Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Hello, how are you?
Speaker 2: It's nice?
Speaker 1: Yeah, of course, it's nice to be able to do
Speaker 1: this in person as well. So I saw I think
Speaker 1: you tweeted it, but you're here for an event right
Speaker 1: with Adam too? Yes, we just had him on. His
Speaker 1: episode came out today, So this is like a nice
Speaker 1: a nice segue. You're going to be sat right here.
Speaker 3: I'm not going to read from the notes. I just
Speaker 3: took some notes on the report because there's so much
Speaker 3: in there.
Speaker 1: I don't know that's good because it's four hundred pages
Speaker 1: and I didn't read.
Speaker 4: All of it exactly.
Speaker 1: Joe, is there anything more European than Mario Joggi writing
Speaker 1: a four hundred page report on how to boost European
Speaker 1: product perfect? I did a deadlift one, Jimmy, many up barges.
Speaker 5: This isn't after school special, except.
Speaker 1: I've decided I'm going to base my entire personality going
Speaker 1: forward on campaigning for a strategic pork reserve in the US.
Speaker 2: Where's the best with imposta?
Speaker 5: These are the important question?
Speaker 1: Is that robots taking over the world.
Speaker 5: No, I think that like in a couple of years,
Speaker 5: the AI will do a really good job of making
Speaker 5: the Odd lotch podcast, and people say, I don't really
Speaker 5: need to listen to Joe and Tracy anymore.
Speaker 2: We do have.
Speaker 1: The perfect You're listening to lots more where we catch
Speaker 1: up with friends about what's going on right now, because.
Speaker 5: Even when the Odd Lots is over, there's always lots more.
Speaker 1: And we really do have the perfect guest. So that
Speaker 1: report came out this week and it was sort of
Speaker 1: long awaited. I think it was delayed in the end,
Speaker 1: which also seems very European, but it took a year
Speaker 1: to write, and it's all about how to make Europe
Speaker 1: more competitive, right.
Speaker 5: We talked about this a little bit on a recent
Speaker 5: episode with Adam twos some of the issues in German.
Speaker 5: There does seem to be a lot of anxiety about
Speaker 5: the state of the European economy in general, getting really
Speaker 5: squeezed on the manufacturing side, the energy side. Growth has
Speaker 5: been quite mediocre theres particularly if you compare it to
Speaker 5: the United States. I think there was a good chart
Speaker 5: in the Droggi Report itself to about at one point
Speaker 5: European was like fifteen percent is big, and the gap
Speaker 5: is widened versus the United States.
Speaker 2: It's not good. It doesn't seem good.
Speaker 1: Oh yeah, Isabella, didn't you tweet that chart?
Speaker 4: I did so.
Speaker 3: Looking at that chart, I think we can basically see
Speaker 3: that with every crisis there's a bit of a divergence
Speaker 3: between the US and Europe, and it seems that the
Speaker 3: US is pretty good at bouncing back, Europe not so much,
Speaker 3: which has to do with the Fiskaver words.
Speaker 4: I think.
Speaker 1: So we are here with Isabella Weber. She is, of
Speaker 1: course an economics professor at University of Massachusetts Amherst, and
Speaker 1: she's been on the podcast a number of times. But
Speaker 1: it's interesting to see this report come out and act
Speaker 1: touch on a number of topics that you have addressed
Speaker 1: through your work on pricing and shock flation.
Speaker 4: Yeah.
Speaker 3: Thanks so much for having me on. It's a great
Speaker 3: opportunity to talk shockflation in the report. Maybe looking at
Speaker 3: this divergence convergence thing twenty eight, twenty twenty, I think
Speaker 3: that the energy crisis actually looms very large here, and
Speaker 3: the notion that was very prevalent in twenty twenty two
Speaker 3: in Germany that basically this is just like a little
Speaker 3: little shock that we can easily absorb that was very
Speaker 3: dominant in certain economics circuits, I think is now playing
Speaker 3: out to possibly not be true. So we kind of
Speaker 3: start to see the medium term consequences of the energy
Speaker 3: shock and just how hard it hit Germany and Europe.
Speaker 5: The idea of every crisis being a moment where the
Speaker 5: US and European economies further diverge. And I think, you know,
Speaker 5: one of the parts of the story is European fiscal constraints.
