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Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.

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Speaker 1: I'm Joe Wisn't Thal and I'm Tracy Alloway. Tracy Um.

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Speaker 1: You know, of course, on our last episode we talked

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Speaker 1: about the sanctions that are being imposed against Russia, and

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Speaker 1: they're really extraordinarily dramatic. Obviously, we've seen the Russian financial

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Speaker 1: sector get pounded, all kinds of disruptions, Russian equities listed abroad,

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Speaker 1: their value in many cases going to zero, numerous companies

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Speaker 1: often just voluntarily sort of washing their hands at the

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Speaker 1: Russia business. But of course, as everyone understands, the one

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Speaker 1: huge I guess it's the elephants in the room. One

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Speaker 1: area that has not been directly targeted is is energy, right,

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Speaker 1: and this is really I don't want to say the

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Speaker 1: crux of the whole issue, but certainly this is something

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Speaker 1: that has played into the fact that Putin invaded Ukraine

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Speaker 1: in the first place. There's a huge reliance on Russian

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Speaker 1: natural gas in Europe and I think this is well

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Speaker 1: understood and well established now. And even before the recent actions,

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Speaker 1: prices had been going up, people were talking about inflation

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Speaker 1: and energy crisis, and then this all made it worse.

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Speaker 1: But on the one hand, all of this plays into

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Speaker 1: the geopolitical situations. So there's an argument to be made

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Speaker 1: that Putin feels more empowered in invading Ukraine because he

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Speaker 1: knows that Europe relies on his country for its gas needs.

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Speaker 1: And of course, sorry, I don't know where I'm going

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Speaker 1: with this. There's a lot to say there. There is

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Speaker 1: an extraordinary meant to say. I guess one of the

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Speaker 1: questions is why wasn't Europe more prepared or why wasn't

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Speaker 1: Why hadn't Europe already taken steps to perhaps wean itself

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Speaker 1: off Russian natural gas and oil and coal, And of

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Speaker 1: course there was the annexation of Crimea, So it's not

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Speaker 1: like these geopolitical concerns suddenly just came out of nowhere. No,

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Speaker 1: this is where I was going with it. Actually was

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Speaker 1: that Putin has a really good grasp of the energy situation.

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Speaker 1: It seemed to understand that Europe needs Russian gas. But

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Speaker 1: at the same time, it doesn't feel like Europe necessarily

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Speaker 1: understood that, or if they understood it, it it doesn't seem

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Speaker 1: like they did anything about it. Everything just sort of

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Speaker 1: went on as it did before and even even after

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Speaker 1: the first invasion of Ukraine and you know the situation

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Speaker 1: in Crimea. In Even after that, you didn't really see

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Speaker 1: Europe back away from Russia in any meaningful way, even though,

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Speaker 1: as we discussed with Sultan Posar recently, you did see

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Speaker 1: Russia takes steps to sort of insulate itself from the West.

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Speaker 1: And of course we're talking about Europe broadly, but there's

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Speaker 1: obviously sort of a specific you know, the the key

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Speaker 1: country in Europe from the sort of Russian gas reliance

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Speaker 1: that a lot of this revolves around is Germany. Because

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Speaker 1: it is an extremely rich and successful country, it also

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Speaker 1: is extremely reliant on natural gas. And you know, it's

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Speaker 1: sort of taken some odd energy choices because this is

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Speaker 1: a country whose leadership has talked a lot about going

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Speaker 1: green and sustainability and all that, and yet it's actually

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Speaker 1: really not done well on hitting some of its emissions goals.

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Speaker 1: It's phased out nuclear, but it also that means it's

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Speaker 1: more reliant on cold, more reliant on gas, and maybe

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Speaker 1: in the long term one day beyond wind power and

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Speaker 1: solar power and be all renewables, but that seems very

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Speaker 1: long term right here. And now its emissions are going

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Speaker 1: up and it's dependence on Russia is acute. Yeah, and

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Speaker 1: I think that's become very very apparent in the way, well,

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Speaker 1: just the way the whole crisis has unfolded. I will say,

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Speaker 1: we're recording this on March second, and I'm looking at

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Speaker 1: that gas the spot price on the Bloomberg terminal. Now

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Speaker 1: it jumps sixty earlier today, and of course it's another

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Speaker 1: fresh record, but it's been at fresh records for multiple

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Speaker 1: times in recent days and indeed in recent weeks. So

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Speaker 1: you can feel all of these tensions and all of

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Speaker 1: this pressure, all of these potentially um bad policy choices

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Speaker 1: UH manifesting themselves in these record energy prices exactly right.

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Speaker 1: So we want to like push the conversation forward and

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Speaker 1: get more insight into this crisis, this war, and the

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Speaker 1: German situation specifically. I'm very excited for this conversation. We've

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Speaker 1: had our guest on one time before we're going to

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Speaker 1: be speaking with Matt Klein is the founder and publisher

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Speaker 1: of The Overshoot, which is a phenomenal newsletter on economics

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Speaker 1: and the economy, and of course he is the co

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Speaker 1: author of the book Trade Wars Are Class Wars. Matt Klein,

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Speaker 1: thank you so much for coming on coming back. Thank

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Speaker 1: you very much for having me. So, you know we

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Speaker 1: talked the last time we talked to you, I think

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Speaker 1: maybe it was maybe it was, and you had published

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Speaker 1: this book trade wars are class wars, and of course,

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Speaker 1: you know, going back to nineteen around that time, when

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Speaker 1: you think trade wars, obviously you think US China attention

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Speaker 1: because of course there were the various uh Trump tariffs

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Speaker 1: and so forth. But a big part of your book

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Speaker 1: was not just about US China, of course, but also

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Speaker 1: this third actor Germany specifically, what do you like talk

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Speaker 1: about to us about like what was their role in

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Speaker 1: the story before we even get to the current crisis.

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Speaker 1: Why were they like sort of like a key player

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Speaker 1: or actor to be understood in the sort of global context.

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Speaker 1: The basic argument of the book is that for a

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Speaker 1: very long time and maybe years or so, that the

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Speaker 1: world economy as a whole has been suffering from the

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Speaker 1: systematic shortage of consumer demand, and that's ended up creating

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Speaker 1: a lot of tensions as businesses are trying to capture

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Speaker 1: this finite demand and as consumers over you know, in

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Speaker 1: different parts of the world trying to compensate for the

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Speaker 1: lack of income. That is a result of this, and

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Speaker 1: so one of the major drivers of the shortfall of

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Speaker 1: consumer demand was Germany and then later Germany, uh you know,

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Speaker 1: extended to the rest of Europe as a whole macro

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Speaker 1: policy in terms of both business investment being weak in

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Speaker 1: terms of government policy essentially over taxing, underspending, and squeezing

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Speaker 1: demand for goods and services, and then that ended up

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Speaker 1: redounding in all sorts of different ways in terms of

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Speaker 1: higher debt levels and financial crises and stuff. And the

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Speaker 1: argument of the book being that policies in Germany, not

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Speaker 1: just government policies, but really the policies of business leaders

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Speaker 1: and other elite actors in society ended up leading to

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Speaker 1: systematic problems for the world as whole, and that ended

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Speaker 1: up leading problems for people in Europe and people outside

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Speaker 1: of Europe. And even if that wasn't something we think

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Speaker 1: of in the trade war context, as you were saying,

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Speaker 1: like the Trump and China stuff, was very you know

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Speaker 1: obvious what this was, and it was nevertheless leading to

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Speaker 1: tremendous amounts of tension within Europe. And you can see

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Speaker 1: that throughout the eurok crisis in terms of the conflicts,

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Speaker 1: and you know, you have people like the Dutch finance

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Speaker 1: minister blaming lazy Southern Europeans for things, and then you

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Speaker 1: have Southern Europeans talking about fascists in the north. And

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Speaker 1: then that was all really, I think a reflection of

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Speaker 1: the fact that you had really bad economic outcomes driven

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Speaker 1: by bad econnotic policy. So you mentioned, um like a

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Speaker 1: bad situation caused by policy decisions. Could you maybe just

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Speaker 1: elaborate on that a little bit more as it relates

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Speaker 1: to the current Russia situation and the energy landscape that

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Speaker 1: we were talking about a little bit in the intro.

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Speaker 1: How much does a country like Germany actually depend on

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Speaker 1: Russia for its energy needs. Germany is quite dependent on Russia.

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Speaker 1: So for the European Union as a whole, if we

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Speaker 1: look at basically the period right before the pandemics, the

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Speaker 1: pandemic kind of distorts things a little bit. It about

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Speaker 1: of all energy came from Russian imports, So that's a

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Speaker 1: lot of that includes natural gas, that includes coal, that

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Speaker 1: includes oil. Natural gas is the most significant one for

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Speaker 1: these purposes because it's not easy to substitute it. You know,

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Speaker 1: if Russia doesn't sell oil to Europe, someone else is

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Speaker 1: going to buy that oil. Europe can therefore buy oil

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Speaker 1: from whoever you know previously was not buying Russian oil,

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Speaker 1: so it's it's more fungible. Gas, on the other hand,

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Speaker 1: is mostly transported by fixed pipelines, and so therefore you really,

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Speaker 1: you know, you can substitute to a degree, but it's

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Speaker 1: much more challenging to do that. Germany sort of compounded

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Speaker 1: this problem in a couple of ways, some of which

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Speaker 1: one is that they made the decision after the Fukushima

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Speaker 1: nuclear disaster in Japan to start decommissioning all of their

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Speaker 1: own nuclear power plants, and so a is quite substantial

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Speaker 1: source of clean and uh you know, reliable, local, locally

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Speaker 1: sourced energy shut off, and I think they basically they're

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Speaker 1: either about to. I think that they had been currently

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Speaker 1: scheduled had been scheduled to turn off the last of

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Speaker 1: the nuclear plants, I think at the end of this year.

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Speaker 1: I think now that's starting to change, but that was

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Speaker 1: basically something that had been going on over the past

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Speaker 1: ten years, turning off nuclear power. Another thing that they've done,

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Speaker 1: which I think we can relate sort of more to

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Speaker 1: their macropolicy mix, is that they didn't invest enough in

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Speaker 1: coming up with replacements. So while there has been a

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Speaker 1: real commitment since I think about towards greening the energy

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Speaker 1: makes they called the energy transition. They have invested a

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Speaker 1: lot in wind and solar power. Particularly wind power hasn't

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Speaker 1: been enough to offset the loss of nuclear and so

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Speaker 1: one of the things that actually have been you know,

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Speaker 1: bridging the difference was that they increased their coal consumption

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Speaker 1: quite a bit, which is ironic given their desire to

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Speaker 1: be more environmentally friendly. The other thing they did, of course,

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Speaker 1: that they imported even more Russian gas. So the story

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Speaker 1: the connection between Russia and Germany on gas is, you know,

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Speaker 1: it goes back quite a long time. Basically, you can

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Speaker 1: really sort of argue that it goes back to the

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Speaker 1: nine sixties before Eve Russia had gas, when the German

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Speaker 1: government under Willie Brandt decided that they wanted to call

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Speaker 1: ast politic and the idea that the Germany would sort

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Speaker 1: of be a bridge between the rest of the West

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Speaker 1: and the Eastern Bloc and have sort of friendly relations

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Speaker 1: and you know, just their own sort of distinct history

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Speaker 1: and culture, and they would be trying to be more

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Speaker 1: friendly to the USSR and the rest of the Warsaw

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Speaker 1: Pact countries. And so one of the ways that that

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Speaker 1: manifest is once Russia started developing gas fields and wanted

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Speaker 1: to export it that Germany was pretty eager and building pipelines,

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Speaker 1: and this goes back to the early nineteen eighties, they

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Speaker 1: start building the pipelines. In fact, this is something that

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Speaker 1: the Raning administration criticized the German government for at the time,

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Speaker 1: because they thought it would be increasing Europe's dependence on

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Speaker 1: the Soviets and potentially become a security risk. The German

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Speaker 1: argument was engagement is going to be better. We want

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Speaker 1: to integrate Russia into you know, the Western economy. That's

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Speaker 1: going to moderate their behavior. And if you look just

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Speaker 1: at the nineteen eighties, maybe that was a good argument

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Speaker 1: because Russian in fact, did you know, the Soviet Union

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Speaker 1: rather did in fact become you know, more moderate over

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Speaker 1: the course in nineteen eighties, and that did become a

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Speaker 1: constructive relationship. Nevertheless, though as time progressed that, you know,

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Speaker 1: the question is why do they keep sticking with this?

