February 14, 2025 • 23 mins
On the campaign trail, Donald Trump promised to end Russia’s war on Ukraine in a day. Weeks into his presidency, that hasn’t happened. Now his decision to start negotiations with Kremlin leader Vladimir Putin while demanding Europe bear the brunt of future aid to Ukraine has been met with shock—but not surprise.
In a bonus episode of Trumponomics, recorded at the Munich Security Conference in Germany, we discuss the cost of Trump’s about-face on American commitments and whether a continent beset by fiscal constraints and political division can go it alone. Alberto Nardelli, Bloomberg’s correspondent-at-large for Europe, and Antonio Barroso, senior geoeconomics analyst for Europe at Bloomberg Economics join host Stephanie Flanders.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:08):
I think we're on the way to getting peace.
Speaker 1 (00:10):
I think President Putin wants peace, and President Zelensky wants peace,
and I want peace.
Speaker 2 (00:17):
I just want to see people stop getting killed.
Speaker 3 (00:27):
On Wednesday, this week, US President Donald Trump stunned European
leaders and the world, announcing he'd agreed with Russian President
Vladimir Putin to start negotiating an end to the war
in Ukraine. And he's starting to tell leaders of the
block what they need to do to secure peace. And
as the week came to an end, the President also
talked about reciprocal tariffs that could cost europe deer. I
(00:57):
was Stephanie Flanders, head of Government and Economics of Bloomberg,
and welcome to this special Trumpnomics, the Bloomberg podcast that
looks at the economic world of Donald Trump, how he's
already shaped the global economy and what on earth is
going to happen next. So we're recording this bonus episode
from the sidelines of the Munich Security Conference, which has
(01:17):
taken on enormous significance this year given the recent arrival
of Donald Trump back at the White House, all the
discussions around the future of Ukraine, and indeed a high
level US delegation coming here, led by JD Vance, who's
making his first trip to Europe as Vice President. And
our question this week is can foot the bill? Can
(01:41):
Europe handle the financial burden that comes with the President's
plans for ending the war in Ukraine and on top
of that his potentially hefty demands on trade. With me,
we have someone who's been to many many of these
Alberta and our Dela, Bloomberg's correspondent at large for Europe. Alberta,
(02:02):
thanks for.
Speaker 2 (02:03):
Coming, Thank you're having me, and I've grabbed.
Speaker 3 (02:05):
You from I know you spent most of your time
in the corridors getting next day's scoop. And a Donio Barosso,
senior geoeconomics analyst for Europe for Bloomberg Economics, one of
the geoeconomists that we've brought into Bloomberg recently. He previously
launched the geopolitical risk unit of the consulting firm TENEO
and worked as a senior analyst at Eurasia Group. And
(02:27):
you know, for good measure has a PhD from the LSC.
So good to be with you. So whatever the US
President decides on for Ukraine. We're pretty clear on one
thing that Europe isn't ready to shoulder a large share
of the burden. Bloomberg Economics has calculated that protecting Ukraine
(02:48):
and expanding European defense could cost the continent's major powers
an additional three point one trillion dollars over the next
ten years. Now, and Donio, I know you're the one
who came up with some of these numbers, or at
least you've been pulling them together working with your colleagues.
So just talk us through briefly how you get to
that three point one trillion dollars.
Speaker 1 (03:07):
Sure, so, WECA coulated that supporting Ukraine militarily for the
next ten years bull amount to around one hundred and
seventy five billion dollars. Then the second important figure is
one hundred and thirty billion dollars, which is the gap
that we estimate between the estimated cost of reconstructions reconstruction
for Ukraine and the available sources of funding that have
(03:29):
been lined up. And then two point seven trillion dollars,
which is the amount of debt that the five largest
Europe and NETO member states will incur if they were
to increase defense spending to up to three point around
three point five percent of GDP.
Speaker 3 (03:44):
And we should say, and that's three point five so
the President Trump has said that everyone should get everyone
needs to should go to five percent. You know, even
this very large number is not even assuming that it's
seeming a much smaller increase.
Speaker 1 (03:56):
Sure, because I mean, you've seen a country like Pollen
that clearly is taking the threat that the thread of
the eastern front of Russia very seriously and that has
rapidly increased defense spending. But that's very challenging for countries
such as Spain or Italy that would start for a
(04:16):
very low level and also that you know had very
large debt and deficit burdens. I mean, how are you
gonna increase spending to that level? Are you gonna cut pensions?
Are you gonna cut education spending? I don't think so
It's very politically complicated to do it. So we assume
that three point five will we are much more realistic targets,
so to speak.
Speaker 3 (04:35):
Realistic Yeah, in inversity comments very large number. I mean,
Albert say, one of the things that you've heard, and
particularly in the last day or so, as everyone was
absorbing the news of President Trump's call with Vladimir Putin.
