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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.

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Speaker 2: I'm Tracy Allaway.

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Speaker 3: And I'm Joe Wisenthal.

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Speaker 2: Joe, did you see last month the European Commission released

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Speaker 2: a competitiveness compass with a bunch of recommendations for how

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Speaker 2: to boost productivity in the Eurozone.

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Speaker 3: I missed that, However, I know that there have been

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Speaker 3: a number of sort of similar reports and studies. Mario Draghi,

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Speaker 3: I think the former ECB chief last year put out

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Speaker 3: this big thing. There's certainly been a source of debate, consternation, anxiety,

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Speaker 3: so forth.

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Speaker 2: So Mario Droggy's competitiveness report was four hundred pages and

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Speaker 2: the European commission one was twenty seven pages. And I

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Speaker 2: can't figure out whether or not that makes the Commission

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Speaker 2: more productive than Joggy or less, Like their output is

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Speaker 2: physically smaller, but maybe it's more efficient and succinct. You're

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Speaker 2: absolutely right. This is kind of a tough spot for

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Speaker 2: the Eurozone. So growth has been slowing while inflation is

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Speaker 2: still kind of sticky. In fact, we had EU inflation

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Speaker 2: for January recently and it came in slightly hotter than expected.

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Speaker 2: I think it was something like two point five percent,

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Speaker 2: and Europe's been dealing with an energy crisis, plus now

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Speaker 2: the threat of tariffs emanating from the Trump administration and

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Speaker 2: against all of those sort of short term immediate challenges,

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Speaker 2: kind of hovering in the background is the sense that

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Speaker 2: Europe is falling behind in key technologies like AI, that

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Speaker 2: it's becoming less competitive, less productive relative to other places.

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Speaker 3: Right, and it's sort of Implaicitt, well, you're saying here,

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Speaker 3: but the other big, key source of anxiety is just

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Speaker 3: the sort of core industrial super powers and their competitiveness,

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Speaker 3: particular visa via China, and I'm thinking about oil, perhaps

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Speaker 3: the chemical industry and so forth. And then you know,

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Speaker 3: you layer onto it, as you already mentioned, the possibility

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Speaker 3: of tariffs and the future of trade with the United

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Speaker 3: States specifically, There's a lot going on.

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Speaker 2: Yeah, all of this is a very long winded way

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Speaker 2: of saying that Europe is facing both cyclical and structural

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Speaker 2: problems or challenges. So I am very happy to say

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Speaker 2: we have the perfect guests to discuss all of this.

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Speaker 2: We're going to be speaking with Philip Lane, the cheap

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Speaker 2: economist over at the European Central Bank. So Philip, thank

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Speaker 2: you so much for coming on all.

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Speaker 4: Thoughts, Good morning, it's great to be here.

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Speaker 2: Why don't we start with the thing that is all

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Speaker 2: over the news, which would be tariffs. Joe and I

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Speaker 2: personally are kind of struggling to cover these because the

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Speaker 2: headlines change so fast by the time we get a

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Speaker 2: podcast out, like the news on trade restrictions has already changed.

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Speaker 2: How does the ECB factor potential tariffs into its monetary policy,

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Speaker 2: because you're forecast right now. I don't think they actually

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Speaker 2: take tariffs into account, but we know that Trump has

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Speaker 2: talked about imposing tariffs on the EU at some point.

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Speaker 4: So let me make two differentiations there. Number one, of course,

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Speaker 4: for a long time now there has been speculation about tariffs,

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Speaker 4: so to the extent the speculation about tariffs is feeding

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Speaker 4: into investor plans, consumer plans. It's there in the data,

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Speaker 4: and as you said, a lot of the sentiment in

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Speaker 4: disease are kind of subdued, and I think clearly the

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Speaker 4: uncertainty about trade is one of those factors. What is true, though,

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Speaker 4: is we have looked in great detail about different tariff scenarios,

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Speaker 4: but until you really know the scope of what we're

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Speaker 4: talking about, putting those into the baseline we haven't done.

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Speaker 4: We will essentially at us when and if we see

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Speaker 4: more detail, and of course this kind evolve. The trade

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Speaker 4: policy configuration we have in spring twenty twenty five may

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Speaker 4: not be the trade policy configuration we have in the

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Speaker 4: autumn or next year. So I don't think it's kind

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Speaker 4: of a zero one, one day only type event. It's

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Speaker 4: something we will continually reassess.

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Speaker 3: Sitting aside, obviously there's a lot of uncertainty. We don't

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Speaker 3: know ten percent, twenty five percent, zero percent, we don't know.

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Speaker 3: But how do you think about tariffs, because you know,

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Speaker 3: you hear two different things when it comes to tariffs

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Speaker 3: and cyclical policy. One is, okay, maybe you get some

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Speaker 3: sort of like price shock or something like that, and

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Speaker 3: maybe that's inflationary, maybe that's not. But then also the

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Speaker 3: implication is that tariffs force a longer term adjustment and

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Speaker 3: perhaps countries have to invest more to be more self sufficient,

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Speaker 3: et cetera. When you think about the eurozones trading position today,

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Speaker 3: what are the vulnerabilities and are how do you think

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Speaker 3: about the sort of macro effects of how tarffs play out.

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Speaker 4: I don't think there's any question in terms of output.

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Speaker 4: The effect of introducing frictions into global trading system is

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Speaker 4: a negative, so it has to be bad rabit. Now

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Speaker 4: there will be mitigants, as you say, firms who will

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Speaker 4: work out Okay, now I'm going to find another supplier.

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Speaker 4: Now I'm going to build another plant somewhere else to

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Speaker 4: kind of get around tarfs. But those are mitigants. They're

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Speaker 4: not going to say, well, all of a sudden, that's

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Speaker 4: a net positive. So I think there's no doubt it's

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Speaker 4: net negative for output, as you say, for inflation, and

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Speaker 4: there's many conjectures that. Of course, mechanically, if it turns

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Speaker 4: out to be the case that there's more expensive imports

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Speaker 4: from America, mechanically there's an operate effect from that. On

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Speaker 4: the other hand, as we just talked about, if there's

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Speaker 4: kind of a weakning of domestic demand in Europe, if

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Speaker 4: there's a lot of trade frictions globally, if there's a

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Speaker 4: weakening in the global economy, those are disinflationy forces. So

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Speaker 4: in December we basically and now again in our January meeting,

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Speaker 4: we've said for output, it's a downside scenario. For inflation,

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Speaker 4: the effects are uncertain, but as you indicated earlier on

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Speaker 4: there's also classic issues about price level versus inflation, how

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Speaker 4: big this is compared to all the other factors we

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Speaker 4: have to think about for inflation. So I would say,

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Speaker 4: you know, I think it's very natural to focus on

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Speaker 4: the economic effects and then we will look at the

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Speaker 4: inflation effects as we see it unfold. Rather than taking

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Speaker 4: a very strong exanity position on that.

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Speaker 2: I'm going to ask a very broad question. But European

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Speaker 2: growth has kind of been flatlining, and at the same

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Speaker 2: time we had that inflation number recently coming in slightly

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Speaker 2: hotter than expected. How would you characterize the EU economy

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Speaker 2: right now?

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Speaker 4: So I think what you have to go back to

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Speaker 4: is twenty twenty two. So twenty two, on the one side,

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Speaker 4: we were coming out of the pandemic. There was a

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Speaker 4: burst of activity as we reopened, and remember Europe had

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Speaker 4: a much longer lockdown than over here. But then we

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Speaker 4: had the Russia Ukraine War in spring twenty two. So

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Speaker 4: after that we had inflation going all the way to

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Speaker 4: ten point six percent in October twenty two, and of

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Speaker 4: course we had to respond to that by raising rates,

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Speaker 4: which were in a low for long before then. So

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Speaker 4: our policy rate went from minus zero point five to

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Speaker 4: plus four hundred in terms of basis points, So there's

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Speaker 4: a lot of adjustment. What that meant is in twenty

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Speaker 4: twenty three we did flatline. In twenty three Q four

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Speaker 4: the year Area economy group by zero point one. Now

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Speaker 4: look in last year twenty four, there was a partial recovery.