Speaker 5: You know, we know about you know, the session with
Speaker 5: government debt and particularly in Germany, but elsewhere in the
Speaker 5: fact that none of the countries have their own currency,
Speaker 5: their own central bank. So I guess basically, with every shock,
Speaker 5: productive capacity diminishes, people you know, lose their jobs, factories
Speaker 5: closed down. That happens in any economy. And then what
Speaker 5: happens is basically in Europe they sort of accept that
Speaker 5: their potential is just lower than it was before. Is
Speaker 5: that basically the story, and then they don't really do
Speaker 5: anything about it.
Speaker 3: I mean, in a nutshell, I mean, I would say
Speaker 3: that in the US has also been a steep learning
Speaker 3: curve from two thousand and eight to the COVID crisis, right,
Speaker 3: I mean, the kind of fiscal ambition that we have
Speaker 3: seen in the response to the COVID crisis, I think
Speaker 3: is a whole notch abuff of what we have seen
Speaker 3: in Obama in response to the global financial crisis. I mean,
Speaker 3: when it comes to the immediate rescue packages.
Speaker 4: In twenty twenty, there.
Speaker 3: Was also quite a bit across Europe, right, but then
Speaker 3: very quickly Europe returned to the idea that they had
Speaker 3: to go back to regular fiscal rules, and that really
Speaker 3: is thanks to the German government in large parts. I'm
Speaker 3: speaking with a German accent here, So when we look
Speaker 3: at the stands of the German Finance Minister on the
Speaker 3: reform of fiscal rules, and he has been a critical
Speaker 3: player in preventing that reform. If we look at what
Speaker 3: the German government has been doing, then in twenty twenty three,
Speaker 3: they kind of declared victory too early on my mind,
Speaker 3: over the energy crisis, which then also meant that they
Speaker 3: went back to implementing the debt break, which basically tied
Speaker 3: up their hands. And then we got this constitutional ruling
Speaker 3: saying that they have to stick with that break, that
Speaker 3: all these accounting ways out that they had found were
Speaker 3: basically not constitutional. Then in twenty twenty four they decided
Speaker 3: again to stick with the dead rule while Germany is
Speaker 3: at this point already like the worst performing major economy
Speaker 3: in the world. And really any macro economists would agree,
Speaker 3: I think in their right mind that this is a
Speaker 3: moment to spend. I wasn't a pan of with Jason Furman.
Speaker 3: Jason and I are not necessarily known to agree on
Speaker 3: big questions, but we both strongly agreed that this is
Speaker 3: a moment to increase fiscal spending. Right, So this is
Speaker 3: really a German exception to have this extremely conservative fiscal
Speaker 3: stance in the middle of this crisis.
Speaker 1: Wait, can I ask a somewhat personal question, but I
Speaker 1: think given you're a German economist and we have German
Speaker 1: economists on the show, but certainly not every day and
Speaker 1: not in the week when there is this big competitiveness report,
Speaker 1: But why is fiscal austerity such a big thing in Germany?
Speaker 4: Yeah? Great question.
Speaker 3: There was actually an exhibition at the German Historican Museum
Speaker 3: a little while ago where they were trying to understand
Speaker 3: why this idea of saving is so deeply rooted in
Speaker 3: our culture.
Speaker 1: Yeah, because it's not like there isn't a social safety
Speaker 1: net in Germany either, So.
Speaker 3: Yeah, why And I mean savings rates are very high, right,
Speaker 3: So I mean their narrative was.
Speaker 4: Basically going back to some ideas.
Speaker 3: Of Prussian virtue, and then Nazi propaganda that very heavily
Speaker 3: relied on like kind of making it a German virtue
Speaker 3: to save because it was necessary for the war economy,
Speaker 3: and then after the war that like kind of someone
Speaker 3: who saves is a good person idea was perpetuated, And
Speaker 3: then I think there's this kind of equation between personal
Speaker 3: spending and fiscal spending by the state, and this narrative
Speaker 3: of the Swabian housewife, which is very prominently rooted in
Speaker 3: people's mind. So if you do polls on whether the
Speaker 3: death break is a good thing, most people actually think
Speaker 3: it is a good thing because it's been preached to
Speaker 3: them for so long. Where by the way, I think
Speaker 3: this idea of this Swabian housewife is the way how
Speaker 3: to run a national budget also has a good portion
Speaker 3: of sexism because of it of course refers to the
Speaker 3: idea that the housewife doesn't really have authority over the budget,
Speaker 3: but that it kind of has to ask permission.
