1 00:00:03,160 --> 00:00:13,079 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Hello, how are you? 2 00:00:11,800 --> 00:00:14,239 Speaker 2: It's nice? 3 00:00:15,160 --> 00:00:17,000 Speaker 1: Yeah, of course, it's nice to be able to do 4 00:00:17,040 --> 00:00:20,960 Speaker 1: this in person as well. So I saw I think 5 00:00:21,000 --> 00:00:23,480 Speaker 1: you tweeted it, but you're here for an event right 6 00:00:23,560 --> 00:00:27,680 Speaker 1: with Adam too? Yes, we just had him on. His 7 00:00:27,760 --> 00:00:31,480 Speaker 1: episode came out today, So this is like a nice 8 00:00:32,000 --> 00:00:34,720 Speaker 1: a nice segue. You're going to be sat right here. 9 00:00:35,440 --> 00:00:36,839 Speaker 3: I'm not going to read from the notes. I just 10 00:00:36,880 --> 00:00:39,520 Speaker 3: took some notes on the report because there's so much 11 00:00:39,560 --> 00:00:39,880 Speaker 3: in there. 12 00:00:39,920 --> 00:00:42,560 Speaker 1: I don't know that's good because it's four hundred pages 13 00:00:42,560 --> 00:00:43,400 Speaker 1: and I didn't read. 14 00:00:43,280 --> 00:00:45,000 Speaker 4: All of it exactly. 15 00:00:45,600 --> 00:00:50,320 Speaker 1: Joe, is there anything more European than Mario Joggi writing 16 00:00:50,320 --> 00:00:52,839 Speaker 1: a four hundred page report on how to boost European 17 00:00:52,840 --> 00:01:03,840 Speaker 1: product perfect? I did a deadlift one, Jimmy, many up barges. 18 00:01:03,960 --> 00:01:06,039 Speaker 5: This isn't after school special, except. 19 00:01:05,720 --> 00:01:08,280 Speaker 1: I've decided I'm going to base my entire personality going 20 00:01:08,280 --> 00:01:11,520 Speaker 1: forward on campaigning for a strategic pork reserve in the US. 21 00:01:11,640 --> 00:01:13,360 Speaker 2: Where's the best with imposta? 22 00:01:13,520 --> 00:01:14,960 Speaker 5: These are the important question? 23 00:01:15,080 --> 00:01:16,480 Speaker 1: Is that robots taking over the world. 24 00:01:16,560 --> 00:01:19,440 Speaker 5: No, I think that like in a couple of years, 25 00:01:19,600 --> 00:01:21,880 Speaker 5: the AI will do a really good job of making 26 00:01:21,880 --> 00:01:25,200 Speaker 5: the Odd lotch podcast, and people say, I don't really 27 00:01:25,280 --> 00:01:27,120 Speaker 5: need to listen to Joe and Tracy anymore. 28 00:01:27,319 --> 00:01:27,920 Speaker 2: We do have. 29 00:01:29,640 --> 00:01:33,839 Speaker 1: The perfect You're listening to lots more where we catch 30 00:01:33,880 --> 00:01:36,880 Speaker 1: up with friends about what's going on right now, because. 31 00:01:36,640 --> 00:01:39,720 Speaker 5: Even when the Odd Lots is over, there's always lots more. 32 00:01:39,920 --> 00:01:45,480 Speaker 1: And we really do have the perfect guest. So that 33 00:01:45,520 --> 00:01:48,240 Speaker 1: report came out this week and it was sort of 34 00:01:48,600 --> 00:01:50,880 Speaker 1: long awaited. I think it was delayed in the end, 35 00:01:50,920 --> 00:01:53,640 Speaker 1: which also seems very European, but it took a year 36 00:01:53,680 --> 00:01:56,880 Speaker 1: to write, and it's all about how to make Europe 37 00:01:57,080 --> 00:01:58,680 Speaker 1: more competitive, right. 38 00:01:58,720 --> 00:02:00,560 Speaker 5: We talked about this a little bit on a recent 39 00:02:00,600 --> 00:02:03,120 Speaker 5: episode with Adam twos some of the issues in German. 40 00:02:03,320 --> 00:02:05,320 Speaker 5: There does seem to be a lot of anxiety about 41 00:02:05,320 --> 00:02:09,840 Speaker 5: the state of the European economy in general, getting really 42 00:02:09,880 --> 00:02:13,440 Speaker 5: squeezed on the manufacturing side, the energy side. Growth has 43 00:02:13,480 --> 00:02:16,280 Speaker 5: been quite mediocre theres particularly if you compare it to 44 00:02:16,320 --> 00:02:18,520 Speaker 5: the United States. I think there was a good chart 45 00:02:18,680 --> 00:02:21,799 Speaker 5: in the Droggi Report itself to about at one point 46 00:02:21,919 --> 00:02:25,120 Speaker 5: European was like fifteen percent is big, and the gap 47 00:02:25,200 --> 00:02:26,920 Speaker 5: is widened versus the United States. 48 00:02:27,000 --> 00:02:28,679 Speaker 2: It's not good. It doesn't seem good. 49 00:02:28,760 --> 00:02:30,640 Speaker 1: Oh yeah, Isabella, didn't you tweet that chart? 50 00:02:31,280 --> 00:02:32,000 Speaker 4: I did so. 51 00:02:32,680 --> 00:02:34,840 Speaker 3: Looking at that chart, I think we can basically see 52 00:02:34,840 --> 00:02:37,200 Speaker 3: that with every crisis there's a bit of a divergence 53 00:02:37,240 --> 00:02:39,560 Speaker 3: between the US and Europe, and it seems that the 54 00:02:39,639 --> 00:02:42,800 Speaker 3: US is pretty good at bouncing back, Europe not so much, 55 00:02:42,880 --> 00:02:44,560 Speaker 3: which has to do with the Fiskaver words. 56 00:02:44,600 --> 00:02:44,960 Speaker 4: I think. 57 00:02:45,200 --> 00:02:47,880 Speaker 1: So we are here with Isabella Weber. She is, of 58 00:02:47,919 --> 00:02:52,280 Speaker 1: course an economics professor at University of Massachusetts Amherst, and 59 00:02:52,320 --> 00:02:55,800 Speaker 1: she's been on the podcast a number of times. But 60 00:02:56,200 --> 00:02:59,880 Speaker 1: it's interesting to see this report come out and act 61 00:03:00,400 --> 00:03:04,399 Speaker 1: touch on a number of topics that you have addressed 62 00:03:04,600 --> 00:03:07,760 Speaker 1: through your work on pricing and shock flation. 63 00:03:08,680 --> 00:03:08,880 Speaker 4: Yeah. 64 00:03:08,919 --> 00:03:10,600 Speaker 3: Thanks so much for having me on. It's a great 65 00:03:10,600 --> 00:03:14,400 Speaker 3: opportunity to talk shockflation in the report. Maybe looking at 66 00:03:14,400 --> 00:03:19,040 Speaker 3: this divergence convergence thing twenty eight, twenty twenty, I think 67 00:03:19,040 --> 00:03:21,840 Speaker 3: that the energy crisis actually looms very large here, and 68 00:03:21,960 --> 00:03:25,200 Speaker 3: the notion that was very prevalent in twenty twenty two 69 00:03:25,200 --> 00:03:27,680 Speaker 3: in Germany that basically this is just like a little 70 00:03:28,000 --> 00:03:30,600 Speaker 3: little shock that we can easily absorb that was very 71 00:03:30,600 --> 00:03:34,280 Speaker 3: dominant in certain economics circuits, I think is now playing 72 00:03:34,320 --> 00:03:36,960 Speaker 3: out to possibly not be true. So we kind of 73 00:03:37,000 --> 00:03:39,880 Speaker 3: start to see the medium term consequences of the energy 74 00:03:39,880 --> 00:03:42,720 Speaker 3: shock and just how hard it hit Germany and Europe. 75 00:03:43,160 --> 00:03:46,360 Speaker 5: The idea of every crisis being a moment where the 76 00:03:46,480 --> 00:03:51,320 Speaker 5: US and European economies further diverge. And I think, you know, 77 00:03:51,400 --> 00:03:55,320 Speaker 5: one of the parts of the story is European fiscal constraints. 