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

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Speaker 2: I think we're on the way to getting peace.

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Speaker 1: I think President Putin wants peace, and President Zelensky wants peace,

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Speaker 1: and I want peace.

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Speaker 2: I just want to see people stop getting killed.

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Speaker 3: On Wednesday, this week, US President Donald Trump stunned European

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Speaker 3: leaders and the world, announcing he'd agreed with Russian President

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Speaker 3: Vladimir Putin to start negotiating an end to the war

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Speaker 3: in Ukraine. And he's starting to tell leaders of the

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Speaker 3: block what they need to do to secure peace. And

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Speaker 3: as the week came to an end, the President also

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Speaker 3: talked about reciprocal tariffs that could cost europe deer. I

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Speaker 3: was Stephanie Flanders, head of Government and Economics of Bloomberg,

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Speaker 3: and welcome to this special Trumpnomics, the Bloomberg podcast that

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Speaker 3: looks at the economic world of Donald Trump, how he's

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Speaker 3: already shaped the global economy and what on earth is

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Speaker 3: going to happen next. So we're recording this bonus episode

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Speaker 3: from the sidelines of the Munich Security Conference, which has

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Speaker 3: taken on enormous significance this year given the recent arrival

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Speaker 3: of Donald Trump back at the White House, all the

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Speaker 3: discussions around the future of Ukraine, and indeed a high

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Speaker 3: level US delegation coming here, led by JD Vance, who's

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Speaker 3: making his first trip to Europe as Vice President. And

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Speaker 3: our question this week is can foot the bill? Can

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Speaker 3: Europe handle the financial burden that comes with the President's

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Speaker 3: plans for ending the war in Ukraine and on top

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Speaker 3: of that his potentially hefty demands on trade. With me,

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Speaker 3: we have someone who's been to many many of these

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Speaker 3: Alberta and our Dela, Bloomberg's correspondent at large for Europe. Alberta,

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Speaker 3: thanks for.

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Speaker 2: Coming, Thank you're having me, and I've grabbed.

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Speaker 3: You from I know you spent most of your time

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Speaker 3: in the corridors getting next day's scoop. And a Donio Barosso,

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Speaker 3: senior geoeconomics analyst for Europe for Bloomberg Economics, one of

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Speaker 3: the geoeconomists that we've brought into Bloomberg recently. He previously

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Speaker 3: launched the geopolitical risk unit of the consulting firm TENEO

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Speaker 3: and worked as a senior analyst at Eurasia Group. And

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Speaker 3: you know, for good measure has a PhD from the LSC.

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Speaker 3: So good to be with you. So whatever the US

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Speaker 3: President decides on for Ukraine. We're pretty clear on one

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Speaker 3: thing that Europe isn't ready to shoulder a large share

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Speaker 3: of the burden. Bloomberg Economics has calculated that protecting Ukraine

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Speaker 3: and expanding European defense could cost the continent's major powers

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Speaker 3: an additional three point one trillion dollars over the next

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Speaker 3: ten years. Now, and Donio, I know you're the one

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Speaker 3: who came up with some of these numbers, or at

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Speaker 3: least you've been pulling them together working with your colleagues.

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Speaker 3: So just talk us through briefly how you get to

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Speaker 3: that three point one trillion dollars.

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Speaker 1: Sure, so, WECA coulated that supporting Ukraine militarily for the

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Speaker 1: next ten years bull amount to around one hundred and

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Speaker 1: seventy five billion dollars. Then the second important figure is

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Speaker 1: one hundred and thirty billion dollars, which is the gap

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Speaker 1: that we estimate between the estimated cost of reconstructions reconstruction

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Speaker 1: for Ukraine and the available sources of funding that have

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Speaker 1: been lined up. And then two point seven trillion dollars,

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Speaker 1: which is the amount of debt that the five largest

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Speaker 1: Europe and NETO member states will incur if they were

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Speaker 1: to increase defense spending to up to three point around

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Speaker 1: three point five percent of GDP.

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Speaker 3: And we should say, and that's three point five so

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Speaker 3: the President Trump has said that everyone should get everyone

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Speaker 3: needs to should go to five percent. You know, even

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Speaker 3: this very large number is not even assuming that it's

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Speaker 3: seeming a much smaller increase.