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Speaker 4: We went from zero point one in twenty three to

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Speaker 4: zero point nine in twenty four, and that we expected

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Speaker 4: that we expected consumption to recover in particular, now it

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Speaker 4: wasn't as strong as we would like. Then we have

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Speaker 4: as we just talked about new types of shocks hidden

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Speaker 4: the economy. But let me emphasize is that we do

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Speaker 4: think going back to this cyclical structural issue you raised

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Speaker 4: that there is cyclical recovery as our baseline. We should

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Speaker 4: expect to grow probably a bit above potential this year

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Speaker 4: and next year. And essentially, if you think about a

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Speaker 4: lot of factors are kicking in as we ease market policy,

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Speaker 4: we still expect this year to be led by consumption,

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Speaker 4: and then in twenty six more than this year, a

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Speaker 4: recovery in investment, and then also I think a contribution

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Speaker 4: from exports. So I think it's important, you know, if

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Speaker 4: you kind of are too backward looking about this, you're

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Speaker 4: looking at maybe the stagnation in twenty three, or you

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Speaker 4: are looking in fairness at the Q four which did

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Speaker 4: flat line a bit. But I think there's some cyclical

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Speaker 4: factors in those key four data. On inflation. We're down

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Speaker 4: from a zen point six in October twenty two to

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Speaker 4: two point five in the most recent number. That's, by

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Speaker 4: the way. I know there was some market speculation was

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Speaker 4: that a bit high. From my point of view, what's

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Speaker 4: been developing is a bit more energy inflation, But actually

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Speaker 4: services inflation, which has been what we've been really looking at,

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Speaker 4: came in softer than I would have expected. So it's

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Speaker 4: not the case the overall inflation profile is too dramatic

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Speaker 4: and what we think is fairly soon we would be

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Speaker 4: back at our two percent target, And essentially that's why

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Speaker 4: we cut rates last week.

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Speaker 3: The market is still pricing in several more rate cuts

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Speaker 3: for twenty twenty five. I take your point about the

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Speaker 3: salience of services inflation, and obviously, you know, it's very

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Speaker 3: common for central bankers to sort of recognize that there's

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Speaker 3: always so much you can do about the energy price component.

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Speaker 3: But given where inflation is in given what you describe

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Speaker 3: as a cyclical recovery likely further impulse, does it make

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Speaker 3: sense to still be cutting into that environment or at

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Speaker 3: their depth.

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Speaker 4: Well, I think we're trying to be cautious. So one

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Speaker 4: of our kind of stable sentences is no preset path.

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Speaker 4: So even if the market is pricing several cuts, you know,

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Speaker 4: and I'm not saying that there is there any reason

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Speaker 4: not to have that market view. From a policy point

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Speaker 4: of view, our emphasis is really on agility. The energy

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Speaker 4: situation is changing, it may change again in either direction

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Speaker 4: in the coming weeks, and I say we have a

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Speaker 4: balancing act. We do have the recovery, but we also

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Speaker 4: know that essentially the disinflation is well on track. And

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Speaker 4: as disinflation continues, finding if you like, the new normal

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Speaker 4: for interest rates is essentially a part of our challenge.

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Speaker 4: And when we cut last week from three hundred basis

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Speaker 4: points to two seventy five, that was essential thinking, wow,

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Speaker 4: this three hundred is not the new normal. I think

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Speaker 4: we'll be in that search process as we go along.

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Speaker 2: Since you brought up the new normal. I mean, one

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Speaker 2: thing the US and Europe do have in common right

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Speaker 2: now is this debate over the neutral rate, so our star.

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Speaker 2: How useful is that idea when it comes to setting

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Speaker 2: interest rates? And also when you look at the economy

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Speaker 2: right now, how restrictive do you think rates actually are.

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Speaker 4: I think it's important of narrative frameworks, and one of

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Speaker 4: the narrative frameworks is when inflation is well above two percent,

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Speaker 4: it's very important that everyone understands that munchopolicy is going

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Speaker 4: to be restrictive, and that's important to be able to

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Speaker 4: demonstrate that the policy rate is higher than so called normal.

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Speaker 4: It's important to look at is demand dampening, is the

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Speaker 4: pricing environment make them more difficult for firms to be

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Speaker 4: able to get through price increases? As inflation comes back

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Speaker 4: to more or less around target, those factors lose kind

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Speaker 4: of resonance and you do have to kind of change

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Speaker 4: the narrative framework. Now what we set in December, and

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Speaker 4: I think this is maybe not rocket science, but maybe

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Speaker 4: it's helpful. Is what we're going to do is we're

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Speaker 4: going to set mount policy appropriately. Now the appropriate phrase

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Speaker 4: is essentially saying what do we need to do to

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Speaker 4: keep inflation around two And this is where the neutrality

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Speaker 4: debate loses some relevance. You know what is the probability

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Speaker 4: in the next number of months the world is neutral,

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Speaker 4: so there's no shocks. So it's a nice hypothetical conjecture.

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Speaker 4: But if you are more dealing with shocks, so whether

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Speaker 4: downside shocks are upside shocks, manchopolicy has to if they're material,

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Speaker 4: so they're there for the medium term, that not just noise.

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Speaker 4: So I think now as you get closer to that zone,

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Speaker 4: let's not talk about neutrality. Let's talk about what's appropriate.

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Speaker 4: And then you do the standard wish list. You know,

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Speaker 4: are we seeing, what are we seeing in the pricing data,

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Speaker 4: what are we seeing in the activity data, what are

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Speaker 4: we seeing in the transmission because again we have a

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Speaker 4: bank based system over here in America, much more market

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Speaker 4: based system. I mean the markets of course matter in Europe,

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Speaker 4: but we pay a lot of attention to banks. And

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Speaker 4: right now to one of the dimensions of the question

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Speaker 4: is what we see is credits starting to pick up,

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Speaker 4: So there is some easing there, but it's still very subdued,

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Speaker 4: still well below historical averages. So what I would say

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Speaker 4: is compared to the peak, this been some easy but

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Speaker 4: it's not the case that that process has gone into

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Speaker 4: a kind of new steady state. We're still in a

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Speaker 4: recovery phase.

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Speaker 3: I want to ask you a question that I've actually

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Speaker 3: asked several policy makers in the US about the last

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Speaker 3: several years. The nature of inflation in the US and

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Speaker 3: in the Eurozone. Some similarities, some differences. The spike of

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Speaker 3: the Eurozone was probably more pronounced a bit thanks to

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Speaker 3: the energy shock specifically. But you know, obviously there's a

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Speaker 3: sort of like cyclical component and then an energy specific component.

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Speaker 3: What's interesting to me, setting aside energy, unemployment in the Aurozone,

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Speaker 3: if I'm looking at this correctly, is actually like at

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Speaker 3: a multi year low right now, lower than it was

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Speaker 3: at the peak in twenty twenty two. What is your

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Speaker 3: story for if we think of central banking as sort

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Speaker 3: of working through this unemployment or employment activity inflation trade off,

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Speaker 3: what is your employment for why the sort of core

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Speaker 3: measures of inflation or services inflation have eased so much

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Speaker 3: even at a time of what seems to be labor

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Speaker 3: market tightness.