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Speaker 1: You you mentioned that the first Russian invasion of Ukraine,

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Speaker 1: the annexation of Crimea, might have led to a shift

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Speaker 1: in behavior. It did not. The project that Russia and

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Speaker 1: German businesses had been working on for quite some time

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Speaker 1: called nord Stream to another pipeline basically to increase the

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Speaker 1: Russian gastles or Germany had been in progress before that,

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Speaker 1: and continue to accelerate after this. Total German imports through

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Speaker 1: the first North Stream pipeline, which goes under the Baltic

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Speaker 1: Sea went up, and so actually overall energy imports of

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Speaker 1: gas were significantly higher by the time you get than

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Speaker 1: you were even, which is the exact opposite of what

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Speaker 1: you'd think would have happened if if you know, European

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Speaker 1: policymakers were concerned about reliance on Russia, and it now

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Speaker 1: puts them in a situation where it's kind of challenging,

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Speaker 1: which is, you could theoretically cut your gas consumption by

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Speaker 1: you know, a significant amount or whatever. But is that

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Speaker 1: actually something you can do on a dime? Maybe? Um?

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Speaker 1: I mean, I guess the good news that winter mostly

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Speaker 1: over so they don't need it for heat, But you know,

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Speaker 1: that does create a lot of leavorage. I mean, as

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Speaker 1: you mentioned, Tracy, the pricing of natural gas is so

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Speaker 1: high because the supply was already being constrained. I mean,

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Speaker 1: I think one thing that hasn't been appreciated enough. I

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Speaker 1: was surprised to see it myself. Is that, you know,

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Speaker 1: until they stopped making their website publicly accessible, gas Prom,

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Speaker 1: which is the Russian company that produces and transports the gas,

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Speaker 1: they published daily data on how much gas they shipped

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Speaker 1: to European Union customers and which route, and the last

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Speaker 1: data we have this is the weekend before they invaded Ukraine.

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Speaker 1: But you know, what you can see is that in

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Speaker 1: basically starting around sort of the end of August, the

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Speaker 1: gas flows start falling dramatically. And basically, if you look

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Speaker 1: at the beginning of two so you've been going down

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Speaker 1: kind of steadily, and if by the time you get

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Speaker 1: to the beginning of so like from January one to

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Speaker 1: February was bright before the invasion, we're talking about thirty

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Speaker 1: six percent lower deliveries to EU customers compared to the

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Speaker 1: January through August one average, So it's a really dramatic drop.

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Speaker 1: And basically they're there are a whole bunch of different pipelines.

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Speaker 1: A bunch go through Ukraine. There's one that goes directly

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Speaker 1: to Germany, and then there's one that goes through Belarus

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Speaker 1: and Poland to Germany. And with the exception, the only

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Speaker 1: one that really had maintained its flow was the one

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Speaker 1: that goes straight to Germany. The other ones we're getting

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Speaker 1: really squeezed. I don't know what has been happening in

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Speaker 1: the past year week and a half that those data

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Speaker 1: are no longer available, but I mean the price signals

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Speaker 1: suggested maybe they've squeezed it even further. You know, that's

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Speaker 1: Tracy saying like that that I think that it was

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Speaker 1: reasonable for Putin to conclude that this did give them,

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Speaker 1: the Russians, of fair amount of leverage and that they

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Speaker 1: were in fact trying to use that. So it's interesting

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Speaker 1: you mentioned that the German Russia figurative and literal pipeline

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Speaker 1: has gone back several decades. I learned on our last

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Speaker 1: episode that we did actually that our current Secretary of State,

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Speaker 1: Anthony B. Lincoln, several years ago even wrote a book

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Speaker 1: on called Ali Versus l I America, Europe and the

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Speaker 1: Siberian Pipeline Crisis about this dispute in on this exact thing.

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Speaker 1: So I kind of want to read that book because

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Speaker 1: now it's come up in two separate podcasts, and so

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Speaker 1: it seems highly relevant. Something I'm you know, something I'm

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Speaker 1: curious you know, to sort of like bridge this and

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Speaker 1: I guess this is really the key question is so

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Speaker 1: we talked at the beginning about this sort of and

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Speaker 1: this is what your book is about, this sort of

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Speaker 1: demand constraining policy, macro policy from Germany. You know, in theory,

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Speaker 1: you could run balanced budgets and do better on nuclear

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Speaker 1: or sorry, do better on energy investments. And theoretically they

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Speaker 1: could have invested more in renewables or domestic sources of

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Speaker 1: energy or energy terminals that would have allowed them to

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Speaker 1: become less reliant on Russia, still maintaining a balanced budget,

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Speaker 1: whether that's wise or not. But can you talk a

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Speaker 1: little bit more about the sort of like macro stance

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Speaker 1: that the German state has had for the last five

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Speaker 1: years and the sort of sclerotic under investment that they've

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Speaker 1: seen in the energy sector. The context here is is

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Speaker 1: that when the Berlin Wall fell in nineteen nine and

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Speaker 1: West Germany prepared the Federal Republic of Germany, West Germany

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Speaker 1: prepared to absorb the states of East Germany into a

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Speaker 1: new and large federal republic. There was a surge of

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Speaker 1: spending both by the government and my businesses to make

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Speaker 1: that transition happen. And you basically have the last like

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Speaker 1: great boom in the German economy. For I guess there's

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Speaker 1: point over thirty years. The Buddhist Bank, which is Germany

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Speaker 1: Central Bank at the time, responds by really aggressively raising

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Speaker 1: interest rates because they're worried about inflation. Then you have

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Speaker 1: you know, pretty dramatic reversal by the federal government in

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Speaker 1: terms of spending cuts after a couple of years later,

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Speaker 1: compounded by the fact that it turns out that you know,

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Speaker 1: a lot of the optimism that people had about the

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Speaker 1: ability to transform East Germany into a part of Germany

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Speaker 1: that be is productive as West Germany, that optimism was

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Speaker 1: not validated for well ever enough a very long time.

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Speaker 1: They there was a hope that a lot of East

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Speaker 1: German businesses could be transformed. Um, you get this huge

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Speaker 1: boom from privatization and better management. That didn't happen. You

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Speaker 1: just had the government instead ended up taking a huge loss.

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Speaker 1: They finally wrote it down in and then they basically

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Speaker 1: spend a long period of time afterwards, there's a really

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Speaker 1: nasty recession, all these people East Germany losing their jobs.

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Speaker 1: You have the high interest rates in the early nineties.

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Speaker 1: Even then you have essentially the budget you know, restraint

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Speaker 1: cutback because the German government felt they just spent too much,

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Speaker 1: and they just signed a treaty UM with their European

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Speaker 1: neighbors that they that they themselves have pushed for UM

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Speaker 1: for balanced budgets as part of preparation for the creation

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Speaker 1: of the common currency. All that led to a huge

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Speaker 1: squeeze and you can look at things like you know,

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Speaker 1: construction activity, other measures of business investment. You have this

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Speaker 1: massive decline in the nineteen nineties and a very long

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Speaker 1: period stagnation. It was really painful and in fact was

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Speaker 1: was the reason why the German left had its best

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Speaker 1: elections ever in after years of you know, despite the

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Speaker 1: four of reunification that was done under the German Conservative

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Speaker 1: Party the Christian Democrats, you know, in the beginning of

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Speaker 1: the nineteen nineties and the late nineteen eighties that the

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Speaker 1: Social Democrats and the Green's come into power for the

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Speaker 1: first time as a coalition in and incidentally, the person

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Speaker 1: who led that coalition, Gerhard Schroeder, then later went on

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Speaker 1: to become a very prominent person in gas, prominent leading

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Speaker 1: the North Stream to project. I think he might still

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Speaker 1: be on it, Yeah, I think he's technically as of

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Speaker 1: right now, I think he's still which is kind of remarkable. Yeah,

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Speaker 1: so they so that was the context there. So Schroeder

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Speaker 1: comes into into power with this coalition government, and one

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Speaker 1: of the things they want to do is you know,

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Speaker 1: increased spending. They want to have lower interest rates, and

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Speaker 1: especially after the downturn of the early two thousands, which

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Speaker 1: is Germany pretty hard. It's a global downturn. The tech

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Speaker 1: bus that it was not in unique United States, and

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Speaker 1: they can't. Ironically, you know, we thinking now to Germans

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Speaker 1: being you know, the major blocks on you know, looser

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Speaker 1: monetary policy and the e c B, the Germans being

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Speaker 1: the major constraint on ability for governments to borrow and

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Speaker 1: spend in responsive downturns because we have a run you know,

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Speaker 1: the recollection of how things were and say two thousand ten,

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Speaker 1: two thousand, eleven, twelve, but if you go to like

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Speaker 1: two thousand, two thousand one or even that was it

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Speaker 1: was the opposite. Actually, the Germans were pressuring the e

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Speaker 1: CP for looser policy because relative to their domestic needs,

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Speaker 1: ECB was way too tight, and the BCP just this

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Speaker 1: to no, like, you know, I there's a there's a

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Speaker 1: press conference you can find. I don't remember exactly what

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Speaker 1: the day was. It's in the book where some journalists

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Speaker 1: asked the ECB about the request they've been getting from

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Speaker 1: from Schroeder and from his finance minister Oscar La Fontaine

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Speaker 1: and the head of the c B as well. I hear,

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Speaker 1: but I do not listen. And you know, okay, so

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Speaker 1: you know that they have another like severe downturn, and

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Speaker 1: you know, they they sort of push for some modest

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Speaker 1: exemptions to the budget caps. So that basically the the

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Speaker 1: EU treaty that they signed um in Masstrich in the

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Speaker 1: other ones back was that you can't have a budget

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Speaker 1: deficit more than three percent of GDP. That number, as

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Speaker 1: it happens if you go back in the history, it

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Speaker 1: was basically selling that some French, relatively young French bureaucrat

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Speaker 1: made up in the eighties and thought it was you know,

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Speaker 1: you know, three was a nice round number. That they

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Speaker 1: reminded him of the Trinity or something. But there's no

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Speaker 1: economic significance to this, but it was a constraint. And

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Speaker 1: so Germany and France which are both having a rough period,

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Speaker 1: uh you know, downturns in early two slow recoveries pushed

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Speaker 1: to get the limit of that, but it wasn't really

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Speaker 1: they didn't really exceeded very much, and it didn't really

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Speaker 1: help that much. They were still relative constraint in their budgets.

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Speaker 1: And and the way these things generally work is that

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Speaker 1: if you have a limit on how much you can

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Speaker 1: spend on your budget, it's easier to cut the investment

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Speaker 1: side than anything else, because what the alternative is, you're

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Speaker 1: not you're gonna lay off a lot of you know,

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Speaker 1: school teachers and and cut you know, unemployment benefits a

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Speaker 1: lot of people like That's that compared to, well, we're

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Speaker 1: gonna delay you know, fixing this road or building that

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Speaker 1: bridge or whatever. It's much easier to cut the investment spending.

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Speaker 1: And this is particularly true in a it's like Germany,

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Speaker 1: where you know, in some ways, like the United States,

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Speaker 1: is is very much of a federal system and a

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Speaker 1: lot of the spending is done by the German states

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Speaker 1: or by local even you know, sublocal you know, substate

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Speaker 1: of local governments, and those were also subject to sort

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Speaker 1: of a national constraint, and so they really are being

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Speaker 1: pressured because they can't, you know, their ability to borrow

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Speaker 1: is very limited so they're going to cut investment spending

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Speaker 1: much harder. That sort of the setup going in really

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Speaker 1: for you know, the past twenty years, and you know

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Speaker 1: that the German governments certainly did also cut you know,

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Speaker 1: welfare spending over this period as well, they're trying to

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Speaker 1: meet its budget commitments. They later than you know, became

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Speaker 1: convinced that this was such a good idea that they

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Speaker 1: actually put in what's called the debt break or the

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Speaker 1: schulten Brems that that was you know, very extreme, basically

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Speaker 1: saying that you can't have a a cyclically adjusted budget

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Speaker 1: death sit for the government as a whole of more

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Speaker 1: than like half percent of GDP. And the problem of

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Speaker 1: course with this, among other things, is that you know,

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Speaker 1: it's very sensitive to how you define what the cycle

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Speaker 1: is and and you know, if if you set it up,

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Speaker 1: especially when they did after a very long period of

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Speaker 1: growth being very very slow um and arguably you know,

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Speaker 1: significantly below where Germany should have been, then you sort

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Speaker 1: of locked yourself in permanent stagnation and that really limits

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Speaker 1: your options. So even though the government did try to

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Speaker 1: invest more, it didn't really get anywhere. I mean, one

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Speaker 1: thing that's really striking and this is you mentioned this

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Speaker 1: in the book. I mentioned it more recently as well.

