:06.159 the economy is showing signs of stuttering. So you have 0:23:06.280 --> 0:23:09.879 to wonder whether the next ECB president, if they haven't 0:23:09.920 --> 0:23:12.879 supported some of those measures as vibe and hasn't will 0:23:12.960 --> 0:23:15.720 have the credibility to get the job done. And the 0:23:15.720 --> 0:23:18.240 credibility matters. It has an impact on the markets, that 0:23:18.359 --> 0:23:21.880 has an impact on inflation expectations. So that's the biggest 0:23:21.920 --> 0:23:25.240 challenge for Germany. One has to say, and you've mentioned 0:23:25.280 --> 0:23:27.920 there some of those sort of key phrases that came 0:23:27.920 --> 0:23:30.000 out of Marrow drugging. I mean, is that why it 0:23:30.080 --> 0:23:34.240 does really matter who runs this organization? It's not you know, 0:23:34.320 --> 0:23:36.960 some people will say, well, it's just one vote or 0:23:37.040 --> 0:23:40.080 men of many on the council. It doesn't doesn't matter 0:23:40.119 --> 0:23:43.080 who's in that job. It matters how the council vote 0:23:43.080 --> 0:23:45.320 goes goes. But then if we look at something like 0:23:45.359 --> 0:23:47.480 the FED, we know that, you know, it does matter 0:23:47.600 --> 0:23:50.000 who's chairman of the Fed, even though technically the FED 0:23:50.080 --> 0:23:53.120 chair only has one vote. Is that also the case 0:23:53.160 --> 0:23:55.119 in the European Central Bank? I mean, remember we've got 0:23:55.119 --> 0:23:57.240 a lot of countries represented around the table. It's not 0:23:57.320 --> 0:24:01.119 just those regional banks that you have represented in the US, No, 0:24:01.359 --> 0:24:04.760 I mean the the the governing council chamber in the 0:24:04.760 --> 0:24:07.040 European Central Bank is a very crowded place. There are 0:24:07.080 --> 0:24:12.360 twenty five policy makers, nineteen central bank governors, six board members. 0:24:12.400 --> 0:24:15.960 But the board does have undue influence, if you like, 0:24:16.119 --> 0:24:18.880 it has much more influence than the others. Yes, there's 0:24:18.920 --> 0:24:21.760 one vote per person doesn't normally come to a vote 0:24:21.760 --> 0:24:24.800 in the governing Council. A consensus is reached and that 0:24:24.920 --> 0:24:29.200 consensus is heavily swayed by whatever proposal the executive boarders 0:24:29.240 --> 0:24:32.360 put on the table for everyone to discuss. So the President, 0:24:32.480 --> 0:24:34.800 as one of those board members, matters. So does the 0:24:34.840 --> 0:24:37.959 Chief Economists that currently is Peter Prett, but that changes 0:24:38.000 --> 0:24:40.119 as well as a first of June Philip Lane of 0:24:40.160 --> 0:24:43.240 Ireland will come in. And also another influential figure is 0:24:43.280 --> 0:24:46.480 Benoir Currey. He's the head of market Operations. He leaves 0:24:46.560 --> 0:24:48.160 at the end of the year, though as I say, 0:24:48.240 --> 0:24:51.760 he is potentially one of the contenders to replace Mario Draggy, 0:24:51.920 --> 0:24:54.840 so it's not really one vote per person. It doesn't 0:24:54.960 --> 0:24:57.040 quite work that way. Well, and you've mentioned something that 0:24:57.040 --> 0:24:58.760 I think we're going to come back to in the 0:24:58.800 --> 0:25:01.160 next few weeks on the podcast, the fact that you've 0:25:01.160 --> 0:25:04.920 got so many senior jobs changing hands in Europe. Three 0:25:05.000 --> 0:25:08.679 of the key European central bank jobs changing hands in 0:25:08.680 --> 0:25:11.080 twelve months, but also all of the European Commission jobs 0:25:11.119 --> 0:25:12.800 and everything else. It's a mess. It's at there's a 0:25:12.840 --> 0:25:15.800 lot of hallse trading going on. I'm gonna put you 0:25:15.840 --> 0:25:18.080