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Speaker 4: All so, I think the labor market titaness is part

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Speaker 4: of it. And actually the your area is an interesting

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Speaker 4: place to look at that, because, of course, across the

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Speaker 4: area you have some economies that are hotter than others,

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Speaker 4: you've kind of a laboratory, So absolutely the kind of

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Speaker 4: there is a correlation between a tight labor market and wages,

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Speaker 4: but the strength of that effect is not big compared

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Speaker 4: to the size of the inflation shock we had, which

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Speaker 4: was essentially an intersection of two factors. One was the

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Speaker 4: energy shock and to us the exit from the pandemic.

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Speaker 4: So more or less exactly, at the same time in

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Speaker 4: spring twenty two, we had the Russian innovation of Ukraine,

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Speaker 4: and that wasn't just a kind of a level shift

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Speaker 4: in energy from there until August twenty two, this really large,

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Speaker 4: extreme run up in gas prices. But in the same

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Speaker 4: six months, so spring to Autumn twenty two, this is

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Speaker 4: when the European economy reopened. So actually, if you look

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Speaker 4: at activity data is quite strong for those six months

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Speaker 4: because tourism restarted, hospitality restarted, So this is a very

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Speaker 4: unusual configuration of events. That reopening had a demand element

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Speaker 4: to it, because of course people really wanted to spend,

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Speaker 4: and of course the supply was still a pandemic constrained.

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Speaker 4: So this, I would say, is weird, unusual, not representative,

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Speaker 4: so not that surprise. Implementing the most basic macromodel only

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Speaker 4: gets you so far, and then if you like, compared

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Speaker 4: since then, and I think that's common across the US

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Speaker 4: and Europe is a lot of what's happened is the

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Speaker 4: supply side has recovered. The exact nature of it on

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Speaker 4: both sides of Atlantic is there. And that recovering the

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Speaker 4: supply side is essentially why you are able to have

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Speaker 4: disinflation and recovery in economy. And as you say, we

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Speaker 4: do have the lowest unemployment in the history of your area. Again,

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Speaker 4: let me come back to this differences across the you area.

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Speaker 4: Germany has been suffering. We know that unemployment has gone

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Speaker 4: up in Germany, so the labor market is what you

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Speaker 4: would expect. Spain has been very strong. Unemployment is coming

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Speaker 4: down in Spain. And so when you think about the

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Speaker 4: overall your area narrative, I mean, when you talk about

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Speaker 4: the US economy, we all tend to think about the

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Speaker 4: US and the aggregate, but of course the differences across California, Chicago,

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Speaker 4: New York and so on. Same for US. There are

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Speaker 4: big differences right now across some of the major countries.

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Speaker 2: You touched on this earlier, but could you talk a

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Speaker 2: little bit more about the transmission mechanism of lower rates

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Speaker 2: and how those actually feed into the economy, and perhaps

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Speaker 2: more importantly, how long they actually take to take effect.

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Speaker 2: So in the US we hear the Federal Reserve talk

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Speaker 2: a lot about long and variable lags, which gives them

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Speaker 2: quite a lot of wiggle room to argue whether or

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Speaker 2: not hikes or cuts are actually having an effect. How

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Speaker 2: do you think about the transmission mechanism and the time

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Speaker 2: frame for changes in policy to take effect.

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Speaker 4: So, I mean, this is what keeps us busy, and

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Speaker 4: this is why throughout this period. Some people don't like

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Speaker 4: these phrases, but they're essential. We said we're going to

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Speaker 4: be data dependent, and we said we have this reaction

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Speaker 4: function where essentially, as we see the transmission in action,

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Speaker 4: we can recalibrate our policy. So let me maybe explain

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Speaker 4: why it's the complexity in the area. We were in

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Speaker 4: a low for long environment. Even in December twenty one,

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Speaker 4: when already inflation was picked up, the markets believed the

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Speaker 4: policy rate would not go above zero until around twenty

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Speaker 4: twenty seven. So there's high conviction that we were in

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Speaker 4: this low for long period.

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Speaker 2: This is my favorite chart that charts, Yeah, the MEDUSA

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Speaker 2: charts of market expectations or rates, and they're always always off.

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Speaker 4: Well, I mean, the world changes. Then we had this

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Speaker 4: fairly rapid hiking cycle to four percent, and now we're

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Speaker 4: coming down from that, and then the market is debating

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Speaker 4: somewhere in the neighborhood of two percent, let's say, is

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Speaker 4: the new steady state. So in terms of the how

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Speaker 4: people are thinking about the financial system, some of it is, well,

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Speaker 4: we're gone from an old steady state of basically at

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Speaker 4: the floor. The new steady state is around two percent,

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Speaker 4: and how do I value assets? How do I organize

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Speaker 4: my saving my investment around that. So on top of

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Speaker 4: the cyclical issue of as we ease rates, but we're

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Speaker 4: easing from four hundred to in the neighborhood of two percent,

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Speaker 4: we're not going back to the pre shock super low rate.

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Speaker 4: I mean we don't expect to. So that that's an

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Speaker 4: additional factor in transmission. Let me emphasize a couple of things.

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Speaker 4: One is about the bank based system, and then in

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Speaker 4: one is how the economy responds. So in a bank

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Speaker 4: based system, and we had new numbers this morning essentially

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Speaker 4: because of course banks are partly funded by deposits, partly

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Speaker 4: funded by market funding deposits. They have responded, but not

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Speaker 4: one for one. There's still lots of zero interest overnight

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Speaker 4: deposits funding banks. So the one for one transmission of

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Speaker 4: the policy rate that works in the runny market, it's

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Speaker 4: soft both on their way up and on the way

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Speaker 4: down for the banking system. So we have taken their

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Speaker 4: account in the banking system with a mix of deposit

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Speaker 4: funding and market funding, the transmission is slower. And then

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Speaker 4: on the economic side, one issue we talked about last

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Speaker 4: week was has an investment. That's the classic interest rates

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Speaker 4: sensitive area. And we are seeing mortgage loans pick up

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Speaker 4: quite a bit in Europe, but we haven't seen housing

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Speaker 4: investment move up yet. And this goes back to here

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Speaker 4: to some extent. Okay, someone's decided I'm going to start

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Speaker 4: a new project, getting the permits, finding the workers, all

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Speaker 4: of that takes time. And so this is why I

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Speaker 4: said to you earlier on, we think the big recovery

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Speaker 4: investment is going to take a while. It's not all

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Speaker 4: going to happen this year in twenty five, it's going

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Speaker 4: to go into twenty six. So a long way to

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Speaker 4: summarize where we are is it's multi year. It really

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Speaker 4: is a long lag. And again from word go, from

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Speaker 4: the time we started hiking, I am the easy be

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Speaker 4: flagged quite a bit. We haven't done this very often.

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Speaker 4: How much of an evidence space do we have about

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Speaker 4: how long are those lags? How powerful this transmission? And

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Speaker 4: in the context of a pandemic and a war. So

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Speaker 4: for all of those reasons, it really goes back to

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Speaker 4: I'm reassured that transmission is working. I see it, but

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Speaker 4: I'm also validated if you like that it takes real time.

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Speaker 4: It takes real time before it transmits all the way

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Speaker 4: to the economy.

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Speaker 3: Tracy, I just remembered something, And you know, you started

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Speaker 3: the episode talking about some of the big structural things

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Speaker 3: that we should get to do you remember in the

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Speaker 3: blog a sphere like the twenty tens. I just remember this,

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Speaker 3: the sixth versus the structs debate.

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Speaker 2: Oh no, I don't remember that.

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Speaker 3: Some people were like, oh, it is the US face

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Speaker 3: like just a cyclical challenge where we need more demand

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Speaker 3: or is there a structs thing where we need to

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Speaker 3: like structurally change how the US economy works?