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Speaker 1: Is that if you look at investment spending in Germany

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Speaker 1: after subtracting depreciation, which is an important thing to be considering,

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Speaker 1: you know, you know what's like the new investment and

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Speaker 1: net appreciation maintenance, it was negative for basically some like

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Speaker 1: two thousand two until two thousand and eighteen, So you

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Speaker 1: basically had a long situation of the you know, the

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Speaker 1: public capital stock shrinking in real terms, and you know,

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Speaker 1: unsurprisingly that's that's going to create problems. I mean, I

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Speaker 1: don't think they anticipated the specific problem, but that's going

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Speaker 1: to create problems all sorts of things. You had bridges

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Speaker 1: collapsing and roads being shut, you know, in the twenty

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Speaker 1: tents because they were just unusable and they hadn't been maintained.

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Speaker 1: This is obviously much more extreme, but it's a it's

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Speaker 1: a symptom of the same problem. So when it comes

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Speaker 1: to spending, there is this perception out there that you know,

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Speaker 1: maybe maybe it's something in the German character and they

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Speaker 1: just don't like um spending money that much. But as

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Speaker 1: you mentioned, you know, in recent years, it does seem

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Speaker 1: like we've seen inklings of a break in that attitude,

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Speaker 1: and I guess my question is, what are the chances

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Speaker 1: that recent events build on that momentum and you actually

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Speaker 1: see a place like Germany become more willing to spend

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Speaker 1: and invest in either public infrastructure or energy security. I'm

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Speaker 1: actually very optimistic about this. I mean, I was optimistic

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Speaker 1: before this recent crisis, um, for the reasons that you're

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Speaker 1: laying out, you know, these cultural I mean, I'm not

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Speaker 1: saying culture doesn't matter, but I think it's very easy

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Speaker 1: to sort of over attribute economic outcomes to cultural differences.

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Speaker 1: There are a lot of examples of places where you know,

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Speaker 1: people are very confident the culture is one thing, and

433
00:22:57,040 --> 00:22:59,280
Speaker 1: then later they do exactly oppositely say it's the same culture.

434
00:22:59,280 --> 00:23:02,520
Speaker 1: It's like, that can't be the case. Um. So I

435
00:23:02,560 --> 00:23:05,560
Speaker 1: think there was a recognition even among I think the

436
00:23:05,560 --> 00:23:07,800
Speaker 1: reason it was so challenging because you had such political

437
00:23:07,800 --> 00:23:11,120
Speaker 1: stability in Germany for so long, stability and also stagnations

438
00:23:11,119 --> 00:23:13,440
Speaker 1: so basically in the early two thousands, partly because of

439
00:23:13,480 --> 00:23:15,960
Speaker 1: these constraints that they didn't really have much of a choice.

440
00:23:16,119 --> 00:23:18,439
Speaker 1: You had the center left parties being the ones that

441
00:23:18,440 --> 00:23:21,639
Speaker 1: actually really pushing austerity in the early two thousand's in

442
00:23:21,720 --> 00:23:26,160
Speaker 1: terms of things like cutting unemployment benefits and basically squeezing

443
00:23:26,200 --> 00:23:29,919
Speaker 1: investment to make room for other spending within the constraints uh,

444
00:23:30,200 --> 00:23:34,440
Speaker 1: you know, Europe's budget rules. And then in two thousand five,

445
00:23:34,600 --> 00:23:36,680
Speaker 1: what happens is that you have a very weird situation

446
00:23:36,720 --> 00:23:39,639
Speaker 1: where the left wing parties as a whole end up

447
00:23:39,640 --> 00:23:42,879
Speaker 1: winning a majority of the seats in the Bunshtad. But

448
00:23:43,320 --> 00:23:45,480
Speaker 1: they don't think. The reason that happens is because you

449
00:23:45,520 --> 00:23:48,840
Speaker 1: have a split of the left where basically people on

450
00:23:48,880 --> 00:23:52,200
Speaker 1: the left side of the Social Democrats ally with people

451
00:23:52,200 --> 00:23:54,879
Speaker 1: who had had been sort of like ex communists in

452
00:23:55,240 --> 00:23:59,520
Speaker 1: East Germany and we're protesting these policy changes by the

453
00:23:59,560 --> 00:24:02,040
Speaker 1: government that time. So in theory there was sort of

454
00:24:02,080 --> 00:24:06,320
Speaker 1: like a you know, majority left coalition, but in practice

455
00:24:06,320 --> 00:24:07,800
Speaker 1: that would never have happened because it was, you know,

456
00:24:07,840 --> 00:24:09,919
Speaker 1: an opposition in existing policies. And so then you have,

457
00:24:10,160 --> 00:24:13,399
Speaker 1: you know, the first of many grand coalitions where the

458
00:24:13,520 --> 00:24:17,360
Speaker 1: conservative Christian Democrats ally with the Social Democrats and then

459
00:24:17,440 --> 00:24:19,440
Speaker 1: end up pursuing the exact same policies. And in fact

460
00:24:19,440 --> 00:24:22,600
Speaker 1: the way Merkel uncle and Merkel who becomes Prime Minister, chancellor,

461
00:24:23,000 --> 00:24:25,680
Speaker 1: chancellor at this point in time. Basically Newter is the

462
00:24:25,720 --> 00:24:28,960
Speaker 1: opposition for what that felt like a generation because she's like, oh, yeah,

463
00:24:28,960 --> 00:24:32,200
Speaker 1: this was great that the Social Democrats did was brilliant,

464
00:24:32,400 --> 00:24:34,720
Speaker 1: and we want to continue their legacy and safeguard with

465
00:24:34,760 --> 00:24:36,840
Speaker 1: all the good stuff they did for Germany, which basically

466
00:24:36,880 --> 00:24:39,399
Speaker 1: means that Social Democrats have a really hard time competing,

467
00:24:39,440 --> 00:24:41,240
Speaker 1: and in fact, what ends up happening for many years

468
00:24:41,280 --> 00:24:43,520
Speaker 1: is that they just keep allying as junior partners with

469
00:24:43,560 --> 00:24:45,399
Speaker 1: the Christian Democrats, and so you have the two biggest

470
00:24:45,400 --> 00:24:48,239
Speaker 1: parties at the center left and center right allied doing this.

471
00:24:48,280 --> 00:24:50,639
Speaker 1: And so even though there is and there always was

472
00:24:50,720 --> 00:24:53,520
Speaker 1: opposition within Germany, both politically and among sort of people

473
00:24:53,520 --> 00:24:55,680
Speaker 1: who knew what they were talking about, it was never

474
00:24:55,840 --> 00:24:58,160
Speaker 1: enough to really break through that deadlock, and it took

475
00:24:58,160 --> 00:25:00,000
Speaker 1: a very long time for there to be movement there.

476
00:25:00,560 --> 00:25:03,479
Speaker 1: The thing that changed was one you finally had an

477
00:25:03,480 --> 00:25:06,200
Speaker 1: election where and this is partly due to the pandemic,

478
00:25:06,280 --> 00:25:08,399
Speaker 1: partly due to sort of the good fortune of the

479
00:25:08,400 --> 00:25:12,440
Speaker 1: fact that the Christian Democrats chose a singularly unpopular and

480
00:25:12,800 --> 00:25:16,119
Speaker 1: incompetent chance there candidate, but they ended up losing and

481
00:25:16,119 --> 00:25:17,960
Speaker 1: being cut out of power and that created an opening

482
00:25:17,960 --> 00:25:20,399
Speaker 1: for the Social Democrats to come in without cooperating with

483
00:25:20,440 --> 00:25:23,000
Speaker 1: Christian Democrats. They had come in with the Greens. There

484
00:25:23,080 --> 00:25:24,720
Speaker 1: was originally sort of a question of would the Ally

485
00:25:24,760 --> 00:25:26,919
Speaker 1: with the Greens alone with the Ally with the Greens

486
00:25:26,920 --> 00:25:29,920
Speaker 1: and maybe the Left and some sort of reconciliation that

487
00:25:29,960 --> 00:25:31,880
Speaker 1: didn't end up happening because they didn't win enough seats,

488
00:25:31,960 --> 00:25:34,520
Speaker 1: or what ended up happening was Ally with the Free Democrats,

489
00:25:34,520 --> 00:25:37,480
Speaker 1: which there was a lot of speculation there about this

490
00:25:37,560 --> 00:25:40,760
Speaker 1: being negative because the Free Democrats had long positioned themselves

491
00:25:40,800 --> 00:25:43,359
Speaker 1: as being the most austere and the most committed to

492
00:25:43,920 --> 00:25:47,720
Speaker 1: low taxes and budget restraint and the death break. But

493
00:25:48,280 --> 00:25:49,560
Speaker 1: one thing that had been you know, showed up in

494
00:25:49,600 --> 00:25:51,520
Speaker 1: the campaign and I'm I'm pleased to say that I

495
00:25:52,200 --> 00:25:54,280
Speaker 1: forced out of this, you know, last summer before the

496
00:25:54,280 --> 00:25:57,360
Speaker 1: elections in September, was that, you know, they do say

497
00:25:57,359 --> 00:25:59,359
Speaker 1: these things, but they also left themselves very open to

498
00:25:59,400 --> 00:26:01,960
Speaker 1: the fact that you could get around these death break

499
00:26:02,080 --> 00:26:03,960
Speaker 1: rules with some financial chicanery, and they didn't seem the

500
00:26:03,960 --> 00:26:07,440
Speaker 1: mind because basically, the way the Germany's debt rules work

501
00:26:07,480 --> 00:26:09,480
Speaker 1: is that if you have a you know, a sort

502
00:26:09,480 --> 00:26:12,239
Speaker 1: of segregated government enterprise that does its own with its

503
00:26:12,280 --> 00:26:14,159
Speaker 1: own budget, as long as it doesn't take money from

504
00:26:14,160 --> 00:26:15,800
Speaker 1: the state because it's losing money. You can issue as

505
00:26:15,880 --> 00:26:18,800
Speaker 1: much debt as it wants to fund investments. And that's

506
00:26:18,800 --> 00:26:21,879
Speaker 1: within Germany's rules. It's incidentally not within the European rules.

507
00:26:21,880 --> 00:26:23,760
Speaker 1: That could potentially be a problem, but with the Germany's

508
00:26:23,840 --> 00:26:27,080
Speaker 1: rules it's fine. And the FDP repeatedly said, were implied

509
00:26:27,080 --> 00:26:28,479
Speaker 1: they will be okay with that. And so you had

510
00:26:28,480 --> 00:26:31,080
Speaker 1: a situation where the Greens very actively saying we need

511
00:26:31,080 --> 00:26:33,000
Speaker 1: to invest more and we need to get rid of

512
00:26:33,040 --> 00:26:35,320
Speaker 1: the death break to invest more. The FDP says, we

513
00:26:35,359 --> 00:26:36,880
Speaker 1: don't need to get rid of the deathbreak, but we're

514
00:26:36,920 --> 00:26:38,640
Speaker 1: willing to sort of look the other way. And then

515
00:26:38,640 --> 00:26:42,880
Speaker 1: the STP, which for SPD for long, the Social Democrats

516
00:26:42,880 --> 00:26:44,760
Speaker 1: for a long time, having been sort of on the

517
00:26:44,800 --> 00:26:48,000
Speaker 1: same side as as the Christian Democrats, they had come

518
00:26:48,040 --> 00:26:50,000
Speaker 1: into their own over the previous few years. They've been

519
00:26:50,000 --> 00:26:53,280
Speaker 1: calling for more investment. In fact, Schultz, who's the current

520
00:26:53,320 --> 00:26:56,359
Speaker 1: chance that he was the finite UH finance minister in

521
00:26:56,440 --> 00:27:01,040
Speaker 1: the previous government, you know from one and while that

522
00:27:01,119 --> 00:27:03,520
Speaker 1: was he was in charge, there actually investment did go up.

523
00:27:03,560 --> 00:27:06,400
Speaker 1: It was the first time that investment in appreciation was positives.