The one thing in all of this which people recognize
Donald Trump is right about, and I guess Joe Biden
was right about. You know that the period where Europeans
(04:57):
could rely on the US to shoulder such a share
of the burden of defending Europe that is past. Do
you get a sense of anyone realistically kind of grasping
what follows next. I hear a lot of defense people
and military people talking about what's needed. I don't hear
so much from the politician.
Speaker 2 (05:16):
I think the mood is one of shock. Mostly if
you speak to politicians that are not just defense politicians,
say in Eastern Europe, they do get a sense of
what might be coming down the road. The challenge is
mostly in Western Europe countries like Spain, Italy, but even Germany,
and they who still see this conflict as something also
(05:39):
only far away. They want to support Ukraine, but they
don't see the potential consequences of it unraveling hitting their
own borders. And if we look at these numbers, they're
big numbers. However, at the end of the day, it's
a small percentage of their GDP so really this is
about political will and understand what is at stake, the
(06:02):
security of Ukraine, the security of Europe if Ukraine unravels,
and ultimately trying to basically, like you said, with the
US pulling back some of its security commitments, does Europe
have the will to step in and understanding the consequences
of that. I do feel that there is a fundamental difference, say,
(06:27):
with Trump's approach to Biden and presidents before him on
Europe picking up more of the burden, which is the
point of Transatlantic allies. Like previous presidents, they have always
asked Europe to do more, but they've never put into
doubt the pillars of the world order, be it on
(06:49):
trade or on security. I think that is a big
difference between Trump and most of his predecessors.
Speaker 3 (06:55):
We will say a little bit about trade, because you know,
not contemp with giving one very large bill to the
European There's talk in some of President Trump's announcements about
tariff that's obviously could also be very financially costly for Europe.
But Antonio, just going back to this question of Europe's position,
I mean, what are the options if we're just we're
going to be true to trumponomics in the sense we're
(07:16):
going to spend a little bit more time on the
economics of this. What are the roots for managing that
additional burden, which we're presuming would be through debt, But
how could you get there from here?
Speaker 1 (07:27):
Sure, so you have several options. The first one is
to give European Union member states that are subject to
physical flexibility to spend on defense. But the problem there,
as I mentioned before, is that you know, many of
these countries have large deficits they have been trying to reduce.
We have seen how difficult it was to pass a
budget in France, and you know, even if they were
(07:50):
trying to reduce the deficit and now they're.
Speaker 3 (07:52):
More France has a six percentage exactly, is.
Speaker 1 (07:55):
At all order for these countries to do them to
do that by themselves. So the second option is, well,
let's do it at the EU level. So let's issue
join debt. And we know how fractious the debate has
been on that issue on the path in the past.
We managed to do it during the pandemic with an
next generation you facility. And there are some ideas that
have been floated like, okay, let's do the same, but
(08:17):
for defense, I think you cannot take any kind of
decision for the moment until you have a new government
in Germany. It's interesting though that you've seen not the
countries that tend to be seen as more frugal, they
have changed the tone because I think for them, as
Alverta was describing, you know, the security threat is much
more material for all the countries, so they're changing. Still,
(08:40):
the conversations will be very, very difficult. And the third option,
at least for Ukraine will be to use the frozen assets,
the three hundred billion dollars that have been frozen in assets,
but that has also political and technical complications, so there's
noisy solution.
Speaker 3 (08:55):
And we've seen some discussion around even using those assets.
Now I think the administration is even potentially talked about
using them but for arms. So there's plenty of potential uses,
and as you say, it's very legally difficult whether you
can use them at all. There is a structural issue
here which goes to the nature of the European Union,
which I guess we should say, particularly those who don't
(09:16):
spend all their time thinking about European institutions, God help them,
This is an organization that was set up, and it's
developed around economics, but also as a way of using
economics and trade to preserve peace within Europe. It came
out of a post war, post World War II environment,
you know, at a sort of deep level, it's not
(09:37):
designed as a collective defense organization to protect Europe from outside.
So I'll ask both of you, but do you see
any science Antonio of the European Union grappling with that
or is it going to be more about individual countries
deciding to produce different alliances.
Speaker 1 (09:56):
So that is indeed the challenge. So when political scientists
look at how Europe reacts to crisis, they normally look
at two variables. One is whether the competence to deal
with that crisis belongs to the Opian Union, the European Commission,
or the member states. And second, whether the shock that
the crisis has created is asymmetric or symmetric. That means
if affects all member states or individual member states. I
(10:19):
think that's why you probably will see a different reaction
on trade issues that on defense issues. On trade, the
Opean Commission has the competence, and you know, at least
for now, the tariffs are affecting all countries, so it's
way easier to deliver a common response on defense though,
and exactly to what Albert was saying, the shock is
asymmetric because you know, for some countries Ukraine is just
(10:41):
too far away. So I think the problem in the
defense area is that it's very difficult to come together,
especially when the Ubian Commission doesn't have competence to deal
with it. So it's member states that need to come
together and take a decision. And the problem is that
for years they have been very reluctant to coordinate or
to do closer coordination on common form and se good issues,
(11:04):
and I think Europe is now paying the breast for that.