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Speaker 1: Sure, because I mean, you've seen a country like Pollen

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Speaker 1: that clearly is taking the threat that the thread of

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Speaker 1: the eastern front of Russia very seriously and that has

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Speaker 1: rapidly increased defense spending. But that's very challenging for countries

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Speaker 1: such as Spain or Italy that would start for a

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Speaker 1: very low level and also that you know had very

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Speaker 1: large debt and deficit burdens. I mean, how are you

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Speaker 1: gonna increase spending to that level? Are you gonna cut pensions?

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Speaker 1: Are you gonna cut education spending? I don't think so

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Speaker 1: It's very politically complicated to do it. So we assume

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Speaker 1: that three point five will we are much more realistic targets,

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Speaker 1: so to speak.

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Speaker 3: Realistic Yeah, in inversity comments very large number. I mean,

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Speaker 3: Albert say, one of the things that you've heard, and

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Speaker 3: particularly in the last day or so, as everyone was

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Speaker 3: absorbing the news of President Trump's call with Vladimir Putin.

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Speaker 3: The one thing in all of this which people recognize

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Speaker 3: Donald Trump is right about, and I guess Joe Biden

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Speaker 3: was right about. You know that the period where Europeans

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Speaker 3: could rely on the US to shoulder such a share

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Speaker 3: of the burden of defending Europe that is past. Do

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Speaker 3: you get a sense of anyone realistically kind of grasping

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Speaker 3: what follows next. I hear a lot of defense people

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Speaker 3: and military people talking about what's needed. I don't hear

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Speaker 3: so much from the politician.

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Speaker 2: I think the mood is one of shock. Mostly if

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Speaker 2: you speak to politicians that are not just defense politicians,

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Speaker 2: say in Eastern Europe, they do get a sense of

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Speaker 2: what might be coming down the road. The challenge is

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Speaker 2: mostly in Western Europe countries like Spain, Italy, but even Germany,

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Speaker 2: and they who still see this conflict as something also

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Speaker 2: only far away. They want to support Ukraine, but they

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Speaker 2: don't see the potential consequences of it unraveling hitting their

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Speaker 2: own borders. And if we look at these numbers, they're

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Speaker 2: big numbers. However, at the end of the day, it's

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Speaker 2: a small percentage of their GDP so really this is

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Speaker 2: about political will and understand what is at stake, the

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Speaker 2: security of Ukraine, the security of Europe if Ukraine unravels,

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Speaker 2: and ultimately trying to basically, like you said, with the

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Speaker 2: US pulling back some of its security commitments, does Europe

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Speaker 2: have the will to step in and understanding the consequences

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Speaker 2: of that. I do feel that there is a fundamental difference, say,

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Speaker 2: with Trump's approach to Biden and presidents before him on

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Speaker 2: Europe picking up more of the burden, which is the

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Speaker 2: point of Transatlantic allies. Like previous presidents, they have always

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Speaker 2: asked Europe to do more, but they've never put into

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Speaker 2: doubt the pillars of the world order, be it on

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Speaker 2: trade or on security. I think that is a big

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Speaker 2: difference between Trump and most of his predecessors.

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Speaker 3: We will say a little bit about trade, because you know,

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Speaker 3: not contemp with giving one very large bill to the

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Speaker 3: European There's talk in some of President Trump's announcements about

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Speaker 3: tariff that's obviously could also be very financially costly for Europe.

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Speaker 3: But Antonio, just going back to this question of Europe's position,

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Speaker 3: I mean, what are the options if we're just we're

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Speaker 3: going to be true to trumponomics in the sense we're

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Speaker 3: going to spend a little bit more time on the

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Speaker 3: economics of this. What are the roots for managing that

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Speaker 3: additional burden, which we're presuming would be through debt, But

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Speaker 3: how could you get there from here?

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Speaker 1: Sure, so you have several options. The first one is

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Speaker 1: to give European Union member states that are subject to

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Speaker 1: physical flexibility to spend on defense. But the problem there,

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Speaker 1: as I mentioned before, is that you know, many of

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Speaker 1: these countries have large deficits they have been trying to reduce.

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Speaker 1: We have seen how difficult it was to pass a

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Speaker 1: budget in France, and you know, even if they were

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Speaker 1: trying to reduce the deficit and now they're.

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Speaker 3: More France has a six percentage exactly, is.