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Speaker 2: Do you remember that?

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Speaker 1: Anyway?

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Speaker 3: It occurs to me like every time there's some big

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Speaker 3: economic shock of any you get this debate right, how

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Speaker 3: much is it a cyclical thing where you know, economies

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Speaker 3: go up and down, inflation goes up and down, unemployment

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Speaker 3: goes up and down, versus something structural deeper with the

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Speaker 3: economy perhaps which demand policies, whether they be fiscal or monetary,

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Speaker 3: are sort of to some extent insufficient to address them.

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Speaker 3: And obviously, you know Tracy mentioned in the beginning these competitiveness,

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Speaker 3: so the Dragging Report, all that stuff. Do you feel

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Speaker 3: like we're at a moment where it's important for Europe

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Speaker 3: to be thinking about like deep structural issues or is

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Speaker 3: it just weird sort of taking our eye off the ball.

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Speaker 3: And then in the end these are still sort of

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Speaker 3: cyclical challenges for the economy.

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Speaker 4: Well, let me make a few points about this, because

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Speaker 4: of course this debate is ongoing. First of all, I

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Speaker 4: think it's important to recognize there isn't a clear bright

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Speaker 4: line between cyclical and structural because of course, if an

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Speaker 4: economy faces structural issues more or less, if your pessimism

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Speaker 4: on a structural basis, it will lower demand. So so

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Speaker 4: cyclical policy is called for even if the origin is structural.

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Speaker 4: But let me say, on top of all the structural

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Speaker 4: issues which are global. Every country debates, had to deal

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Speaker 4: with aging, had to deal with climate change, had to

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Speaker 4: deal with digitalization, AI, and so on. In the European context,

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Speaker 4: maybe there's two extra fact. One is the structure of Europe.

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Speaker 4: That's literally a structural factor. We have choices and debates

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Speaker 4: about essentially more integration the single market, and as you

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Speaker 4: mentioned earlier on Tracy, last week, the European Commission announced

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Speaker 4: this Competitiveness Compass. That's essentially a long to do list

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Speaker 4: to convert the Drag Report, the Letter Report into essentially action.

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Speaker 4: And of course you can imagine in a European Union

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Speaker 4: there's a lot of things need step by step action.

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Speaker 4: So I would say it's all aligned, but it's just

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Speaker 4: we have a new commission. It's basically a kind of

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Speaker 4: an agenda for the next few years. But fundamentally, and

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Speaker 4: this is where the Dragy Report starts, is Europe had

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Speaker 4: a very good idea forty years ago now that essentially,

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Speaker 4: in a modern world scale economies matter. If the European

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Speaker 4: member countries essentially come together and build a single market,

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Speaker 4: that will really help. That remains And the intersection now

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Speaker 4: is I think with digitization with other new technologies. Scale

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Speaker 4: economies really matter. It's really hard to think about. Okay,

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Speaker 4: if I have a big fixed cost investment, if I

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Speaker 4: build some new AI kind of business model, rolling that

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Speaker 4: out is a function of scale. So the European Union

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Speaker 4: building scale through a single market, that the case for

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Speaker 4: it is now reinforced. So I think there's a new

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Speaker 4: energy about that. And then of course the other big one,

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Speaker 4: maybe just because I think this is interesting from a

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Speaker 4: global point of view, is the global if you like equilibrium.

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Speaker 4: One thing the ECB has worked on and identified is

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Speaker 4: essentially when you can do this exercise of comparing economies.

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Speaker 4: And what's interesting of the last fifteen years is Europe

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Speaker 4: and China have become more similar. The US has not

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Speaker 4: become more similar. So if you think about which industries

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Speaker 4: are important activity, the composition of activity, and of course

435
00:26:05,400 --> 00:26:08,840
Speaker 4: this is immediate applications like in the car industry, now

436
00:26:09,080 --> 00:26:12,720
Speaker 4: China is much more similar to Europe. And with that,

437
00:26:13,320 --> 00:26:17,000
Speaker 4: of course, if you think about individual firms who might

438
00:26:17,040 --> 00:26:21,359
Speaker 4: have been used to certain margins, certain ability to obtain

439
00:26:21,440 --> 00:26:25,399
Speaker 4: market share, they are under a new competitiveness challenge. So

440
00:26:25,520 --> 00:26:28,360
Speaker 4: that is something where Europe is in between China and America.

441
00:26:28,920 --> 00:26:33,359
Speaker 4: Everyone has their kind of structural priorities, but this issue

442
00:26:33,680 --> 00:26:36,960
Speaker 4: how do you not kind of try and build a wall,

443
00:26:37,400 --> 00:26:39,520
Speaker 4: but how do you navigate this new world?

444
00:26:39,920 --> 00:26:40,480
Speaker 3: Is important.

445
00:26:56,000 --> 00:27:00,399
Speaker 2: So there's a general recognition that competitiveness is an issue,

446
00:27:00,560 --> 00:27:04,160
Speaker 2: low productivity is an issue, and as you mentioned, there's

447
00:27:04,200 --> 00:27:07,879
Speaker 2: probably multiple to do lists and ideas about how you

448
00:27:07,960 --> 00:27:11,880
Speaker 2: could go about addressing some of these issues. I guess

449
00:27:11,920 --> 00:27:17,520
Speaker 2: my question is how confident are you that the various

450
00:27:17,720 --> 00:27:21,240
Speaker 2: parties within the European Union will be able to follow

451
00:27:21,400 --> 00:27:27,000
Speaker 2: through on some of this and actually turn their economies around.

452
00:27:27,160 --> 00:27:30,440
Speaker 2: Because the other thing that's happening is we've had the

453
00:27:30,600 --> 00:27:35,159
Speaker 2: rise of right wing parties in lots of places in Europe,

454
00:27:35,240 --> 00:27:39,480
Speaker 2: and often those parties come with an agenda which is

455
00:27:40,000 --> 00:27:44,120
Speaker 2: cutting spending and really cracking down on debt and things

456
00:27:44,240 --> 00:27:47,360
Speaker 2: like that. So it feels like there's a tension there,

457
00:27:47,800 --> 00:27:49,280
Speaker 2: right How are you thinking about that?

458
00:27:50,560 --> 00:27:53,880
Speaker 4: So I would say, does it shared identification of essentially

459
00:27:53,960 --> 00:27:57,280
Speaker 4: the challenge that what I would say is a lot

460
00:27:57,359 --> 00:28:01,199
Speaker 4: of the problems your faces let me not say problems,

461
00:28:01,240 --> 00:28:04,920
Speaker 4: but a lot of the desires what we want. A

462
00:28:05,040 --> 00:28:07,760
Speaker 4: lot of these would look a lot easier to achieve

463
00:28:07,880 --> 00:28:11,359
Speaker 4: with a faster growth rate. And this is going back

464
00:28:11,400 --> 00:28:13,879
Speaker 4: to the four hundred pages with the dragging report. Some

465
00:28:14,000 --> 00:28:16,639
Speaker 4: of those pages are devoted about look all of this

466
00:28:16,800 --> 00:28:19,760
Speaker 4: debate about fiscal space, it looks a lot better if

467
00:28:19,800 --> 00:28:23,280
Speaker 4: you get your economy to grow more quickly. So I

468
00:28:23,359 --> 00:28:27,480
Speaker 4: think fundamentally the identification that if we can grow more quickly,

469
00:28:28,440 --> 00:28:34,280
Speaker 4: how to distribute resources, how to make progress on decarbonization,

470
00:28:35,359 --> 00:28:38,240
Speaker 4: all of these issues would look a lot easier. So

471
00:28:38,560 --> 00:28:40,760
Speaker 4: let me focus on the fact that there is a

