Transcription
My general message to my British friends who are listening is: I have some bad news for you. You're not that important. This is a much bigger game. The United Kingdom is utterly irrelevant when it comes to the grander scheme of things.
Here you have a major game of chess between the United States, the European Union, and China. That's why I believe that Europe is simply the stupid continent, foot people that we are going to become utterly irrelevant. Someone in this conversation needs to have a more optimistic note about Europe. What can you take this? I don't have the [ability] to do it. The EU has no plan. The EU has no plan to deal with Trump. The EU has no plan to deal with China. Why should I be hopeful?
Hello and welcome to Unheard. Trading relationships between different countries are not normally of great political interest. Stuff like the balance of trade, import duties are normally topics that only economists get excited about, and perhaps not even many of them. Not anymore. It seems suddenly like the whole world is having to retrain as some kind of armchair economist or trade observer these days, as these are the stuff of the biggest political moments.
In just the past 10 days, we've had two apparent striking rebuttals of parties of the political right in Australia and in Canada. And in both cases, the questions of tariffs and the behavior of the Trump administration seem to have been key. Uh, we've had a something of a populist surge here in the UK as the Reform UK party has done extremely well in local elections, and just in the past 24 hours we've had the announcement of a trade deal between the US and the UK. We're just trying to get to grips with exactly how extensive that really is. But that itself comes 2 days after a trade deal with India which caused bizarre amounts of political heat here in the UK. Suddenly international trade is what everybody is talking about.
And so I'm delighted to say we are joined by two of our absolute favorites here at Unheard. We have Janice Verifakis joining us from Athens and Wolf Gang Munchow, uh another Unheard columnist who is joining, I believe, from France on this occasion, but uh as you will know, is an expert on all matters European. Welcome to you both.
Welcome. Thank you. The deal between the US and the UK. We're going to start with that and we're going to broaden beyond it. Do you either of you have a sense of whether it is actually a free trade deal? What kind of arrangement it is and what we should make of it?
I don't think this will be a fundamental, a fundamental, you know, rearrangement in the trading relationships between the US and the UK, but it will have a lot of consequences. We should not underestimate its importance. I mean, it will certainly make life between the UK and the EU very interesting, and you know, I think the EU will probably not get a trade deal with the United States, or not not so easily, and it will be harder. The EU is already preparing counter-sanctions. So the mood in Brussels is not great right now.
If the UK has a trade deal with the US and the EU does not have a trade deal with the US, then the question is: can the EU and the UK have a trade deal with one another? In the long run, that will be will be a question whether you can have zero ties between the UK and the and the EU but not zero and different trading regimes between a third between either of them and a third country, uh especially such a big country, and eventually the the UK always try to have it both ways is the classic the classic UK position, but this might be difficult, and I I was wondering, you know, for the UK just to do this without any consultation with the EU, you know, it's a it's an interesting it's an interesting proposition, interesting experiment, and we will…
As Vulcan said, this deal is going to make Kier Thmer's attempt to edge back towards the single market of the European Union to strike a deal with the European Union impossible. It is as if Trump shows some political prowess by driving a wedge between the European Union and the United Kingdom. We know how much he hates the European Union. We know how much he supports Farage and Brexit. And in a way, this deal solidifies Brexit for for the ages if it goes ahead.
Um, when it comes to the nitty-gritty of it, my understanding is that um Britain is going to get a buy regarding aluminium and car exports to the United States; it will be a reduction of that 25% tariff. The Karma is going to present this as a victory, and it will be a victory of sorts. Uh, on the other hand, he was going to have to give something back, something that he that is still great skin of his nose, something like the digital tax, the cloud tax as I call it, which um costs um the American Silicon Valley big tech something like 500 million maximum a year. But he had already promised to the OECD that he was going to do away with this tax if the deal that imposes a minimum tax to multinational corporations that was struck at the level of the OECD goes ahead. Uh, so but you know, my my general message to my British friends who are listening is: I I have some bad news for you. You're not that important. Uh this is a much bigger game. The United Kingdom is utterly irrelevant when it comes to the grander scheme of things.
Here you have a major game of chess between the United States, the European Union and China. These are the three main players. The India um Britain deal, the US UK deal, they are tiny little pipsqueaks of deals in this grander scheme of things, and the interests of the people of Britain are going to be determined, your prospects will not be determined by these small deals. They will be determined by how this larger geopolitical geconomic chess game is being played. I think that's where we need to get into Janice very soon.