Speaker 3 (11:06):
And it's even harder because whatever you think about the UK,
it is one of the most important defense powers and
most experienced foreign policy powers and recognized as such and
is not in your opinion, so you have to come
up with a plan for the UK. Alberto, this takes
us to just the lack of an individual to negotiate
(11:27):
with Donald Trump. I think that's the one thing that
sort of people have been very struck by over the
last well a few weeks, but certainly the last forty
eight hours is Donald Trump's absolute insistence on talking and
negotiating one on one with people who he considers to
be his peers, and the opinionion just doesn't have anyone
like that. And what do you hear from people in
(11:50):
at the conference so far about what the answer to
that's going to I.
Speaker 2 (11:53):
Would argue Europe doesn't have someone opinion to latch onto
what Antonio will say, because I think it's very relevant.
Is there are institutional issues that the European Union has
in terms of dealing with Trump. The first is that
the EU is very good at negotiating within the rules,
(12:13):
so in the wholes of the wto, the EU often
gets what it wants. It's very good at doing that.
Speaker 3 (12:19):
I think it's one reason why Donald Trump does like it.
Speaker 2 (12:22):
And in this world, like in this jungle, where it's
I want this, what will you give me in return
for this? The EU is not built to do that.
And that is also linked to the fact the specific
point of your question, which is who speaks for Europe
Because normally the way that you negotiate, it will have officials,
(12:43):
and you will have conversations between officials between two different parties,
and then eventually it floats to the top on the
more political issues, you do not have someone who is
able to negotiate in the same type of language terms
as Donald Trump, and it's not clear who could fill
(13:03):
those shoes. Maybe one idea they could appoint an envoy
for say Ukraine talks for example. They've done that with
sanctioned It's a lower level than the stakes there are
a lot lower, but that could be an option. But
I think there are institutional limits in terms of the
way that European Union has set up. And one reason
(13:25):
why when you speak to European officials in the past
few days you have this sense of shock is they
haven't fully come to the terms of this new reality.
That there is no point having a meeting of a
US official and saying, oh, this is illegal because of
rule whatever of the wto Trump doesn't care. You have to.
The question for Europe is are you going to deal
(13:47):
with this administration and negotiate on his terms on how
reality is or how are you going to hope that
the world changes again?
Speaker 3 (13:57):
And it causes an example. It reflects how much the
sheer pace of activity coming out of the White House
is testing everyone's bandwidth that we're running together in this conversation.
We're running a whole trade argument and a trade issue
and how it relates to Europe alongside a really quite
distinct question about the future of Ukraine. And even that
(14:18):
is a test for Europe to we have to think
about two things at the same time. I mean, in
the same hour. Donald Trump is posing these enormous but
we should try and resist the temptation to run it
all together because the tariff's conversation has a particular implication
for Europe and maybe even makes it harder for Europe
to respond in the way that Donio has suggested. He
(14:39):
has talked about these reciprocal tariffs and what that means is,
just to be simple about it, is that the US
moves away from a situation where there's a very broad
based assessment of tariffs and by and large, for historical reasons,
developing countries have had higher tariffs against the US goods
than US has had against them. And the rule within
(15:03):
the WTO, as we know, is if you have one
tariff against one country, it's supposed to apply to everybody else.
He is overturning that and suggesting that there will be
individual tariffs negotiated or individual terms negotiated by country in
relation to not just their tariff levels, but also everything
else they have. And I think it's the everything else.
We had some research from Maivakuzar, sort of senior trade
(15:26):
expert on the Bloomberg Economics, who was just pointing up,
you know, if he just took tariffs, the impact of
this new regime would be particularly bad for developing countries
and emerging market economy. Is not so bad for Europe
because their tariffs are relatively low already. But if, as
Donald Trump has said quite clearly, he's going to consider
(15:47):
vat value added attacks and regulations and other things in
that calculation and consider them in trade barriers in the
same way, that could potentially be extremely costly for the EU.
So then you get into a mode of it would
be every country for himself. I mean, do you think
there's a possibility that France, I don't know. I'm looking
(16:09):
at you, Albert Say over Antonio as well, that France
will end up doing separate deals with the US, Italy,
Georgia Maloney maybe will think she can get a better deal.
Will we in a world where that's conceivable.
Speaker 2 (16:19):
I think from the US perspective, that is probably the strategy.
I think you may see different tariffs for different countries
From the EU perspective, It's very hard to say on trade.
For now, they have remained united and they have stuck
to this position of trade as an EU competency, and
(16:41):
so far that unity has not buckled. I think if
you put it altogether, some countries may be tempted more.
I would say more countries like Hungary rather than Italy,
because I think there are other issues like migration where
it's an Italy strategic interest to be close to the EU.