472
00:28:40,880 --> 00:28:45,360
Speaker 4: kind of more and more and identification is the only

473
00:28:45,440 --> 00:28:50,000
Speaker 4: way to square the circle is to commit to policies

474
00:28:50,720 --> 00:28:52,720
Speaker 4: to improve the growth rate. But let me say there's

475
00:28:52,760 --> 00:28:56,000
Speaker 4: a huge opportunity here. You can look at the fact

476
00:28:56,040 --> 00:28:59,160
Speaker 4: that Europe has been a bit slower in terms of,

477
00:28:59,320 --> 00:29:02,680
Speaker 4: for example, option of AI. You might say, oh my god,

478
00:29:02,920 --> 00:29:05,320
Speaker 4: going more slowly under the hand, you may say, okay,

479
00:29:05,480 --> 00:29:09,000
Speaker 4: here's the real opportunity. So to embrace the diffusion of

480
00:29:09,080 --> 00:29:12,800
Speaker 4: new technologies. Again, if you looked thirty years ago with

481
00:29:13,000 --> 00:29:16,960
Speaker 4: the transmission of internet to the business sector, that happened

482
00:29:17,000 --> 00:29:20,240
Speaker 4: here first, but it then happened in Europe because of

483
00:29:20,320 --> 00:29:24,800
Speaker 4: course European firms could see what's possible. So i'd be,

484
00:29:25,480 --> 00:29:27,840
Speaker 4: you know, in the optimistic camp that there's a lot

485
00:29:27,880 --> 00:29:32,440
Speaker 4: of opportunities and going back to the single market idea. Again,

486
00:29:32,680 --> 00:29:36,560
Speaker 4: it does require political will, it does require political leadership,

487
00:29:37,160 --> 00:29:39,520
Speaker 4: but there's a huge opportunity here just.

488
00:29:39,720 --> 00:29:42,840
Speaker 3: On this point about the idea that the euro Zone

489
00:29:43,320 --> 00:29:46,760
Speaker 3: is an unfinished project, that there's still more opportunities for

490
00:29:46,920 --> 00:29:50,560
Speaker 3: integration between the member nations. In one very crude way

491
00:29:51,080 --> 00:29:55,080
Speaker 3: of sort of looking at European fragmentation so to speak,

492
00:29:55,120 --> 00:29:57,240
Speaker 3: in they're probably multiple ways. It was just looking at

493
00:29:57,320 --> 00:29:59,080
Speaker 3: like sort of you know, fact that there is not

494
00:29:59,200 --> 00:30:02,400
Speaker 3: a uniform sovereign spread, right because each country has its

495
00:30:02,400 --> 00:30:04,560
Speaker 3: own bond market, and we saw that play out very

496
00:30:04,720 --> 00:30:09,640
Speaker 3: dramatically in twenty eleven and twenty twelve. But lately spreads

497
00:30:09,840 --> 00:30:13,160
Speaker 3: for some countries are widening out again. It's come in

498
00:30:13,240 --> 00:30:15,280
Speaker 3: a little bit, but say the French German ten year

499
00:30:15,400 --> 00:30:18,040
Speaker 3: spread is certainly higher than much of the sort of

500
00:30:18,120 --> 00:30:20,920
Speaker 3: post twenty fourteen period, not as high as it was

501
00:30:21,000 --> 00:30:23,480
Speaker 3: in twenty eleven and twenty twelve. How much when you

502
00:30:23,640 --> 00:30:27,800
Speaker 3: look at these spreads, is this a function of part

503
00:30:27,840 --> 00:30:31,040
Speaker 3: of the agenda of some of the parties in Europe

504
00:30:31,240 --> 00:30:36,240
Speaker 3: is essentially capital as sovereignty, this idea that like, is

505
00:30:36,320 --> 00:30:40,760
Speaker 3: it compatible to talk about creating a single market finishing

506
00:30:40,920 --> 00:30:44,200
Speaker 3: the project of integration at the same time as there

507
00:30:44,440 --> 00:30:47,719
Speaker 3: is this big push for a sort of like nationalist

508
00:30:47,800 --> 00:30:48,600
Speaker 3: sovereign agenda.

509
00:30:49,400 --> 00:30:52,000
Speaker 4: So I think what you've seen in Europe is essentially

510
00:30:52,840 --> 00:30:56,240
Speaker 4: I'm not seen that debate these days too much. Okay,

511
00:30:56,480 --> 00:30:59,120
Speaker 4: no one is really saying the answer is to kind

512
00:30:59,160 --> 00:31:02,760
Speaker 4: of go out nation state basis, because, of course you

513
00:31:02,840 --> 00:31:06,560
Speaker 4: can see going back to the scaied economy issue, it's

514
00:31:06,640 --> 00:31:09,360
Speaker 4: really hard to think about being a small country in

515
00:31:09,440 --> 00:31:12,760
Speaker 4: today's world. So the value of the European Union is

516
00:31:13,280 --> 00:31:16,720
Speaker 4: I think common. I don't think there's any anti EU,

517
00:31:17,800 --> 00:31:21,120
Speaker 4: serious anti EU kind of proposals in any of the

518
00:31:21,200 --> 00:31:24,320
Speaker 4: national systems. And going back to the spread issue, I

519
00:31:24,360 --> 00:31:27,320
Speaker 4: mean there's nothing like the situation we had fifteen years ago.

520
00:31:27,880 --> 00:31:32,600
Speaker 4: So of course, going back to division here that essentially

521
00:31:33,360 --> 00:31:36,560
Speaker 4: the European Union is a unique structure, and I think

522
00:31:36,600 --> 00:31:39,760
Speaker 4: that's very important because sometimes in my career I've heard

523
00:31:40,200 --> 00:31:42,920
Speaker 4: why can't he just be like the US? And of

524
00:31:43,000 --> 00:31:44,400
Speaker 4: course this kind of one.

525
00:31:44,320 --> 00:31:46,240
Speaker 2: Line do people still say that.

526
00:31:47,120 --> 00:31:50,120
Speaker 4: I get it, But of course you need a certain

527
00:31:50,120 --> 00:31:53,920
Speaker 4: amount of fiscal integration. We have stepped forward with more

528
00:31:54,360 --> 00:31:56,920
Speaker 4: joint debt and so on. You do need a certain amount.

529
00:31:57,560 --> 00:32:00,959
Speaker 4: You need to make sure your backing system don't require

530
00:32:01,520 --> 00:32:04,080
Speaker 4: a lot of physical support i e. They have to

531
00:32:04,120 --> 00:32:06,880
Speaker 4: be well capitalized and well regulated, and we've come a

532
00:32:06,960 --> 00:32:09,280
Speaker 4: long way on that. And you have to make sure

533
00:32:09,560 --> 00:32:13,760
Speaker 4: every member country is following fairly stable policies so we

534
00:32:13,840 --> 00:32:17,120
Speaker 4: don't have the really large property bubbles, the big current

535
00:32:17,120 --> 00:32:20,200
Speaker 4: account deficits we had. So Europe is quite a kind

536
00:32:20,240 --> 00:32:25,240
Speaker 4: of stable environment, not super growing fast. So dynamism is

537
00:32:25,280 --> 00:32:28,920
Speaker 4: an issue, but stable, yes, But stability is if you

538
00:32:29,080 --> 00:32:32,040
Speaker 4: like a kind of minimal condition. And I think this

539
00:32:32,160 --> 00:32:35,440
Speaker 4: is where the conversation is. Let's move on from being

540
00:32:35,520 --> 00:32:40,120
Speaker 4: stable to be delivering more of what we want and

541
00:32:40,560 --> 00:32:42,880
Speaker 4: if we grow more quickly, we can do more on

542
00:32:43,080 --> 00:32:46,560
Speaker 4: all of the different dimensions of policy that Europeans want.