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Speaker 1: At all order for these countries to do them to

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Speaker 1: do that by themselves. So the second option is, well,

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Speaker 1: let's do it at the EU level. So let's issue

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Speaker 1: join debt. And we know how fractious the debate has

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Speaker 1: been on that issue on the path in the past.

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Speaker 1: We managed to do it during the pandemic with an

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Speaker 1: next generation you facility. And there are some ideas that

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Speaker 1: have been floated like, okay, let's do the same, but

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Speaker 1: for defense, I think you cannot take any kind of

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Speaker 1: decision for the moment until you have a new government

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Speaker 1: in Germany. It's interesting though that you've seen not the

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Speaker 1: countries that tend to be seen as more frugal, they

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Speaker 1: have changed the tone because I think for them, as

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Speaker 1: Alverta was describing, you know, the security threat is much

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Speaker 1: more material for all the countries, so they're changing. Still,

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Speaker 1: the conversations will be very, very difficult. And the third option,

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Speaker 1: at least for Ukraine will be to use the frozen assets,

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Speaker 1: the three hundred billion dollars that have been frozen in assets,

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Speaker 1: but that has also political and technical complications, so there's

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Speaker 1: noisy solution.

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Speaker 3: And we've seen some discussion around even using those assets.

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Speaker 3: Now I think the administration is even potentially talked about

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Speaker 3: using them but for arms. So there's plenty of potential uses,

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Speaker 3: and as you say, it's very legally difficult whether you

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Speaker 3: can use them at all. There is a structural issue

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Speaker 3: here which goes to the nature of the European Union,

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Speaker 3: which I guess we should say, particularly those who don't

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Speaker 3: spend all their time thinking about European institutions, God help them,

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Speaker 3: This is an organization that was set up, and it's

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Speaker 3: developed around economics, but also as a way of using

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Speaker 3: economics and trade to preserve peace within Europe. It came

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Speaker 3: out of a post war, post World War II environment,

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Speaker 3: you know, at a sort of deep level, it's not

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Speaker 3: designed as a collective defense organization to protect Europe from outside.

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Speaker 3: So I'll ask both of you, but do you see

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Speaker 3: any science Antonio of the European Union grappling with that

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Speaker 3: or is it going to be more about individual countries

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Speaker 3: deciding to produce different alliances.

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Speaker 1: So that is indeed the challenge. So when political scientists

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Speaker 1: look at how Europe reacts to crisis, they normally look

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Speaker 1: at two variables. One is whether the competence to deal

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Speaker 1: with that crisis belongs to the Opian Union, the European Commission,

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Speaker 1: or the member states. And second, whether the shock that

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Speaker 1: the crisis has created is asymmetric or symmetric. That means

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Speaker 1: if affects all member states or individual member states. I

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Speaker 1: think that's why you probably will see a different reaction

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Speaker 1: on trade issues that on defense issues. On trade, the

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Speaker 1: Opean Commission has the competence, and you know, at least

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Speaker 1: for now, the tariffs are affecting all countries, so it's

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Speaker 1: way easier to deliver a common response on defense though,

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Speaker 1: and exactly to what Albert was saying, the shock is

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Speaker 1: asymmetric because you know, for some countries Ukraine is just

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Speaker 1: too far away. So I think the problem in the

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Speaker 1: defense area is that it's very difficult to come together,

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Speaker 1: especially when the Ubian Commission doesn't have competence to deal

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Speaker 1: with it. So it's member states that need to come

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Speaker 1: together and take a decision. And the problem is that

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Speaker 1: for years they have been very reluctant to coordinate or

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Speaker 1: to do closer coordination on common form and se good issues,

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Speaker 1: and I think Europe is now paying the breast for that.

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Speaker 3: And it's even harder because whatever you think about the UK,

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Speaker 3: it is one of the most important defense powers and

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Speaker 3: most experienced foreign policy powers and recognized as such and

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Speaker 3: is not in your opinion, so you have to come

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Speaker 3: up with a plan for the UK. Alberto, this takes

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Speaker 3: us to just the lack of an individual to negotiate

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Speaker 3: with Donald Trump. I think that's the one thing that

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Speaker 3: sort of people have been very struck by over the

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Speaker 3: last well a few weeks, but certainly the last forty

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Speaker 3: eight hours is Donald Trump's absolute insistence on talking and

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Speaker 3: negotiating one on one with people who he considers to

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Speaker 3: be his peers, and the opinionion just doesn't have anyone

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Speaker 3: like that. And what do you hear from people in

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Speaker 3: at the conference so far about what the answer to

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Speaker 3: that's going to I.