Speaker 5: Ah, right, so passively, except this is the amount of
Speaker 5: income that you get you but you don't actually control
Speaker 5: the amount of income and then you just but now
Speaker 5: figure out how to spend it exactly. It's implication behind
Speaker 5: that term, which I hadn't I guess I don't really
Speaker 5: I'm not sure if I had heard that term before.
Speaker 3: It's very I mean, this idea of the Swabian housewife
Speaker 3: all over the German discourse. I think it's a very
Speaker 3: German thing, and I think no one really thinks about
Speaker 3: the sexis implication of non sovereignty over your budget. But
Speaker 3: it's kind of there, and I mean Mackett really like
Speaker 3: to invoke it, which doesn't make it any less sexies,
Speaker 3: I think. So there's that, but then there's of course
Speaker 3: also the fact that this has been established as a
Speaker 3: constitutional rule.
Speaker 4: Right So now, I mean, beyond all.
Speaker 3: These cultural issues, there's a real issue of politics where
Speaker 3: basically the ruling government has a coalition of three parties
Speaker 3: and one party, the FDP, thinks that the best thing
Speaker 3: to do is to stick with the fetish of the
Speaker 3: black zero and the other two parties disagree, but they
Speaker 3: are not in a position to find the majority in parliament,
Speaker 3: so they're kind of locked into that straight jacket.
Speaker 1: So you touched on the energy markets earlier. But it's
Speaker 1: really interesting reading Joggi's report. I mean, energy is a
Speaker 1: big component of this, and he talks about things like
Speaker 1: decoupling energy prices and gas derivative markets and things like that.
Speaker 1: Can you talk a little bit more about how that
Speaker 1: fits into your research, because I know you've a lot
Speaker 1: of work on things like carbon pricing and obviously shockflation,
Speaker 1: a lot of which comes through higher energy prices.
Speaker 3: Yes, So for the whole question of European gas prices,
Speaker 3: I'm totally aligned with Druggy, and I think that in
Speaker 3: many ways. Actually, his section on prices reads a bit
Speaker 3: like an implicit commentary on what happened during the gas crisis. So,
Speaker 3: I mean he's saying that a number of causes for
Speaker 3: the high gas prices in Europe and the kind of
Speaker 3: I mean, gas prices have come down, but there's still
Speaker 3: a persistent gap, persistent gap between China and the US. Right,
Speaker 3: So of course there's a lack of resources, which is obvious,
Speaker 3: but there's also low great development, low infrastructure investments, which
Speaker 3: is kind of these like more long run structural factors.
Speaker 1: I talked about permitting reform as well, which is kind
Speaker 1: of interesting coming from Europe.
Speaker 3: Yeah, but in terms of the like kind of short
Speaker 3: run dynamics, which I think is where the commentary in
Speaker 3: twenty twenty two comes in. He's talking about financial markets
Speaker 3: having driven volatility, having basically increased volatility in these markets,
Speaker 3: which I think implies that the prices that we have
Speaker 3: seen in twenty twenty two were not necessarily prices that
Speaker 3: were reflecting fundamentals, but that some of these price movements
Speaker 3: were the result of animal spirts on gas markets where
Speaker 3: no one really knew what Putin was going to do next,
Speaker 3: and you basically got a lot of hurt behavior in
Speaker 3: this situation of extreme uncertainty, which is something that Tom
Speaker 3: crapser Coat and mine have of mind, and I have
Speaker 3: actually argued in a recent study on the price control question,
Speaker 3: where we say, I mean, if you get these prices
Speaker 3: overshooting in relationship to the fundamentals in this extreme way,
Speaker 3: then this actually means that taking some of this overshooting
Speaker 3: out is optimal even from a general equilibrium like a
Speaker 3: very conservative standard economic modeling perspective, and that notion is
Speaker 3: definitely there in the drug important terms of the volatility.
Speaker 3: The second point that he makes is that Europe should
Speaker 3: use its monopsonal power and global market, so it should
Speaker 3: team up.
Speaker 1: Yeah, this is like the collective bargaining argument.