I think one key point is this bigger picture, which
makes the threat to Europe kind of unique, like different
(17:04):
from let's say emerging countries or even countries like Japan
for example, which is Europe is facing this at the
same time, this economic threat and the security threat. Other
countries are able to say, we are going to focus
on the security. We want the US to provide security.
We are not going we're going to give him wins
(17:27):
on economic and trade. You take, for example, the UK's approach.
The UK has pretty much said nothing almost about the
steel tariffs that you issued immediately oppressed statement saying they're illegal,
et cetera, et cetera, so clearly the UK is thinking
security is more important, let's give him some economic wins.
Speaker 3 (17:43):
Although you mentioned Japan. Actually Japan also is sort of
skew it on that one because they have their biggest
trading partners China, and their biggest source of security is
the US and so that for them is an extremely
painful conversation. And Tony, did you have any response on
this possibility of a country by country approach? And you know,
how is Europe even going to avoid that given the
(18:06):
way that Donald Trump is dealing with your Well.
Speaker 1 (18:08):
I think you're both absolutely right. I think the risk
is that the more specific he goes, the higher the
risk that Europe with divide itself because of the opportunity
of offering specific deals to different countries. But it's one
thing that I think we need to be mine as well,
which is the type of justification used for the tariffs,
(18:30):
Because if he starts saying I'm going to put tariffs
on you because I want you to drop your digital
service tax, that's coersion. You are not making an argument
about the trade deficits. You're making an argument about the
fact that I'm unlike your tax, you need to get
rid of it. And The problem is that opens a
kind of worms because you created an anti correcion instrument
(18:54):
during the last European Commissions term upean parament term that
allows the you to impose very strong restrictions on trade
and other measures on the US.
Speaker 3 (19:05):
So they do have as a sort of economic nuclear option.
Speaker 1 (19:08):
Is a nuclear option, and I think the problem is
that if that question posits itself, I'm not sure how
many Member states will be in favor of doing that
because my impression is that maybe that instrument was created
not to be ever used nuclear it is option, So
I think, you know, it's a question to monitor because
if Trump starts doing things and it's just the first wave,
(19:30):
what about Greenland? For example, We hadn't even spoken about Greenland,
but it says I put times on them are because
of Greenland. That is a clear case of economic question,
and that discussion is going to passe itself very soon.
Speaker 3 (19:40):
Probably just a quick follow up on you, because we
did mention the German election. I mean, there could be
something would say, well, it just happens to be very
bad timing because we have lack of clarity about the
future of Germany. At the same time as all of
this is coming to a head here in Munich. How
does the German election change things in this debate, particularly
about you Ukraine, I would argue, and the challenge of defense,
(20:04):
but the challenge of negotiating on Ukraine. Does it really
make a difference given the sort of choices of government
that we're looking at in Germany?
Speaker 1 (20:10):
Well, I do believe it makes a difference because what
we had up to this point was just not working.
Everybody in Brussels and in different national capitals was expecting,
essentially for some kind of clarity because the coalition here
was not working together, the German coalition, Yeah, and there
was some sort of political paralysis, and that political paralysis
(20:30):
in Germany translates into political parties in Europe. Right, So
at least you're going to get some kind of clarity.
I think really, how fast Germany can get a coalition
government in place will provide a sign post of the
times to come. If they actually the parties that have
to form a coalition realize that this is a very
(20:52):
great moment and that they need to work together relatively fast,
then I think that's a good omen for decision making
in Europe. However, if you know we crunched the numbers
and the formulacqualition in Germany has taken longer and longer
in there is in recent elections. If they follow that pattern,
I think that will be very warring for Europe.
Speaker 3 (21:11):
The last word to you, Alberta, I don't know. You
said you've been You've been to many of these summits,
and you know, I guess one theme that's kind of
running through this conversation is that one on one conversations
that Donald Trump has and indeed just singular statements that
Donald Trump makes on his own, have made a much
(21:31):
bigger difference to international affairs in the last few days
than any amount of talk here in Munich and potentially
any kind of high level summit of just of government
leaders that you could have. It doesn't feel like we're
in a multilateral or multi country universe when it comes
to these kind of negotiations. Does Munich feel like an
(21:51):
outdated institution, this kind of conference in a world where
really it's all about who Donald Trump decides to pick
up the phone to next.
Speaker 2 (22:01):
I wouldn't go that far in the sense that in
terms of the US decision making process, it is very
much centered on one individual and that person's relationships with
his peers, which increasingly tends to be less and less
in Europe, for example. However, how the rest of the
(22:22):
world reacts to that, or in particular, how Europe reacts
to that, Lots of those conversations will be happening in
places like here, so there is value.
Speaker 3 (22:32):
Better get their ducks in a row, well right.
Speaker 2 (22:35):
Now, all over the place. I'm not sure they're going
to get them in a row all right.
Speaker 3 (22:40):
Well, I guess we will find out. But thank you
very much to both of you, and thanks for listening
to this bonus episode of Trump and Nomics from Bloomberg
in Munich. It was hosted by me Stephanie Flanders and
I was joined by Albertha and Adeli and Antonio Barozzo.
