Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: I think we're on the way to getting peace.
Speaker 1: I think President Putin wants peace, and President Zelensky wants peace,
Speaker 1: and I want peace.
Speaker 2: I just want to see people stop getting killed.
Speaker 3: On Wednesday, this week, US President Donald Trump stunned European
Speaker 3: leaders and the world, announcing he'd agreed with Russian President
Speaker 3: Vladimir Putin to start negotiating an end to the war
Speaker 3: in Ukraine. And he's starting to tell leaders of the
Speaker 3: block what they need to do to secure peace. And
Speaker 3: as the week came to an end, the President also
Speaker 3: talked about reciprocal tariffs that could cost europe deer. I
Speaker 3: was Stephanie Flanders, head of Government and Economics of Bloomberg,
Speaker 3: and welcome to this special Trumpnomics, the Bloomberg podcast that
Speaker 3: looks at the economic world of Donald Trump, how he's
Speaker 3: already shaped the global economy and what on earth is
Speaker 3: going to happen next. So we're recording this bonus episode
Speaker 3: from the sidelines of the Munich Security Conference, which has
Speaker 3: taken on enormous significance this year given the recent arrival
Speaker 3: of Donald Trump back at the White House, all the
Speaker 3: discussions around the future of Ukraine, and indeed a high
Speaker 3: level US delegation coming here, led by JD Vance, who's
Speaker 3: making his first trip to Europe as Vice President. And
Speaker 3: our question this week is can foot the bill? Can
Speaker 3: Europe handle the financial burden that comes with the President's
Speaker 3: plans for ending the war in Ukraine and on top
Speaker 3: of that his potentially hefty demands on trade. With me,
Speaker 3: we have someone who's been to many many of these
Speaker 3: Alberta and our Dela, Bloomberg's correspondent at large for Europe. Alberta,
Speaker 3: thanks for.
Speaker 2: Coming, Thank you're having me, and I've grabbed.
Speaker 3: You from I know you spent most of your time
Speaker 3: in the corridors getting next day's scoop. And a Donio Barosso,
Speaker 3: senior geoeconomics analyst for Europe for Bloomberg Economics, one of
Speaker 3: the geoeconomists that we've brought into Bloomberg recently. He previously
Speaker 3: launched the geopolitical risk unit of the consulting firm TENEO
Speaker 3: and worked as a senior analyst at Eurasia Group. And
Speaker 3: you know, for good measure has a PhD from the LSC.
Speaker 3: So good to be with you. So whatever the US
Speaker 3: President decides on for Ukraine. We're pretty clear on one
Speaker 3: thing that Europe isn't ready to shoulder a large share
Speaker 3: of the burden. Bloomberg Economics has calculated that protecting Ukraine
Speaker 3: and expanding European defense could cost the continent's major powers
Speaker 3: an additional three point one trillion dollars over the next
Speaker 3: ten years. Now, and Donio, I know you're the one
Speaker 3: who came up with some of these numbers, or at
Speaker 3: least you've been pulling them together working with your colleagues.
Speaker 3: So just talk us through briefly how you get to
Speaker 3: that three point one trillion dollars.
Speaker 1: Sure, so, WECA coulated that supporting Ukraine militarily for the
Speaker 1: next ten years bull amount to around one hundred and
Speaker 1: seventy five billion dollars. Then the second important figure is
Speaker 1: one hundred and thirty billion dollars, which is the gap
Speaker 1: that we estimate between the estimated cost of reconstructions reconstruction
Speaker 1: for Ukraine and the available sources of funding that have
Speaker 1: been lined up. And then two point seven trillion dollars,
Speaker 1: which is the amount of debt that the five largest
Speaker 1: Europe and NETO member states will incur if they were
Speaker 1: to increase defense spending to up to three point around
Speaker 1: three point five percent of GDP.
Speaker 3: And we should say, and that's three point five so
Speaker 3: the President Trump has said that everyone should get everyone
Speaker 3: needs to should go to five percent. You know, even
Speaker 3: this very large number is not even assuming that it's
Speaker 3: seeming a much smaller increase.