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Speaker 2: Would argue Europe doesn't have someone opinion to latch onto

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Speaker 2: what Antonio will say, because I think it's very relevant.

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Speaker 2: Is there are institutional issues that the European Union has

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Speaker 2: in terms of dealing with Trump. The first is that

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Speaker 2: the EU is very good at negotiating within the rules,

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Speaker 2: so in the wholes of the wto, the EU often

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Speaker 2: gets what it wants. It's very good at doing that.

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Speaker 3: I think it's one reason why Donald Trump does like it.

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Speaker 2: And in this world, like in this jungle, where it's

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Speaker 2: I want this, what will you give me in return

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Speaker 2: for this? The EU is not built to do that.

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Speaker 2: And that is also linked to the fact the specific

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Speaker 2: point of your question, which is who speaks for Europe

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Speaker 2: Because normally the way that you negotiate, it will have officials,

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Speaker 2: and you will have conversations between officials between two different parties,

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Speaker 2: and then eventually it floats to the top on the

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Speaker 2: more political issues, you do not have someone who is

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Speaker 2: able to negotiate in the same type of language terms

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Speaker 2: as Donald Trump, and it's not clear who could fill

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Speaker 2: those shoes. Maybe one idea they could appoint an envoy

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Speaker 2: for say Ukraine talks for example. They've done that with

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Speaker 2: sanctioned It's a lower level than the stakes there are

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Speaker 2: a lot lower, but that could be an option. But

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Speaker 2: I think there are institutional limits in terms of the

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Speaker 2: way that European Union has set up. And one reason

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Speaker 2: why when you speak to European officials in the past

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Speaker 2: few days you have this sense of shock is they

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Speaker 2: haven't fully come to the terms of this new reality.

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Speaker 2: That there is no point having a meeting of a

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Speaker 2: US official and saying, oh, this is illegal because of

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Speaker 2: rule whatever of the wto Trump doesn't care. You have to.

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Speaker 2: The question for Europe is are you going to deal

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Speaker 2: with this administration and negotiate on his terms on how

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Speaker 2: reality is or how are you going to hope that

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Speaker 2: the world changes again?

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Speaker 3: And it causes an example. It reflects how much the

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Speaker 3: sheer pace of activity coming out of the White House

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Speaker 3: is testing everyone's bandwidth that we're running together in this conversation.

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Speaker 3: We're running a whole trade argument and a trade issue

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Speaker 3: and how it relates to Europe alongside a really quite

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Speaker 3: distinct question about the future of Ukraine. And even that

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Speaker 3: is a test for Europe to we have to think

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Speaker 3: about two things at the same time. I mean, in

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Speaker 3: the same hour. Donald Trump is posing these enormous but

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Speaker 3: we should try and resist the temptation to run it

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Speaker 3: all together because the tariff's conversation has a particular implication

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Speaker 3: for Europe and maybe even makes it harder for Europe

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Speaker 3: to respond in the way that Donio has suggested. He

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Speaker 3: has talked about these reciprocal tariffs and what that means is,

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Speaker 3: just to be simple about it, is that the US

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Speaker 3: moves away from a situation where there's a very broad

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Speaker 3: based assessment of tariffs and by and large, for historical reasons,

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Speaker 3: developing countries have had higher tariffs against the US goods

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Speaker 3: than US has had against them. And the rule within

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Speaker 3: the WTO, as we know, is if you have one

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Speaker 3: tariff against one country, it's supposed to apply to everybody else.

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Speaker 3: He is overturning that and suggesting that there will be

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Speaker 3: individual tariffs negotiated or individual terms negotiated by country in

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Speaker 3: relation to not just their tariff levels, but also everything

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Speaker 3: else they have. And I think it's the everything else.