I want to ask one more question if I could because uh in in at risk of scooping ourselves we've actually conducted an interview earlier this afternoon, just an hour ago, with the United States trade representative Mr. Jameson Greer. This is another unheard exclusive. And one of the questions he was asked was about Brexit. And he said, quote, "Well, you know, Brexit made it possible for the UK to do this, especially with respect to tariff levels, but also Brexit liberates them to work with us in meaningful ways on non-tariff barriers." So, we were discussing there the politics between the UK and the EU. They are not going to be very delighted to hear the US trade representative talk so warmly about Brexit. Janice, do you have any reaction to that? You were you were definitely against Brexit when it happened. Do you think we can count this as a Brexit win?
In a sense, yes, in a small sense, because there is no doubt that uh Trump is going to support Brexit, and he's already been doing it by giving the United Kingdom something less worse than what he's giving the European Union. And you know, Brexiteers are going to celebrate. K starmer is going to swallow it because he won't be able not to use it as um you know some point scoring exercise on his behalf, but at the same time it is undermining his own longer long longerterm project which is to come closer to the European Union. Wolf Gang what do you think about that? Is this a Brexit win?
Oh, definitely um a Brexit win. I mean, if you if you want to call this a win, uh yes, I mean definitely it will it will it will it will it will cement Brexit; that is for sure. And I mean, you know, everything the Trump administration does, they're quite consistent. I mean, people poke fun at him and all these announcements, but yeah, in Germany he's supporting the AFD; this is the party that wants to leave the EU; they're not just you know slightly euroskeptic; they actually want out. And uh you know, he has been uh you know supportive of of of um of you know of of of Russia in the Ukraine talks; he has been… you see what he did to Ukraine, and he's playing it sort of both sides now; he's playing sort of the the arbiter in victory; he's not on the side of the Europeans, and the Europeans understand that now; they didn't for a long time, but there is now a clarity that Trump is not on their side, and they are kind of preparing for the worst, even though they are ill-prepared for the situation at this point because the entire economic system, their trading system, their whole sort of economic policy is all geared towards you America buying European goods, and you know Germany just had a new government installed this week, and the economics minister, the first thing she said was, "Well, my priority is to increase exports," and I said, "Good luck to her," I mean, you know, increase exports with Trump; you need to have somebody to absorb your exports; you know, China stopped doing this; you know, the UK cannot stop doing this after Brexit; now it's the US that stops doing it; who else is going to buy your exports; should you not be talking about a new economic model; you know, think think differently. So the U the EU will be I think much much higher than the UK because the UK is a small flexible economy. It doesn't matter; I agree with Janice; doesn't matter in a grand scheme of things. I think this deals from from a global trading point of view irrelevant, but uh and but the UK you know will probably be okay. You know, I don't think that the UK will will will suffer greatly as a result of Trump's policies. Uh the US will probably be okay as well after some initial hiccup. EU, I don't think the EU will be okay. Janice, do you share that?
I'm going to throw one more quote at you from our interview earlier this afternoon. Asked about the Europeans, he says, "I would say they have philosophical, legal, and cultural aversion to what we're doing. It will be very challenging." I mean, this is from the guy who is in charge of US trade policy. Doesn't sound like very kind of positive grounds for deals with Europe.
The situation regarding the European Union uh has been heading that way independently of this gentleman that you interviewed, independently of even the great Donald himself. We have predicated the whole growth and development project of the European Union on having the macroeconomic environment being guaranteed and nurtured by Washington DC since 1950. The first two decades after the the the establishment of the first European community in 1950. Uh, remember we were part of the dollar zone. We we had a United States which was exporting its surpluses to to Europe through the martial aid plan through uh credits through various way they were dollarizing Europe in order to ensure that we were buying their net exports. That period was a period of the great economic miracle of Germany which was predicated on the fact that it had guaranteed markets essentially and they were guaranteed by the United States. And then this system, the Bonwood system, the first two decades after 1950 are totally blown out of the water by the Americans themselves when they lost their surpluses. And then you had the next five decades uh what is called as referred to as globalization where exactly the opposite sort of recycling of services happens. It is now Germany and Japan in Asia and later China. But from the European perspective, it is Germany that is the net exporter to the United States. It is the Euro zone as a whole which has been Germanized as a result of very very clear policies to Germanize the Euro zone and essentially we have subcontracted the demand for European products to the United States trade deficit. At some point, some American president would say enough, and it happened to be um Donald Trump in his first incarnation 1.0. But then I remember when Biden comes in, who was meant to be the anti-Trump, he was going to supposedly to do exactly the opposite of Trump, but he loved the Europeans. He didn't have this inimical relationship with the Europeans as Wkan said that Trump has. But nevertheless, through his IRA policy, his industrial policy, the whole point was to attract German capital to the United States, to steal it effectively from Europe, to create new barriers. He will essentially Trumpism uh was adopted to a large extent by Biden, and then Trump 2.0 comes and turbocharges it. Uh we have only ourselves to blame in the European Union for creating an economy that needed to as I said before subcontract demand to the United States of America. Effectively, we became utterly dependent on United States of America in the same way we became dependent on uh the cheap gas of Gazrom and Vladimir Putin.