Speaker 1: Sure, because I mean, you've seen a country like Pollen
Speaker 1: that clearly is taking the threat that the thread of
Speaker 1: the eastern front of Russia very seriously and that has
Speaker 1: rapidly increased defense spending. But that's very challenging for countries
Speaker 1: such as Spain or Italy that would start for a
Speaker 1: very low level and also that you know had very
Speaker 1: large debt and deficit burdens. I mean, how are you
Speaker 1: gonna increase spending to that level? Are you gonna cut pensions?
Speaker 1: Are you gonna cut education spending? I don't think so
Speaker 1: It's very politically complicated to do it. So we assume
Speaker 1: that three point five will we are much more realistic targets,
Speaker 1: so to speak.
Speaker 3: Realistic Yeah, in inversity comments very large number. I mean,
Speaker 3: Albert say, one of the things that you've heard, and
Speaker 3: particularly in the last day or so, as everyone was
Speaker 3: absorbing the news of President Trump's call with Vladimir Putin.
Speaker 3: The one thing in all of this which people recognize
Speaker 3: Donald Trump is right about, and I guess Joe Biden
Speaker 3: was right about. You know that the period where Europeans
Speaker 3: could rely on the US to shoulder such a share
Speaker 3: of the burden of defending Europe that is past. Do
Speaker 3: you get a sense of anyone realistically kind of grasping
Speaker 3: what follows next. I hear a lot of defense people
Speaker 3: and military people talking about what's needed. I don't hear
Speaker 3: so much from the politician.
Speaker 2: I think the mood is one of shock. Mostly if
Speaker 2: you speak to politicians that are not just defense politicians,
Speaker 2: say in Eastern Europe, they do get a sense of
Speaker 2: what might be coming down the road. The challenge is
Speaker 2: mostly in Western Europe countries like Spain, Italy, but even Germany,
Speaker 2: and they who still see this conflict as something also
Speaker 2: only far away. They want to support Ukraine, but they
Speaker 2: don't see the potential consequences of it unraveling hitting their
Speaker 2: own borders. And if we look at these numbers, they're
Speaker 2: big numbers. However, at the end of the day, it's
Speaker 2: a small percentage of their GDP so really this is
Speaker 2: about political will and understand what is at stake, the
Speaker 2: security of Ukraine, the security of Europe if Ukraine unravels,
Speaker 2: and ultimately trying to basically, like you said, with the
Speaker 2: US pulling back some of its security commitments, does Europe
Speaker 2: have the will to step in and understanding the consequences
Speaker 2: of that. I do feel that there is a fundamental difference, say,
Speaker 2: with Trump's approach to Biden and presidents before him on
Speaker 2: Europe picking up more of the burden, which is the
Speaker 2: point of Transatlantic allies. Like previous presidents, they have always
Speaker 2: asked Europe to do more, but they've never put into
Speaker 2: doubt the pillars of the world order, be it on
Speaker 2: trade or on security. I think that is a big
Speaker 2: difference between Trump and most of his predecessors.
Speaker 3: We will say a little bit about trade, because you know,
Speaker 3: not contemp with giving one very large bill to the
Speaker 3: European There's talk in some of President Trump's announcements about
Speaker 3: tariff that's obviously could also be very financially costly for Europe.
Speaker 3: But Antonio, just going back to this question of Europe's position,
Speaker 3: I mean, what are the options if we're just we're
Speaker 3: going to be true to trumponomics in the sense we're
Speaker 3: going to spend a little bit more time on the
Speaker 3: economics of this. What are the roots for managing that
Speaker 3: additional burden, which we're presuming would be through debt, But
Speaker 3: how could you get there from here?
Speaker 1: Sure, so you have several options. The first one is
Speaker 1: to give European Union member states that are subject to
Speaker 1: physical flexibility to spend on defense. But the problem there,
Speaker 1: as I mentioned before, is that you know, many of
Speaker 1: these countries have large deficits they have been trying to reduce.
Speaker 1: We have seen how difficult it was to pass a
Speaker 1: budget in France, and you know, even if they were
Speaker 1: trying to reduce the deficit and now they're.
Speaker 3: More France has a six percentage exactly, is.