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Speaker 3: We had some research from Maivakuzar, sort of senior trade

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Speaker 3: expert on the Bloomberg Economics, who was just pointing up,

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Speaker 3: you know, if he just took tariffs, the impact of

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Speaker 3: this new regime would be particularly bad for developing countries

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Speaker 3: and emerging market economy. Is not so bad for Europe

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Speaker 3: because their tariffs are relatively low already. But if, as

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Speaker 3: Donald Trump has said quite clearly, he's going to consider

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Speaker 3: vat value added attacks and regulations and other things in

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Speaker 3: that calculation and consider them in trade barriers in the

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Speaker 3: same way, that could potentially be extremely costly for the EU.

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Speaker 3: So then you get into a mode of it would

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Speaker 3: be every country for himself. I mean, do you think

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Speaker 3: there's a possibility that France, I don't know. I'm looking

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Speaker 3: at you, Albert Say over Antonio as well, that France

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Speaker 3: will end up doing separate deals with the US, Italy,

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Speaker 3: Georgia Maloney maybe will think she can get a better deal.

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Speaker 3: Will we in a world where that's conceivable.

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Speaker 2: I think from the US perspective, that is probably the strategy.

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Speaker 2: I think you may see different tariffs for different countries

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Speaker 2: From the EU perspective, It's very hard to say on trade.

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Speaker 2: For now, they have remained united and they have stuck

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Speaker 2: to this position of trade as an EU competency, and

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Speaker 2: so far that unity has not buckled. I think if

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Speaker 2: you put it altogether, some countries may be tempted more.

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Speaker 2: I would say more countries like Hungary rather than Italy,

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Speaker 2: because I think there are other issues like migration where

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Speaker 2: it's an Italy strategic interest to be close to the EU.

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Speaker 2: I think one key point is this bigger picture, which

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Speaker 2: makes the threat to Europe kind of unique, like different

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Speaker 2: from let's say emerging countries or even countries like Japan

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Speaker 2: for example, which is Europe is facing this at the

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Speaker 2: same time, this economic threat and the security threat. Other

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Speaker 2: countries are able to say, we are going to focus

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Speaker 2: on the security. We want the US to provide security.

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Speaker 2: We are not going we're going to give him wins

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Speaker 2: on economic and trade. You take, for example, the UK's approach.

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Speaker 2: The UK has pretty much said nothing almost about the

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Speaker 2: steel tariffs that you issued immediately oppressed statement saying they're illegal,

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Speaker 2: et cetera, et cetera, so clearly the UK is thinking

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Speaker 2: security is more important, let's give him some economic wins.

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Speaker 3: Although you mentioned Japan. Actually Japan also is sort of

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Speaker 3: skew it on that one because they have their biggest

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Speaker 3: trading partners China, and their biggest source of security is

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Speaker 3: the US and so that for them is an extremely

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Speaker 3: painful conversation. And Tony, did you have any response on

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Speaker 3: this possibility of a country by country approach? And you know,

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Speaker 3: how is Europe even going to avoid that given the

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Speaker 3: way that Donald Trump is dealing with your Well.

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Speaker 1: I think you're both absolutely right. I think the risk

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Speaker 1: is that the more specific he goes, the higher the

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Speaker 1: risk that Europe with divide itself because of the opportunity

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Speaker 1: of offering specific deals to different countries. But it's one

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Speaker 1: thing that I think we need to be mine as well,

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Speaker 1: which is the type of justification used for the tariffs,

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Speaker 1: Because if he starts saying I'm going to put tariffs

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Speaker 1: on you because I want you to drop your digital

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Speaker 1: service tax, that's coersion. You are not making an argument

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Speaker 1: about the trade deficits. You're making an argument about the

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Speaker 1: fact that I'm unlike your tax, you need to get

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Speaker 1: rid of it. And The problem is that opens a

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Speaker 1: kind of worms because you created an anti correcion instrument

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Speaker 1: during the last European Commissions term upean parament term that

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Speaker 1: allows the you to impose very strong restrictions on trade

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Speaker 1: and other measures on the US.

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Speaker 3: So they do have as a sort of economic nuclear option.

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Speaker 1: Is a nuclear option, and I think the problem is

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Speaker 1: that if that question posits itself, I'm not sure how

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Speaker 1: many Member states will be in favor of doing that

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Speaker 1: because my impression is that maybe that instrument was created

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Speaker 1: not to be ever used nuclear it is option, So

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Speaker 1: I think, you know, it's a question to monitor because

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Speaker 1: if Trump starts doing things and it's just the first wave,

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Speaker 1: what about Greenland? For example, We hadn't even spoken about Greenland,

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Speaker 1: but it says I put times on them are because

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Speaker 1: of Greenland. That is a clear case of economic question,

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Speaker 1: and that discussion is going to passe itself very soon.