This is going to be really bad for the for the… I mean, I completely agree with the history that that Jiannis uh that Jan has just uh outlined. The big mistake the Europeans are making obviously think this is a face; this is going to go, "Oh, we can fight the guy because," and then and you know and every since all the experts hate him and so certainly Europe all the experts hate him, but that I can I can assure you of; there isn't you know I don't know of a single economist or even political scientist or journalist or commentator who actually supports Trump uh Um, and that's really sort of changed. But the trying to fight the guy is going to I think going to be very very difficult for Europe and very counterproductive. So I think this is going to be a a a a titanic battle uh between between the EU and and and the United States. And my hunch is at this point is that there will not be a trade deal between the US and the EU but a you know maybe not a trade war. uh you know I think the Europeans would probably be smart enough not to not to retaliate because that would be counterproductive if you run surplus. So I think that but the you know the EU will be a higher tariff zone than the UK; that is that you call it a titanic battle, and we all remember how that ended.
If deficits are bad, trade deficits, and that the voters both in Europe and in the United States are unhappy because of them, or at least in the UK that you were mentioning. Is it a zero-sum battle that basically one block needs to win and one needs to lose, or is there a world in which they they both happy?
No, I there may have been a brief time but they were both happy. That's just me. The problem isn't trade deficits. You know, I I have nothing against trade deficits and trade surpluses. When people trade there, you know, you know, people have deficits. The Euro the Europeans have structural surpluses. They have them every year. Germany has a structural surplus between six and 8% of the entire economy. And if Germany doesn't have a structural surplus, Germany is in deep recession. Germany cannot exist without the surplus. This is what I call mercantilism. This is nothing else. You have to have a surplus, and that means someone else will have to have a deficit, and otherwise you can't breathe. That's the structure. So the fact that Germany had a surplus in one year, who cares? But this is not the situation. And the fact that the UK has these… but what happened if you have a deficit? You import other people's goods, you de-industrialize, and then you know the city of London does well, and certain certain industries that are based in London do extremely well, and the industrial zones do not well. So you get a distributional problem. It's not a problem of GDP. UK GDP is not particularly dramatically bad. It's not different from say German GDP or French GDP. It's not the this. You won't see it in those numbers. You'll see it in the sort of distribution of income. You see it in, you know, how happy people are in places where industrial cities. But Janice, do you agree then? Like who who wins in this Titanic battle?
Well, you see, it's only a zero-sum game if everybody tries to be a net exporter, a mercantilist as Wan put it. Uh, to lighten the discussion a bit, if I may, I I will never forget the conversation I was having with my counterpart in 2015. You will remember the gentleman van. It was a light-hearted discussion. It was outside the context of the tough negotiations. uh we were having a little bit a little bit of a banter between us, and uh I said to him that I heard from somewhere that he was a great um admirer of the uh hugely important German philosopher Emanuel Kant, and I reminded him of the Kantian categorical imperative, the idea that a rule because you remember rules were very big in the lexicon of the German government in particular of all kinds, rules rules rules, and they must be respected, and I was saying to… Well, Kant has taught us that the rule is only rational if it can be applied by everyone in a manner which is logically coherent. But if everybody applies your rules because he was saying to me what you need to do, you would need to Germanize Greece. You have to be become net exporters too. And I said to to to to him another Vulkcoin, I said, "Vulkan, according to Kant, this can't be rational because if we all do that, then we must believe in extraterrestrials who are interested in purchasing our stuff because if every country or economic blog in the world has a net surplus, a surplus and is a net exporter, there must be extraterrestrials that will have to purchase." Yeah, he wasn't very amused by this. But the point I'm the serious point I'm trying to make is that if you have this mentality, whether you are the Chinese government or the German government or the Japanese government, and you think that this is the model, then you are you you will have to accept that others will have deficits. You cannot celebrate your own surpluses and at the same time disparage others for being in deficit, which is the situation we were finding as Greeks in at the time. Uh so to answer your question, no, we can have a win-win situation. We can have mutual advantage. This is the whole point about trading. Trading is mutually advantageous as long as you don't have the structural imbalances. You know, people say to me from both China and Germany uh but you know Mr. Volvak is, "Why are you against us exporting?" I said, "I'm not against you exporting. You can export the more the better, but then you will have to balance your trade books by importing more if you export more. Because if you don't, then essentially you're condemning your own people to austerity, and you are condemning your own industry to long-term de-industrialization through very low investment because you know these we macroeconomists know very few things. This is the only thing we know for absolutely certain because it's not even a theorem. It's an axiom."