Speaker 3: Yes, so that basically European countries should team up in
Speaker 3: buying gas and that way be able to get lower
Speaker 3: prices on the global market, which again was a very
Speaker 3: very hot topic in twenty twenty two where basically the
Speaker 3: rest of Europe was really trying to do that and
Speaker 3: the German government was quite keen to keep procuring by
Speaker 3: themselves to make sure that Germany is supplied first. So
Speaker 3: again this is kind of a commentary on the last
Speaker 3: crisis looking ahead at the next crisis, that we need
Speaker 3: more coordinating procurement on the European Club.
Speaker 5: Many people seem to agree that the Eurozone is sort
Speaker 5: of a half baked project. There is the common currency,
Speaker 5: but then you know there's like fragmented capital markets and
Speaker 5: fragmented regulatory schemes, arrangements, et cetera. Setting aside, Okay, we
Speaker 5: talked about energy, which is very important for industry. We
Speaker 5: talked about the fiscal straight jacket and the constraints that
Speaker 5: Europe imposes on itself for investment and how that makes
Speaker 5: it harder. Do you, as an economist accept the premise
Speaker 5: that Europe has a competitiveness problem, and one of the
Speaker 5: other areas that Dragi talks about is like the regulatory environment,
Speaker 5: and you hear it from tech people it makes really
Speaker 5: hard to start a business or do a startup in
Speaker 5: Europe because of various rules. Do you accept that component
Speaker 5: of the premise that there is other aspects of the
Speaker 5: regulatory environment that make it harder for companies to be
Speaker 5: at the global cutting edge against competitors in the US,
Speaker 5: in China, and that Europe needs to rethink some things.
Speaker 4: I do agree with that basic premise.
Speaker 3: So basically there is a challenge how to rethink the
Speaker 3: European model to make it competitive moving ahead. And I
Speaker 3: think that Drug is also right in emphasizing that in
Speaker 3: good parts that should build on existing strengths. So Europe
Speaker 3: is still pretty competitive in the whole clean tech sector.
Speaker 3: I mean, of course, China has become a very major player,
Speaker 3: they're the most important player. But still there are many
Speaker 3: technologies where Europe actually is in a good position and
Speaker 3: where basically the pipeline from innovation to employment and then
Speaker 3: actually like turning this into successful businesses is where the
Speaker 3: project fails. And I think trying to tackle this is
Speaker 3: bought on is exactly right. I will also say that
Speaker 3: the whole discussion around energy prices is of course related
Speaker 3: to competitiveness, and this is where I would actually add
Speaker 3: the CO two price question, which is something that he
Speaker 3: kind of touches on but doesn't really go into where
Speaker 3: I think in the US. I don't know how you
Speaker 3: see it, but my impression is that the idea of
Speaker 3: carbon pricing in the US is basically off the table.
Speaker 3: I mean, the Democrats are not going to do it
Speaker 3: and Trump is definitely not going to do it. In China,
Speaker 3: there's some scope for carbon pricing, but it's really secondary
Speaker 3: to the kind of investment led big green stage transition strategy.
Speaker 4: So this leaves Europe alone.
Speaker 3: As a country that is trying to rely on making
Speaker 3: emission incentive stuff more expensive, and that I think is
Speaker 3: actually a huge competitive disadvantage in the approach to the
Speaker 3: green transition. And as we have been arguing in a
Speaker 3: recent study where we have simulated the inflation impact from
Speaker 3: carbon pricing, could also actually trigger inflation, which then, given
Speaker 3: European inflation governance, which basically relies on interest rate hikes,
Speaker 3: could create another competitiveness constraint because if you get what
Speaker 3: we call carbon inflation, inflation triggered by carbon price increases,
Speaker 3: and you then respond by hiking interest rates, then of
Speaker 3: course you make the cost of capital even higher, which
Speaker 3: is one of the points that Drug, he points out,
Speaker 3: is a disadvantage for Europe. But the model that is
Speaker 3: being pursued in the Green Transition also really matters for competitiveness.
Speaker 3: And basically what Drug is saying is that we need
Speaker 3: more of what the US is doing right but he
Speaker 3: doesn't quite say need to maybe rethink some of the
Speaker 3: stuff that we are doing right now.
Speaker 1: Yeah, I think the cost of capital point is so important,
Speaker 1: and like the Green Transition, the way Europe is pursuing,
Speaker 1: it only really works if other countries are kind of
Speaker 1: doing something similar. And I remember there was this mind
Speaker 1: blowing stat I think it's like five years old now,
Speaker 1: so it's probably not true, but I think it's very
Speaker 1: indicative of the tension that we're talking about.