543
00:32:47,720 --> 00:32:50,200
Speaker 2: Just going back to the very beginning of this conversation,

544
00:32:50,400 --> 00:32:54,800
Speaker 2: we were talking about energy prices increasing and feeding into inflation.

545
00:32:55,240 --> 00:32:59,600
Speaker 2: I mean, energy price is just one of many external

546
00:32:59,680 --> 00:33:04,360
Speaker 2: shots to the European economy in recent years. As a

547
00:33:04,560 --> 00:33:09,600
Speaker 2: central banker, what can you do to actually offset those

548
00:33:09,880 --> 00:33:12,640
Speaker 2: types of supply side shocks.

549
00:33:14,120 --> 00:33:16,240
Speaker 4: So what we have to make sure is when we

550
00:33:16,360 --> 00:33:19,120
Speaker 4: had a really big energy shock, and we had to

551
00:33:19,200 --> 00:33:21,320
Speaker 4: make sure and to be able to provide the reassurance

552
00:33:21,400 --> 00:33:25,080
Speaker 4: to everyone that we will make sure inflation comes back

553
00:33:25,120 --> 00:33:28,080
Speaker 4: down to two percent, not overnight, but in a realistic

554
00:33:28,160 --> 00:33:32,560
Speaker 4: timeframe and essentially threat the whole process to keep inflation

555
00:33:32,720 --> 00:33:37,280
Speaker 4: expectations stable. So in contrast to nineteen seventies, this has happened.

556
00:33:37,840 --> 00:33:41,280
Speaker 4: So the famous second round or third round effects, they

557
00:33:41,320 --> 00:33:43,320
Speaker 4: were there to an extent that they'd have to be

558
00:33:43,360 --> 00:33:46,960
Speaker 4: a catchup phrase for wages, which is now maybe nearly over.

559
00:33:47,640 --> 00:33:51,360
Speaker 4: But no, I think the central bank world, once it

560
00:33:51,480 --> 00:33:54,240
Speaker 4: was diagnosed that we needed to act, that has not

561
00:33:54,360 --> 00:33:58,680
Speaker 4: been the biggest headache here. So for central banks, that's

562
00:33:58,760 --> 00:34:02,120
Speaker 4: our offer or our promise. We will deliver price to

563
00:34:02,200 --> 00:34:04,520
Speaker 4: polity and meet in term. That doesn't mean there won't

564
00:34:04,560 --> 00:34:06,959
Speaker 4: be shocks, but when there is a shock, we get

565
00:34:07,000 --> 00:34:09,719
Speaker 4: it back down to two percent in a realistic timeframe.

566
00:34:10,360 --> 00:34:13,239
Speaker 3: One of the things that we saw recently is that

567
00:34:13,480 --> 00:34:19,200
Speaker 3: the Federal Reserve has removed itself from the ENNGFS organization

568
00:34:19,400 --> 00:34:22,320
Speaker 3: where central banks think about the greening of the financial system,

569
00:34:22,640 --> 00:34:26,400
Speaker 3: the effect of climate change on its goals and so forth.

570
00:34:26,920 --> 00:34:31,080
Speaker 3: The ECB is a member of this organization. Over the

571
00:34:31,160 --> 00:34:35,080
Speaker 3: last several years various political reasons, I'm sure inflation and

572
00:34:35,160 --> 00:34:38,600
Speaker 3: the energy shock. It feels like menu organizations, certainly in

573
00:34:38,640 --> 00:34:44,280
Speaker 3: the US, have lost some of their motivation to prioritize

574
00:34:44,719 --> 00:34:48,080
Speaker 3: climate What is that like in Europe? Is there any

575
00:34:48,280 --> 00:34:52,760
Speaker 3: change in the amount of energy and interest and prioritization

576
00:34:53,280 --> 00:34:57,040
Speaker 3: of climate change issues, both at the ECB specifically, but

577
00:34:57,160 --> 00:35:00,440
Speaker 3: also at the sort of political and corporate set avoids

578
00:35:00,440 --> 00:35:00,800
Speaker 3: around it.

579
00:35:02,040 --> 00:35:05,200
Speaker 4: So I think the assessment is pretty stable, and that

580
00:35:05,360 --> 00:35:08,880
Speaker 4: that's not just in central banking but in many dimensions.

581
00:35:09,440 --> 00:35:12,960
Speaker 4: The assessment is the world is getting hotter. The assessment

582
00:35:13,080 --> 00:35:16,960
Speaker 4: is policy is needed both to slow that down and

583
00:35:17,040 --> 00:35:20,160
Speaker 4: the cap it but also to make sure the economy

584
00:35:20,200 --> 00:35:24,080
Speaker 4: and society adapts to hotter temperatures. So it's I think

585
00:35:24,160 --> 00:35:28,279
Speaker 4: important for central banks to prepare the financial system for that.

586
00:35:28,600 --> 00:35:31,520
Speaker 4: It's important for central banks in how we do multi

587
00:35:31,600 --> 00:35:36,400
Speaker 4: policy to recognize the effects of these climate shocks and

588
00:35:36,520 --> 00:35:41,080
Speaker 4: also the underlying transition issue. So what is true which

589
00:35:41,160 --> 00:35:44,759
Speaker 4: is inevitable? These are pretty big policies. There's big policies,

590
00:35:45,400 --> 00:35:48,120
Speaker 4: but of course all the time you have to recalibration.

591
00:35:48,840 --> 00:35:52,040
Speaker 4: What exactly is the right subsistye policy for heat pumps,

592
00:35:52,080 --> 00:35:56,680
Speaker 4: for example, so to move housing away from using oil

593
00:35:56,719 --> 00:35:59,640
Speaker 4: and gas towards using heat pumps, what is the right

594
00:35:59,680 --> 00:36:02,840
Speaker 4: pole see and the right timeline for getting people to

595
00:36:02,960 --> 00:36:07,879
Speaker 4: move from petrol and diesel cars to electric vehicles out

596
00:36:08,160 --> 00:36:13,680
Speaker 4: viewing all of that as recalibration tactical adjustments, but again

597
00:36:13,800 --> 00:36:17,600
Speaker 4: coming back to where we started with the European Commissions

598
00:36:17,960 --> 00:36:23,160
Speaker 4: agenda for the next few years, decarbonization remains central to that.

599
00:36:23,719 --> 00:36:27,000
Speaker 4: So I would say we're learning a lot the evidence

600
00:36:27,080 --> 00:36:29,920
Speaker 4: from all of the severe weather effects, not just in

601
00:36:30,000 --> 00:36:32,640
Speaker 4: Europe but around the world. People see it, they see

602
00:36:32,680 --> 00:36:35,560
Speaker 4: it every day how they live their lives. So I

603
00:36:35,680 --> 00:36:38,680
Speaker 4: think the identification of the problem is there, but of

604
00:36:38,800 --> 00:36:43,120
Speaker 4: course making sure that the trade offs are recognized, the

605
00:36:43,600 --> 00:36:47,280
Speaker 4: scope for new technologies to help and to be sensible

606
00:36:47,360 --> 00:36:50,440
Speaker 4: about what you ask different parts of the economy, whether

607
00:36:50,480 --> 00:36:55,240
Speaker 4: it's households, large corporates, small corporates, and the banking system,

608
00:36:55,920 --> 00:36:59,240
Speaker 4: that's essentially in evolving work in progress.

609
00:37:00,600 --> 00:37:03,879
Speaker 2: So I can't pass up an opportunity to talk more

610
00:37:04,120 --> 00:37:08,680
Speaker 2: about the hairy charts of market expectations of the future

611
00:37:08,719 --> 00:37:12,839
Speaker 2: path of interest rates MEDUSA charts, spaghetti charts people call them.