78 00:03:55,720 --> 00:03:57,800 Speaker 5: You know, we know about you know, the session with 79 00:03:57,840 --> 00:04:00,520 Speaker 5: government debt and particularly in Germany, but elsewhere in the 80 00:04:00,560 --> 00:04:02,480 Speaker 5: fact that none of the countries have their own currency, 81 00:04:02,600 --> 00:04:05,920 Speaker 5: their own central bank. So I guess basically, with every shock, 82 00:04:06,440 --> 00:04:11,000 Speaker 5: productive capacity diminishes, people you know, lose their jobs, factories 83 00:04:11,000 --> 00:04:13,760 Speaker 5: closed down. That happens in any economy. And then what 84 00:04:13,920 --> 00:04:17,159 Speaker 5: happens is basically in Europe they sort of accept that 85 00:04:17,240 --> 00:04:19,640 Speaker 5: their potential is just lower than it was before. Is 86 00:04:19,680 --> 00:04:21,640 Speaker 5: that basically the story, and then they don't really do 87 00:04:21,680 --> 00:04:22,280 Speaker 5: anything about it. 88 00:04:22,800 --> 00:04:25,920 Speaker 3: I mean, in a nutshell, I mean, I would say 89 00:04:25,960 --> 00:04:27,839 Speaker 3: that in the US has also been a steep learning 90 00:04:27,920 --> 00:04:31,200 Speaker 3: curve from two thousand and eight to the COVID crisis, right, 91 00:04:31,240 --> 00:04:33,560 Speaker 3: I mean, the kind of fiscal ambition that we have 92 00:04:33,600 --> 00:04:36,039 Speaker 3: seen in the response to the COVID crisis, I think 93 00:04:36,120 --> 00:04:38,400 Speaker 3: is a whole notch abuff of what we have seen 94 00:04:38,440 --> 00:04:41,760 Speaker 3: in Obama in response to the global financial crisis. I mean, 95 00:04:41,800 --> 00:04:44,080 Speaker 3: when it comes to the immediate rescue packages. 96 00:04:44,360 --> 00:04:45,560 Speaker 4: In twenty twenty, there. 97 00:04:45,520 --> 00:04:48,520 Speaker 3: Was also quite a bit across Europe, right, but then 98 00:04:48,720 --> 00:04:51,680 Speaker 3: very quickly Europe returned to the idea that they had 99 00:04:51,720 --> 00:04:55,000 Speaker 3: to go back to regular fiscal rules, and that really 100 00:04:55,120 --> 00:04:58,120 Speaker 3: is thanks to the German government in large parts. I'm 101 00:04:58,160 --> 00:05:01,320 Speaker 3: speaking with a German accent here, So when we look 102 00:05:01,360 --> 00:05:03,919 Speaker 3: at the stands of the German Finance Minister on the 103 00:05:03,920 --> 00:05:06,000 Speaker 3: reform of fiscal rules, and he has been a critical 104 00:05:06,040 --> 00:05:08,880 Speaker 3: player in preventing that reform. If we look at what 105 00:05:08,960 --> 00:05:11,640 Speaker 3: the German government has been doing, then in twenty twenty three, 106 00:05:11,720 --> 00:05:14,680 Speaker 3: they kind of declared victory too early on my mind, 107 00:05:14,680 --> 00:05:17,719 Speaker 3: over the energy crisis, which then also meant that they 108 00:05:17,920 --> 00:05:21,640 Speaker 3: went back to implementing the debt break, which basically tied 109 00:05:21,720 --> 00:05:24,080 Speaker 3: up their hands. And then we got this constitutional ruling 110 00:05:24,200 --> 00:05:26,960 Speaker 3: saying that they have to stick with that break, that 111 00:05:27,040 --> 00:05:30,240 Speaker 3: all these accounting ways out that they had found were 112 00:05:30,240 --> 00:05:33,679 Speaker 3: basically not constitutional. Then in twenty twenty four they decided 113 00:05:33,720 --> 00:05:37,440 Speaker 3: again to stick with the dead rule while Germany is 114 00:05:37,480 --> 00:05:40,360 Speaker 3: at this point already like the worst performing major economy 115 00:05:40,360 --> 00:05:44,080 Speaker 3: in the world. And really any macro economists would agree, 116 00:05:44,080 --> 00:05:46,120 Speaker 3: I think in their right mind that this is a 117 00:05:46,160 --> 00:05:49,120 Speaker 3: moment to spend. I wasn't a pan of with Jason Furman. 118 00:05:49,279 --> 00:05:52,040 Speaker 3: Jason and I are not necessarily known to agree on 119 00:05:52,279 --> 00:05:55,400 Speaker 3: big questions, but we both strongly agreed that this is 120 00:05:55,440 --> 00:05:59,080 Speaker 3: a moment to increase fiscal spending. Right, So this is 121 00:05:59,160 --> 00:06:04,200 Speaker 3: really a German exception to have this extremely conservative fiscal 122 00:06:04,279 --> 00:06:06,520 Speaker 3: stance in the middle of this crisis. 123 00:06:06,680 --> 00:06:10,039 Speaker 1: Wait, can I ask a somewhat personal question, but I 124 00:06:10,080 --> 00:06:14,719 Speaker 1: think given you're a German economist and we have German 125 00:06:14,760 --> 00:06:17,080 Speaker 1: economists on the show, but certainly not every day and 126 00:06:17,080 --> 00:06:20,360 Speaker 1: not in the week when there is this big competitiveness report, 127 00:06:20,400 --> 00:06:24,320 Speaker 1: But why is fiscal austerity such a big thing in Germany? 128 00:06:25,480 --> 00:06:26,480 Speaker 4: Yeah? Great question. 129 00:06:26,680 --> 00:06:29,880 Speaker 3: There was actually an exhibition at the German Historican Museum 130 00:06:29,920 --> 00:06:32,240 Speaker 3: a little while ago where they were trying to understand 131 00:06:32,279 --> 00:06:36,320 Speaker 3: why this idea of saving is so deeply rooted in 132 00:06:36,360 --> 00:06:36,960 Speaker 3: our culture. 133 00:06:37,080 --> 00:06:39,400 Speaker 1: Yeah, because it's not like there isn't a social safety 134 00:06:39,440 --> 00:06:41,120 Speaker 1: net in Germany either, So. 135 00:06:42,040 --> 00:06:45,359 Speaker 3: Yeah, why And I mean savings rates are very high, right, 136 00:06:45,480 --> 00:06:47,839 Speaker 3: So I mean their narrative was. 137 00:06:47,839 --> 00:06:49,800 Speaker 4: Basically going back to some ideas. 138 00:06:49,480 --> 00:06:53,640 Speaker 3: Of Prussian virtue, and then Nazi propaganda that very heavily 139 00:06:53,680 --> 00:06:56,640 Speaker 3: relied on like kind of making it a German virtue 140 00:06:56,680 --> 00:06:59,599 Speaker 3: to save because it was necessary for the war economy, 141 00:07:00,040 --> 00:07:02,839 Speaker 3: and then after the war that like kind of someone 142 00:07:02,839 --> 00:07:06,719 Speaker 3: who saves is a good person idea was perpetuated, And 143 00:07:06,760 --> 00:07:10,600 Speaker 3: then I think there's this kind of equation between personal 144 00:07:10,720 --> 00:07:14,120 Speaker 3: spending and fiscal spending by the state, and this narrative 145 00:07:14,160 --> 00:07:18,480 Speaker 3: of the Swabian housewife, which is very prominently rooted in 146 00:07:18,520 --> 00:07:21,280 Speaker 3: people's mind. So if you do polls on whether the 147 00:07:21,320 --> 00:07:23,320 Speaker 3: death break is a good thing, most people actually think 148 00:07:23,320 --> 00:07:25,320 Speaker 3: it is a good thing because it's been preached to 149 00:07:25,360 --> 00:07:27,360 Speaker 3: them for so long. Where by the way, I think 150 00:07:27,360 --> 00:07:30,560 Speaker 3: this idea of this Swabian housewife is the way how 151 00:07:30,600 --> 00:07:33,160 Speaker 3: to run a national budget also has a good portion 152 00:07:33,240 --> 00:07:35,680 Speaker 3: of sexism because of it of course refers to the 153 00:07:35,720 --> 00:07:39,120 Speaker 3: idea that the housewife doesn't really have authority over the budget, 154 00:07:39,520 --> 00:07:41,880 Speaker 3: but that it kind of has to ask permission. 