Speaker 2: It's not true, but it sounds good.
Speaker 1: Well, it was true. It was true in twenty nineteen.
Speaker 1: It's probably not true now, but I remember, I think
Speaker 1: it was City Group they put out this report saying
Speaker 1: that because of the different ways US and European investors
Speaker 1: were treating and approaching energy companies. It meant that European
Speaker 1: energy companies had borrowing costs that were two hundred basis
Speaker 1: points more expensive than their American counterparts. And what that
Speaker 1: meant is like, maybe it would make sense for like
Speaker 1: Exxon to buy Shell or something. I think they said
Speaker 1: that somewhat facetiously, but that's the issue here. If Europeans
Speaker 1: care more about the environment and carbon pricing and that
Speaker 1: results in a comparative disadvantage, as Isabella pointed out, then
Speaker 1: that's not helpful to the green transition or the European economy.
Speaker 4: Yeah.
Speaker 3: And I think there's kind of a more general gap
Speaker 3: or unrealized potential in the drug report here, because a
Speaker 3: lot of the things that he is talking about could
Speaker 3: actually also be used for price stability, right. I mean,
Speaker 3: he is talking, for example, about buffer stocks. He is
Speaker 3: actually talking about strategic reserves for He's pretty wake on
Speaker 3: what exactly he wants them for, but he's putting this
Speaker 3: on the table as one possibility. He is talking about
Speaker 3: lower energy prices, he is talking about a more coordinated
Speaker 3: industrial approach, And what we have been arguing is that
Speaker 3: basically in terms of the inflation governance as a huge
Speaker 3: gap in Europe, because if you get shoflation, if you
Speaker 3: get inflation that is actually triggered by major supply shocks
Speaker 3: or systemically significant sectors, and then respond the only way
Speaker 3: to respond is by hiking indust rates, you kind of
Speaker 3: have a gap. You could have a much more sophisticated
Speaker 3: toolbox to deal with these shocks. And I mean a
Speaker 3: lot of the things that Drugy is talking about in
Speaker 3: terms of investments, in terms of strategic reorientation of sectors,
Speaker 3: in terms of resilience, and could also be used to
Speaker 3: make these sectors more resilient to price shocks, right, And
Speaker 3: I think this is kind of a bit of a
Speaker 3: missing piece in the past.
Speaker 1: This reminds me, Joe, do you remember the first time
Speaker 1: we ever had Isabella on the podcast?
Speaker 2: Oh, I think we're talked about China.
Speaker 1: Yeah, we were talking about China. And since then, you've
Speaker 1: done so much work on things like pricing and shock flation,
Speaker 1: and it feels like there's been a lot more acceptance,
Speaker 1: certainly in Europe of things like even price controls. The
Speaker 1: transition has been like very remarkable to watch and it's
Speaker 1: only been a few years.
Speaker 3: Absolutely, and I think it's actually quite remarkable how there
Speaker 3: is some sort of a pretext both in the US
Speaker 3: and in Europe that basically they now need industry policy
Speaker 3: because China is doing it, so we can no longer
Speaker 3: not do it. What is missing, from my point of
Speaker 3: view is that actually China has not just been doing
Speaker 3: industry policy as I kind of sector level one of policies,
Speaker 3: but has actually been thinking about re industrialization from the perspective.
Speaker 4: Of system reform.
Speaker 3: So it's always been like kind from this perspective, how
Speaker 3: do you change the system as a whole where the
Speaker 3: price question, inflation question, macro stability questions are integrated with
Speaker 3: the question of changing specific industries. And that is actually,
Speaker 3: I think something that hasn't quite taken on yet in
Speaker 3: Europe and the US. Rainavaruja at the Ft was recently
Speaker 3: had this ope ad where she was saying that basically
Speaker 3: we need much more systems thinking in all these initiatives
Speaker 3: that currently run under the label industry policy, which makes
Speaker 3: it sound as if it's about specific industries, it's about
Speaker 3: innovation policy, where really what we need is more of
Speaker 3: a systemic approach.
Speaker 4: Right.
Speaker 3: I think the same I would say about the drug
Speaker 3: Ye report where we have several elements of systems thinking,
Speaker 3: Like when he talks about more coordination and so on,
Speaker 3: he's kind of walking in that direction, but then he's
Speaker 3: talking about prices without talking about interest rates and inflation.