Trumpomics is produced by Sammer, Sadi and Moses and with
help from Chris Martlu and sound design by Blake Maples.
(23:01):
Brendan Francis Newnham is our executive producer. To help others
find the show and enjoy it, please rate and review
it wherever you listen.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:08):
I think we're on the way to getting peace.
Speaker 1 (00:10):
I think President Putin wants peace, and President Zelensky wants peace,
and I want peace.
Speaker 2 (00:17):
I just want to see people stop getting killed.
Speaker 3 (00:27):
On Wednesday, this week, US President Donald Trump stunned European
leaders and the world, announcing he'd agreed with Russian President
Vladimir Putin to start negotiating an end to the war
in Ukraine. And he's starting to tell leaders of the
block what they need to do to secure peace. And
as the week came to an end, the President also
talked about reciprocal tariffs that could cost europe deer. I
(00:57):
was Stephanie Flanders, head of Government and Economics of Bloomberg,
and welcome to this special Trumpnomics, the Bloomberg podcast that
looks at the economic world of Donald Trump, how he's
already shaped the global economy and what on earth is
going to happen next. So we're recording this bonus episode
from the sidelines of the Munich Security Conference, which has
(01:17):
taken on enormous significance this year given the recent arrival
of Donald Trump back at the White House, all the
discussions around the future of Ukraine, and indeed a high
level US delegation coming here, led by JD Vance, who's
making his first trip to Europe as Vice President. And
our question this week is can foot the bill? Can
(01:41):
Europe handle the financial burden that comes with the President's
plans for ending the war in Ukraine and on top
of that his potentially hefty demands on trade. With me,
we have someone who's been to many many of these
Alberta and our Dela, Bloomberg's correspondent at large for Europe. Alberta,
(02:02):
thanks for.
Speaker 2 (02:03):
Coming, Thank you're having me, and I've grabbed.
Speaker 3 (02:05):
You from I know you spent most of your time
in the corridors getting next day's scoop. And a Donio Barosso,
senior geoeconomics analyst for Europe for Bloomberg Economics, one of
the geoeconomists that we've brought into Bloomberg recently. He previously
launched the geopolitical risk unit of the consulting firm TENEO
and worked as a senior analyst at Eurasia Group. And
(02:27):
you know, for good measure has a PhD from the LSC.
So good to be with you. So whatever the US
President decides on for Ukraine. We're pretty clear on one
thing that Europe isn't ready to shoulder a large share
of the burden. Bloomberg Economics has calculated that protecting Ukraine
(02:48):
and expanding European defense could cost the continent's major powers
an additional three point one trillion dollars over the next
ten years. Now, and Donio, I know you're the one
who came up with some of these numbers, or at
least you've been pulling them together working with your colleagues.
So just talk us through briefly how you get to
that three point one trillion dollars.
Speaker 1 (03:07):
Sure, so, WECA coulated that supporting Ukraine militarily for the
next ten years bull amount to around one hundred and
seventy five billion dollars. Then the second important figure is
one hundred and thirty billion dollars, which is the gap
that we estimate between the estimated cost of reconstructions reconstruction
for Ukraine and the available sources of funding that have
(03:29):
been lined up. And then two point seven trillion dollars,
which is the amount of debt that the five largest
Europe and NETO member states will incur if they were
to increase defense spending to up to three point around
three point five percent of GDP.
Speaker 3 (03:44):
And we should say, and that's three point five so
the President Trump has said that everyone should get everyone
needs to should go to five percent. You know, even
this very large number is not even assuming that it's
seeming a much smaller increase.
Speaker 1 (03:56):
Sure, because I mean, you've seen a country like Pollen
that clearly is taking the threat that the thread of
the eastern front of Russia very seriously and that has
rapidly increased defense spending. But that's very challenging for countries
such as Spain or Italy that would start for a
(04:16):
very low level and also that you know had very
large debt and deficit burdens. I mean, how are you
gonna increase spending to that level? Are you gonna cut pensions?
Are you gonna cut education spending? I don't think so
It's very politically complicated to do it. So we assume
that three point five will we are much more realistic targets,
so to speak.
Speaker 3 (04:35):
Realistic Yeah, in inversity comments very large number. I mean,
Albert say, one of the things that you've heard, and
particularly in the last day or so, as everyone was
absorbing the news of President Trump's call with Vladimir Putin.
The one thing in all of this which people recognize
Donald Trump is right about, and I guess Joe Biden
was right about. You know that the period where Europeans
(04:57):
could rely on the US to shoulder such a share
of the burden of defending Europe that is past. Do
you get a sense of anyone realistically kind of grasping
what follows next. I hear a lot of defense people
and military people talking about what's needed. I don't hear
so much from the politician.