What I see in Europe is everyone doubling down with the same old story. They're still doing the same thing that they did in the uh you know in the Euro crisis. They're doing the same thing all over. They said we need to export more. Where, you know, if you if you basically have no more people out in the world who want to buy your stuff, you may want to say, "Okay, maybe this strategy isn't going to work anymore. We need we need to do something different." But I think this is sort of the the thing, and and I think there sort of a political equivalent to that as well. you know, everybody virtually every columnist in the British media and American media, they kind of lived in the age of globalization, and everybody kind of got used to its parameters. It's very difficult for people to say, "This isn't working anymore. This is the system, and we know we all the assumptions we have made that freedom of movement is a good thing, trade is a good thing, freedom of capital is a good thing." Uh you know, people didn't question that. Oh, that America supports Europe in defense and that we that we relied on the United States. People question and people get angry at the United States for no longer wanting to do that. And people go to the extreme that they start to criticize voters. And you know, in a way that was famously done by Hillary Clinton, but you know, I would never criticize voters for voting for anything because you in Europe is we starting to ban political parties. You know, the Romanians are banning that. We used to, you know, and Jiannis will probably, you know, see can talk about the pressure that European establishment put on on his his government back in 2015. And uh now it's the right uh you know, we're banning the right in Romania. We're banning Marine Le Pen. The Germans are considering whether they should ban the AFD because the minute anyone goes against the systems, not that the AFDA, you know, knows anything about economics and you know, their their economics is probably as as bad and probably worse even. But the point is that that that that everybody is so much in the system that that they don't see that the system is failing. So I think we're seeing sort of a classic you know uh you can't step outside problem because this is this has been going on for a long time. The system has been you know the globalization system is as old as you know.
So it sounds like both of you are in in a way supportive of what Donald Trump is trying to do because he would also frame himself as challenging the system, that this decades-long globalization that has hollowed out the middle class.
There's a crucial distinction to be made here, Freddy, sorry for butting in; there is no doubt that Trump is asking the right question. He has put his finger on the right problem. That's one thing that I support, but I don't support his policies, uh the way in which he's trying to fix it. Okay? And by the way, those liberals, centrists, center-leftists, centrists who are lamenting the fact that this is unprecedented. You know, all this stuff that's coming from Washington DC has never happened before. Um, this is what I've tried to argue in my unheard of columns. This is completely untrue. Take for instance one example, one person, one central banker, Paul Vulkar, that everybody waxes lyrical about; the whole of this centrist establishment considers him to be a great man; I don't I don't agree; doesn't matter, but here is I've got I've got a quotation from something he wrote in the Washington Post in 2005, and just I' I have to read it, Freddy; I hope you bear with me; he says, "What holds the United States economic miracle altogether is a massive and growing flow of capital from abroad running to more than two billion every working day and growing. As a nation, that's the Americans. As a nation, we don't consciously borrow or beg. We are not even offering attractive interest rates, nor do we have to offer our creditors protection against the risk of a declining dollar. We fill our shops and our garages with goods from abroad. And the competition has been a powerful restraint on our internal prices. It has surely helped keep interest rates exceptionally low despite our vanishing savings and rapid growth. And it's comfortable for our trading partners and our allies," he means the Europeans and those supplying the capital. "Some such as China and Europe depend heavily on our expanding domestic markets. And for the most part, the central banks of the emerging world have been willing to hold more and more dollars, which are after all the closest thing the world has to a truly international currency. The difficulty," this is 2005, "is that this seemingly comfortable pattern can't go on indefinitely." That sounds like very much like somebody from the Trump administration would have said, something I would have said, something Vulcan would have said. That does not mean that the Trumpian playbook of hitting everyone with gigantic tariffs and then having these one-on-one negotiations is going to put the financialization genie back into the bottle, which is essential in order to rebalance the world.