155 00:07:42,080 --> 00:07:45,200 Speaker 5: Ah, right, so passively, except this is the amount of 156 00:07:45,240 --> 00:07:47,840 Speaker 5: income that you get you but you don't actually control 157 00:07:47,920 --> 00:07:50,000 Speaker 5: the amount of income and then you just but now 158 00:07:50,040 --> 00:07:53,119 Speaker 5: figure out how to spend it exactly. It's implication behind 159 00:07:53,120 --> 00:07:55,320 Speaker 5: that term, which I hadn't I guess I don't really 160 00:07:55,360 --> 00:07:57,080 Speaker 5: I'm not sure if I had heard that term before. 161 00:07:57,680 --> 00:07:59,920 Speaker 3: It's very I mean, this idea of the Swabian housewife 162 00:08:00,120 --> 00:08:02,080 Speaker 3: all over the German discourse. I think it's a very 163 00:08:02,120 --> 00:08:04,160 Speaker 3: German thing, and I think no one really thinks about 164 00:08:04,200 --> 00:08:07,680 Speaker 3: the sexis implication of non sovereignty over your budget. But 165 00:08:07,800 --> 00:08:10,120 Speaker 3: it's kind of there, and I mean Mackett really like 166 00:08:10,160 --> 00:08:12,200 Speaker 3: to invoke it, which doesn't make it any less sexies, 167 00:08:12,440 --> 00:08:15,680 Speaker 3: I think. So there's that, but then there's of course 168 00:08:15,680 --> 00:08:17,760 Speaker 3: also the fact that this has been established as a 169 00:08:17,800 --> 00:08:18,800 Speaker 3: constitutional rule. 170 00:08:18,880 --> 00:08:20,880 Speaker 4: Right So now, I mean, beyond all. 171 00:08:20,720 --> 00:08:24,040 Speaker 3: These cultural issues, there's a real issue of politics where 172 00:08:24,040 --> 00:08:27,280 Speaker 3: basically the ruling government has a coalition of three parties 173 00:08:27,280 --> 00:08:30,120 Speaker 3: and one party, the FDP, thinks that the best thing 174 00:08:30,160 --> 00:08:31,680 Speaker 3: to do is to stick with the fetish of the 175 00:08:31,720 --> 00:08:34,640 Speaker 3: black zero and the other two parties disagree, but they 176 00:08:34,679 --> 00:08:37,240 Speaker 3: are not in a position to find the majority in parliament, 177 00:08:37,280 --> 00:08:40,240 Speaker 3: so they're kind of locked into that straight jacket. 178 00:08:40,600 --> 00:08:44,400 Speaker 1: So you touched on the energy markets earlier. But it's 179 00:08:44,440 --> 00:08:47,680 Speaker 1: really interesting reading Joggi's report. I mean, energy is a 180 00:08:47,720 --> 00:08:50,800 Speaker 1: big component of this, and he talks about things like 181 00:08:50,840 --> 00:08:55,800 Speaker 1: decoupling energy prices and gas derivative markets and things like that. 182 00:08:56,000 --> 00:08:57,760 Speaker 1: Can you talk a little bit more about how that 183 00:08:57,800 --> 00:09:00,959 Speaker 1: fits into your research, because I know you've a lot 184 00:09:01,000 --> 00:09:05,600 Speaker 1: of work on things like carbon pricing and obviously shockflation, 185 00:09:05,880 --> 00:09:09,400 Speaker 1: a lot of which comes through higher energy prices. 186 00:09:10,559 --> 00:09:15,440 Speaker 3: Yes, So for the whole question of European gas prices, 187 00:09:15,520 --> 00:09:18,120 Speaker 3: I'm totally aligned with Druggy, and I think that in 188 00:09:18,160 --> 00:09:20,800 Speaker 3: many ways. Actually, his section on prices reads a bit 189 00:09:20,880 --> 00:09:25,559 Speaker 3: like an implicit commentary on what happened during the gas crisis. So, 190 00:09:25,760 --> 00:09:28,800 Speaker 3: I mean he's saying that a number of causes for 191 00:09:28,840 --> 00:09:31,880 Speaker 3: the high gas prices in Europe and the kind of 192 00:09:32,400 --> 00:09:34,640 Speaker 3: I mean, gas prices have come down, but there's still 193 00:09:34,640 --> 00:09:37,920 Speaker 3: a persistent gap, persistent gap between China and the US. Right, 194 00:09:38,280 --> 00:09:40,800 Speaker 3: So of course there's a lack of resources, which is obvious, 195 00:09:40,840 --> 00:09:44,440 Speaker 3: but there's also low great development, low infrastructure investments, which 196 00:09:44,480 --> 00:09:46,760 Speaker 3: is kind of these like more long run structural factors. 197 00:09:47,200 --> 00:09:50,240 Speaker 1: I talked about permitting reform as well, which is kind 198 00:09:50,240 --> 00:09:51,679 Speaker 1: of interesting coming from Europe. 199 00:09:52,000 --> 00:09:54,840 Speaker 3: Yeah, but in terms of the like kind of short 200 00:09:54,920 --> 00:09:57,079 Speaker 3: run dynamics, which I think is where the commentary in 201 00:09:57,120 --> 00:10:01,160 Speaker 3: twenty twenty two comes in. He's talking about financial markets 202 00:10:01,200 --> 00:10:05,800 Speaker 3: having driven volatility, having basically increased volatility in these markets, 203 00:10:05,800 --> 00:10:08,800 Speaker 3: which I think implies that the prices that we have 204 00:10:08,840 --> 00:10:12,280 Speaker 3: seen in twenty twenty two were not necessarily prices that 205 00:10:12,320 --> 00:10:15,880 Speaker 3: were reflecting fundamentals, but that some of these price movements 206 00:10:15,920 --> 00:10:18,920 Speaker 3: were the result of animal spirts on gas markets where 207 00:10:18,920 --> 00:10:21,520 Speaker 3: no one really knew what Putin was going to do next, 208 00:10:21,600 --> 00:10:24,120 Speaker 3: and you basically got a lot of hurt behavior in 209 00:10:24,160 --> 00:10:27,160 Speaker 3: this situation of extreme uncertainty, which is something that Tom 210 00:10:27,240 --> 00:10:29,720 Speaker 3: crapser Coat and mine have of mind, and I have 211 00:10:29,800 --> 00:10:33,400 Speaker 3: actually argued in a recent study on the price control question, 212 00:10:33,440 --> 00:10:35,640 Speaker 3: where we say, I mean, if you get these prices 213 00:10:35,720 --> 00:10:39,079 Speaker 3: overshooting in relationship to the fundamentals in this extreme way, 214 00:10:39,480 --> 00:10:42,760 Speaker 3: then this actually means that taking some of this overshooting 215 00:10:42,800 --> 00:10:46,000 Speaker 3: out is optimal even from a general equilibrium like a 216 00:10:46,120 --> 00:10:51,520 Speaker 3: very conservative standard economic modeling perspective, and that notion is 217 00:10:51,520 --> 00:10:54,560 Speaker 3: definitely there in the drug important terms of the volatility. 218 00:10:54,600 --> 00:10:57,360 Speaker 3: The second point that he makes is that Europe should 219 00:10:57,480 --> 00:11:00,520 Speaker 3: use its monopsonal power and global market, so it should 220 00:11:00,559 --> 00:11:00,960 Speaker 3: team up. 221 00:11:01,000 --> 00:11:03,520 Speaker 1: Yeah, this is like the collective bargaining argument. 