Speaker 1: At all order for these countries to do them to
Speaker 1: do that by themselves. So the second option is, well,
Speaker 1: let's do it at the EU level. So let's issue
Speaker 1: join debt. And we know how fractious the debate has
Speaker 1: been on that issue on the path in the past.
Speaker 1: We managed to do it during the pandemic with an
Speaker 1: next generation you facility. And there are some ideas that
Speaker 1: have been floated like, okay, let's do the same, but
Speaker 1: for defense, I think you cannot take any kind of
Speaker 1: decision for the moment until you have a new government
Speaker 1: in Germany. It's interesting though that you've seen not the
Speaker 1: countries that tend to be seen as more frugal, they
Speaker 1: have changed the tone because I think for them, as
Speaker 1: Alverta was describing, you know, the security threat is much
Speaker 1: more material for all the countries, so they're changing. Still,
Speaker 1: the conversations will be very, very difficult. And the third option,
Speaker 1: at least for Ukraine will be to use the frozen assets,
Speaker 1: the three hundred billion dollars that have been frozen in assets,
Speaker 1: but that has also political and technical complications, so there's
Speaker 1: noisy solution.
Speaker 3: And we've seen some discussion around even using those assets.
Speaker 3: Now I think the administration is even potentially talked about
Speaker 3: using them but for arms. So there's plenty of potential uses,
Speaker 3: and as you say, it's very legally difficult whether you
Speaker 3: can use them at all. There is a structural issue
Speaker 3: here which goes to the nature of the European Union,
Speaker 3: which I guess we should say, particularly those who don't
Speaker 3: spend all their time thinking about European institutions, God help them,
Speaker 3: This is an organization that was set up, and it's
Speaker 3: developed around economics, but also as a way of using
Speaker 3: economics and trade to preserve peace within Europe. It came
Speaker 3: out of a post war, post World War II environment,
Speaker 3: you know, at a sort of deep level, it's not
Speaker 3: designed as a collective defense organization to protect Europe from outside.
Speaker 3: So I'll ask both of you, but do you see
Speaker 3: any science Antonio of the European Union grappling with that
Speaker 3: or is it going to be more about individual countries
Speaker 3: deciding to produce different alliances.
Speaker 1: So that is indeed the challenge. So when political scientists
Speaker 1: look at how Europe reacts to crisis, they normally look
Speaker 1: at two variables. One is whether the competence to deal
Speaker 1: with that crisis belongs to the Opian Union, the European Commission,
Speaker 1: or the member states. And second, whether the shock that
Speaker 1: the crisis has created is asymmetric or symmetric. That means
Speaker 1: if affects all member states or individual member states. I
Speaker 1: think that's why you probably will see a different reaction
Speaker 1: on trade issues that on defense issues. On trade, the
Speaker 1: Opean Commission has the competence, and you know, at least
Speaker 1: for now, the tariffs are affecting all countries, so it's
Speaker 1: way easier to deliver a common response on defense though,
Speaker 1: and exactly to what Albert was saying, the shock is
Speaker 1: asymmetric because you know, for some countries Ukraine is just
Speaker 1: too far away. So I think the problem in the
Speaker 1: defense area is that it's very difficult to come together,
Speaker 1: especially when the Ubian Commission doesn't have competence to deal
Speaker 1: with it. So it's member states that need to come
Speaker 1: together and take a decision. And the problem is that
Speaker 1: for years they have been very reluctant to coordinate or
Speaker 1: to do closer coordination on common form and se good issues,
Speaker 1: and I think Europe is now paying the breast for that.
Speaker 3: And it's even harder because whatever you think about the UK,
Speaker 3: it is one of the most important defense powers and
Speaker 3: most experienced foreign policy powers and recognized as such and
Speaker 3: is not in your opinion, so you have to come
Speaker 3: up with a plan for the UK. Alberto, this takes
Speaker 3: us to just the lack of an individual to negotiate
Speaker 3: with Donald Trump. I think that's the one thing that
Speaker 3: sort of people have been very struck by over the
Speaker 3: last well a few weeks, but certainly the last forty
Speaker 3: eight hours is Donald Trump's absolute insistence on talking and
Speaker 3: negotiating one on one with people who he considers to
Speaker 3: be his peers, and the opinionion just doesn't have anyone
Speaker 3: like that. And what do you hear from people in
Speaker 3: at the conference so far about what the answer to
Speaker 3: that's going to I.