I would I would add to this. I mean, Trump plays on this bilateral trades like he did with the UK. That's a that's kind of the wrong way to to go about this. Um the you know I would have used the dollar from you know if you I just heard BMW today complain that you know the euro appreciated like 10%. And they're already screaming, and that's if you if you wanted to really get at the Europeans you know a 30% devaluation would really do more than a tariff. It would kind of do the job uh if you wanted to to rebalance the world. Obviously the US would also have to start incurring a lower budget deficit. This is this is part of the part of the imbalances. It's not just us. It's not…
Just a mercantilist about Europeans. It's, you know, the US has played along, as Waler was saying. I mean, he's essentially describing a Ponzi game. A Ponzi game that worked, and it worked for years. These things can go on for a long time until, as he rightly predicted, they don't; and they usually, you can't predict why they don't go, and they could hit some financial crisis. In this case, it was a political problem because people didn't support this anymore. So that's the fact; that's the reality of the situation, and people don't want this anymore. So, um, so we in this, we're in this sort of situation where this this Ponzi and that thing that that wonderful balance where everybody agreed to to to interact with one another is is over.
Now what I would have advised Trump to do, and I, you know, he has a lot of advisers around him who who disagree amongst each other. Um, there was Scott Bessent who was the the Treasury Secretary who was not a fan of tariffs. You know, he talked about tariffs as the gun on the table, as Americans would would always, you know, use this Marshall language, the gun on the table. This was not intended to be fired. Uh, it was certainly not intended to be the first the first thing to do. Uh, but in the end, you know, Trump decided to go with tariffs, and now they are trying to rescue the policy. I think the tariffs will happen, um, in in the way, almost in the way that Trump announced them on April the 2nd. I would not hope for big retreats. You know, he will cut some deals, and he will make a lot of it and some political point scoring, but China and Europe will have big tariffs. I would expect the 25 car tariff to stay. So, Europeans will not be able to sell their cars to the United States. Um, more than 25% tariffs is kind of stupid and counterproductive because people stop trading. You don't collect any tariffs. It's uh there comes a point, I think the 105, 45 percentiles on China is just completely ridiculous. It's just an embargo basically. Who's going to buy anything at like three times the price? So, So this is just, you know, if he wants to collect the money, this would actually contribute to the the reduction in the deficit. I think they'll have to raise taxes. I think Trump wants to decrease taxes. So I think there's a lot of hypocrisy about this. So we're not, you know, I'm not supporting, you know, what's what's happening. I, you know, I completely agree that, you know, a lot of economists have this issue who sort of like us who who think that Trump is on to something. I I have to say he's on to something, and you know the difficulty I have, and I can't say I support this because this is not how I would do this. This is how how I would not advocate anyone, and I'm so glad I'm not in, you know, I'm not in the administration where I have to kind of you uh you know, be conflicted about this because I think quite a lot of people will be conflicted about this. Um, but can the old system, could the old system, could the alternative have prevailed? No, I don't think so.
So, what's so interesting is that you you both coming from very different political positions, you both acknowledge that Trump has his finger over the button of a key problem, or at least he's identified a key problem, and that the old world order has kind of expired in any case. So, something else is going to replace it. Uh, what I haven't heard yet is is what should replace it, if not this kind of tariff on-off chaos that we've had at the moment. Janice, do you want to have a go there? I mean, what would you like to, what what should he have done? Look, I've been I've been talking about this now for decades. Um, I've written books about it. So, thank you for the opportunity to plug my idea, which is not my idea, by the way. Look, if we want to rebalance the world economy uh and to do it in a in a manner which is sustainable, then to begin with, in order to undo the imbal the structural imbalances, as often put it, you need a world trading system and a world monetary accounting system which penalizes symmetrically the large deficit, structural deficits and the large structural surpluses. It has to be done symmetrically, unlike the European Union, for instance, where you know you only penalize the deficits whereas the surplus are fine. Uh, how can this be done? Well, there was a gentleman called John Maynard Keynes who, during the Bretonwoods conference in April 1944 in New Hampshire, uh, he outlined precisely how this should be done. Um, it was so beautifully put that he got a huge round of applause, and the representative of the United States in that conference, uh, Harry Harry Dexter White, the representative of FDR at the time, uh, congratulated him wholeheartedly for the beautiful idea, which then he proceeded utterly to reject because the whole idea behind the uh balanced and balancing system that he was proposing, he called it the international clearing union. The idea was to have to denominate all trade and capital flows in a common accounting unit, not a common currency, but a common accounting unit and to have a levy being imposed on countries that exceed a certain level either in terms of the deficit or in terms of their uh surplus. In order to rebalance the system. Those levies accumulate in a bank account that he had imagined would be stored in or had kept with the World Bank, and those monies would then be invested in the deficit areas in the developing countries. Today, we could say, you know, green investments in green energy in Africa, whatever, in order to rebalance the world. The idea is there. It um I think that it has stood the the test of time in terms of its theoretical and uh um intellectual coherence. But what has come the way is that, you know, Harry Dexter White representing United States at the time, the only creditor nation, the only superpower to to have to be to be standing after the horrors of the Second World War. By the way, happy V-day to all of us in Europe today. Um, the problem was that they were not going to allow any other accounting unit except the dollar. The the the exorbitant privilege of the dollar was a source of immense political power, and the Americans would not give it away. Today, however, today uh they know that the exorbitant privilege of the dollar is an albatross around their neck too. There are people in the Trump Trump administration who understand that. Trump himself clearly doesn't. But whether they understand it or not, uh I think that you know this discussion we've been having about the European Union and the titanic battle with the the United States, working on this, I don't agree. Essentially what will happen is the European Union will be bypassed, will be left behind. It would have it will be left on the side. The major game now is between the United States and China. And I very much suspect that the Chinese are slowly, gradually, but surely moving to a model very similar to what Keynes uh presented in the Breton news conference for the BRICS plus area to rebalance at least their part, and this is something that Trump could live with as long as he has the rest of the world, the western hemisphere as you call it, to call it his own. This is not a good outcome, but if you ask me what I think is going to transpire in the in the end, I think we're moving in that direction. I think we have to move on to China.