524
00:27:06,400 --> 00:27:08,280
Speaker 1: There was already kind of a positive set up here

525
00:27:08,560 --> 00:27:10,159
Speaker 1: and people saying we need more investment. There was a

526
00:27:10,200 --> 00:27:12,240
Speaker 1: recognition of the Germany that need to change. The business

527
00:27:12,440 --> 00:27:14,119
Speaker 1: groups in Germany were saying there need to be more

528
00:27:14,160 --> 00:27:16,680
Speaker 1: public investment, and they said, you have enough like major

529
00:27:16,800 --> 00:27:19,879
Speaker 1: road and bridge bridge closures. You have people, you know,

530
00:27:19,960 --> 00:27:22,919
Speaker 1: mocking Germany's train systems for being terrible compared to places

531
00:27:22,960 --> 00:27:25,919
Speaker 1: like Spain. That's eventually does have an impact, I mean

532
00:27:25,960 --> 00:27:28,760
Speaker 1: for twenty years, but people did pay attention and so

533
00:27:29,240 --> 00:27:31,399
Speaker 1: you know, even leading up to this, there was already

534
00:27:31,400 --> 00:27:33,399
Speaker 1: that momentum and I was optimistic about that. Then we

535
00:27:33,480 --> 00:27:37,040
Speaker 1: see this happens, and the German response has been dramatic,

536
00:27:37,320 --> 00:27:39,400
Speaker 1: absolutely dramatic. I mean, aside from the fact that ost

537
00:27:39,400 --> 00:27:41,679
Speaker 1: politics throwing out the window, which was you know, the

538
00:27:41,680 --> 00:27:45,400
Speaker 1: Social Democrats creation, you have a situation where the FDP,

539
00:27:46,160 --> 00:27:49,720
Speaker 1: which again known for really strict you know, budget discipline,

540
00:27:49,760 --> 00:27:53,480
Speaker 1: saying we're going to spend another hundred billion euros on

541
00:27:53,640 --> 00:27:56,840
Speaker 1: defense and and when they were criticized by the opposition

542
00:27:56,960 --> 00:28:00,240
Speaker 1: Christian Democrats in in the Bundesta. Christian Lynn was the

543
00:28:00,240 --> 00:28:02,560
Speaker 1: finance minister and the head of the FDPs. He basically

544
00:28:02,600 --> 00:28:04,680
Speaker 1: laughed at him and said, this is an investment or freedom.

545
00:28:04,880 --> 00:28:06,919
Speaker 1: Why are you worrying about the dead levels here? We

546
00:28:06,960 --> 00:28:09,359
Speaker 1: need this for our security. You know, this is an

547
00:28:09,440 --> 00:28:10,840
Speaker 1: enormous number. By the way, I mean, I don't you

548
00:28:10,840 --> 00:28:12,800
Speaker 1: know how it gets spread out over times is a

549
00:28:12,800 --> 00:28:15,760
Speaker 1: little ambiguous. But you add that with the fact that

550
00:28:15,800 --> 00:28:18,639
Speaker 1: Schultz committed to spending at least two percent of GDP

551
00:28:18,800 --> 00:28:22,280
Speaker 1: on defense, which is Germany's you know, obligation of ther NATO.

552
00:28:22,359 --> 00:28:24,080
Speaker 1: But you know for many years they've been spending like

553
00:28:24,080 --> 00:28:26,280
Speaker 1: one percent of GDP on defense. Because again, if you're

554
00:28:26,280 --> 00:28:28,600
Speaker 1: feeling budget constrained, you're someone like Augle and Merkel, cutting

555
00:28:28,640 --> 00:28:31,520
Speaker 1: defense budget is a very easy way, relatively speaking, to

556
00:28:32,080 --> 00:28:34,320
Speaker 1: you know, meet your targets. That would seeming like a problem.

557
00:28:34,400 --> 00:28:35,920
Speaker 1: Of course, the problem to you know what the problem

558
00:28:35,960 --> 00:28:38,840
Speaker 1: is that the Buddhist first like lost so much capability,

559
00:28:38,880 --> 00:28:40,240
Speaker 1: and you hear all the story and how they couldn't

560
00:28:40,240 --> 00:28:42,880
Speaker 1: do anything, and like there was some German I think

561
00:28:42,960 --> 00:28:44,840
Speaker 1: army intelligence guy was stuck in Ukraine. He had to

562
00:28:44,880 --> 00:28:47,200
Speaker 1: get like a civilian transport out or something. I mean,

563
00:28:47,440 --> 00:28:49,600
Speaker 1: they didn't really have a lot of capabilities, and now

564
00:28:49,600 --> 00:28:51,960
Speaker 1: they realized they need to do something dramatic. They didn't

565
00:28:51,960 --> 00:28:53,560
Speaker 1: have I think, you know, you were mentioning this, they

566
00:28:53,560 --> 00:28:56,480
Speaker 1: didn't have any energy import terminals. Europe as a whole

567
00:28:56,760 --> 00:28:59,640
Speaker 1: does have a lot of energy UH import capacity, Germany

568
00:28:59,640 --> 00:29:02,600
Speaker 1: has none. So there they are working on on fixing

569
00:29:02,600 --> 00:29:04,280
Speaker 1: the stuff, and so I think I think it is

570
00:29:04,400 --> 00:29:07,680
Speaker 1: encouraging that they realized that, um, you know, the situation

571
00:29:07,800 --> 00:29:09,840
Speaker 1: that they as they inderstood it, you know, is a

572
00:29:09,880 --> 00:29:11,720
Speaker 1: lot different than you know, what they've been thinking, that

573
00:29:11,760 --> 00:29:14,000
Speaker 1: that it needs a response, which incidentally, it is consistent

574
00:29:14,000 --> 00:29:16,160
Speaker 1: with a history of many other countries where you know,

575
00:29:16,320 --> 00:29:19,880
Speaker 1: national security risks leads to radical changes in domestic investments.

576
00:29:21,440 --> 00:29:25,640
Speaker 1: Now you mentioned that at least the last of the

577
00:29:25,760 --> 00:29:29,640
Speaker 1: nuclear plants had been scheduled to UM sunset at the

578
00:29:29,720 --> 00:29:32,480
Speaker 1: end of this year, and maybe that will be pushed

579
00:29:32,480 --> 00:29:35,280
Speaker 1: off if I'm not mistaken. The Green Party in Germany,

580
00:29:35,320 --> 00:29:37,080
Speaker 1: like this is like a core thing for them, right

581
00:29:37,120 --> 00:29:40,240
Speaker 1: like they were they were like a prime mover against

582
00:29:41,000 --> 00:29:44,640
Speaker 1: UH nuclear for decades. I understand. Do you think that, like,

583
00:29:44,760 --> 00:29:47,120
Speaker 1: you know, there's gonna be some I don't know if

584
00:29:47,160 --> 00:29:49,680
Speaker 1: like you have specific views on sort of like German

585
00:29:49,880 --> 00:29:52,920
Speaker 1: energy policy down to the mix, but you know, it

586
00:29:53,080 --> 00:29:57,120
Speaker 1: seems unrealistic that anytime soon you're going to have uh

587
00:29:57,240 --> 00:30:01,200
Speaker 1: solar and wind really do will the lifting, especially in

588
00:30:01,280 --> 00:30:03,400
Speaker 1: the lack of like with the lack of like utility

589
00:30:03,400 --> 00:30:06,160
Speaker 1: grade battery tech. Do you do you said, to any

590
00:30:06,200 --> 00:30:10,440
Speaker 1: meaningful change on that front, Well, so, yes, I mean

591
00:30:10,480 --> 00:30:12,520
Speaker 1: I think one thing that's interesting here is that, first

592
00:30:12,560 --> 00:30:14,080
Speaker 1: of all, they've said that they think they are going to,

593
00:30:14,440 --> 00:30:16,200
Speaker 1: you know, not turn them all off at the end

594
00:30:16,240 --> 00:30:17,640
Speaker 1: of the year, and then that is something that could

595
00:30:17,640 --> 00:30:19,920
Speaker 1: not have been done without the consent of the Greens.

596
00:30:20,520 --> 00:30:22,200
Speaker 1: The Greens have been known for being anti nuclear for

597
00:30:22,280 --> 00:30:26,440
Speaker 1: very long time. However, they also, and this is actually

598
00:30:26,680 --> 00:30:29,080
Speaker 1: arguably even more important part of their identity, at least

599
00:30:29,120 --> 00:30:32,360
Speaker 1: in recent years, have been very hawkish on Russia and

600
00:30:32,560 --> 00:30:35,720
Speaker 1: very much against fossil fuel dependence. And in practice, what

601
00:30:35,760 --> 00:30:38,520
Speaker 1: we've seen is that turning off nuclear has not meant

602
00:30:38,760 --> 00:30:41,760
Speaker 1: that Germany has gotten greener. In fact, their emissions carbon

603
00:30:41,760 --> 00:30:43,960
Speaker 1: emissions record has been among the worst in any rich

604
00:30:43,960 --> 00:30:46,400
Speaker 1: country precisely because they turned off the nuclear plants. Is

605
00:30:46,440 --> 00:30:49,800
Speaker 1: substitutent with coal. So I think that you know, Greens

606
00:30:49,840 --> 00:30:51,440
Speaker 1: can read this just as well as anyone else. I

607
00:30:51,440 --> 00:30:53,320
Speaker 1: think they know this. Again, the Degreenes have been but

608
00:30:53,400 --> 00:30:56,360
Speaker 1: consistently the most hawkish on Russia, in part because unlike

609
00:30:56,400 --> 00:30:58,240
Speaker 1: basically every other party, they don't have any kind of

610
00:30:58,320 --> 00:31:02,520
Speaker 1: weird Russia baggage in terms of you know, ideological lengths

611
00:31:02,720 --> 00:31:07,120
Speaker 1: or the oil, the gas pipelines, or supporting business interests

612
00:31:07,120 --> 00:31:09,760
Speaker 1: that you know, selling manufactured goods to Russia. So they

613
00:31:09,880 --> 00:31:13,840
Speaker 1: they've always been the most relatively hawkish. And and and

614
00:31:14,240 --> 00:31:16,440
Speaker 1: you know, talking about a foreign policy of values, and

615
00:31:16,480 --> 00:31:18,960
Speaker 1: in fact the Foreign Minister is from the Green Party

616
00:31:19,040 --> 00:31:22,200
Speaker 1: right now, so I mean, there's definitely the flexibility there.

617
00:31:22,200 --> 00:31:25,480
Speaker 1: So if the choice that they face is turning on

618
00:31:25,560 --> 00:31:29,600
Speaker 1: nuclear plants versus actively sending money to Russia in the

619
00:31:29,600 --> 00:31:32,000
Speaker 1: middle of a situation where Russia is violently invading one

620
00:31:32,000 --> 00:31:35,160
Speaker 1: of its neighbors, I would imagine, you know, they'd be

621
00:31:35,200 --> 00:31:37,160
Speaker 1: more flexible on that front. And I think that we're

622
00:31:37,160 --> 00:31:38,880
Speaker 1: seeing that. I mean, and as also, as you mentioned,

623
00:31:38,880 --> 00:31:41,160
Speaker 1: like in the in the short term, you know, solar

624
00:31:41,160 --> 00:31:43,920
Speaker 1: and wind are great, but they're intermittent, and so you

625
00:31:43,920 --> 00:31:46,800
Speaker 1: need selling that staple, and you know it's either gonna

626
00:31:46,840 --> 00:31:49,560
Speaker 1: be coal or gas or nuclear, and you know if

627
00:31:49,560 --> 00:31:52,040
Speaker 1: those three, I mean nuclear is clearly going to be preferable.

628
00:32:07,360 --> 00:32:10,160
Speaker 1: So I realized we've been very focused on Germany. Here

629
00:32:10,280 --> 00:32:14,320
Speaker 1: can you talk a little bit about how Russia's energy

630
00:32:14,400 --> 00:32:18,959
Speaker 1: links have played into the current situation. And also one

631
00:32:19,040 --> 00:32:21,520
Speaker 1: of the things that keeps coming up is this idea

632
00:32:21,680 --> 00:32:25,000
Speaker 1: of um, you know, the rest of the world has

633
00:32:25,080 --> 00:32:30,320
Speaker 1: imposed these very strict and dramatic sanctions on Russia, but

634
00:32:30,480 --> 00:32:33,640
Speaker 1: the thing they've left out is energy for obvious reasons.

635
00:32:33,920 --> 00:32:36,680
Speaker 1: But now there's a sort of big question mark over

636
00:32:37,160 --> 00:32:40,360
Speaker 1: whether or not that can a continue given that you

637
00:32:40,360 --> 00:32:43,600
Speaker 1: see a lot of firms who are voluntarily self sanctioning

638
00:32:43,640 --> 00:32:45,560
Speaker 1: and just deciding that they don't want to have anything

639
00:32:45,560 --> 00:32:48,920
Speaker 1: to do with Russian assets, or they're worried about clearing

640
00:32:48,960 --> 00:32:50,800
Speaker 1: through the system and things like that, so they're just

641
00:32:50,880 --> 00:32:53,760
Speaker 1: not dealing in Russian energy at all. And b it's

642
00:32:53,800 --> 00:32:56,640
Speaker 1: unclear whether or not Russia will able will be able

643
00:32:56,680 --> 00:32:59,160
Speaker 1: to use the dollars and euros that it actually earns

644
00:32:59,480 --> 00:33:02,200
Speaker 1: from its energy exports, and so there's a question of, well,

645
00:33:02,240 --> 00:33:04,040
Speaker 1: why would they continue to do this if they're not

646
00:33:04,040 --> 00:33:06,840
Speaker 1: going to be able to actually use that money. So

647
00:33:07,240 --> 00:33:08,880
Speaker 1: how do you see all of that at the moment?