222 00:11:03,800 --> 00:11:07,440 Speaker 3: Yes, so that basically European countries should team up in 223 00:11:07,520 --> 00:11:10,360 Speaker 3: buying gas and that way be able to get lower 224 00:11:10,400 --> 00:11:12,640 Speaker 3: prices on the global market, which again was a very 225 00:11:12,760 --> 00:11:16,120 Speaker 3: very hot topic in twenty twenty two where basically the 226 00:11:16,160 --> 00:11:18,120 Speaker 3: rest of Europe was really trying to do that and 227 00:11:18,160 --> 00:11:21,880 Speaker 3: the German government was quite keen to keep procuring by 228 00:11:21,920 --> 00:11:24,360 Speaker 3: themselves to make sure that Germany is supplied first. So 229 00:11:24,360 --> 00:11:26,440 Speaker 3: again this is kind of a commentary on the last 230 00:11:26,440 --> 00:11:29,160 Speaker 3: crisis looking ahead at the next crisis, that we need 231 00:11:29,240 --> 00:11:33,000 Speaker 3: more coordinating procurement on the European Club. 232 00:11:46,720 --> 00:11:50,680 Speaker 5: Many people seem to agree that the Eurozone is sort 233 00:11:50,679 --> 00:11:53,679 Speaker 5: of a half baked project. There is the common currency, 234 00:11:53,760 --> 00:11:56,960 Speaker 5: but then you know there's like fragmented capital markets and 235 00:11:57,040 --> 00:12:02,080 Speaker 5: fragmented regulatory schemes, arrangements, et cetera. Setting aside, Okay, we 236 00:12:02,160 --> 00:12:06,000 Speaker 5: talked about energy, which is very important for industry. We 237 00:12:06,160 --> 00:12:10,120 Speaker 5: talked about the fiscal straight jacket and the constraints that 238 00:12:10,280 --> 00:12:13,720 Speaker 5: Europe imposes on itself for investment and how that makes 239 00:12:13,760 --> 00:12:18,080 Speaker 5: it harder. Do you, as an economist accept the premise 240 00:12:18,400 --> 00:12:21,720 Speaker 5: that Europe has a competitiveness problem, and one of the 241 00:12:21,760 --> 00:12:25,320 Speaker 5: other areas that Dragi talks about is like the regulatory environment, 242 00:12:25,520 --> 00:12:27,920 Speaker 5: and you hear it from tech people it makes really 243 00:12:28,000 --> 00:12:30,679 Speaker 5: hard to start a business or do a startup in 244 00:12:30,720 --> 00:12:34,520 Speaker 5: Europe because of various rules. Do you accept that component 245 00:12:34,600 --> 00:12:37,120 Speaker 5: of the premise that there is other aspects of the 246 00:12:37,160 --> 00:12:41,080 Speaker 5: regulatory environment that make it harder for companies to be 247 00:12:41,120 --> 00:12:44,400 Speaker 5: at the global cutting edge against competitors in the US, 248 00:12:44,480 --> 00:12:47,760 Speaker 5: in China, and that Europe needs to rethink some things. 249 00:12:48,800 --> 00:12:50,600 Speaker 4: I do agree with that basic premise. 250 00:12:50,640 --> 00:12:53,720 Speaker 3: So basically there is a challenge how to rethink the 251 00:12:53,800 --> 00:12:57,719 Speaker 3: European model to make it competitive moving ahead. And I 252 00:12:57,760 --> 00:13:00,160 Speaker 3: think that Drug is also right in emphasizing that in 253 00:13:00,200 --> 00:13:03,840 Speaker 3: good parts that should build on existing strengths. So Europe 254 00:13:03,920 --> 00:13:07,400 Speaker 3: is still pretty competitive in the whole clean tech sector. 255 00:13:07,440 --> 00:13:10,400 Speaker 3: I mean, of course, China has become a very major player, 256 00:13:10,400 --> 00:13:12,560 Speaker 3: they're the most important player. But still there are many 257 00:13:12,600 --> 00:13:15,240 Speaker 3: technologies where Europe actually is in a good position and 258 00:13:15,360 --> 00:13:20,000 Speaker 3: where basically the pipeline from innovation to employment and then 259 00:13:20,080 --> 00:13:23,600 Speaker 3: actually like turning this into successful businesses is where the 260 00:13:23,640 --> 00:13:26,599 Speaker 3: project fails. And I think trying to tackle this is 261 00:13:27,120 --> 00:13:29,400 Speaker 3: bought on is exactly right. I will also say that 262 00:13:29,440 --> 00:13:33,200 Speaker 3: the whole discussion around energy prices is of course related 263 00:13:33,200 --> 00:13:35,680 Speaker 3: to competitiveness, and this is where I would actually add 264 00:13:35,679 --> 00:13:38,080 Speaker 3: the CO two price question, which is something that he 265 00:13:38,280 --> 00:13:41,720 Speaker 3: kind of touches on but doesn't really go into where 266 00:13:41,880 --> 00:13:43,360 Speaker 3: I think in the US. I don't know how you 267 00:13:43,520 --> 00:13:46,280 Speaker 3: see it, but my impression is that the idea of 268 00:13:46,400 --> 00:13:49,120 Speaker 3: carbon pricing in the US is basically off the table. 269 00:13:49,200 --> 00:13:50,680 Speaker 3: I mean, the Democrats are not going to do it 270 00:13:50,679 --> 00:13:53,880 Speaker 3: and Trump is definitely not going to do it. In China, 271 00:13:53,920 --> 00:13:57,360 Speaker 3: there's some scope for carbon pricing, but it's really secondary 272 00:13:57,400 --> 00:14:01,439 Speaker 3: to the kind of investment led big green stage transition strategy. 273 00:14:01,760 --> 00:14:03,600 Speaker 4: So this leaves Europe alone. 274 00:14:03,400 --> 00:14:06,360 Speaker 3: As a country that is trying to rely on making 275 00:14:06,440 --> 00:14:10,040 Speaker 3: emission incentive stuff more expensive, and that I think is 276 00:14:10,080 --> 00:14:14,800 Speaker 3: actually a huge competitive disadvantage in the approach to the 277 00:14:14,960 --> 00:14:17,680 Speaker 3: green transition. And as we have been arguing in a 278 00:14:17,840 --> 00:14:21,320 Speaker 3: recent study where we have simulated the inflation impact from 279 00:14:21,360 --> 00:14:26,000 Speaker 3: carbon pricing, could also actually trigger inflation, which then, given 280 00:14:26,240 --> 00:14:30,520 Speaker 3: European inflation governance, which basically relies on interest rate hikes, 281 00:14:30,560 --> 00:14:34,760 Speaker 3: could create another competitiveness constraint because if you get what 282 00:14:34,800 --> 00:14:38,920 Speaker 3: we call carbon inflation, inflation triggered by carbon price increases, 283 00:14:39,400 --> 00:14:42,520 Speaker 3: and you then respond by hiking interest rates, then of 284 00:14:42,560 --> 00:14:44,920 Speaker 3: course you make the cost of capital even higher, which 285 00:14:44,960 --> 00:14:46,680 Speaker 3: is one of the points that Drug, he points out, 286 00:14:47,880 --> 00:14:50,480 Speaker 3: is a disadvantage for Europe. But the model that is 287 00:14:50,480 --> 00:14:54,200 Speaker 3: being pursued in the Green Transition also really matters for competitiveness. 288 00:14:54,200 --> 00:14:56,040 Speaker 3: And basically what Drug is saying is that we need 289 00:14:56,120 --> 00:14:58,560 Speaker 3: more of what the US is doing right but he 290 00:14:58,640 --> 00:15:01,400 Speaker 3: doesn't quite say need to maybe rethink some of the 291 00:15:01,440 --> 00:15:02,920 Speaker 3: stuff that we are doing right now. 292 00:15:03,280 --> 00:15:06,840 Speaker 1: Yeah, I think the cost of capital point is so important, 293 00:15:06,920 --> 00:15:10,000 Speaker 1: and like the Green Transition, the way Europe is pursuing, 294 00:15:10,040 --> 00:15:13,240 Speaker 1: it only really works if other countries are kind of 295 00:15:13,240 --> 00:15:16,160 Speaker 1: doing something similar. And I remember there was this mind 296 00:15:16,240 --> 00:15:19,440 Speaker 1: blowing stat I think it's like five years old now, 297 00:15:19,480 --> 00:15:22,200 Speaker 1: so it's probably not true, but I think it's very 298 00:15:22,200 --> 00:15:24,880 Speaker 1: indicative of the tension that we're talking about. 299 00:15:25,040 --> 00:15:26,480 Speaker 2: It's not true, but it sounds good. 300 00:15:27,000 --> 00:15:29,360 Speaker 1: Well, it was true. It was true in twenty nineteen. 