Speaker 2 (05:16):
I think the mood is one of shock. Mostly if
you speak to politicians that are not just defense politicians,
say in Eastern Europe, they do get a sense of
what might be coming down the road. The challenge is
mostly in Western Europe countries like Spain, Italy, but even Germany,
and they who still see this conflict as something also
(05:39):
only far away. They want to support Ukraine, but they
don't see the potential consequences of it unraveling hitting their
own borders. And if we look at these numbers, they're
big numbers. However, at the end of the day, it's
a small percentage of their GDP so really this is
about political will and understand what is at stake, the
(06:02):
security of Ukraine, the security of Europe if Ukraine unravels,
and ultimately trying to basically, like you said, with the
US pulling back some of its security commitments, does Europe
have the will to step in and understanding the consequences
of that. I do feel that there is a fundamental difference, say,
(06:27):
with Trump's approach to Biden and presidents before him on
Europe picking up more of the burden, which is the
point of Transatlantic allies. Like previous presidents, they have always
asked Europe to do more, but they've never put into
doubt the pillars of the world order, be it on
(06:49):
trade or on security. I think that is a big
difference between Trump and most of his predecessors.
Speaker 3 (06:55):
We will say a little bit about trade, because you know,
not contemp with giving one very large bill to the
European There's talk in some of President Trump's announcements about
tariff that's obviously could also be very financially costly for Europe.
But Antonio, just going back to this question of Europe's position,
I mean, what are the options if we're just we're
going to be true to trumponomics in the sense we're
(07:16):
going to spend a little bit more time on the
economics of this. What are the roots for managing that
additional burden, which we're presuming would be through debt, But
how could you get there from here?
Speaker 1 (07:27):
Sure, so you have several options. The first one is
to give European Union member states that are subject to
physical flexibility to spend on defense. But the problem there,
as I mentioned before, is that you know, many of
these countries have large deficits they have been trying to reduce.
We have seen how difficult it was to pass a
budget in France, and you know, even if they were
(07:50):
trying to reduce the deficit and now they're.
Speaker 3 (07:52):
More France has a six percentage exactly, is.
Speaker 1 (07:55):
At all order for these countries to do them to
do that by themselves. So the second option is, well,
let's do it at the EU level. So let's issue
join debt. And we know how fractious the debate has
been on that issue on the path in the past.
We managed to do it during the pandemic with an
next generation you facility. And there are some ideas that
have been floated like, okay, let's do the same, but
(08:17):
for defense, I think you cannot take any kind of
decision for the moment until you have a new government
in Germany. It's interesting though that you've seen not the
countries that tend to be seen as more frugal, they
have changed the tone because I think for them, as
Alverta was describing, you know, the security threat is much
more material for all the countries, so they're changing. Still,
(08:40):
the conversations will be very, very difficult. And the third option,
at least for Ukraine will be to use the frozen assets,
the three hundred billion dollars that have been frozen in assets,
but that has also political and technical complications, so there's
noisy solution.
Speaker 3 (08:55):
And we've seen some discussion around even using those assets.
Now I think the administration is even potentially talked about
using them but for arms. So there's plenty of potential uses,
and as you say, it's very legally difficult whether you
can use them at all. There is a structural issue
here which goes to the nature of the European Union,
which I guess we should say, particularly those who don't
(09:16):
spend all their time thinking about European institutions, God help them,
This is an organization that was set up, and it's
developed around economics, but also as a way of using
economics and trade to preserve peace within Europe. It came
out of a post war, post World War II environment,
you know, at a sort of deep level, it's not
(09:37):
designed as a collective defense organization to protect Europe from outside.
So I'll ask both of you, but do you see
any science Antonio of the European Union grappling with that
or is it going to be more about individual countries
deciding to produce different alliances.
Speaker 1 (09:56):
So that is indeed the challenge. So when political scientists
look at how Europe reacts to crisis, they normally look
at two variables. One is whether the competence to deal
with that crisis belongs to the Opian Union, the European Commission,
or the member states. And second, whether the shock that
the crisis has created is asymmetric or symmetric. That means
if affects all member states or individual member states. I
(10:19):
think that's why you probably will see a different reaction
on trade issues that on defense issues. On trade, the
Opean Commission has the competence, and you know, at least
for now, the tariffs are affecting all countries, so it's
way easier to deliver a common response on defense though,
and exactly to what Albert was saying, the shock is
asymmetric because you know, for some countries Ukraine is just
(10:41):
too far away. So I think the problem in the
defense area is that it's very difficult to come together,
especially when the Ubian Commission doesn't have competence to deal
with it. So it's member states that need to come
together and take a decision. And the problem is that
for years they have been very reluctant to coordinate or
to do closer coordination on common form and se good issues,
(11:04):
and I think Europe is now paying the breast for that.