648
00:33:09,680 --> 00:33:11,480
Speaker 1: Those are all great questions. I mean, it is an

649
00:33:11,480 --> 00:33:15,480
Speaker 1: interesting question. Why would Russia keep pumping gas if they're

650
00:33:15,520 --> 00:33:18,880
Speaker 1: getting money that they can't use. You can understand why

651
00:33:18,920 --> 00:33:20,880
Speaker 1: they keep doing it if they could use the money.

652
00:33:20,960 --> 00:33:23,240
Speaker 1: And there's an argument for actually setting up sanctions in

653
00:33:23,280 --> 00:33:25,040
Speaker 1: a way that they are forced to keep pumping the

654
00:33:25,080 --> 00:33:27,600
Speaker 1: gas but not really able to do a lot else

655
00:33:27,640 --> 00:33:29,720
Speaker 1: with it, which arguably is what was set up. But

656
00:33:29,880 --> 00:33:32,040
Speaker 1: it does create this tension. So, I mean, one theory

657
00:33:32,080 --> 00:33:33,600
Speaker 1: I've heard I have no idea this is right, is

658
00:33:33,600 --> 00:33:36,400
Speaker 1: that the Europeans actually do want Russia to cut off

659
00:33:36,400 --> 00:33:38,200
Speaker 1: the gas, but they want Russia to be the ones

660
00:33:38,280 --> 00:33:40,120
Speaker 1: take the blame, which I mean, I have no idea

661
00:33:40,120 --> 00:33:42,200
Speaker 1: if that's right. I mean, I certainly would be a

662
00:33:42,240 --> 00:33:44,720
Speaker 1: reasonable way of interpreting, you know, how things are plying out,

663
00:33:45,080 --> 00:33:46,320
Speaker 1: you know, But then there's a question of how you

664
00:33:46,360 --> 00:33:48,600
Speaker 1: deal with that. I mean, as I said, I mean,

665
00:33:48,600 --> 00:33:51,600
Speaker 1: the good news is that winters basically over, so you

666
00:33:51,640 --> 00:33:54,280
Speaker 1: don't need it for heat the way you would have before. Um,

667
00:33:54,360 --> 00:33:57,480
Speaker 1: you could imagine a situation where you're rationing electricity for

668
00:33:57,880 --> 00:34:00,920
Speaker 1: industrial consumers and then you know, sort of hope that

669
00:34:00,960 --> 00:34:03,680
Speaker 1: things get resolved one or another before next winter. It

670
00:34:03,760 --> 00:34:05,760
Speaker 1: is that is definitely a tricky question. I mean, because

671
00:34:05,760 --> 00:34:08,359
Speaker 1: it's not like you Germany is uniquely depending on Russian gas.

672
00:34:08,440 --> 00:34:11,000
Speaker 1: In fact, if anything, many other countries are even more

673
00:34:11,040 --> 00:34:14,120
Speaker 1: dependent on on gas from Russia, basically all the countries

674
00:34:14,120 --> 00:34:16,799
Speaker 1: to Germany's east and sort of southeast, because there isn't

675
00:34:16,800 --> 00:34:18,279
Speaker 1: really a lot of other sources you can get. I

676
00:34:18,280 --> 00:34:21,239
Speaker 1: mean that you can get gas from from cutter, gas

677
00:34:21,280 --> 00:34:24,919
Speaker 1: from Norway, um, the North Sea. There's some lergy coming

678
00:34:24,960 --> 00:34:27,520
Speaker 1: in from the US, although the US is sort of

679
00:34:27,719 --> 00:34:30,600
Speaker 1: maxed out and we sell a lot to Asia. Um,

680
00:34:30,719 --> 00:34:32,640
Speaker 1: you know, you could have rerouting of l G. I mean,

681
00:34:32,680 --> 00:34:35,760
Speaker 1: there's a world where you know, Australian and American ellengy

682
00:34:35,800 --> 00:34:38,360
Speaker 1: is rerouted from Asia to Europe. But then you know

683
00:34:38,400 --> 00:34:40,960
Speaker 1: that creates you know, that creates new problems for other people.

684
00:34:41,040 --> 00:34:44,239
Speaker 1: So there isn't an immediate obvious substitute, and that does

685
00:34:44,360 --> 00:34:46,480
Speaker 1: theoretically give the Russians aut levertay is that for all

686
00:34:46,480 --> 00:34:48,080
Speaker 1: we know, they've already been cutting off. I just we

687
00:34:48,120 --> 00:34:50,520
Speaker 1: just don't have the hard data from like the past

688
00:34:50,640 --> 00:34:53,600
Speaker 1: week we can have, so that's a sort of interesting

689
00:34:53,680 --> 00:34:56,319
Speaker 1: question there, but it does potentially create I mean, one

690
00:34:56,320 --> 00:34:59,680
Speaker 1: of the reasons why before any of this happened, why

691
00:35:00,040 --> 00:35:03,840
Speaker 1: nord Stream to which was the planned pipeline. It's basically finished,

692
00:35:03,880 --> 00:35:07,279
Speaker 1: but that would have dramatically increased Russia's ability to send

693
00:35:07,280 --> 00:35:09,719
Speaker 1: gas directly to Germany under the Baltic Sea. The reason

694
00:35:09,719 --> 00:35:12,440
Speaker 1: why that was so controversial before all of this it

695
00:35:12,520 --> 00:35:15,000
Speaker 1: was because it would have meant that Russia could have

696
00:35:15,040 --> 00:35:18,520
Speaker 1: sent gas to Germany directly and bypass all the countries

697
00:35:18,920 --> 00:35:22,239
Speaker 1: that are in eastern, Central and Eastern Europe that previously

698
00:35:22,320 --> 00:35:25,080
Speaker 1: were able to get gas and be confident they could

699
00:35:25,080 --> 00:35:27,160
Speaker 1: get a supply of gas because it's not as if

700
00:35:27,200 --> 00:35:29,439
Speaker 1: there are a lot of pipelines that Germany could could

701
00:35:29,560 --> 00:35:34,279
Speaker 1: use if they wanted to supply Poland, Czech Republic, Slovakia, Austria,

702
00:35:34,640 --> 00:35:39,160
Speaker 1: the Baltic States, Hungary, Romania, those all depend on gas

703
00:35:39,160 --> 00:35:41,160
Speaker 1: coming from Russia and then some of that gets rooted

704
00:35:41,239 --> 00:35:43,560
Speaker 1: to Germany. But if it all went to Germany directly

705
00:35:43,640 --> 00:35:46,000
Speaker 1: and those countries would all get hosed. And so that

706
00:35:46,080 --> 00:35:48,279
Speaker 1: was like the big concern they had before any of this,

707
00:35:48,880 --> 00:35:51,759
Speaker 1: so you know, those countries are still doesn't dependent. Um,

708
00:35:51,760 --> 00:35:53,920
Speaker 1: we're now in a situation where at the moment you're

709
00:35:53,920 --> 00:35:57,200
Speaker 1: actually having gas being rooted from those countries to Ukraine.

710
00:35:57,480 --> 00:35:59,759
Speaker 1: A lot of the pipelines run through Ukraine that had

711
00:35:59,800 --> 00:36:02,760
Speaker 1: been case that the Ukrainian government made a decent amount

712
00:36:02,760 --> 00:36:04,959
Speaker 1: of earned a this amount of hardcurrent, so basically getting

713
00:36:04,960 --> 00:36:08,600
Speaker 1: a transit fee from gas sent from Russia through those

714
00:36:08,640 --> 00:36:12,560
Speaker 1: pipelines that I'm guessing that's not happening right now. Um,

715
00:36:12,600 --> 00:36:14,640
Speaker 1: and so you're having gas being sent the other ways

716
00:36:14,719 --> 00:36:17,359
Speaker 1: that Ukraine can keep the you know, the power on.

717
00:36:17,840 --> 00:36:19,759
Speaker 1: But yeah, I mean it's a it's a it's the

718
00:36:20,120 --> 00:36:23,080
Speaker 1: situation with gas and Russian you know, entergy securities is

719
00:36:23,120 --> 00:36:26,240
Speaker 1: a significant problem for all these all of Europe. Realian's

720
00:36:26,239 --> 00:36:28,960
Speaker 1: basically have to used to go either as far west

721
00:36:29,000 --> 00:36:31,560
Speaker 1: as places like France and Spain or north to like

722
00:36:31,600 --> 00:36:33,440
Speaker 1: Sweden and Norway for it not to be an issue.

723
00:36:33,680 --> 00:36:35,520
Speaker 1: And in those countries they have a lot more hydro

724
00:36:35,600 --> 00:36:37,280
Speaker 1: power and a lot more nuclear and at more solar.

725
00:36:37,320 --> 00:36:40,080
Speaker 1: But that's you know, where they get lergy from elsewhere.

726
00:36:40,200 --> 00:36:42,319
Speaker 1: But that's not you know, but that's a lot of

727
00:36:42,360 --> 00:36:45,879
Speaker 1: Europe is very depending on Russian gas. You know. One

728
00:36:45,920 --> 00:36:49,160
Speaker 1: of the things that you talked about this a little

729
00:36:49,160 --> 00:36:52,279
Speaker 1: bit earlier is that you know, with oil, there are

730
00:36:52,400 --> 00:36:55,960
Speaker 1: multiple prices of oil, but they do tend to cluster.

731
00:36:56,080 --> 00:36:58,839
Speaker 1: And so there's Brent oil and there's West Texas oil,

732
00:36:58,840 --> 00:37:00,360
Speaker 1: and they're usually a few dollars of are but they

733
00:37:00,440 --> 00:37:02,960
Speaker 1: go in the same direction. The gas market isn't like

734
00:37:03,040 --> 00:37:05,279
Speaker 1: that at all. I mean, the gas the price of

735
00:37:05,719 --> 00:37:09,000
Speaker 1: what's a cubic meter? Is that a standard? Yeah? Yeah,

736
00:37:09,120 --> 00:37:12,359
Speaker 1: billions of cuban mater it's just completely different. All it's

737
00:37:12,360 --> 00:37:15,279
Speaker 1: just completely different all around the world at any given time.

738
00:37:15,760 --> 00:37:19,120
Speaker 1: And it's because it's so as you're described there, it's

739
00:37:19,120 --> 00:37:23,600
Speaker 1: so infrastructure specific. Yeah, I mean not to like piece

740
00:37:23,680 --> 00:37:25,279
Speaker 1: or obvious, but one is the liquid and one is

741
00:37:25,320 --> 00:37:27,840
Speaker 1: the gas. And like liquids, it's pretty easy. You know,

742
00:37:27,880 --> 00:37:29,239
Speaker 1: you can put them in barrels, you can put them

743
00:37:29,239 --> 00:37:31,239
Speaker 1: on ships, and like gases, you know, it's much harder

744
00:37:31,280 --> 00:37:33,120
Speaker 1: to do that. And that's why you know, the invention

745
00:37:33,200 --> 00:37:35,680
Speaker 1: of liquefaction, which is where you've turned the gas, you

746
00:37:35,800 --> 00:37:37,400
Speaker 1: cool it and condensed into a liquid and then you

747
00:37:37,400 --> 00:37:39,719
Speaker 1: can transport it on ships. Is with such a revolutionary

748
00:37:39,760 --> 00:37:42,399
Speaker 1: technology because it meant that you could move the gas

749
00:37:42,440 --> 00:37:45,920
Speaker 1: all over the world. But you know, until that happened,

750
00:37:46,280 --> 00:37:48,040
Speaker 1: um and even and you know, it's still expensive to

751
00:37:48,080 --> 00:37:49,960
Speaker 1: do that. Pipelines is the way you did it. I

752
00:37:49,960 --> 00:37:52,600
Speaker 1: mean natural gas in the US. Prices of natural gas

753
00:37:52,640 --> 00:37:54,160
Speaker 1: in the US have been so much lower than in

754
00:37:54,160 --> 00:37:56,160
Speaker 1: Europe and Asia for a long time because we have

755
00:37:56,200 --> 00:37:58,160
Speaker 1: a lot of gas in the US and we have

756
00:37:58,200 --> 00:38:01,080
Speaker 1: pipeline infrastructure can transport it, but it's very difficult to

757
00:38:01,120 --> 00:38:02,759
Speaker 1: send it over to places that don't you know, have

758
00:38:02,840 --> 00:38:04,720
Speaker 1: the pipeline. Sending it across an ocean is very expensive.