Speaker 3: So kind of this like major link with the macroeconomy
Speaker 3: is missing, which I think comes from a lack of
Speaker 3: this kind of like system thinking. And that is quite
Speaker 3: interesting to me. And it seems like, I mean, if
Speaker 3: I look back at the last couple of years and
Speaker 3: how quickly the discourse has changed, my sense is that
Speaker 3: this is the next like kind of cutting edge in
Speaker 3: terms of how the economic policy debate might actually shift
Speaker 3: in the vest.
Speaker 5: It's interesting thinking about this sort of the US, Europe,
Speaker 5: and China all have similarities with respect to sort of
Speaker 5: the challenges or the opportunities of the sort of internal cohesion,
Speaker 5: right because even you know, China, for all these sort
Speaker 5: of talk about centrally planned and plan out of Beijing,
Speaker 5: there's quite a bit of competition, is my understanding, between
Speaker 5: the provinces and their desire to compete against each.
Speaker 2: Other for I mean investment and jobs and things like that.
Speaker 3: I mean, competition in China is absolutely cut throat in
Speaker 3: many areas, right, I mean, if you take the EV sector,
Speaker 3: like many people are talking now mainly about subsidies, which,
Speaker 3: of course, in the early phase when basically the Chinese
Speaker 3: state decided to create an EV industry, there was a
Speaker 3: lot of subsidies flowing. But right now we are in
Speaker 3: a situation where we have a larger number of car
Speaker 3: companies than we have had, like since the nineteen tens
Speaker 3: or something, because there are so many new EV companies
Speaker 3: that came on the market in China, and they are
Speaker 3: engaged in the most brutal kind of competition that you
Speaker 3: can imagine. It's basically a competition for survival, where it's
Speaker 3: clear to everybody that at the end of this competition
Speaker 3: process there might be I don't know, three, four or
Speaker 3: five companies left. So this is just one example where
Speaker 3: everybody points to subsidies, but I think it's really also
Speaker 3: about competition between Chinese players. Another example is if you
Speaker 3: look at the meat industry, which is something that we
Speaker 3: have talked about before, then this is an extremely highly
Speaker 3: concentrated sector in the US and Europe. Right in China,
Speaker 3: I mean, concentration has started to pick up, but it's
Speaker 3: still extremely extremely competitive, with many small meat processes producing
Speaker 3: still pretty large shares of what comes to the market
Speaker 3: and to me when I first went to Beijing as
Speaker 3: an undergraded student, actually just walking around the city, you
Speaker 3: sometimes come to these streets that where the whole street
Speaker 3: just sells one product. There's a guitar shop street, Okay,
Speaker 3: so there's one shop next to another that sells basically
Speaker 3: the same product portfolio, which is the most extreme kind
Speaker 3: of competition that you can imagine, Like none of them
Speaker 3: has any scope to move out of this, and the
Speaker 3: same model we see in a lot of the production
Speaker 3: towns in China right where I don't know one town
Speaker 3: that only does bottoms for shirts and it is the
Speaker 3: most important supplier for shirt buttons in the whole world.
Speaker 1: There is that famous Christmas decoration town where they just
Speaker 1: make Christmas decorations.
Speaker 3: Exactly, and each of these companies has like zero leve.
Speaker 3: This is actually kind of your idea of perfect competition
Speaker 3: as you see it in the textbooks, Tracy.
Speaker 5: According to Bloomberg, a twenty twenty three piece in twenty
Speaker 5: nineteen or five hundred Chinese ev companies, but that's now
Speaker 5: down to one hundred, so I guess some are being
Speaker 5: weeded out.
Speaker 1: That's interesting. What if Europe's comparative advantage is basically writing
Speaker 1: think pieces and four hundred page reports, Like maybe they
Speaker 1: can actually make money by being the global exporter of
Speaker 1: ideas McKenzie. Yeah, they're much better. They're also much better
Speaker 1: at like vacations and work life balance and drinking wine
Speaker 1: at lunch.
Speaker 2: To figure out how to pay them for all that.
Speaker 3: Yeah, it could become some sort of a Disney park
Speaker 3: for Chinese and American tourist.
Speaker 4: Is that what yoursiona?