301 00:15:29,440 --> 00:15:31,760 Speaker 1: It's probably not true now, but I remember, I think 302 00:15:31,760 --> 00:15:35,040 Speaker 1: it was City Group they put out this report saying 303 00:15:35,120 --> 00:15:38,720 Speaker 1: that because of the different ways US and European investors 304 00:15:38,720 --> 00:15:43,040 Speaker 1: were treating and approaching energy companies. It meant that European 305 00:15:43,160 --> 00:15:46,680 Speaker 1: energy companies had borrowing costs that were two hundred basis 306 00:15:46,720 --> 00:15:52,880 Speaker 1: points more expensive than their American counterparts. And what that 307 00:15:52,920 --> 00:15:55,360 Speaker 1: meant is like, maybe it would make sense for like 308 00:15:55,440 --> 00:15:58,040 Speaker 1: Exxon to buy Shell or something. I think they said 309 00:15:58,040 --> 00:16:01,840 Speaker 1: that somewhat facetiously, but that's the issue here. If Europeans 310 00:16:01,880 --> 00:16:05,360 Speaker 1: care more about the environment and carbon pricing and that 311 00:16:05,440 --> 00:16:09,760 Speaker 1: results in a comparative disadvantage, as Isabella pointed out, then 312 00:16:09,960 --> 00:16:13,560 Speaker 1: that's not helpful to the green transition or the European economy. 313 00:16:14,160 --> 00:16:14,360 Speaker 4: Yeah. 314 00:16:14,400 --> 00:16:18,560 Speaker 3: And I think there's kind of a more general gap 315 00:16:18,680 --> 00:16:21,720 Speaker 3: or unrealized potential in the drug report here, because a 316 00:16:21,720 --> 00:16:23,960 Speaker 3: lot of the things that he is talking about could 317 00:16:24,000 --> 00:16:27,000 Speaker 3: actually also be used for price stability, right. I mean, 318 00:16:27,000 --> 00:16:29,360 Speaker 3: he is talking, for example, about buffer stocks. He is 319 00:16:29,400 --> 00:16:32,720 Speaker 3: actually talking about strategic reserves for He's pretty wake on 320 00:16:32,800 --> 00:16:35,360 Speaker 3: what exactly he wants them for, but he's putting this 321 00:16:35,480 --> 00:16:38,600 Speaker 3: on the table as one possibility. He is talking about 322 00:16:38,640 --> 00:16:42,800 Speaker 3: lower energy prices, he is talking about a more coordinated 323 00:16:42,880 --> 00:16:47,000 Speaker 3: industrial approach, And what we have been arguing is that 324 00:16:47,240 --> 00:16:50,240 Speaker 3: basically in terms of the inflation governance as a huge 325 00:16:50,360 --> 00:16:53,600 Speaker 3: gap in Europe, because if you get shoflation, if you 326 00:16:53,640 --> 00:16:57,160 Speaker 3: get inflation that is actually triggered by major supply shocks 327 00:16:57,240 --> 00:17:01,200 Speaker 3: or systemically significant sectors, and then respond the only way 328 00:17:01,240 --> 00:17:03,480 Speaker 3: to respond is by hiking indust rates, you kind of 329 00:17:03,560 --> 00:17:05,680 Speaker 3: have a gap. You could have a much more sophisticated 330 00:17:05,720 --> 00:17:08,720 Speaker 3: toolbox to deal with these shocks. And I mean a 331 00:17:08,760 --> 00:17:11,040 Speaker 3: lot of the things that Drugy is talking about in 332 00:17:11,119 --> 00:17:15,040 Speaker 3: terms of investments, in terms of strategic reorientation of sectors, 333 00:17:15,040 --> 00:17:17,840 Speaker 3: in terms of resilience, and could also be used to 334 00:17:17,920 --> 00:17:21,760 Speaker 3: make these sectors more resilient to price shocks, right, And 335 00:17:21,840 --> 00:17:23,639 Speaker 3: I think this is kind of a bit of a 336 00:17:23,680 --> 00:17:24,760 Speaker 3: missing piece in the past. 337 00:17:25,359 --> 00:17:27,680 Speaker 1: This reminds me, Joe, do you remember the first time 338 00:17:27,720 --> 00:17:30,280 Speaker 1: we ever had Isabella on the podcast? 339 00:17:30,440 --> 00:17:31,680 Speaker 2: Oh, I think we're talked about China. 340 00:17:31,760 --> 00:17:34,880 Speaker 1: Yeah, we were talking about China. And since then, you've 341 00:17:34,920 --> 00:17:39,000 Speaker 1: done so much work on things like pricing and shock flation, 342 00:17:39,600 --> 00:17:44,080 Speaker 1: and it feels like there's been a lot more acceptance, 343 00:17:44,359 --> 00:17:48,840 Speaker 1: certainly in Europe of things like even price controls. The 344 00:17:48,880 --> 00:17:53,160 Speaker 1: transition has been like very remarkable to watch and it's 345 00:17:53,200 --> 00:17:54,240 Speaker 1: only been a few years. 346 00:17:55,480 --> 00:17:58,560 Speaker 3: Absolutely, and I think it's actually quite remarkable how there 347 00:17:58,640 --> 00:18:02,000 Speaker 3: is some sort of a pretext both in the US 348 00:18:02,080 --> 00:18:05,399 Speaker 3: and in Europe that basically they now need industry policy 349 00:18:05,440 --> 00:18:07,760 Speaker 3: because China is doing it, so we can no longer 350 00:18:07,880 --> 00:18:11,280 Speaker 3: not do it. What is missing, from my point of 351 00:18:11,359 --> 00:18:14,880 Speaker 3: view is that actually China has not just been doing 352 00:18:14,960 --> 00:18:19,280 Speaker 3: industry policy as I kind of sector level one of policies, 353 00:18:19,320 --> 00:18:24,560 Speaker 3: but has actually been thinking about re industrialization from the perspective. 354 00:18:24,000 --> 00:18:25,000 Speaker 4: Of system reform. 355 00:18:25,080 --> 00:18:27,440 Speaker 3: So it's always been like kind from this perspective, how 356 00:18:27,480 --> 00:18:29,800 Speaker 3: do you change the system as a whole where the 357 00:18:29,840 --> 00:18:34,040 Speaker 3: price question, inflation question, macro stability questions are integrated with 358 00:18:34,200 --> 00:18:37,960 Speaker 3: the question of changing specific industries. And that is actually, 359 00:18:37,960 --> 00:18:40,600 Speaker 3: I think something that hasn't quite taken on yet in 360 00:18:41,000 --> 00:18:44,720 Speaker 3: Europe and the US. Rainavaruja at the Ft was recently 361 00:18:44,720 --> 00:18:46,879 Speaker 3: had this ope ad where she was saying that basically 362 00:18:46,960 --> 00:18:50,280 Speaker 3: we need much more systems thinking in all these initiatives 363 00:18:50,280 --> 00:18:53,040 Speaker 3: that currently run under the label industry policy, which makes 364 00:18:53,040 --> 00:18:55,680 Speaker 3: it sound as if it's about specific industries, it's about 365 00:18:55,680 --> 00:18:58,280 Speaker 3: innovation policy, where really what we need is more of 366 00:18:58,280 --> 00:18:59,400 Speaker 3: a systemic approach. 367 00:18:59,480 --> 00:18:59,680 Speaker 4: Right. 368 00:19:00,000 --> 00:19:02,560 Speaker 3: I think the same I would say about the drug 369 00:19:02,600 --> 00:19:06,000 Speaker 3: Ye report where we have several elements of systems thinking, 370 00:19:06,040 --> 00:19:08,280 Speaker 3: Like when he talks about more coordination and so on, 371 00:19:08,520 --> 00:19:10,840 Speaker 3: he's kind of walking in that direction, but then he's 372 00:19:10,840 --> 00:19:13,560 Speaker 3: talking about prices without talking about interest rates and inflation. 