759
00:38:04,760 --> 00:38:06,759
Speaker 1: So there is a lot of liquid faction capacity in

760
00:38:06,800 --> 00:38:09,120
Speaker 1: the US. There is a tremendous amount of liquid faction

761
00:38:09,120 --> 00:38:12,480
Speaker 1: capacity that's currently been approved but has not yet been built.

762
00:38:12,640 --> 00:38:14,319
Speaker 1: If it does, the U S would be able to

763
00:38:14,600 --> 00:38:18,040
Speaker 1: more than supply Europe and Asia with with with gas

764
00:38:18,440 --> 00:38:21,280
Speaker 1: uh in theory, but you know, it's it's very expensive

765
00:38:21,320 --> 00:38:23,399
Speaker 1: to do that. I mean all the transportation causes why

766
00:38:23,400 --> 00:38:26,560
Speaker 1: that the differentials are so huge. So even if the

767
00:38:26,640 --> 00:38:28,279
Speaker 1: U S producers are responding the way you think they

768
00:38:28,280 --> 00:38:30,200
Speaker 1: would to market signals, for like if the price of

769
00:38:30,280 --> 00:38:32,440
Speaker 1: gas whatever is I don't like, six times or more

770
00:38:32,560 --> 00:38:34,840
Speaker 1: whatever in Europe than it is in the US, and

771
00:38:34,840 --> 00:38:37,000
Speaker 1: they are responding to that. But you know, there's sort

772
00:38:37,000 --> 00:38:39,560
Speaker 1: of hard physical limits and you can, you know, until

773
00:38:39,600 --> 00:38:41,480
Speaker 1: the liquid faction capacity builds up a lot, until the

774
00:38:41,480 --> 00:38:43,399
Speaker 1: import terminals on the other side build up a lot,

775
00:38:43,640 --> 00:38:45,680
Speaker 1: you know that price differential is going to exist. And

776
00:38:45,680 --> 00:38:48,720
Speaker 1: that's why Russian gas always had appeal. Europe has pipelines

777
00:38:48,800 --> 00:38:50,920
Speaker 1: to gas from North Africa as well, and that's and

778
00:38:50,920 --> 00:38:52,480
Speaker 1: and from you know, the North Sea and stuff. So

779
00:38:52,480 --> 00:38:54,960
Speaker 1: they do get other pipeline gas, but a lot of

780
00:38:54,960 --> 00:38:57,200
Speaker 1: it comes from Russia. And so I mean, it's gonna

781
00:38:57,200 --> 00:38:59,680
Speaker 1: be more expensive regardless, right, but the energy is always

782
00:38:59,719 --> 00:39:01,319
Speaker 1: gonna be expensive than Russian gas. But on the end

783
00:39:01,320 --> 00:39:02,719
Speaker 1: of Russia is cutting off the gas or if you

784
00:39:02,760 --> 00:39:04,799
Speaker 1: don't want to be dependent on Russian gas, and that's

785
00:39:04,800 --> 00:39:06,839
Speaker 1: a price worth paying. I mean, as Linder would say,

786
00:39:06,880 --> 00:39:08,719
Speaker 1: it's you know, it's an investment freedom and so that's

787
00:39:08,760 --> 00:39:10,880
Speaker 1: a you know, it's it's worth doing, but it is

788
00:39:10,880 --> 00:39:15,000
Speaker 1: going to be more expensive. So actually that leads into

789
00:39:15,000 --> 00:39:18,000
Speaker 1: something else I wanted to ask, which is naturally this

790
00:39:18,080 --> 00:39:22,080
Speaker 1: idea of Russia's sort of leaning or looking more towards

791
00:39:22,239 --> 00:39:25,239
Speaker 1: China because of the various things and pressures that are

792
00:39:25,280 --> 00:39:29,640
Speaker 1: happening in Europe. So obviously Russia exporting more energy in

793
00:39:29,760 --> 00:39:33,680
Speaker 1: various forms to China would appear to be an obvious

794
00:39:33,680 --> 00:39:36,680
Speaker 1: option for it here. Yeah, no, it would. I mean,

795
00:39:37,200 --> 00:39:38,480
Speaker 1: but that sort of goes the other way, which is

796
00:39:38,520 --> 00:39:40,600
Speaker 1: you need to build all the pipelines going the other direction,

797
00:39:40,600 --> 00:39:42,359
Speaker 1: and so they could do that. They do have one

798
00:39:42,360 --> 00:39:45,000
Speaker 1: pipeline they called the Power of Siberia and it runs

799
00:39:45,400 --> 00:39:48,040
Speaker 1: into China, and they do export pipeline gas to China,

800
00:39:48,320 --> 00:39:51,000
Speaker 1: but the volumes are pretty small. So again, if you're

801
00:39:51,000 --> 00:39:53,400
Speaker 1: looking at which I think sort of the most reasonable

802
00:39:53,440 --> 00:39:57,440
Speaker 1: camp you had, like Russian gas going to EU U

803
00:39:58,640 --> 00:40:01,320
Speaker 1: and was not, and so China is a pretty small

804
00:40:01,360 --> 00:40:03,719
Speaker 1: I mean most of China gas. I mean, China actually

805
00:40:03,760 --> 00:40:05,640
Speaker 1: has a lot of gas domestically, and they get a

806
00:40:05,640 --> 00:40:07,800
Speaker 1: lot of allergy. So they they've definitely been trying to

807
00:40:07,800 --> 00:40:09,200
Speaker 1: get more from Russia. But it will take a long

808
00:40:09,200 --> 00:40:11,440
Speaker 1: time and put those pipelines together. I mean, basically I

809
00:40:11,440 --> 00:40:13,239
Speaker 1: don't know the exact timeframe of how long long it

810
00:40:13,280 --> 00:40:14,799
Speaker 1: takes to build these things, but like I would not

811
00:40:14,880 --> 00:40:16,840
Speaker 1: be surprised if the time it takes for Russia to

812
00:40:16,840 --> 00:40:19,720
Speaker 1: build pipelines to China to substitute, you know, to fully

813
00:40:19,760 --> 00:40:22,360
Speaker 1: divert all the gas from that used to go to Europe,

814
00:40:22,480 --> 00:40:24,759
Speaker 1: probably would I would not be It's probably comparable time

815
00:40:24,760 --> 00:40:27,040
Speaker 1: scale like building out the capacity for Europe to get

816
00:40:27,040 --> 00:40:28,880
Speaker 1: ellen G from the rest of the world. So I

817
00:40:28,880 --> 00:40:30,920
Speaker 1: don't know, like it's I mean, it's not going to

818
00:40:31,040 --> 00:40:33,799
Speaker 1: be kind of a fast thing. And of course there's

819
00:40:33,800 --> 00:40:36,680
Speaker 1: the fact that if Russia would be doing this with China,

820
00:40:36,719 --> 00:40:40,080
Speaker 1: it's at a period where, unlike you know before, Russia

821
00:40:40,120 --> 00:40:41,880
Speaker 1: is a pariah state, and as you said, they're not

822
00:40:41,920 --> 00:40:45,560
Speaker 1: having access to all the Western oil and gas services

823
00:40:45,600 --> 00:40:47,759
Speaker 1: companies that actually know how to do this stuff because

824
00:40:47,800 --> 00:40:49,279
Speaker 1: all these things were built I mean like north Stream

825
00:40:49,280 --> 00:40:51,240
Speaker 1: and stuff that was a joint venture with European companies.

826
00:40:51,480 --> 00:40:52,640
Speaker 1: That's where a lot of the time, I mean, they

827
00:40:52,640 --> 00:40:54,440
Speaker 1: have technical know how in Russia, but a lot of

828
00:40:54,440 --> 00:40:56,839
Speaker 1: it was done with you know, European help. And so

829
00:40:57,920 --> 00:40:59,759
Speaker 1: I'm sure China has the capacity as well because they

830
00:40:59,760 --> 00:41:02,400
Speaker 1: have their own domestic as industry and Russia cast industry

831
00:41:02,400 --> 00:41:03,759
Speaker 1: for a long time. But I mean it's extent that

832
00:41:03,760 --> 00:41:06,160
Speaker 1: they would want help from anyone, and that Russia has

833
00:41:06,440 --> 00:41:08,480
Speaker 1: become prie stay that will make it even you know,

834
00:41:08,560 --> 00:41:12,320
Speaker 1: comparatively more difficult for them. Well, the the other element

835
00:41:12,400 --> 00:41:14,400
Speaker 1: and the thing I've been thinking about it this conversation

836
00:41:14,520 --> 00:41:17,400
Speaker 1: is like, Okay, Germany wants to spend a lot more

837
00:41:17,520 --> 00:41:20,120
Speaker 1: and build up perhaps build up terminals or other other

838
00:41:20,200 --> 00:41:24,239
Speaker 1: forms of energy infrastructure and other other infrastructure. It's not

839
00:41:24,320 --> 00:41:26,160
Speaker 1: a great time. I mean, it's not a great time

840
00:41:26,200 --> 00:41:29,960
Speaker 1: to have to build setting aside the war specifically, Uh,

841
00:41:30,000 --> 00:41:32,040
Speaker 1: it's not a great time to have to build anything

842
00:41:32,200 --> 00:41:35,239
Speaker 1: physical given the tightness in every commodity markets and thinking

843
00:41:35,239 --> 00:41:38,640
Speaker 1: about the metal that would have to go into new pipelines,

844
00:41:38,680 --> 00:41:40,680
Speaker 1: and the steel and the cement and everything else that

845
00:41:40,760 --> 00:41:43,440
Speaker 1: have to go into a terminal. It sort of speaks to,

846
00:41:44,120 --> 00:41:48,120
Speaker 1: I guess the tragedy of having been so spend thrift

847
00:41:48,200 --> 00:41:51,920
Speaker 1: for the last at least the last decade. Yeah thrift. Yeah.

848
00:41:51,920 --> 00:41:54,800
Speaker 1: I mean it's funny because the Europeans have this phrase,

849
00:41:55,160 --> 00:41:56,799
Speaker 1: this is so annoying talk about you if you fix

850
00:41:56,880 --> 00:41:59,120
Speaker 1: the roof when the sun is shining. And it's a

851
00:41:59,120 --> 00:42:01,719
Speaker 1: good phrase if you think about it. In the right perspective,

852
00:42:01,760 --> 00:42:03,920
Speaker 1: but the way they always used it was, oh, you know,

853
00:42:04,000 --> 00:42:06,560
Speaker 1: your economy is not actively contracting because we're not in

854
00:42:06,560 --> 00:42:09,080
Speaker 1: the depth of a global financial crisis. You should be

855
00:42:09,120 --> 00:42:11,239
Speaker 1: doing budget austerity and paying down your debt. Is how

856
00:42:11,320 --> 00:42:13,680
Speaker 1: that was interpreted in your That's so that's what fixing

857
00:42:13,680 --> 00:42:15,880
Speaker 1: the roof in their video, fixing the roof being like

858
00:42:15,880 --> 00:42:18,520
Speaker 1: lowering your debt GDP ratio. And they talked about this

859
00:42:18,560 --> 00:42:20,040
Speaker 1: all that you fix the roof in the sun is shining,

860
00:42:20,080 --> 00:42:21,839
Speaker 1: but so then you have the space to expand your

861
00:42:21,840 --> 00:42:24,120
Speaker 1: debt to GDP ratio when you know, things go bad.

862
00:42:24,760 --> 00:42:27,680
Speaker 1: There's an obvious problem here, which is that you can't

863
00:42:27,719 --> 00:42:31,440
Speaker 1: fix the roof if you're not spending money like you know,

864
00:42:31,960 --> 00:42:34,520
Speaker 1: they they literally did was not fix the roof when

865
00:42:34,520 --> 00:42:36,880
Speaker 1: the sun was shining. And then now that it's raining

866
00:42:37,000 --> 00:42:38,920
Speaker 1: and they've saved a lot of cash, it's getting wet.