Speaker 2: Would argue Europe doesn't have someone opinion to latch onto
Speaker 2: what Antonio will say, because I think it's very relevant.
Speaker 2: Is there are institutional issues that the European Union has
Speaker 2: in terms of dealing with Trump. The first is that
Speaker 2: the EU is very good at negotiating within the rules,
Speaker 2: so in the wholes of the wto, the EU often
Speaker 2: gets what it wants. It's very good at doing that.
Speaker 3: I think it's one reason why Donald Trump does like it.
Speaker 2: And in this world, like in this jungle, where it's
Speaker 2: I want this, what will you give me in return
Speaker 2: for this? The EU is not built to do that.
Speaker 2: And that is also linked to the fact the specific
Speaker 2: point of your question, which is who speaks for Europe
Speaker 2: Because normally the way that you negotiate, it will have officials,
Speaker 2: and you will have conversations between officials between two different parties,
Speaker 2: and then eventually it floats to the top on the
Speaker 2: more political issues, you do not have someone who is
Speaker 2: able to negotiate in the same type of language terms
Speaker 2: as Donald Trump, and it's not clear who could fill
Speaker 2: those shoes. Maybe one idea they could appoint an envoy
Speaker 2: for say Ukraine talks for example. They've done that with
Speaker 2: sanctioned It's a lower level than the stakes there are
Speaker 2: a lot lower, but that could be an option. But
Speaker 2: I think there are institutional limits in terms of the
Speaker 2: way that European Union has set up. And one reason
Speaker 2: why when you speak to European officials in the past
Speaker 2: few days you have this sense of shock is they
Speaker 2: haven't fully come to the terms of this new reality.
Speaker 2: That there is no point having a meeting of a
Speaker 2: US official and saying, oh, this is illegal because of
Speaker 2: rule whatever of the wto Trump doesn't care. You have to.
Speaker 2: The question for Europe is are you going to deal
Speaker 2: with this administration and negotiate on his terms on how
Speaker 2: reality is or how are you going to hope that
Speaker 2: the world changes again?
Speaker 3: And it causes an example. It reflects how much the
Speaker 3: sheer pace of activity coming out of the White House
Speaker 3: is testing everyone's bandwidth that we're running together in this conversation.
Speaker 3: We're running a whole trade argument and a trade issue
Speaker 3: and how it relates to Europe alongside a really quite
Speaker 3: distinct question about the future of Ukraine. And even that
Speaker 3: is a test for Europe to we have to think
Speaker 3: about two things at the same time. I mean, in
Speaker 3: the same hour. Donald Trump is posing these enormous but
Speaker 3: we should try and resist the temptation to run it
Speaker 3: all together because the tariff's conversation has a particular implication
Speaker 3: for Europe and maybe even makes it harder for Europe
Speaker 3: to respond in the way that Donio has suggested. He
Speaker 3: has talked about these reciprocal tariffs and what that means is,
Speaker 3: just to be simple about it, is that the US
Speaker 3: moves away from a situation where there's a very broad
Speaker 3: based assessment of tariffs and by and large, for historical reasons,
Speaker 3: developing countries have had higher tariffs against the US goods
Speaker 3: than US has had against them. And the rule within
Speaker 3: the WTO, as we know, is if you have one
Speaker 3: tariff against one country, it's supposed to apply to everybody else.
Speaker 3: He is overturning that and suggesting that there will be
Speaker 3: individual tariffs negotiated or individual terms negotiated by country in
Speaker 3: relation to not just their tariff levels, but also everything
Speaker 3: else they have. And I think it's the everything else.