Speaker 3 (11:06):
And it's even harder because whatever you think about the UK,
it is one of the most important defense powers and
most experienced foreign policy powers and recognized as such and
is not in your opinion, so you have to come
up with a plan for the UK. Alberto, this takes
us to just the lack of an individual to negotiate
(11:27):
with Donald Trump. I think that's the one thing that
sort of people have been very struck by over the
last well a few weeks, but certainly the last forty
eight hours is Donald Trump's absolute insistence on talking and
negotiating one on one with people who he considers to
be his peers, and the opinionion just doesn't have anyone
like that. And what do you hear from people in
(11:50):
at the conference so far about what the answer to
that's going to I.
Speaker 2 (11:53):
Would argue Europe doesn't have someone opinion to latch onto
what Antonio will say, because I think it's very relevant.
Is there are institutional issues that the European Union has
in terms of dealing with Trump. The first is that
the EU is very good at negotiating within the rules,
(12:13):
so in the wholes of the wto, the EU often
gets what it wants. It's very good at doing that.
Speaker 3 (12:19):
I think it's one reason why Donald Trump does like it.
Speaker 2 (12:22):
And in this world, like in this jungle, where it's
I want this, what will you give me in return
for this? The EU is not built to do that.
And that is also linked to the fact the specific
point of your question, which is who speaks for Europe
Because normally the way that you negotiate, it will have officials,
(12:43):
and you will have conversations between officials between two different parties,
and then eventually it floats to the top on the
more political issues, you do not have someone who is
able to negotiate in the same type of language terms
as Donald Trump, and it's not clear who could fill
(13:03):
those shoes. Maybe one idea they could appoint an envoy
for say Ukraine talks for example. They've done that with
sanctioned It's a lower level than the stakes there are
a lot lower, but that could be an option. But
I think there are institutional limits in terms of the
way that European Union has set up. And one reason
(13:25):
why when you speak to European officials in the past
few days you have this sense of shock is they
haven't fully come to the terms of this new reality.
That there is no point having a meeting of a
US official and saying, oh, this is illegal because of
rule whatever of the wto Trump doesn't care. You have to.
The question for Europe is are you going to deal
(13:47):
with this administration and negotiate on his terms on how
reality is or how are you going to hope that
the world changes again?
Speaker 3 (13:57):
And it causes an example. It reflects how much the
sheer pace of activity coming out of the White House
is testing everyone's bandwidth that we're running together in this conversation.
We're running a whole trade argument and a trade issue
and how it relates to Europe alongside a really quite
distinct question about the future of Ukraine. And even that
(14:18):
is a test for Europe to we have to think
about two things at the same time. I mean, in
the same hour. Donald Trump is posing these enormous but
we should try and resist the temptation to run it
all together because the tariff's conversation has a particular implication
for Europe and maybe even makes it harder for Europe
to respond in the way that Donio has suggested. He
(14:39):
has talked about these reciprocal tariffs and what that means is,
just to be simple about it, is that the US
moves away from a situation where there's a very broad
based assessment of tariffs and by and large, for historical reasons,
developing countries have had higher tariffs against the US goods
than US has had against them. And the rule within
(15:03):
the WTO, as we know, is if you have one
tariff against one country, it's supposed to apply to everybody else.
He is overturning that and suggesting that there will be
individual tariffs negotiated or individual terms negotiated by country in
relation to not just their tariff levels, but also everything
else they have. And I think it's the everything else.
We had some research from Maivakuzar, sort of senior trade
(15:26):
expert on the Bloomberg Economics, who was just pointing up,
you know, if he just took tariffs, the impact of
this new regime would be particularly bad for developing countries
and emerging market economy. Is not so bad for Europe
because their tariffs are relatively low already. But if, as
Donald Trump has said quite clearly, he's going to consider
(15:47):
vat value added attacks and regulations and other things in
that calculation and consider them in trade barriers in the
same way, that could potentially be extremely costly for the EU.
So then you get into a mode of it would
be every country for himself. I mean, do you think
there's a possibility that France, I don't know. I'm looking
(16:09):
at you, Albert Say over Antonio as well, that France
will end up doing separate deals with the US, Italy,
Georgia Maloney maybe will think she can get a better deal.
Will we in a world where that's conceivable.
Speaker 2 (16:19):
I think from the US perspective, that is probably the strategy.
I think you may see different tariffs for different countries
From the EU perspective, It's very hard to say on trade.
For now, they have remained united and they have stuck
to this position of trade as an EU competency, and
(16:41):
so far that unity has not buckled. I think if
you put it altogether, some countries may be tempted more.
I would say more countries like Hungary rather than Italy,
because I think there are other issues like migration where
it's an Italy strategic interest to be close to the EU.
I think one key point is this bigger picture, which
makes the threat to Europe kind of unique, like different
(17:04):
from let's say emerging countries or even countries like Japan
for example, which is Europe is facing this at the
same time, this economic threat and the security threat. Other
countries are able to say, we are going to focus
on the security. We want the US to provide security.
We are not going we're going to give him wins
(17:27):
on economic and trade. You take, for example, the UK's approach.