867
00:42:39,000 --> 00:42:41,120
Speaker 1: I mean, if I don't draw this analogy too much,

868
00:42:41,120 --> 00:42:44,920
Speaker 1: like I mean, they basically had an opportunity to do

869
00:42:44,960 --> 00:42:49,239
Speaker 1: all these things when natural resources prices were low, when

870
00:42:49,239 --> 00:42:51,800
Speaker 1: there was a lot of labor slack, when real interest

871
00:42:51,840 --> 00:42:54,359
Speaker 1: rates were negative, and they didn't take it. I mean,

872
00:42:54,360 --> 00:42:56,919
Speaker 1: real instructs are still negative. But other than that, I mean,

873
00:42:56,960 --> 00:42:59,880
Speaker 1: they completely missed this opportunity. I mean, I remember I

874
00:43:00,120 --> 00:43:01,839
Speaker 1: mentioned this in one of my my research notes. It's

875
00:43:01,840 --> 00:43:06,160
Speaker 1: a really striking that the last time Russia attacked Ukraine

876
00:43:06,200 --> 00:43:09,480
Speaker 1: in a really big way, it's in early basically eight

877
00:43:09,520 --> 00:43:13,480
Speaker 1: years ago, and eight years is a long time to

878
00:43:13,840 --> 00:43:17,120
Speaker 1: make an adjustment, and it just didn't happen at all.

879
00:43:17,600 --> 00:43:20,560
Speaker 1: And I remember writing at that time, back when I

880
00:43:20,600 --> 00:43:22,960
Speaker 1: was at Bloomberg, actually writing writing a piece saying, look

881
00:43:23,000 --> 00:43:26,640
Speaker 1: like Russia is doing this, but like, long term, they're

882
00:43:26,680 --> 00:43:29,200
Speaker 1: not in a great strategic position because Europe always just

883
00:43:29,239 --> 00:43:31,520
Speaker 1: the option to diversify away from Russian gas, then Russia

884
00:43:31,600 --> 00:43:34,600
Speaker 1: is no leverage. Ironically, they didn't do that. But I

885
00:43:34,600 --> 00:43:36,200
Speaker 1: mean it's not like no one was talking about this

886
00:43:36,239 --> 00:43:38,520
Speaker 1: back then. They just missed their window. And now they're

887
00:43:38,520 --> 00:43:39,839
Speaker 1: trying to do it, and you know, as you said,

888
00:43:39,880 --> 00:43:41,840
Speaker 1: now they're doing it like the worst possible time because

889
00:43:42,040 --> 00:43:44,720
Speaker 1: they're being squeezed and you know it'll get done eventually,

890
00:43:44,760 --> 00:43:47,120
Speaker 1: but you know, it's it's it's really striking how they

891
00:43:47,160 --> 00:43:48,800
Speaker 1: sort of missed the you know, the focus on the

892
00:43:48,920 --> 00:43:51,040
Speaker 1: sort of financial savings and not on the fact that

893
00:43:51,200 --> 00:43:53,319
Speaker 1: you know, there's some things that are worth doing that

894
00:43:53,320 --> 00:43:55,560
Speaker 1: should have been done at some point. You're gonna do

895
00:43:55,600 --> 00:43:57,279
Speaker 1: it anyway because you need to do it, but you know,

896
00:43:57,320 --> 00:43:58,960
Speaker 1: if you have a chance of doing it when things

897
00:43:59,000 --> 00:44:01,040
Speaker 1: are cheap, that's the best time to do. And they

898
00:44:01,080 --> 00:44:03,880
Speaker 1: missed that window well before we go and then with

899
00:44:03,960 --> 00:44:07,840
Speaker 1: Fantastic obviously we've talked a lot about the energy linkage

900
00:44:07,880 --> 00:44:10,680
Speaker 1: is but just before before we get out, you know,

901
00:44:10,719 --> 00:44:13,440
Speaker 1: you've also written a little bit about the financial LINKAGEES

902
00:44:13,680 --> 00:44:18,360
Speaker 1: and the various exposures that Europe and Germany have to Russia,

903
00:44:18,600 --> 00:44:20,600
Speaker 1: all of which are now almost you know, some of

904
00:44:20,640 --> 00:44:23,959
Speaker 1: these value of these assets and relationships might in many

905
00:44:23,960 --> 00:44:26,879
Speaker 1: cases simply go to zero. But how big are we

906
00:44:26,920 --> 00:44:30,000
Speaker 1: talking about here? For some of the non energy connections.

907
00:44:30,440 --> 00:44:34,080
Speaker 1: There's a lot of trade and financial links between Europe

908
00:44:34,200 --> 00:44:37,040
Speaker 1: and Russia. And I mean it makes sense. Russia is

909
00:44:37,040 --> 00:44:39,400
Speaker 1: a large country, it's Europe's neighbor. That's sort of you know,

910
00:44:39,400 --> 00:44:42,080
Speaker 1: what you'd expect to have happened. That is probably a

911
00:44:42,120 --> 00:44:43,759
Speaker 1: lot that's gonna go to zero. There's going to be

912
00:44:43,760 --> 00:44:45,560
Speaker 1: an economic kid. I think one thing one of the

913
00:44:45,560 --> 00:44:48,080
Speaker 1: reasons I initially had been. I was not sure. I

914
00:44:48,120 --> 00:44:50,000
Speaker 1: wouldn't say Scott, but I was not sure that that

915
00:44:50,120 --> 00:44:52,439
Speaker 1: Europe would be willing to kind of put in place

916
00:44:52,480 --> 00:44:54,200
Speaker 1: the kind of sanctions that we've ended up seeing is

917
00:44:54,239 --> 00:44:56,919
Speaker 1: because there is a carler here, which is that there's

918
00:44:56,920 --> 00:45:00,440
Speaker 1: gonna be a real hit to European businesses, both businesses

919
00:45:00,440 --> 00:45:02,800
Speaker 1: that export to Russia and two banks that have relations

920
00:45:02,800 --> 00:45:06,000
Speaker 1: with Russian businesses, and so um, we're talking in like

921
00:45:06,000 --> 00:45:08,120
Speaker 1: the hundreds of billions of dollars in terms of potential

922
00:45:08,400 --> 00:45:10,880
Speaker 1: losses here. I mean, that's definitely manageable for an economy

923
00:45:10,920 --> 00:45:13,319
Speaker 1: that's the size of Europe. And you know, again to

924
00:45:13,400 --> 00:45:16,000
Speaker 1: use Learner's phrase, it's it's it's an investment in freedom,

925
00:45:16,040 --> 00:45:17,879
Speaker 1: so it's it's worth it's a worthwhile to bear that cost.

926
00:45:17,880 --> 00:45:19,239
Speaker 1: But that is it is significant. I mean you have

927
00:45:19,680 --> 00:45:23,080
Speaker 1: something like in total global banks, which is global banks

928
00:45:23,080 --> 00:45:26,880
Speaker 1: in this in practice basically means US, UK, EU, Japan,

929
00:45:27,320 --> 00:45:29,960
Speaker 1: something like a hundred fifty billion dollars or exposure to

930
00:45:30,040 --> 00:45:33,760
Speaker 1: Russian you know, borrowers that's probably gonna mostly go to zero.

931
00:45:33,880 --> 00:45:35,839
Speaker 1: I mean, the good news for them is that a

932
00:45:35,840 --> 00:45:38,799
Speaker 1: lot of that exposure is through local subsidiaries and so

933
00:45:38,880 --> 00:45:41,680
Speaker 1: and practice. What that means is that it's Russian depositors

934
00:45:41,719 --> 00:45:44,360
Speaker 1: and Russian you know, bank bond holders and other Russian

935
00:45:44,360 --> 00:45:45,960
Speaker 1: banks that are going to take a lot of that hit,

936
00:45:46,200 --> 00:45:48,520
Speaker 1: although not all, but a bunch of it. You know,

937
00:45:48,600 --> 00:45:50,839
Speaker 1: the exporters are gonna get hit pretty soon. I mean,

938
00:45:51,120 --> 00:45:55,480
Speaker 1: your Russia imported about three seventy billion dollars worth of

939
00:45:55,480 --> 00:45:57,920
Speaker 1: goods and services from the rest of the world. In

940
00:45:59,480 --> 00:46:03,560
Speaker 1: the majority that is from countries and that are sanctioning Russia.

941
00:46:03,719 --> 00:46:05,600
Speaker 1: So that's going to be a hit. Again, We're talking

942
00:46:05,640 --> 00:46:09,200
Speaker 1: about a very large economies, so you know, in the agate,

943
00:46:09,280 --> 00:46:10,960
Speaker 1: it's not gonna be huge. It it's gonna feel, gonna

944
00:46:11,000 --> 00:46:13,160
Speaker 1: be notable, and of course it's going to have multiplier

945
00:46:13,160 --> 00:46:15,680
Speaker 1: effects as those businesses, customers, you know, react to the

946
00:46:15,760 --> 00:46:18,120
Speaker 1: Lass sales. So there's a hit to be taken. I mean,

947
00:46:18,120 --> 00:46:21,000
Speaker 1: I think Russia was counting on this, these kinds of relationships,

948
00:46:21,040 --> 00:46:22,799
Speaker 1: preventing any kind of saying in the past. I mean,

949
00:46:22,960 --> 00:46:26,240
Speaker 1: that's what happened, right like they did something that everyone

950
00:46:26,239 --> 00:46:28,120
Speaker 1: said was illegal and horrible and then nothing really had

951
00:46:28,120 --> 00:46:30,680
Speaker 1: I mean, things happened, but it wasn't significant the way

952
00:46:30,719 --> 00:46:33,799
Speaker 1: like we're seeing now, I think, quite frankly, if it

953
00:46:33,840 --> 00:46:36,440
Speaker 1: hadn't been for the fact that the Ukrainians fought back

954
00:46:36,880 --> 00:46:39,080
Speaker 1: and are still fighting back, I think there's a decent

955
00:46:39,160 --> 00:46:42,000
Speaker 1: chance that you're probably would have rolled over because you know,

956
00:46:42,040 --> 00:46:43,879
Speaker 1: what was what would have been the point right from

957
00:46:43,880 --> 00:46:47,320
Speaker 1: their perspective. The fact that it's now actually is still

958
00:46:47,360 --> 00:46:49,680
Speaker 1: a live question, I think is a lot of what's

959
00:46:49,680 --> 00:46:52,960
Speaker 1: motivating this and people's willingness to you know, bear that

960
00:46:53,000 --> 00:46:55,760
Speaker 1: economic pain because it is real, and I think obviously

961
00:46:56,040 --> 00:46:57,600
Speaker 1: if you're looking at the rest of the world globally,

962
00:46:57,960 --> 00:46:59,920
Speaker 1: not to you know, point figures in any countries, but

963
00:47:00,120 --> 00:47:02,200
Speaker 1: you can imagine other countries that might be thinking potentially

964
00:47:02,200 --> 00:47:03,840
Speaker 1: about invading some of their neighbors at some point in

965
00:47:03,840 --> 00:47:06,080
Speaker 1: the future and wondering about, you know, how those economic

966
00:47:06,080 --> 00:47:08,960
Speaker 1: links is whether protect them or not from you know,

967
00:47:09,480 --> 00:47:13,080
Speaker 1: Western responses. But I mean, you know, seeing this is

968
00:47:13,080 --> 00:47:15,920
Speaker 1: is I think I think Putin was not crazy for

969
00:47:15,960 --> 00:47:19,160
Speaker 1: thinking that this would not have happened because of those links.

970
00:47:19,200 --> 00:47:21,080
Speaker 1: But at the same time, I think, like it's it is,

971
00:47:21,560 --> 00:47:23,719
Speaker 1: you know, once you do something like what he did

972
00:47:23,960 --> 00:47:26,040
Speaker 1: and you see the response, I think that that it's

973
00:47:26,080 --> 00:47:29,480
Speaker 1: not surprising that there's been this sort of very strong

974
00:47:29,560 --> 00:47:34,400
Speaker 1: pushback and willingness to take these kind of losses. Well, Matt,

975
00:47:34,480 --> 00:47:36,960
Speaker 1: Matt Klein, thank you so much for coming on odd lots.