But just before I let Wolf Gang respond, can I just interject with a non-professional economist reaction to what Janice just said, a an intuitive political reaction, which is an expanded role for the World Bank, some kind of to my ear somewhat socialist-sounding uh redistributive uh bureaucracy that uh took money from one place and gave it to another. uh sounds that I suspect would sound to people who voted for Donald Trump like replacing one bad system with another. It's precisely that kind of international institution. They want rid of. They want less kind of people above the nation-state playing uh taking power. They want liberation. They want to be able to sell whatever they like and buy whatever they like. Well, the notion of freedom is our my notion of slavery. But look Freddy, just before Vulcan comes in, this is why I'm saying that u Trump's uh identification of the problem uh is something I'm sympathetic to. But the way he has educated or illucated the MAGA movement is a clear and present danger for the interest of humanity because they will reject anything that resembles a solution to the all these imbalances. um solvent of these imbalances, a solvent of these sources of massive economic hardship for their world, they will reject all of them wholeheartedly. That is the reason why I consider myself to be a political enemy of Donald Trump and his MAGA movement. Wolf Gang, um I think I want to take a step back to this and look at this politically rather than economically. Um, the you know there is another theory from uh from a from a political economist, Danny Rodrik, uh who has come up with this what he called an impossible trma, that what is inconsistent is you know hyper-globalization, national sovereignty, and democracy, and I think that's what we you know that's where we you know that's what the problem was in 1944 when Keynes's idea was rejected; it was the problem u it was the problem um uh with um with uh any of these sort of cooperative solutions is that you know the US has just imposed its national sovereignty over globalization that's just happened. So if you have democracy, and I think we probably agree that this is not up for up for negotiation, maybe in the EU, maybe in parts in parts in parts in parts of the world, maybe in where where people are uh you know are starting to ban political parties. I feel very strongly about this. I think this is this is a mistake. Um, and uh you know but but generally we not abandoning democracy. Um, you know, countries have refused to abandon sovereignty. This has been the reason why the European integration has failed because people have you know member states have insisted of retaining national sovereignty yet they founded the euro, which is a contradiction, and the euro is failing for the same reason of this this impossible trial. And you either you do it. So this is hyper-globalization. This was a project of hyper-globalization. Think of globalization as a European version of globalization. It failed because we have basically just done one step. But then we we we kept all the power in in in member states and and and democracies and voters did not support this any longer. And and that is the fundamental the fundamental reason why I don't think there can be a negotiated solution for as long as we accept national sovereignty. Uh, you know, if you assume that we're all democrats then we have we we have to basically say that national sovereignty and hyper-globalization have not only reached the limit, they've gone way gone beyond the limit. So I, you know, it's got to be a a trade-off between the two. And this is where so I would say, you know, I I'm not sort of saying what my preference is. You know, I'm I would probably prefer, you know, you know, you know, I I'm strongly in favor of European integration, but the democratic version of European integration, not the kind of decentralized version where the European Council takes decisions in in private and and and without the without, you know, consultation or without any any any input of parliamentarians or the public. And that's not my idea of European integration. And that's the only version of offer, I would reject it. And as I'm beginning to, you know, I'm beginning to become very, you know, much more skeptical of this the process that they have embarked on. Not the idea of European integration, but the but the process that has been sort of that has gone with the Treaty of Lisbon and is now sort of going going further in that in that in that direction. I think the same happens in globalization. Um, you know, it's very hard to think of world government. I mean, we're not going to get that. Uh, so so the fact is that we you know if we insist on them you know national sovereignty as we do you know we will have to retreat, and and it this can fall out in different ways, the US-China you know the duopoly in the world, it can splinter into many other parts; it could be the Brits, the European could form a coalition with the Canadians and some others. um there are all sorts of coalitions possible in this in this in this thing; it could splint into three or four, so Wolf Gang, what I'm hearing then is so instead of a kind of single solution for the world. What you're predicting, even though you're not necessarily endorsing it, is a kind of fragmentation into blocks and then potentially sub-blocks and sub-blocks of those ever smaller and and a genuine process of deglobalization. That's what you think will now happen.