The UK has pretty much said nothing almost about the
steel tariffs that you issued immediately oppressed statement saying they're illegal,
et cetera, et cetera, so clearly the UK is thinking
security is more important, let's give him some economic wins.
Speaker 3 (17:43):
Although you mentioned Japan. Actually Japan also is sort of
skew it on that one because they have their biggest
trading partners China, and their biggest source of security is
the US and so that for them is an extremely
painful conversation. And Tony, did you have any response on
this possibility of a country by country approach? And you know,
how is Europe even going to avoid that given the
(18:06):
way that Donald Trump is dealing with your Well.
Speaker 1 (18:08):
I think you're both absolutely right. I think the risk
is that the more specific he goes, the higher the
risk that Europe with divide itself because of the opportunity
of offering specific deals to different countries. But it's one
thing that I think we need to be mine as well,
which is the type of justification used for the tariffs,
(18:30):
Because if he starts saying I'm going to put tariffs
on you because I want you to drop your digital
service tax, that's coersion. You are not making an argument
about the trade deficits. You're making an argument about the
fact that I'm unlike your tax, you need to get
rid of it. And The problem is that opens a
kind of worms because you created an anti correcion instrument
(18:54):
during the last European Commissions term upean parament term that
allows the you to impose very strong restrictions on trade
and other measures on the US.
Speaker 3 (19:05):
So they do have as a sort of economic nuclear option.
Speaker 1 (19:08):
Is a nuclear option, and I think the problem is
that if that question posits itself, I'm not sure how
many Member states will be in favor of doing that
because my impression is that maybe that instrument was created
not to be ever used nuclear it is option, So
I think, you know, it's a question to monitor because
if Trump starts doing things and it's just the first wave,
(19:30):
what about Greenland? For example, We hadn't even spoken about Greenland,
but it says I put times on them are because
of Greenland. That is a clear case of economic question,
and that discussion is going to passe itself very soon.
Speaker 3 (19:40):
Probably just a quick follow up on you, because we
did mention the German election. I mean, there could be
something would say, well, it just happens to be very
bad timing because we have lack of clarity about the
future of Germany. At the same time as all of
this is coming to a head here in Munich. How
does the German election change things in this debate, particularly
about you Ukraine, I would argue, and the challenge of defense,
(20:04):
but the challenge of negotiating on Ukraine. Does it really
make a difference given the sort of choices of government
that we're looking at in Germany?
Speaker 1 (20:10):
Well, I do believe it makes a difference because what
we had up to this point was just not working.
Everybody in Brussels and in different national capitals was expecting,
essentially for some kind of clarity because the coalition here
was not working together, the German coalition, Yeah, and there
was some sort of political paralysis, and that political paralysis
(20:30):
in Germany translates into political parties in Europe. Right, So
at least you're going to get some kind of clarity.
I think really, how fast Germany can get a coalition
government in place will provide a sign post of the
times to come. If they actually the parties that have
to form a coalition realize that this is a very
(20:52):
great moment and that they need to work together relatively fast,
then I think that's a good omen for decision making
in Europe. However, if you know we crunched the numbers
and the formulacqualition in Germany has taken longer and longer
in there is in recent elections. If they follow that pattern,
I think that will be very warring for Europe.
Speaker 3 (21:11):
The last word to you, Alberta, I don't know. You
said you've been You've been to many of these summits,
and you know, I guess one theme that's kind of
running through this conversation is that one on one conversations
that Donald Trump has and indeed just singular statements that
Donald Trump makes on his own, have made a much
(21:31):
bigger difference to international affairs in the last few days
than any amount of talk here in Munich and potentially
any kind of high level summit of just of government
leaders that you could have. It doesn't feel like we're
in a multilateral or multi country universe when it comes
to these kind of negotiations. Does Munich feel like an
(21:51):
outdated institution, this kind of conference in a world where
really it's all about who Donald Trump decides to pick
up the phone to next.
Speaker 2 (22:01):
I wouldn't go that far in the sense that in
terms of the US decision making process, it is very
much centered on one individual and that person's relationships with
his peers, which increasingly tends to be less and less
in Europe, for example. However, how the rest of the
(22:22):
world reacts to that, or in particular, how Europe reacts
to that, Lots of those conversations will be happening in
places like here, so there is value.
Speaker 3 (22:32):
Better get their ducks in a row, well right.
Speaker 2 (22:35):
Now, all over the place. I'm not sure they're going
to get them in a row all right.
Speaker 3 (22:40):
Well, I guess we will find out. But thank you
very much to both of you, and thanks for listening
to this bonus episode of Trump and Nomics from Bloomberg
in Munich. It was hosted by me Stephanie Flanders and
I was joined by Albertha and Adeli and Antonio Barozzo.
Trumpomics is produced by Sammer, Sadi and Moses and with
help from Chris Martlu and sound design by Blake Maples.
(23:01):
Brendan Francis Newnham is our executive producer. To help others
find the show and enjoy it, please rate and review
it wherever you listen.
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