373 00:19:13,760 --> 00:19:16,679 Speaker 3: So kind of this like major link with the macroeconomy 374 00:19:16,880 --> 00:19:19,000 Speaker 3: is missing, which I think comes from a lack of 375 00:19:19,280 --> 00:19:22,840 Speaker 3: this kind of like system thinking. And that is quite 376 00:19:22,840 --> 00:19:25,040 Speaker 3: interesting to me. And it seems like, I mean, if 377 00:19:25,280 --> 00:19:27,040 Speaker 3: I look back at the last couple of years and 378 00:19:27,080 --> 00:19:30,080 Speaker 3: how quickly the discourse has changed, my sense is that 379 00:19:30,160 --> 00:19:32,280 Speaker 3: this is the next like kind of cutting edge in 380 00:19:32,359 --> 00:19:35,720 Speaker 3: terms of how the economic policy debate might actually shift 381 00:19:35,720 --> 00:19:36,520 Speaker 3: in the vest. 382 00:19:36,880 --> 00:19:41,360 Speaker 5: It's interesting thinking about this sort of the US, Europe, 383 00:19:41,440 --> 00:19:46,119 Speaker 5: and China all have similarities with respect to sort of 384 00:19:46,240 --> 00:19:50,440 Speaker 5: the challenges or the opportunities of the sort of internal cohesion, 385 00:19:50,520 --> 00:19:52,840 Speaker 5: right because even you know, China, for all these sort 386 00:19:52,880 --> 00:19:55,960 Speaker 5: of talk about centrally planned and plan out of Beijing, 387 00:19:56,160 --> 00:19:59,840 Speaker 5: there's quite a bit of competition, is my understanding, between 388 00:19:59,880 --> 00:20:03,720 Speaker 5: the provinces and their desire to compete against each. 389 00:20:03,520 --> 00:20:07,480 Speaker 2: Other for I mean investment and jobs and things like that. 390 00:20:07,760 --> 00:20:11,480 Speaker 3: I mean, competition in China is absolutely cut throat in 391 00:20:11,520 --> 00:20:14,520 Speaker 3: many areas, right, I mean, if you take the EV sector, 392 00:20:14,680 --> 00:20:17,520 Speaker 3: like many people are talking now mainly about subsidies, which, 393 00:20:17,680 --> 00:20:20,919 Speaker 3: of course, in the early phase when basically the Chinese 394 00:20:20,920 --> 00:20:25,119 Speaker 3: state decided to create an EV industry, there was a 395 00:20:25,119 --> 00:20:27,800 Speaker 3: lot of subsidies flowing. But right now we are in 396 00:20:27,840 --> 00:20:30,120 Speaker 3: a situation where we have a larger number of car 397 00:20:30,160 --> 00:20:32,280 Speaker 3: companies than we have had, like since the nineteen tens 398 00:20:32,359 --> 00:20:36,440 Speaker 3: or something, because there are so many new EV companies 399 00:20:36,480 --> 00:20:39,040 Speaker 3: that came on the market in China, and they are 400 00:20:39,480 --> 00:20:42,679 Speaker 3: engaged in the most brutal kind of competition that you 401 00:20:42,720 --> 00:20:45,480 Speaker 3: can imagine. It's basically a competition for survival, where it's 402 00:20:45,520 --> 00:20:48,040 Speaker 3: clear to everybody that at the end of this competition 403 00:20:48,080 --> 00:20:49,720 Speaker 3: process there might be I don't know, three, four or 404 00:20:49,800 --> 00:20:53,440 Speaker 3: five companies left. So this is just one example where 405 00:20:53,480 --> 00:20:56,760 Speaker 3: everybody points to subsidies, but I think it's really also 406 00:20:56,800 --> 00:21:00,720 Speaker 3: about competition between Chinese players. Another example is if you 407 00:21:00,760 --> 00:21:03,040 Speaker 3: look at the meat industry, which is something that we 408 00:21:03,080 --> 00:21:05,800 Speaker 3: have talked about before, then this is an extremely highly 409 00:21:05,840 --> 00:21:08,640 Speaker 3: concentrated sector in the US and Europe. Right in China, 410 00:21:08,720 --> 00:21:10,960 Speaker 3: I mean, concentration has started to pick up, but it's 411 00:21:11,000 --> 00:21:17,360 Speaker 3: still extremely extremely competitive, with many small meat processes producing 412 00:21:17,440 --> 00:21:20,240 Speaker 3: still pretty large shares of what comes to the market 413 00:21:20,280 --> 00:21:22,880 Speaker 3: and to me when I first went to Beijing as 414 00:21:22,880 --> 00:21:26,119 Speaker 3: an undergraded student, actually just walking around the city, you 415 00:21:26,160 --> 00:21:29,639 Speaker 3: sometimes come to these streets that where the whole street 416 00:21:29,720 --> 00:21:33,400 Speaker 3: just sells one product. There's a guitar shop street, Okay, 417 00:21:33,600 --> 00:21:38,480 Speaker 3: so there's one shop next to another that sells basically 418 00:21:38,480 --> 00:21:41,520 Speaker 3: the same product portfolio, which is the most extreme kind 419 00:21:41,560 --> 00:21:43,920 Speaker 3: of competition that you can imagine, Like none of them 420 00:21:43,960 --> 00:21:46,800 Speaker 3: has any scope to move out of this, and the 421 00:21:46,920 --> 00:21:48,760 Speaker 3: same model we see in a lot of the production 422 00:21:48,880 --> 00:21:51,200 Speaker 3: towns in China right where I don't know one town 423 00:21:51,240 --> 00:21:54,560 Speaker 3: that only does bottoms for shirts and it is the 424 00:21:54,600 --> 00:21:57,880 Speaker 3: most important supplier for shirt buttons in the whole world. 425 00:21:58,080 --> 00:22:01,399 Speaker 1: There is that famous Christmas decoration town where they just 426 00:22:01,480 --> 00:22:03,600 Speaker 1: make Christmas decorations. 427 00:22:03,160 --> 00:22:06,120 Speaker 3: Exactly, and each of these companies has like zero leve. 428 00:22:06,320 --> 00:22:09,400 Speaker 3: This is actually kind of your idea of perfect competition 429 00:22:09,480 --> 00:22:25,400 Speaker 3: as you see it in the textbooks, Tracy. 430 00:22:25,440 --> 00:22:28,920 Speaker 5: According to Bloomberg, a twenty twenty three piece in twenty 431 00:22:29,000 --> 00:22:32,240 Speaker 5: nineteen or five hundred Chinese ev companies, but that's now 432 00:22:32,240 --> 00:22:34,280 Speaker 5: down to one hundred, so I guess some are being 433 00:22:34,280 --> 00:22:34,760 Speaker 5: weeded out. 434 00:22:34,920 --> 00:22:41,360 Speaker 1: That's interesting. What if Europe's comparative advantage is basically writing 435 00:22:41,960 --> 00:22:45,760 Speaker 1: think pieces and four hundred page reports, Like maybe they 436 00:22:45,760 --> 00:22:48,480 Speaker 1: can actually make money by being the global exporter of 437 00:22:49,680 --> 00:22:54,280 Speaker 1: ideas McKenzie. Yeah, they're much better. They're also much better 438 00:22:54,320 --> 00:22:57,720 Speaker 1: at like vacations and work life balance and drinking wine 439 00:22:57,720 --> 00:22:58,120 Speaker 1: at lunch. 440 00:22:58,320 --> 00:23:00,640 Speaker 2: To figure out how to pay them for all that. 441 00:23:00,920 --> 00:23:03,480 Speaker 3: Yeah, it could become some sort of a Disney park 442 00:23:03,560 --> 00:23:05,040 Speaker 3: for Chinese and American tourist. 443 00:23:05,040 --> 00:23:06,000 Speaker 4: Is that what yoursiona? 444 00:23:06,320 --> 00:23:11,080 Speaker 1: Yeah, intellectuals basically like observe what it would be like 445 00:23:11,280 --> 00:23:14,560 Speaker 1: to have a European style work life balance. 