612
00:37:12,920 --> 00:37:17,239
Speaker 2: Sometimes the market currently is pricing in at least three

613
00:37:17,360 --> 00:37:22,000
Speaker 2: more twenty five basis point cuts. Is that reasonable in

614
00:37:22,120 --> 00:37:25,080
Speaker 2: your mind? Is the market finally going to get this

615
00:37:25,239 --> 00:37:25,719
Speaker 2: one right?

616
00:37:27,480 --> 00:37:29,640
Speaker 4: Okay? I'm going to side step up to some extent

617
00:37:29,880 --> 00:37:34,000
Speaker 4: because you know, philosophically, the world is subject to shocks.

618
00:37:34,640 --> 00:37:38,440
Speaker 4: So going back to when you get these market revisions,

619
00:37:39,160 --> 00:37:42,560
Speaker 4: that's their point in time view. Right now, let's see

620
00:37:42,600 --> 00:37:45,239
Speaker 4: what happens. So you know, my world is not really

621
00:37:45,360 --> 00:37:48,200
Speaker 4: I think too kind of overly comment on the market view.

622
00:37:48,680 --> 00:37:52,200
Speaker 4: But let me go back to the peak inflation of

623
00:37:52,760 --> 00:37:57,360
Speaker 4: late twenty two. We well are staff to your system. Staff,

624
00:37:57,760 --> 00:38:00,400
Speaker 4: I think did a pretty good job of provide the

625
00:38:00,480 --> 00:38:04,600
Speaker 4: timeline saying, look, where you are now around ten percent inflation,

626
00:38:05,480 --> 00:38:08,279
Speaker 4: you're going to be basically back around two percent in

627
00:38:08,320 --> 00:38:11,440
Speaker 4: twenty five. That was a kind of timeline that's been

628
00:38:11,600 --> 00:38:16,200
Speaker 4: very stable. And under that timeline, which has really been followed,

629
00:38:16,880 --> 00:38:20,319
Speaker 4: then of course the market is recognizing the interest rates

630
00:38:20,360 --> 00:38:23,399
Speaker 4: you need when you're at ten or five or three

631
00:38:23,480 --> 00:38:26,319
Speaker 4: percent inflation are not the interest rate you need when

632
00:38:26,320 --> 00:38:30,080
Speaker 4: you're around two So I think in that context the

633
00:38:30,560 --> 00:38:34,759
Speaker 4: predictability of how this inflation works has held up fairly well.

634
00:38:35,360 --> 00:38:38,320
Speaker 4: The big issue was had that inflation erupt in the

635
00:38:38,400 --> 00:38:41,719
Speaker 4: first place, and the scale of it. But once we

636
00:38:41,880 --> 00:38:44,920
Speaker 4: got to the peak, going from peak back to two

637
00:38:45,000 --> 00:38:48,560
Speaker 4: percent has been I think in line with how the

638
00:38:48,680 --> 00:38:52,359
Speaker 4: macro modeling community would think about it. So I don't

639
00:38:52,360 --> 00:38:54,880
Speaker 4: think there's been all that surprising so far, and so

640
00:38:55,000 --> 00:38:57,319
Speaker 4: let me go back to this year. What I would

641
00:38:57,360 --> 00:39:00,319
Speaker 4: say is, as we've thought about, there's a lot going

642
00:39:00,360 --> 00:39:03,800
Speaker 4: on in the world, and so the fluctuation of inflation,

643
00:39:04,680 --> 00:39:07,879
Speaker 4: what would be the appropriate market policy is very much

644
00:39:07,880 --> 00:39:10,279
Speaker 4: It could to depend on a lot of policy decisions

645
00:39:10,480 --> 00:39:11,160
Speaker 4: around the world.

646
00:39:12,040 --> 00:39:15,719
Speaker 3: The recent discovery, maybe in the US about deep seek

647
00:39:15,920 --> 00:39:18,680
Speaker 3: create a lot of anxiety about Chinese growth and AI,

648
00:39:18,840 --> 00:39:21,120
Speaker 3: but also just sort of hammered home. There are a

649
00:39:21,239 --> 00:39:24,359
Speaker 3: lot of areas where China seems to be doing very

650
00:39:24,400 --> 00:39:28,440
Speaker 3: well at the technological edge, and obviously we all know

651
00:39:28,560 --> 00:39:32,400
Speaker 3: the incredible story with batteries, electric cars, the technology for

652
00:39:32,840 --> 00:39:38,000
Speaker 3: green power. They have a growing petrochemical industry. They even

653
00:39:38,080 --> 00:39:41,759
Speaker 3: have a growing pharmaceutical industry. These are industries that I

654
00:39:41,880 --> 00:39:44,359
Speaker 3: really think of as core to you know, a big

655
00:39:44,480 --> 00:39:49,360
Speaker 3: part of when I think of European industry, pharma, automobiles, chemicals,

656
00:39:49,480 --> 00:39:52,160
Speaker 3: and so forth. I'd like to just hear your thoughts

657
00:39:52,160 --> 00:39:55,920
Speaker 3: about this more broadly. How anxious does that make you?

658
00:39:56,160 --> 00:40:00,359
Speaker 3: And are there opportunities with respect to China, especially if

659
00:40:00,440 --> 00:40:06,600
Speaker 3: the US is reliability as a trading partner grows more questionable.

660
00:40:07,400 --> 00:40:09,799
Speaker 4: So let me focus on the economics. Yes, of course

661
00:40:09,840 --> 00:40:12,680
Speaker 4: there's a parallel political debate which is not for me.

662
00:40:13,440 --> 00:40:17,040
Speaker 4: But economically, what we've had for a long time now

663
00:40:17,320 --> 00:40:21,000
Speaker 4: is China growing, becoming a bigger share of the world economy.

664
00:40:21,600 --> 00:40:24,440
Speaker 4: And the most basic point is that operates in both

665
00:40:24,480 --> 00:40:29,080
Speaker 4: demand and supply. So as they get more productive, the

666
00:40:29,239 --> 00:40:32,879
Speaker 4: technologies they diffuse around the world. So you know, those

667
00:40:32,920 --> 00:40:36,480
Speaker 4: who are able to buy a cheap electric vehicle, to

668
00:40:36,680 --> 00:40:40,120
Speaker 4: buy cheap solar panels, windmills, all of those. I mean,

669
00:40:40,200 --> 00:40:44,279
Speaker 4: there is a kind of global impact of that. Also,

670
00:40:44,360 --> 00:40:47,600
Speaker 4: it's trying to get richer again, their interest in buying

671
00:40:48,400 --> 00:40:52,759
Speaker 4: exports from Europe and from America goes up. So the baseline,

672
00:40:53,000 --> 00:40:57,560
Speaker 4: of course is essentially the world gain richer is win win. Now,

673
00:40:57,640 --> 00:41:00,600
Speaker 4: of course, there is a debate about industrial policy and

674
00:41:01,040 --> 00:41:05,120
Speaker 4: you know under what circumstances, whether for economic security reasons

675
00:41:05,360 --> 00:41:09,160
Speaker 4: or for kind of stability of various industries. You recognize

676
00:41:09,400 --> 00:41:13,400
Speaker 4: that there are concepts such as kind of countervating tarits.