Speaker 1: Yeah, intellectuals basically like observe what it would be like
Speaker 1: to have a European style work life balance.
Speaker 5: It's not crazy actually, the Disney World example. I mean,
Speaker 5: Europe is a great place to go. Setting aside the
Speaker 5: issue with energy costs and whether you know, Volkswegens could
Speaker 5: be competitive, it's a great place to go.
Speaker 3: I mean food is great, culture is great, city life
Speaker 3: is great. Yeah, many things in there. I would like
Speaker 3: to kind of add maybe one more thought to your
Speaker 3: question on the cohesion and competitiveness and so on. I
Speaker 3: think that in this whole debate around external competitiveness and
Speaker 3: I kind of reshoring French touring and so on, there
Speaker 3: has been a tendency to think like, when stuff is national,
Speaker 3: it will be kind of good for everybody in that country,
Speaker 3: which is to me a little bit similar to the
Speaker 3: debate around globalization in the nineteen nineties, where was I
Speaker 3: kind of the exact same thing, but turn on its head,
Speaker 3: where was I, Oh, as long as we globalize and
Speaker 3: we produce in the most efficient places and everything is
Speaker 3: free trade, it will be so wonderful and there will
Speaker 3: be welfare gains for everybody.
Speaker 1: Expanding the pie is what people used to say exactly.
Speaker 3: Now it's kind of no longer about expanding the high globally,
Speaker 3: it's about expanding the national pie.
Speaker 4: And then there's an assumption that this will be great
Speaker 4: for everybody. And that is also like a little bit
Speaker 4: in the.
Speaker 3: Drug report, I mean, he hinges at saying like, oh,
Speaker 3: we need to make sure that there's also democratic participation
Speaker 3: and like consultation with unions and civil society groups and
Speaker 3: so on as we are making these decisions processes to
Speaker 3: ensure that there is democratic legitimacy, which is I think great.
Speaker 3: But at the same time, when we look at competitiveness
Speaker 3: and we actually take inflation into account as one of
Speaker 3: the dimensions of competitiveness. Then we have seen that it's
Speaker 3: been perfectly possible for very national companies to profit in
Speaker 3: enormous ways at the end of the day at the
Speaker 3: expense of the national competitiveness. So that you can get
Speaker 3: clean which between the national interests in the interests of
Speaker 3: individual companies, you can also get cleavages between the interests
Speaker 3: of companies and workers and consumers and so on, which
Speaker 3: in the US is probably already a complex problem. I
Speaker 3: think in Europe is an even more complex problem because
Speaker 3: you have these different countries that have such different characteristics
Speaker 3: terms of their structures. Right, So if we go back
Speaker 3: to the car sector and we say, okay, we are
Speaker 3: going to put tariffs on evehicids so basically protect the
Speaker 3: European car industry, then we are really talking about companies
Speaker 3: from the rich Western European countries, right. It's not like
Speaker 3: a lot of the Eastern European New Member states have
Speaker 3: internationally competitive car companies right now, so they for them
Speaker 3: it means more expensive cars in terms of production possibilities.
Speaker 3: It might mean some FDIs, but it's not entirely clear
Speaker 3: that having FDI from Volkswagen, which is about to actually
Speaker 3: cut jobs in Germany is better than having FDI from BYD.
Speaker 3: So there's a bit of a you know, possible friction
Speaker 3: that is completely glossed over when we only think in
Speaker 3: terms of Europe as a whole, and I think for
Speaker 3: Europe being this not really integrated unit, this problem is
Speaker 3: even more severe than in the US context.
Speaker 1: Yeah, you're back to the old tension between the Eurozone
Speaker 1: as a whole and the individual members, which used to
Speaker 1: play out in monetary policy but maybe now plays out
Speaker 1: more in industrial policy.
Speaker 3: Interesting, Yeah, I mean it still plays out in monetary
Speaker 3: and fiscal policy, right. I mean Germany being the policeman
Speaker 3: of physical conservatism is a huge drag for everybody else.
Speaker 3: One more thing on the whole question of competitiveness and
Speaker 3: like some imagined nation, like imagining Europe as a nation
Speaker 3: as a unit of analysis, I think it's important to
Speaker 3: take into account that many of these European companies are
Speaker 3: actually totally global companies at this point.
Speaker 4: Right.