446 00:23:14,680 --> 00:23:17,679 Speaker 5: It's not crazy actually, the Disney World example. I mean, 447 00:23:17,680 --> 00:23:19,840 Speaker 5: Europe is a great place to go. Setting aside the 448 00:23:19,880 --> 00:23:23,080 Speaker 5: issue with energy costs and whether you know, Volkswegens could 449 00:23:23,080 --> 00:23:24,439 Speaker 5: be competitive, it's a great place to go. 450 00:23:24,560 --> 00:23:27,320 Speaker 3: I mean food is great, culture is great, city life 451 00:23:27,359 --> 00:23:30,359 Speaker 3: is great. Yeah, many things in there. I would like 452 00:23:30,400 --> 00:23:32,320 Speaker 3: to kind of add maybe one more thought to your 453 00:23:32,480 --> 00:23:36,600 Speaker 3: question on the cohesion and competitiveness and so on. I 454 00:23:36,640 --> 00:23:41,679 Speaker 3: think that in this whole debate around external competitiveness and 455 00:23:41,720 --> 00:23:44,479 Speaker 3: I kind of reshoring French touring and so on, there 456 00:23:44,520 --> 00:23:48,040 Speaker 3: has been a tendency to think like, when stuff is national, 457 00:23:48,160 --> 00:23:51,679 Speaker 3: it will be kind of good for everybody in that country, 458 00:23:52,000 --> 00:23:54,760 Speaker 3: which is to me a little bit similar to the 459 00:23:54,760 --> 00:23:57,520 Speaker 3: debate around globalization in the nineteen nineties, where was I 460 00:23:57,600 --> 00:23:59,520 Speaker 3: kind of the exact same thing, but turn on its head, 461 00:23:59,560 --> 00:24:02,280 Speaker 3: where was I, Oh, as long as we globalize and 462 00:24:02,320 --> 00:24:04,800 Speaker 3: we produce in the most efficient places and everything is 463 00:24:04,840 --> 00:24:07,040 Speaker 3: free trade, it will be so wonderful and there will 464 00:24:07,040 --> 00:24:08,600 Speaker 3: be welfare gains for everybody. 465 00:24:08,640 --> 00:24:12,320 Speaker 1: Expanding the pie is what people used to say exactly. 466 00:24:12,359 --> 00:24:15,600 Speaker 3: Now it's kind of no longer about expanding the high globally, 467 00:24:15,640 --> 00:24:17,560 Speaker 3: it's about expanding the national pie. 468 00:24:17,680 --> 00:24:19,600 Speaker 4: And then there's an assumption that this will be great 469 00:24:19,600 --> 00:24:21,479 Speaker 4: for everybody. And that is also like a little bit 470 00:24:21,520 --> 00:24:21,960 Speaker 4: in the. 471 00:24:22,160 --> 00:24:24,840 Speaker 3: Drug report, I mean, he hinges at saying like, oh, 472 00:24:24,880 --> 00:24:27,600 Speaker 3: we need to make sure that there's also democratic participation 473 00:24:27,960 --> 00:24:31,600 Speaker 3: and like consultation with unions and civil society groups and 474 00:24:31,600 --> 00:24:34,679 Speaker 3: so on as we are making these decisions processes to 475 00:24:34,800 --> 00:24:37,720 Speaker 3: ensure that there is democratic legitimacy, which is I think great. 476 00:24:37,920 --> 00:24:40,280 Speaker 3: But at the same time, when we look at competitiveness 477 00:24:40,280 --> 00:24:44,000 Speaker 3: and we actually take inflation into account as one of 478 00:24:44,040 --> 00:24:48,880 Speaker 3: the dimensions of competitiveness. Then we have seen that it's 479 00:24:48,920 --> 00:24:53,520 Speaker 3: been perfectly possible for very national companies to profit in 480 00:24:53,840 --> 00:24:55,919 Speaker 3: enormous ways at the end of the day at the 481 00:24:55,960 --> 00:24:59,639 Speaker 3: expense of the national competitiveness. So that you can get 482 00:24:59,720 --> 00:25:02,919 Speaker 3: clean which between the national interests in the interests of 483 00:25:03,160 --> 00:25:06,880 Speaker 3: individual companies, you can also get cleavages between the interests 484 00:25:06,880 --> 00:25:09,880 Speaker 3: of companies and workers and consumers and so on, which 485 00:25:10,359 --> 00:25:13,720 Speaker 3: in the US is probably already a complex problem. I 486 00:25:13,720 --> 00:25:16,840 Speaker 3: think in Europe is an even more complex problem because 487 00:25:16,840 --> 00:25:20,920 Speaker 3: you have these different countries that have such different characteristics 488 00:25:21,040 --> 00:25:22,640 Speaker 3: terms of their structures. Right, So if we go back 489 00:25:22,640 --> 00:25:25,080 Speaker 3: to the car sector and we say, okay, we are 490 00:25:25,119 --> 00:25:28,439 Speaker 3: going to put tariffs on evehicids so basically protect the 491 00:25:28,480 --> 00:25:31,760 Speaker 3: European car industry, then we are really talking about companies 492 00:25:31,760 --> 00:25:34,719 Speaker 3: from the rich Western European countries, right. It's not like 493 00:25:35,080 --> 00:25:38,520 Speaker 3: a lot of the Eastern European New Member states have 494 00:25:38,840 --> 00:25:42,840 Speaker 3: internationally competitive car companies right now, so they for them 495 00:25:42,880 --> 00:25:47,360 Speaker 3: it means more expensive cars in terms of production possibilities. 496 00:25:47,359 --> 00:25:50,240 Speaker 3: It might mean some FDIs, but it's not entirely clear 497 00:25:50,240 --> 00:25:53,000 Speaker 3: that having FDI from Volkswagen, which is about to actually 498 00:25:53,040 --> 00:25:56,680 Speaker 3: cut jobs in Germany is better than having FDI from BYD. 499 00:25:56,920 --> 00:26:00,600 Speaker 3: So there's a bit of a you know, possible friction 500 00:26:00,720 --> 00:26:03,480 Speaker 3: that is completely glossed over when we only think in 501 00:26:03,560 --> 00:26:05,320 Speaker 3: terms of Europe as a whole, and I think for 502 00:26:05,400 --> 00:26:09,199 Speaker 3: Europe being this not really integrated unit, this problem is 503 00:26:09,240 --> 00:26:12,200 Speaker 3: even more severe than in the US context. 504 00:26:12,400 --> 00:26:16,040 Speaker 1: Yeah, you're back to the old tension between the Eurozone 505 00:26:16,040 --> 00:26:19,119 Speaker 1: as a whole and the individual members, which used to 506 00:26:19,119 --> 00:26:21,760 Speaker 1: play out in monetary policy but maybe now plays out 507 00:26:21,800 --> 00:26:23,400 Speaker 1: more in industrial policy. 508 00:26:23,640 --> 00:26:26,600 Speaker 3: Interesting, Yeah, I mean it still plays out in monetary 509 00:26:26,600 --> 00:26:29,480 Speaker 3: and fiscal policy, right. I mean Germany being the policeman 510 00:26:29,560 --> 00:26:33,600 Speaker 3: of physical conservatism is a huge drag for everybody else. 511 00:26:33,960 --> 00:26:37,240 Speaker 3: One more thing on the whole question of competitiveness and 512 00:26:37,880 --> 00:26:41,720 Speaker 3: like some imagined nation, like imagining Europe as a nation 513 00:26:42,160 --> 00:26:45,119 Speaker 3: as a unit of analysis, I think it's important to 514 00:26:45,240 --> 00:26:48,240 Speaker 3: take into account that many of these European companies are 515 00:26:48,240 --> 00:26:50,440 Speaker 3: actually totally global companies at this point. 516 00:26:50,520 --> 00:26:50,720 Speaker 4: Right. 