677
00:41:13,920 --> 00:41:17,080
Speaker 4: So Europe imposed in a very calibrated way tarifts and

678
00:41:17,200 --> 00:41:20,960
Speaker 4: Chinese evs a wile ago. But essentially that was done

679
00:41:21,040 --> 00:41:25,440
Speaker 4: within I think WTO rules, which is basically, if you

680
00:41:25,560 --> 00:41:29,399
Speaker 4: think the origin of some of the low prices out

681
00:41:29,400 --> 00:41:32,680
Speaker 4: of China, or if you like unfair subsidies, then the

682
00:41:33,239 --> 00:41:37,200
Speaker 4: handbook says you can countervail that and correct that. So

683
00:41:37,360 --> 00:41:40,600
Speaker 4: what I would say is there are kind of WTO

684
00:41:40,760 --> 00:41:43,520
Speaker 4: mechanisms that can go a long way in dealing with

685
00:41:44,000 --> 00:41:48,320
Speaker 4: any kind of identification of if you like unfair subsidies.

686
00:41:48,880 --> 00:41:51,799
Speaker 4: But I think we should remember the word gaining richer

687
00:41:52,120 --> 00:41:58,000
Speaker 4: technologies getting invented wherever they get invented creates global possibilities.

688
00:41:58,440 --> 00:42:01,680
Speaker 4: I'll call them possibilities. But I would say, and I

689
00:42:01,760 --> 00:42:03,880
Speaker 4: said it earlier on, is the fact that China is

690
00:42:03,920 --> 00:42:06,960
Speaker 4: becoming more similar, whether in chemicals, auto and so on,

691
00:42:07,840 --> 00:42:12,000
Speaker 4: does create adjustment issues. It does mean the kind of

692
00:42:12,120 --> 00:42:15,640
Speaker 4: price in which a European firm can sell its output

693
00:42:15,920 --> 00:42:19,040
Speaker 4: around the world is compromised. The answer to that is

694
00:42:19,120 --> 00:42:22,280
Speaker 4: not to say, look, I wish this new competition didn't exist.

695
00:42:23,000 --> 00:42:26,880
Speaker 4: The answer is, okay, how do we adjust? So I

696
00:42:26,880 --> 00:42:31,399
Speaker 4: would say individual sectors, adjustment issues. That's always been true

697
00:42:31,440 --> 00:42:35,000
Speaker 4: with trade, but also to recognize that rising real incomes

698
00:42:35,040 --> 00:42:38,160
Speaker 4: in China are at the world's at demand as well.

699
00:42:38,560 --> 00:42:42,320
Speaker 2: All Right, Philip Blane truly the perfect guest to discuss

700
00:42:42,440 --> 00:42:44,120
Speaker 2: all of this. Thank you so much for coming on

701
00:42:44,200 --> 00:42:44,520
Speaker 2: the show.

702
00:42:44,640 --> 00:42:58,839
Speaker 4: Well, thank you for having me, Joe.

703
00:42:58,960 --> 00:43:01,600
Speaker 2: I thought that discussion was really interesting, and it's been

704
00:43:01,640 --> 00:43:06,239
Speaker 2: a while since we've had a europe centric episode. One

705
00:43:06,280 --> 00:43:09,600
Speaker 2: thing I was thinking is it's kind of amazing how

706
00:43:09,680 --> 00:43:14,400
Speaker 2: much politics is intertwined with the economy and minetary policy

707
00:43:14,520 --> 00:43:17,840
Speaker 2: right now. And we asked a bunch of questions along

708
00:43:17,960 --> 00:43:21,880
Speaker 2: these lines. But there's a broad recognition of the challenges

709
00:43:21,960 --> 00:43:27,280
Speaker 2: that Europe faces, and there are some concrete ideas about

710
00:43:27,360 --> 00:43:30,919
Speaker 2: what to do about those. But at the same time,

711
00:43:31,040 --> 00:43:33,960
Speaker 2: it feels like politics is heading in the other direction,

712
00:43:34,320 --> 00:43:38,440
Speaker 2: away from multilateralism, as you pointed out. And even I

713
00:43:38,520 --> 00:43:41,640
Speaker 2: mean even Belgium, so Brussels is like the seat of

714
00:43:41,719 --> 00:43:45,920
Speaker 2: the European Union. Even Belgium has a far right party

715
00:43:46,080 --> 00:43:49,200
Speaker 2: in power now. Yeah, so you know it seems like

716
00:43:49,480 --> 00:43:50,720
Speaker 2: an uphill battle.

717
00:43:50,960 --> 00:43:52,920
Speaker 4: Yeah right. I mean, I really like the.

718
00:43:52,920 --> 00:43:55,960
Speaker 3: Way he framed the answer when we sort of pivoted

719
00:43:56,040 --> 00:44:00,640
Speaker 3: to structural questions, because sure, there's always structural quote, but

720
00:44:00,880 --> 00:44:04,840
Speaker 3: Europe seems to have both external structural questions and internal

721
00:44:05,000 --> 00:44:10,600
Speaker 3: structural questions, and it's hard to think about addressing some

722
00:44:10,760 --> 00:44:15,640
Speaker 3: of the external structural questions such as how and do

723
00:44:15,760 --> 00:44:18,400
Speaker 3: you sort of have a competitive AI sector? Do you

724
00:44:18,480 --> 00:44:20,719
Speaker 3: want a competitive AI sector, but how would you have

725
00:44:20,880 --> 00:44:24,920
Speaker 3: one given the scale of investment, or can you compete

726
00:44:25,080 --> 00:44:29,719
Speaker 3: with the scale of Chinese chemicals or autos. At the

727
00:44:29,920 --> 00:44:35,200
Speaker 3: same time, as the internal structure still is not complete,

728
00:44:35,239 --> 00:44:39,239
Speaker 3: there's still individual states and obviously there are formal trade

729
00:44:39,280 --> 00:44:41,160
Speaker 3: barriers between the states, but there's you know, there are

730
00:44:41,160 --> 00:44:44,880
Speaker 3: different countries still in different financial markets and a not

731
00:44:45,080 --> 00:44:48,600
Speaker 3: fully integrated banking system, and whether, as you say, there's

732
00:44:48,680 --> 00:44:52,880
Speaker 3: the appetite currently in today's twenty twenty five politics to

733
00:44:52,960 --> 00:44:55,279
Speaker 3: talk about further integration is a.

734
00:44:55,320 --> 00:44:59,239
Speaker 2: Challenge, definitely an open question. Shall we leave it there?

735
00:44:59,360 --> 00:44:59,920
Speaker 4: Let's leave it there.

736
00:45:00,400 --> 00:45:03,000
Speaker 2: This has been another episode of the Odd Loots podcast.

737
00:45:03,120 --> 00:45:06,040
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy.

738
00:45:05,760 --> 00:45:08,440
Speaker 3: Alloway and I'm Joe Wisenthal. You can follow me at

739
00:45:08,480 --> 00:45:12,479
Speaker 3: the Stalwart. Follow our producers Carmen Rodriguez at Carman Arman,

740
00:45:12,640 --> 00:45:15,800
Speaker 3: dash Ol Bennett at Dashbot, and Kilbrooks and Kale Brooks.

741
00:45:16,080 --> 00:45:18,400
Speaker 3: From our odd Logs content, go to Bloomberg dot com

742
00:45:18,520 --> 00:45:20,640
Speaker 3: slash odd Lots. We have transcripts, a blog, and a

743
00:45:20,719 --> 00:45:23,040
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744
00:45:23,080 --> 00:45:26,759
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745
00:45:26,480 --> 00:45:29,120
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746
00:45:29,320 --> 00:45:32,840
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747
00:45:32,920 --> 00:45:36,240
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748
00:45:36,680 --> 00:45:39,600
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749
00:45:39,680 --> 00:45:42,719
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750
00:45:43,080 --> 00:45:43,920
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751
00:45:43,920 --> 00:45:47,040
Speaker 2: Find the Bloomberg channel on Apple Podcasts and follow the

752
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753
00:46:05,960 --> 00:46:14,440
Speaker 4: In in