976
00:47:37,480 --> 00:47:41,359
Speaker 1: I learned a ton from that, very very useful conversation. Yeah,

977
00:47:41,400 --> 00:47:53,600
Speaker 1: that was great, Thanks so much. You know, I always

978
00:47:53,719 --> 00:47:56,400
Speaker 1: learn a lot talking to Matt and following him on

979
00:47:56,440 --> 00:47:59,319
Speaker 1: Twitter and reading his newsletter. One thing that just really

980
00:47:59,320 --> 00:48:02,000
Speaker 1: strikes me as has such a good command of like

981
00:48:02,400 --> 00:48:04,360
Speaker 1: the data, so a lot of you know, it's in

982
00:48:04,360 --> 00:48:07,400
Speaker 1: addition to just sort of like the theoretical big ideas,

983
00:48:07,440 --> 00:48:09,440
Speaker 1: like he really knows the numbers behind all of it,

984
00:48:09,480 --> 00:48:12,560
Speaker 1: which is one reason it's great to talk to him. Yeah. Also,

985
00:48:12,640 --> 00:48:16,080
Speaker 1: I didn't realize he had such historical knowledge of oil

986
00:48:16,120 --> 00:48:20,960
Speaker 1: and gas pipeline, so that's all it's fun fun to discover. Yeah,

987
00:48:21,040 --> 00:48:23,120
Speaker 1: But I mean, I guess I'm trying to think, like

988
00:48:23,160 --> 00:48:27,520
Speaker 1: what the big takeaway here is. I mean, I guess, like,

989
00:48:27,840 --> 00:48:30,560
Speaker 1: I guess, it does seem like even before the recent crisis,

990
00:48:30,560 --> 00:48:34,479
Speaker 1: Germany had changed some of its attitude towards fiscal spending, um,

991
00:48:34,520 --> 00:48:37,720
Speaker 1: you know, similar to other governments. In the wake of

992
00:48:37,920 --> 00:48:41,200
Speaker 1: the pandemic, there seems to be a greater acceptance of

993
00:48:41,360 --> 00:48:45,480
Speaker 1: spending on on social systems and infrastructure and things like that,

994
00:48:45,600 --> 00:48:48,360
Speaker 1: and this would seem to be something that's going to

995
00:48:48,360 --> 00:48:52,000
Speaker 1: to ramp that up. But at the same time, I

996
00:48:52,000 --> 00:48:54,759
Speaker 1: guess the offset of all of this is we're sort

997
00:48:54,760 --> 00:48:59,440
Speaker 1: of talking about building up supply chain independence, energy security independence.

998
00:48:59,719 --> 00:49:03,239
Speaker 1: It does feel like we're sort of this is so

999
00:49:03,400 --> 00:49:04,960
Speaker 1: this is such a cliche, but it does feel like

1000
00:49:05,000 --> 00:49:10,160
Speaker 1: we are moving away from that interconnected globalized world previously. Right,

1001
00:49:10,520 --> 00:49:12,920
Speaker 1: You're right, it is a cliche and people talk about

1002
00:49:12,920 --> 00:49:15,719
Speaker 1: it a lot, but here you do have this like

1003
00:49:15,920 --> 00:49:20,400
Speaker 1: very sharp break and it's you know, it's very hard,

1004
00:49:20,480 --> 00:49:22,800
Speaker 1: and you know, we talked about this in our sanctions episode,

1005
00:49:23,120 --> 00:49:26,800
Speaker 1: where even if the formal sanctions lift, it's very hard

1006
00:49:26,880 --> 00:49:31,160
Speaker 1: to imagine so many of these other ancillary actions, particularly

1007
00:49:31,160 --> 00:49:35,319
Speaker 1: the corporate announcements reversing is very hard to see, you know,

1008
00:49:35,360 --> 00:49:39,320
Speaker 1: Germany reversing on its plans to invest in domestic energy

1009
00:49:39,400 --> 00:49:42,200
Speaker 1: or increase its military. So there are a lot of

1010
00:49:42,360 --> 00:49:45,080
Speaker 1: actions that have been taken that, um, you know, we

1011
00:49:45,120 --> 00:49:48,320
Speaker 1: are going to be pushing ourselves into a new direction

1012
00:49:48,320 --> 00:49:51,560
Speaker 1: that even two or three weeks ago didn't seem didn't

1013
00:49:51,560 --> 00:49:55,239
Speaker 1: seem very likely. Yeah. And then the other thing I'm

1014
00:49:55,320 --> 00:49:57,839
Speaker 1: thinking about just in terms of things that didn't seem

1015
00:49:57,920 --> 00:49:59,759
Speaker 1: very likely two or three weeks ago and maybe now

1016
00:49:59,800 --> 00:50:03,560
Speaker 1: are is, of course restarting the nuclear plants in Germany,

1017
00:50:03,600 --> 00:50:06,399
Speaker 1: because it does go ahead. I was just gonna say,

1018
00:50:06,400 --> 00:50:09,040
Speaker 1: you know, the sort of bigger picture. The big picture

1019
00:50:09,080 --> 00:50:13,040
Speaker 1: thing to me was that phrase, as Matt put it,

1020
00:50:13,160 --> 00:50:17,120
Speaker 1: fix the roof on the sunshine. It's very interesting. It's like, well, yeah,

1021
00:50:17,120 --> 00:50:19,200
Speaker 1: but then the question is what is your definition of

1022
00:50:19,239 --> 00:50:22,360
Speaker 1: fixing the roof. So if your definition of fixing the

1023
00:50:22,440 --> 00:50:25,200
Speaker 1: roof is just getting your debt to GDP ratio back

1024
00:50:25,560 --> 00:50:29,400
Speaker 1: below some number, then it's like, okay, great, your economy

1025
00:50:29,480 --> 00:50:32,600
Speaker 1: is booming. Uh, cut spending and then the numbers there.

1026
00:50:33,000 --> 00:50:35,320
Speaker 1: But you would hope or you would think that maybe

1027
00:50:35,360 --> 00:50:37,960
Speaker 1: fixing the roof could mean something like, well, having a

1028
00:50:37,960 --> 00:50:43,439
Speaker 1: more sustainable energy mix, having a more sustainable domestic infrastructure,

1029
00:50:43,520 --> 00:50:46,399
Speaker 1: and so forth. And it really is costly, and maybe

1030
00:50:46,400 --> 00:50:48,319
Speaker 1: that's something that we have to talk about more in

1031
00:50:48,360 --> 00:50:51,560
Speaker 1: the context even of US infrastructure spending, which is going

1032
00:50:51,680 --> 00:50:53,640
Speaker 1: to go up a lot. It's like we're doing all

1033
00:50:53,680 --> 00:50:57,080
Speaker 1: this at a time when commodity prices are booming. Every

1034
00:50:57,080 --> 00:50:59,400
Speaker 1: single day I look up at the terminal and commodity

1035
00:50:59,400 --> 00:51:01,680
Speaker 1: prices are so ring. This is going to be much

1036
00:51:01,719 --> 00:51:05,200
Speaker 1: costlier from a real perspective, more difficult, more time consuming

1037
00:51:05,440 --> 00:51:08,239
Speaker 1: because we're now in the ear of tight commodities. Would

1038
00:51:08,280 --> 00:51:10,600
Speaker 1: have been much easier in a period when so many

1039
00:51:10,640 --> 00:51:14,560
Speaker 1: of these commodity markets were structurally loser. Well totally, but

1040
00:51:14,719 --> 00:51:17,759
Speaker 1: it also feels like, I mean, the message, certainly from

1041
00:51:17,760 --> 00:51:22,160
Speaker 1: the Biden administration has been the solution for high prices

1042
00:51:22,400 --> 00:51:24,600
Speaker 1: is investment, and so you know, if you want to

1043
00:51:24,640 --> 00:51:26,400
Speaker 1: get away from that, you're going to have to invest in.

1044
00:51:26,440 --> 00:51:28,799
Speaker 1: The timing is terrible, and yeah, maybe we should have

1045
00:51:28,800 --> 00:51:30,360
Speaker 1: done it earlier, but you kind of have to do

1046
00:51:30,400 --> 00:51:32,440
Speaker 1: it now otherwise it's just going to get worse. But

1047
00:51:32,480 --> 00:51:35,240
Speaker 1: it does feel like there are no easy solutions. Again

1048
00:51:35,280 --> 00:51:39,120
Speaker 1: another cliche. I'm all about cliches today Apparently, Yeah, that's okay,

1049
00:51:39,120 --> 00:51:42,160
Speaker 1: but now I know, I thought that was great, and

1050
00:51:42,640 --> 00:51:44,440
Speaker 1: just the whole world I think, you know, we want

1051
00:51:44,480 --> 00:51:46,640
Speaker 1: to do more. There's so much to do. I think

1052
00:51:46,640 --> 00:51:51,560
Speaker 1: on energy specifically this year, like all the different questions

1053
00:51:51,600 --> 00:51:56,080
Speaker 1: about ellen G infrastructure alone is so fascinating. We need

1054
00:51:56,120 --> 00:51:58,319
Speaker 1: to find someone who can really get into like, you know,

1055
00:51:58,560 --> 00:52:01,760
Speaker 1: the business of Okay, energy prices might be six times

1056
00:52:02,080 --> 00:52:03,960
Speaker 1: in Europe what they are here, but you don't have

1057
00:52:04,000 --> 00:52:06,960
Speaker 1: the infrastructure to move it because of liquid faction capacity,

1058
00:52:06,960 --> 00:52:11,759
Speaker 1: because of terminal capacity. Huge opportunities for someone, and it's

1059
00:52:11,800 --> 00:52:13,480
Speaker 1: just a question of like who and what is the

1060
00:52:13,520 --> 00:52:17,719
Speaker 1: time for Also, pipeline historians get in touch, because I'm

1061
00:52:17,840 --> 00:52:20,279
Speaker 1: very curious about, you know, the decisions that go into

1062
00:52:20,360 --> 00:52:24,160
Speaker 1: building these things and how long it takes to reverse

1063
00:52:24,280 --> 00:52:27,040
Speaker 1: or alter course. And I think that's gonna be a

1064
00:52:27,040 --> 00:52:29,840
Speaker 1: pretty important thing going forward. Totally. All right, shall we

1065
00:52:29,920 --> 00:52:32,640
Speaker 1: leave it there? Let's leave it there. Okay. This has

1066
00:52:32,640 --> 00:52:35,920
Speaker 1: been another episode of the All Thoughts Podcast. I'm Tracy Alloway.

1067
00:52:36,000 --> 00:52:38,680
Speaker 1: You can follow me on Twitter at Tracy Alloway and

1068
00:52:38,719 --> 00:52:40,560
Speaker 1: I'm Joe Why Isn't It All? You can follow me

1069
00:52:40,760 --> 00:52:44,600
Speaker 1: on Twitter at the Stalwart. Follow our guest Matthew Klein.

1070
00:52:44,800 --> 00:52:48,120
Speaker 1: He is the founder and editor of The Overshoot. He

1071
00:52:48,239 --> 00:52:52,880
Speaker 1: is at m Underscore see Underscore Klin. Follow our producer

1072
00:52:53,800 --> 00:52:57,040
Speaker 1: Laura Carlson. She's at Laura M. Carlson And very sad

1073
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Speaker 1: news we have to report this is Laura's last episode

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Speaker 1: as our producer. She's returning to history, her her true

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Speaker 1: love of history. So very said, Laura, are you there?

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Speaker 1: I am, I'm here. Can you can you say a few?

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Speaker 1: We're gonna miss you so much. We're gonna We're gonna

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Speaker 1: it's it's on the this is devastate. We're gonna miss you.

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Speaker 1: You've been an amazing producer the last I think, how

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Speaker 1: long has it been three years? You've been the outliveed producer. Yeah,

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Speaker 1: well you know in COVID time, it's actually been about

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Speaker 1: two decades, so yeah, just about three years. That's exactly right.

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Speaker 1: What are you gonna be doing next? Um, I'm as

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Speaker 1: you said, I'm going back to my my my roots

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Speaker 1: in history. I'm I'm writing a book. I'm gonna be

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Speaker 1: doing some teaching and lecturing. Um unfortunately on on nothing

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Speaker 1: related to markets or or anything like that. It's all

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Speaker 1: culinary history, so so good food food history, UM, stories

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Speaker 1: of restaurants, those kinds of things. So so yeah, you've

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Speaker 1: definitely got to be a guest one day. I would

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Speaker 1: love that. I I am there that anytime you want

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Speaker 1: me to talk food history on odd lots, I'm did

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Speaker 1: be the best combination of my various world So I'm

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Speaker 1: up for it. Great. We we will definitely make it happen.

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Speaker 1: Thank you, Thank you so much, Laura. Just it's been

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Speaker 1: a it's been a real pleasure work with it. Thank

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Speaker 1: you both. This has been this has been great and

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Speaker 1: a wild ride. Yeah. Well, we're definitely, uh gonna continue

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Speaker 1: to follow your work everyone, even after this episode, you

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Speaker 1: won't be our producer anymore. Follow Laura Carlson at Laura

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00:54:28,440 --> 00:54:32,560
Speaker 1: and Carlson follow all her work. Thank you so much, Laura.

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Speaker 1: Be sure to follow the head of podcast at Bloomberg

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Speaker 1: Francisco Levi at Francisco Today, and check out all of

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Speaker 1: our podcasts here at Bloomberg under the handle at podcast.

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Speaker 1: Thanks for listening year to