517 00:26:50,960 --> 00:26:53,679 Speaker 3: If you look at for example, Mercedis Bence, this is 518 00:26:53,720 --> 00:26:56,840 Speaker 3: an absolutely global company. It's in a way as Chinese 519 00:26:56,880 --> 00:27:00,240 Speaker 3: as it is German. They have massive, massive investments in 520 00:27:00,680 --> 00:27:03,720 Speaker 3: R and D in China. They say themselves that to 521 00:27:03,800 --> 00:27:06,600 Speaker 3: kind of stay on top of the automobile game, they 522 00:27:06,680 --> 00:27:09,120 Speaker 3: need to be in the Chinese market because the Chinese 523 00:27:09,119 --> 00:27:11,920 Speaker 3: consumer is the most demanding consumer at this point. It's 524 00:27:11,920 --> 00:27:14,640 Speaker 3: a market with the highest degree of innovation in all 525 00:27:14,680 --> 00:27:18,040 Speaker 3: directions of the experience of moving in a four wheel 526 00:27:18,200 --> 00:27:22,040 Speaker 3: vehicle from one place to another. So that actually, for example, 527 00:27:22,080 --> 00:27:25,560 Speaker 3: Mercy Dispands has been coming out against European tariffs on 528 00:27:25,760 --> 00:27:29,439 Speaker 3: Chinese vehicles, right. So I think this is again and 529 00:27:29,560 --> 00:27:32,360 Speaker 3: if you only take the nation as your unit of analysis, 530 00:27:32,400 --> 00:27:35,840 Speaker 3: you might actually run into problems. And for the European 531 00:27:36,000 --> 00:27:40,440 Speaker 3: continent that has been much more at least with Germany 532 00:27:40,440 --> 00:27:44,399 Speaker 3: at its economic core, much more relying on exports and 533 00:27:44,480 --> 00:27:48,480 Speaker 3: actually integrating its own companies into the Chinese market. I 534 00:27:48,480 --> 00:27:51,680 Speaker 3: think there's also, in a way something different at stake 535 00:27:51,800 --> 00:27:54,960 Speaker 3: from the United States. It has been running pretty persistent 536 00:27:55,040 --> 00:27:58,359 Speaker 3: trade deficits with China, right, So just taking the US 537 00:27:58,720 --> 00:28:02,320 Speaker 3: strategy and then like kind of adapting it to the 538 00:28:02,359 --> 00:28:07,600 Speaker 3: European context runs the risk of overseeing the different role 539 00:28:07,640 --> 00:28:12,880 Speaker 3: of European companies in the Chinese economy and the importance 540 00:28:12,880 --> 00:28:16,440 Speaker 3: of the Chinese market and the Chinese innovation ecosystem for 541 00:28:16,960 --> 00:28:19,760 Speaker 3: some of these core European industries. 542 00:28:20,560 --> 00:28:22,600 Speaker 5: By the way, Tracy, you know, going back to the 543 00:28:22,640 --> 00:28:26,000 Speaker 5: earlier thing about some of the origins of the austerity obsession, 544 00:28:26,040 --> 00:28:29,000 Speaker 5: of the schwatz nul as they call it, I hadn't 545 00:28:29,000 --> 00:28:30,159 Speaker 5: realized up until recently. 546 00:28:30,440 --> 00:28:32,240 Speaker 1: I love it when you speak German, Jack. 547 00:28:32,080 --> 00:28:34,439 Speaker 2: Thank you put that in for you. How did I do? 548 00:28:34,720 --> 00:28:35,280 Speaker 1: Pretty good? 549 00:28:35,359 --> 00:28:35,679 Speaker 2: Thank you? 550 00:28:35,760 --> 00:28:36,360 Speaker 4: That's pretty good. 551 00:28:36,480 --> 00:28:40,280 Speaker 2: That Wolfgang Schorble, how is that? Is that right? 552 00:28:40,440 --> 00:28:42,239 Speaker 5: He was like one of the ones who is like 553 00:28:42,280 --> 00:28:46,120 Speaker 5: directly involved with the reunification of East and West Germany. 554 00:28:46,200 --> 00:28:49,760 Speaker 5: He saw firsthand the degree to which Eastern Bloc states 555 00:28:49,760 --> 00:28:52,719 Speaker 5: had accumulated huge debts to the West, et cetera, and 556 00:28:52,800 --> 00:28:56,280 Speaker 5: were major burdens than on the restructuring and they're coming 557 00:28:56,280 --> 00:29:00,280 Speaker 5: out of that system or the unsustainability of this of 558 00:29:00,320 --> 00:29:02,920 Speaker 5: the system that they had. It makes me wonder too 559 00:29:02,960 --> 00:29:07,160 Speaker 5: whether like his experience directly dealing with these Germany and 560 00:29:07,200 --> 00:29:10,239 Speaker 5: some of these countries also informed his view on just 561 00:29:10,280 --> 00:29:14,760 Speaker 5: like the utter importance of not accumulating persistent national debts. 562 00:29:15,080 --> 00:29:15,720 Speaker 1: That's a good point. 563 00:29:15,800 --> 00:29:17,200 Speaker 2: Yeah, just something I've been wondering about. 564 00:29:17,280 --> 00:29:18,400 Speaker 4: It's an interesting thought. 565 00:29:18,480 --> 00:29:20,959 Speaker 3: But then again, like if we go back to nineteen 566 00:29:21,040 --> 00:29:25,080 Speaker 3: nineties East Germany, that's probably the purest example of shock therapy, right, 567 00:29:26,600 --> 00:29:30,240 Speaker 3: And when we look at the at least initial knee 568 00:29:30,320 --> 00:29:33,280 Speaker 3: jerk reaction in Germany to the question of the energy 569 00:29:33,280 --> 00:29:36,040 Speaker 3: price shock, then of course there has been a change 570 00:29:36,080 --> 00:29:38,160 Speaker 3: in course and the energy price breaks and so on, 571 00:29:38,480 --> 00:29:40,920 Speaker 3: but there have been some elements of like kind of 572 00:29:41,080 --> 00:29:45,120 Speaker 3: energy price shock therapy. So I'm not sure how much 573 00:29:45,600 --> 00:29:48,480 Speaker 3: has been learned from the nineteen nineties experience. 574 00:29:48,920 --> 00:29:50,160 Speaker 4: I guess one point that I think. 575 00:29:50,120 --> 00:29:52,640 Speaker 3: Is kind of also important to keep in mind as 576 00:29:52,640 --> 00:29:54,920 Speaker 3: we look at Europe is just the rise of the 577 00:29:55,000 --> 00:29:57,080 Speaker 3: far right right. This is at this point something that 578 00:29:57,120 --> 00:30:00,680 Speaker 3: I think cannot be glossed over by kind of some 579 00:30:00,720 --> 00:30:06,560 Speaker 3: sort of homogeneous democratically minded politicians with liberal Western. 580 00:30:06,280 --> 00:30:07,640 Speaker 4: Values or something like that. 581 00:30:08,160 --> 00:30:10,960 Speaker 3: And in fact, this I think goes to some extent 582 00:30:11,040 --> 00:30:12,880 Speaker 3: back to the point that I was trying to make earlier. 583 00:30:12,920 --> 00:30:17,200 Speaker 3: We're collapsing the national interests with everybody else's interests. Runs 584 00:30:17,240 --> 00:30:22,040 Speaker 3: the risk of overlooking how certain policies might not immediately 585 00:30:22,080 --> 00:30:25,840 Speaker 3: benefit certain demographics, which could then fuel the rise of 586 00:30:25,880 --> 00:30:28,680 Speaker 3: the far right even more. And that's for me actually 587 00:30:28,760 --> 00:30:31,440 Speaker 3: one of the considerations why, I think that we need 588 00:30:31,480 --> 00:30:36,800 Speaker 3: to look much more systematically at how these competitiveness considerations, 589 00:30:36,800 --> 00:30:41,080 Speaker 3: these industrial strategy considerations square with what this actually means 590 00:30:41,120 --> 00:30:42,719 Speaker 3: for pocketbook politics. 591 00:30:42,960 --> 00:30:45,120 Speaker 1: Yeah, it's going to be interesting to see whether that 592 00:30:45,400 --> 00:30:49,240 Speaker 1: more systematic thinking is like the next area of discourse. 593 00:30:53,920 --> 00:30:56,960 Speaker 1: Lots More is produced by Carmen Rodriguez and dash Ol Bennett, 594 00:30:57,000 --> 00:30:59,320 Speaker 1: with help from Moses onom and kel Brooks. 595 00:31:00,000 --> 00:31:02,920 Speaker 5: Fund engineer is Blake Maples. Sage Bauman is the head 596 00:31:02,960 --> 00:31:04,160 Speaker 5: of Bloomberg Podcasts. 597 00:31:04,360 --> 00:31:07,480 Speaker 1: Please rate, review, and subscribe to ad Blots and lots 598 00:31:07,520 --> 00:31:10,480 Speaker 1: More on your favorite podcast platforms. 599 00:31:10,240 --> 00:31:12,840 Speaker 5: And remember that Bloomberg subscribers can listen to all of 600 00:31:12,880 --> 00:31:16,160 Speaker 5: our podcasts add free by connecting through Apple Podcasts. 601 00:31:16,520 --> 00:31:17,320 Speaker 2: Thanks for listening.