Speaker 3: If you look at for example, Mercedis Bence, this is
Speaker 3: an absolutely global company. It's in a way as Chinese
Speaker 3: as it is German. They have massive, massive investments in
Speaker 3: R and D in China. They say themselves that to
Speaker 3: kind of stay on top of the automobile game, they
Speaker 3: need to be in the Chinese market because the Chinese
Speaker 3: consumer is the most demanding consumer at this point. It's
Speaker 3: a market with the highest degree of innovation in all
Speaker 3: directions of the experience of moving in a four wheel
Speaker 3: vehicle from one place to another. So that actually, for example,
Speaker 3: Mercy Dispands has been coming out against European tariffs on
Speaker 3: Chinese vehicles, right. So I think this is again and
Speaker 3: if you only take the nation as your unit of analysis,
Speaker 3: you might actually run into problems. And for the European
Speaker 3: continent that has been much more at least with Germany
Speaker 3: at its economic core, much more relying on exports and
Speaker 3: actually integrating its own companies into the Chinese market. I
Speaker 3: think there's also, in a way something different at stake
Speaker 3: from the United States. It has been running pretty persistent
Speaker 3: trade deficits with China, right, So just taking the US
Speaker 3: strategy and then like kind of adapting it to the
Speaker 3: European context runs the risk of overseeing the different role
Speaker 3: of European companies in the Chinese economy and the importance
Speaker 3: of the Chinese market and the Chinese innovation ecosystem for
Speaker 3: some of these core European industries.
Speaker 5: By the way, Tracy, you know, going back to the
Speaker 5: earlier thing about some of the origins of the austerity obsession,
Speaker 5: of the schwatz nul as they call it, I hadn't
Speaker 5: realized up until recently.
Speaker 1: I love it when you speak German, Jack.
Speaker 2: Thank you put that in for you. How did I do?
Speaker 1: Pretty good?
Speaker 2: Thank you?
Speaker 4: That's pretty good.
Speaker 2: That Wolfgang Schorble, how is that? Is that right?
Speaker 5: He was like one of the ones who is like
Speaker 5: directly involved with the reunification of East and West Germany.
Speaker 5: He saw firsthand the degree to which Eastern Bloc states
Speaker 5: had accumulated huge debts to the West, et cetera, and
Speaker 5: were major burdens than on the restructuring and they're coming
Speaker 5: out of that system or the unsustainability of this of
Speaker 5: the system that they had. It makes me wonder too
Speaker 5: whether like his experience directly dealing with these Germany and
Speaker 5: some of these countries also informed his view on just
Speaker 5: like the utter importance of not accumulating persistent national debts.
Speaker 1: That's a good point.
Speaker 2: Yeah, just something I've been wondering about.
Speaker 4: It's an interesting thought.
Speaker 3: But then again, like if we go back to nineteen
Speaker 3: nineties East Germany, that's probably the purest example of shock therapy, right,
Speaker 3: And when we look at the at least initial knee
Speaker 3: jerk reaction in Germany to the question of the energy
Speaker 3: price shock, then of course there has been a change
Speaker 3: in course and the energy price breaks and so on,
Speaker 3: but there have been some elements of like kind of
Speaker 3: energy price shock therapy. So I'm not sure how much
Speaker 3: has been learned from the nineteen nineties experience.
Speaker 4: I guess one point that I think.
Speaker 3: Is kind of also important to keep in mind as
Speaker 3: we look at Europe is just the rise of the
Speaker 3: far right right. This is at this point something that
Speaker 3: I think cannot be glossed over by kind of some
Speaker 3: sort of homogeneous democratically minded politicians with liberal Western.
Speaker 4: Values or something like that.
Speaker 3: And in fact, this I think goes to some extent
Speaker 3: back to the point that I was trying to make earlier.
Speaker 3: We're collapsing the national interests with everybody else's interests. Runs
Speaker 3: the risk of overlooking how certain policies might not immediately
Speaker 3: benefit certain demographics, which could then fuel the rise of
Speaker 3: the far right even more. And that's for me actually
Speaker 3: one of the considerations why, I think that we need
Speaker 3: to look much more systematically at how these competitiveness considerations,
Speaker 3: these industrial strategy considerations square with what this actually means
Speaker 3: for pocketbook politics.
Speaker 1: Yeah, it's going to be interesting to see whether that
Speaker 1: more systematic thinking is like the next area of discourse.
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