I think so because I think this is this is this is as long as we believe that the member states that the nation-state is the sovereign unit uh in an age of where we have technological you know technological freedoms and where people can inform themselves freely, where we have less censorship through the media uh where people can basically form their views in a way that wasn't the case before. In such a world where we have democracy where people can basically you know have have have access to information that was denied to them in in previous and previous decades. In such a world it is not possible to maintain this form of globalization that we have in the past, and there will be other structures, and I'm not predicting necessarily that it will be three or two. It could be any any of them. It's very messy. Depends very much on how people react. I mean, you could think of the United States forming some coalition with with with with Vietnam and South Korea and the UK and Japan and a couple of countries. You could think of the UK, the EU and Canada forming a sort of a multiluous alliance. You could find you could find China becoming the head of the BRICS. The BRICS could split into different things depending very much on how China behaves in the BRICS. What what Giannis says is is one possibility, but it's not clear that they all the this is not a this is also not a coherent group. They had they agree that they want to be independent of the United States. They're introducing separate payment systems, and we will also see the you know another story maybe for for another day is the role of the dollar, which is a very important part of the story, not a technical part; it's actually a very political part uh but but we we all we all starting to think about you know with with the United States no longer being being sort of the guarantor of our our things, should we still use dollars? And to the extent that we do uh in the BRICS countries, they have already concluded no, that they needed alternatives and systems and you know there's a lot happening at the moment. I I was just going to say ask Yiannis whether even though it's not what you would like to see, by the sounds of it, that your beautiful John Maynard Keynes's concept, if that's not happening, do you share Wolf Gang's prediction at least that the multipolar/ever smaller block uh a genuine process of deglobalization is now the likely outcome.
As I said before, I think that China, whether it will be all the BRICS within it or not, is going to have uh a a block within which uh most uh trading will take place on the basis of their nim of the one their digital systems which are absolutely speak and span and hugely innovative. If you look at the way they are constructing their digital currency at the central bank, the BRICS pay um it's state-of-the-art. The Americans have nothing nothing anywhere near near that, simply because Wall Street will never allow the Fed to develop such capacities. Uh and that is a major u advantage that the Chinese have that Wall Street and Silicon Valley are are at loggerheads. uh whereas in in China, for political reasons that we all we are all familiar with, what I call cloud capital and finance have merged into one thing, and that gives them a capacity to create that space uh around the BRICS. Uh I very much feel that the rest of the world is not going to be a block or blocks. It will come closer to the way in which Trump conceptualizes the ideal world from his uh rather problematic perspective. uh he sees the world, that's my understanding, I may be completely wrong, but I think that Trump sees the world as a bicycle wheel that has a hub in the center where and the hub is Trump or the United States, and everybody else is like a spoke, and the every spoke has to connect with a hub, cannot talk to the other spokes. Even if a spoke breaks or three spokes break, the bicycle will still works. So I I I think that this is where we are moving. The possibility that the European Union is going to get its act together and that it will form an alliance with Canada. I really really cannot see any of this in the end, whether it's Carney or Australia, to look at Australia. Everybody's celebrating the victory of um Albani, and I understand that. I'm saying this as a proud Australian citizen by the way. Um, but there is no doubt that Australia is the 51st state of the United States when it comes to its defense policy, when it comes to economic policy, when it comes to there is not one whim of Washington DC since the 19 the late 1970s which were has not become law in a place like Australia. There's no way that Australia will get out, spin out of the center of gravity of the bicycle wheel that uh Trump conceptualizes the world to be at. So I think that we're going to move in this direction, a block that will be very rationally structured. That doesn't mean that it will be a pleasant place to live in, and that will be the Chinese block because they extremely rational and very very very cautious. Have you seen recently under Trump how cautiously they move? Um, Vulcan mentioned the possibility, if you look at the macroeconomics uh then of course Vietnam looks very close to the United States, but so does South Korea. But you have seen the recent uh moves by China to diplomatically establish very strong links with Vietnam and South Korea as a result of the Trump shock. Uh so this is my prediction. My prediction is a solid Chinese block and the rest of the world resembling a bicycle wheel.