Speaker 3: We had some research from Maivakuzar, sort of senior trade
Speaker 3: expert on the Bloomberg Economics, who was just pointing up,
Speaker 3: you know, if he just took tariffs, the impact of
Speaker 3: this new regime would be particularly bad for developing countries
Speaker 3: and emerging market economy. Is not so bad for Europe
Speaker 3: because their tariffs are relatively low already. But if, as
Speaker 3: Donald Trump has said quite clearly, he's going to consider
Speaker 3: vat value added attacks and regulations and other things in
Speaker 3: that calculation and consider them in trade barriers in the
Speaker 3: same way, that could potentially be extremely costly for the EU.
Speaker 3: So then you get into a mode of it would
Speaker 3: be every country for himself. I mean, do you think
Speaker 3: there's a possibility that France, I don't know. I'm looking
Speaker 3: at you, Albert Say over Antonio as well, that France
Speaker 3: will end up doing separate deals with the US, Italy,
Speaker 3: Georgia Maloney maybe will think she can get a better deal.
Speaker 3: Will we in a world where that's conceivable.
Speaker 2: I think from the US perspective, that is probably the strategy.
Speaker 2: I think you may see different tariffs for different countries
Speaker 2: From the EU perspective, It's very hard to say on trade.
Speaker 2: For now, they have remained united and they have stuck
Speaker 2: to this position of trade as an EU competency, and
Speaker 2: so far that unity has not buckled. I think if
Speaker 2: you put it altogether, some countries may be tempted more.
Speaker 2: I would say more countries like Hungary rather than Italy,
Speaker 2: because I think there are other issues like migration where
Speaker 2: it's an Italy strategic interest to be close to the EU.
Speaker 2: I think one key point is this bigger picture, which
Speaker 2: makes the threat to Europe kind of unique, like different
Speaker 2: from let's say emerging countries or even countries like Japan
Speaker 2: for example, which is Europe is facing this at the
Speaker 2: same time, this economic threat and the security threat. Other
Speaker 2: countries are able to say, we are going to focus
Speaker 2: on the security. We want the US to provide security.
Speaker 2: We are not going we're going to give him wins
Speaker 2: on economic and trade. You take, for example, the UK's approach.
Speaker 2: The UK has pretty much said nothing almost about the
Speaker 2: steel tariffs that you issued immediately oppressed statement saying they're illegal,
Speaker 2: et cetera, et cetera, so clearly the UK is thinking
Speaker 2: security is more important, let's give him some economic wins.
Speaker 3: Although you mentioned Japan. Actually Japan also is sort of
Speaker 3: skew it on that one because they have their biggest
Speaker 3: trading partners China, and their biggest source of security is
Speaker 3: the US and so that for them is an extremely
Speaker 3: painful conversation. And Tony, did you have any response on
Speaker 3: this possibility of a country by country approach? And you know,
Speaker 3: how is Europe even going to avoid that given the
Speaker 3: way that Donald Trump is dealing with your Well.
Speaker 1: I think you're both absolutely right. I think the risk
Speaker 1: is that the more specific he goes, the higher the
Speaker 1: risk that Europe with divide itself because of the opportunity
Speaker 1: of offering specific deals to different countries. But it's one
Speaker 1: thing that I think we need to be mine as well,
Speaker 1: which is the type of justification used for the tariffs,
Speaker 1: Because if he starts saying I'm going to put tariffs
Speaker 1: on you because I want you to drop your digital
Speaker 1: service tax, that's coersion. You are not making an argument
Speaker 1: about the trade deficits. You're making an argument about the
Speaker 1: fact that I'm unlike your tax, you need to get
Speaker 1: rid of it. And The problem is that opens a
Speaker 1: kind of worms because you created an anti correcion instrument
Speaker 1: during the last European Commissions term upean parament term that
Speaker 1: allows the you to impose very strong restrictions on trade
Speaker 1: and other measures on the US.
Speaker 3: So they do have as a sort of economic nuclear option.
Speaker 1: Is a nuclear option, and I think the problem is
Speaker 1: that if that question posits itself, I'm not sure how
Speaker 1: many Member states will be in favor of doing that
Speaker 1: because my impression is that maybe that instrument was created
Speaker 1: not to be ever used nuclear it is option, So
Speaker 1: I think, you know, it's a question to monitor because
Speaker 1: if Trump starts doing things and it's just the first wave,
Speaker 1: what about Greenland? For example, We hadn't even spoken about Greenland,
Speaker 1: but it says I put times on them are because
Speaker 1: of Greenland. That is a clear case of economic question,
Speaker 1: and that discussion is going to passe itself very soon.