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Speaker 3: Probably just a quick follow up on you, because we

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Speaker 3: did mention the German election. I mean, there could be

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Speaker 3: something would say, well, it just happens to be very

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Speaker 3: bad timing because we have lack of clarity about the

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Speaker 3: future of Germany. At the same time as all of

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Speaker 3: this is coming to a head here in Munich. How

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Speaker 3: does the German election change things in this debate, particularly

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Speaker 3: about you Ukraine, I would argue, and the challenge of defense,

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Speaker 3: but the challenge of negotiating on Ukraine. Does it really

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Speaker 3: make a difference given the sort of choices of government

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Speaker 3: that we're looking at in Germany?

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Speaker 1: Well, I do believe it makes a difference because what

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Speaker 1: we had up to this point was just not working.

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Speaker 1: Everybody in Brussels and in different national capitals was expecting,

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Speaker 1: essentially for some kind of clarity because the coalition here

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Speaker 1: was not working together, the German coalition, Yeah, and there

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Speaker 1: was some sort of political paralysis, and that political paralysis

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Speaker 1: in Germany translates into political parties in Europe. Right, So

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Speaker 1: at least you're going to get some kind of clarity.

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Speaker 1: I think really, how fast Germany can get a coalition

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Speaker 1: government in place will provide a sign post of the

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Speaker 1: times to come. If they actually the parties that have

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Speaker 1: to form a coalition realize that this is a very

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Speaker 1: great moment and that they need to work together relatively fast,

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Speaker 1: then I think that's a good omen for decision making

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Speaker 1: in Europe. However, if you know we crunched the numbers

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Speaker 1: and the formulacqualition in Germany has taken longer and longer

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Speaker 1: in there is in recent elections. If they follow that pattern,

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Speaker 1: I think that will be very warring for Europe.

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Speaker 3: The last word to you, Alberta, I don't know. You

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Speaker 3: said you've been You've been to many of these summits,

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Speaker 3: and you know, I guess one theme that's kind of

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Speaker 3: running through this conversation is that one on one conversations

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Speaker 3: that Donald Trump has and indeed just singular statements that

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Speaker 3: Donald Trump makes on his own, have made a much

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Speaker 3: bigger difference to international affairs in the last few days

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Speaker 3: than any amount of talk here in Munich and potentially

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Speaker 3: any kind of high level summit of just of government

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Speaker 3: leaders that you could have. It doesn't feel like we're

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Speaker 3: in a multilateral or multi country universe when it comes

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Speaker 3: to these kind of negotiations. Does Munich feel like an

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Speaker 3: outdated institution, this kind of conference in a world where

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Speaker 3: really it's all about who Donald Trump decides to pick

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Speaker 3: up the phone to next.

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Speaker 2: I wouldn't go that far in the sense that in

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Speaker 2: terms of the US decision making process, it is very

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Speaker 2: much centered on one individual and that person's relationships with

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Speaker 2: his peers, which increasingly tends to be less and less

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Speaker 2: in Europe, for example. However, how the rest of the

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Speaker 2: world reacts to that, or in particular, how Europe reacts

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Speaker 2: to that, Lots of those conversations will be happening in

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Speaker 2: places like here, so there is value.

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Speaker 3: Better get their ducks in a row, well right.

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Speaker 2: Now, all over the place. I'm not sure they're going

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Speaker 2: to get them in a row all right.

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Speaker 3: Well, I guess we will find out. But thank you

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Speaker 3: very much to both of you, and thanks for listening

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Speaker 3: to this bonus episode of Trump and Nomics from Bloomberg

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Speaker 3: in Munich. It was hosted by me Stephanie Flanders and

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Speaker 3: I was joined by Albertha and Adeli and Antonio Barozzo.

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Speaker 3: Trumpomics is produced by Sammer, Sadi and Moses and with

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00:22:57,560 --> 00:23:01,040
Speaker 3: help from Chris Martlu and sound design by Blake Maples.

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Speaker 3: Brendan Francis Newnham is our executive producer. To help others

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Speaker 3: find the show and enjoy it, please rate and review

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Speaker 3: it wherever you listen.