Speaker 3: Probably just a quick follow up on you, because we
Speaker 3: did mention the German election. I mean, there could be
Speaker 3: something would say, well, it just happens to be very
Speaker 3: bad timing because we have lack of clarity about the
Speaker 3: future of Germany. At the same time as all of
Speaker 3: this is coming to a head here in Munich. How
Speaker 3: does the German election change things in this debate, particularly
Speaker 3: about you Ukraine, I would argue, and the challenge of defense,
Speaker 3: but the challenge of negotiating on Ukraine. Does it really
Speaker 3: make a difference given the sort of choices of government
Speaker 3: that we're looking at in Germany?
Speaker 1: Well, I do believe it makes a difference because what
Speaker 1: we had up to this point was just not working.
Speaker 1: Everybody in Brussels and in different national capitals was expecting,
Speaker 1: essentially for some kind of clarity because the coalition here
Speaker 1: was not working together, the German coalition, Yeah, and there
Speaker 1: was some sort of political paralysis, and that political paralysis
Speaker 1: in Germany translates into political parties in Europe. Right, So
Speaker 1: at least you're going to get some kind of clarity.
Speaker 1: I think really, how fast Germany can get a coalition
Speaker 1: government in place will provide a sign post of the
Speaker 1: times to come. If they actually the parties that have
Speaker 1: to form a coalition realize that this is a very
Speaker 1: great moment and that they need to work together relatively fast,
Speaker 1: then I think that's a good omen for decision making
Speaker 1: in Europe. However, if you know we crunched the numbers
Speaker 1: and the formulacqualition in Germany has taken longer and longer
Speaker 1: in there is in recent elections. If they follow that pattern,
Speaker 1: I think that will be very warring for Europe.
Speaker 3: The last word to you, Alberta, I don't know. You
Speaker 3: said you've been You've been to many of these summits,
Speaker 3: and you know, I guess one theme that's kind of
Speaker 3: running through this conversation is that one on one conversations
Speaker 3: that Donald Trump has and indeed just singular statements that
Speaker 3: Donald Trump makes on his own, have made a much
Speaker 3: bigger difference to international affairs in the last few days
Speaker 3: than any amount of talk here in Munich and potentially
Speaker 3: any kind of high level summit of just of government
Speaker 3: leaders that you could have. It doesn't feel like we're
Speaker 3: in a multilateral or multi country universe when it comes
Speaker 3: to these kind of negotiations. Does Munich feel like an
Speaker 3: outdated institution, this kind of conference in a world where
Speaker 3: really it's all about who Donald Trump decides to pick
Speaker 3: up the phone to next.
Speaker 2: I wouldn't go that far in the sense that in
Speaker 2: terms of the US decision making process, it is very
Speaker 2: much centered on one individual and that person's relationships with
Speaker 2: his peers, which increasingly tends to be less and less
Speaker 2: in Europe, for example. However, how the rest of the
Speaker 2: world reacts to that, or in particular, how Europe reacts
Speaker 2: to that, Lots of those conversations will be happening in
Speaker 2: places like here, so there is value.
Speaker 3: Better get their ducks in a row, well right.
Speaker 2: Now, all over the place. I'm not sure they're going
Speaker 2: to get them in a row all right.
Speaker 3: Well, I guess we will find out. But thank you
Speaker 3: very much to both of you, and thanks for listening
Speaker 3: to this bonus episode of Trump and Nomics from Bloomberg
Speaker 3: in Munich. It was hosted by me Stephanie Flanders and
Speaker 3: I was joined by Albertha and Adeli and Antonio Barozzo.
Speaker 3: Trumpomics is produced by Sammer, Sadi and Moses and with
Speaker 3: help from Chris Martlu and sound design by Blake Maples.
Speaker 3: Brendan Francis Newnham is our executive producer. To help others
Speaker 3: find the show and enjoy it, please rate and review
Speaker 3: it wherever you listen.