Forgive my trying to understand your analogy here. Are we talking about two bicycle wheels, Jianis? One with China at the center and one with the United States. I think the Chinese are going to build it up uh in a multilateral fashion. To put it differently, I think that they will try to create something similar not to the idea of Keynes about the ICU which I mentioned before, but something similar to what the Bretonwood system was like. In fact, it was like uh with remember people say to me but you know they haven't opened opened their capital account, they have capital controls. Well, we had capital controls under Breton Woods. Breton Woods is a system a system of fixed exchange rates with almost fixed interest rates and capital controls and a lot of constraints on what the banks could do. Now I wouldn't be surprised if the Chinese are moving in that direction as the main block and then have satellites around them. So that wouldn't be spinning like a wheel. It will be a very solid system because remember the B and W system which was the golden age of capitalism was a very very strict, placid and, by the way um Freddy, it was the the definition of central planning. You called it socialist. I wouldn't call it socialist, but it was centrally planned. Think about it. You know when I was born the exchange rate between my country's currency and the dollar was exactly the same as it was when I was 16. It didn't fluctuate 1 cent, right? That was a planned system. So when they say that they want the MAGA people, that they want to make America great again, they all hark back to the 50s and 60s. That is their mindset. They're not thinking of the 20s. They're thinking of the 50s and 60s where the world economy was planned by Washington DC with the same statist ruthlessness as Goss plan, the Ministry of Economic Planning was planning the Soviet economy.
M Wolf Gang, do you do you share this this vision? I mean, either way, I suppose a stronger China is inevitable. Some form of uh block forming around it is obviously already taking place. Uh, how successful the United States is in slowing its own demise is, I guess, up for grabs. Where does Europe fit into this? I mean, are we just is Europe the the forgotten spoke? Are we the the part of the Venn diagram that nobody cares about? Is it Hungary to the Chinese and then France to the Americans or how does it, probably something like that. The broken wheel that's just on the side of the street, more something like this if you want to keep to this to this analogy. I'm more uncertain about I'm very very I mean you know I believe China will do it. I'm I'm I'm in awe of the Chinese technological development. I mean, they are uh in you know they've just what they've done, for example, they were predicted I mean there was Chris Miller's famous book on on on on chip the chip wars book, and he was very negative about China's ability to develop semiconductors; now you know in the in the last few years where we imposed sanctions on China, United States imposed you know high semiconductor bans, it stops the Dutch company ASML from exporting its machines, but China for some you know un for reasons not understood by the American administration has now managed to uh to uh build you know four to seven nanometer semiconductors all by itself, and you know the the Chinese you know we've trained them in our universities uh for decades now uh you know China is not a company that imitates us any longer; they are they are leaders in electronics and AI. You know, I've been working myself extensively on AI, and you most of the you know most of the uh uh no not most of the but but Europe is nowhere in this, absolutely nowhere in this, not only in terms of the investment but also in terms of academic research, in terms of the the latest thinking, the latest papers, the latest developments, and mostly Chinese and American and increasingly Chinese uh contributors to this, so so China is a very serious country, but what would what they would need to do, and this is going to be very difficult for them, they're running this this you know they're running the world's harshest trade surplus. They are very hooked on this. They are the, you know, they're the Germany on steroids. I mean, I mean, Germany admires the Chinese because that's what they would like to be. I mean, an even bigger trade surplus. And uh and the Chinese do it through very open repression, financial repression. You see this the they if you're financial and if you're saver in Japan, in China, you get you get very low uh interest rates. It's it's a it's a very bad deal. And the Chinese are managing this process, and it's going to be very difficult for China to rebalance. It's not the most of the the stimulus programs, including the recent ones, are very modest. Um, the the country has a very very low uh ratio of spending to GDP. It's mostly it's mostly exports. This is where the country resides. And if it's building up this sort of network of of friendly countries, it can't just be the the you know the reason the EU can't do this because because you know the euro is not the global currency because we keep running these surpluses. Now we would have to at least balance our books. Uh, you know, if you run surpluses against the rest of the world, the rest of the world has to buy your currency. Uh uh no, sorry, you have to buy you know you you're you investing you're investing in everyone's as a currency, the flow goes out of your country, and in the UK and the United States the flow goes into your country, and uh and that is not well that's the reason the dollar you know so the deficit the trade deficit in particular and the role of the dollar are kind of interlin can can I interject for a second? I agree entirely with what you're saying, except that uh the United States in 1950 created Breton Woods, dollarized Europe and Japan.
In order to maintain their surplus. The idea is we are going to be the surplus country. We're going to be selling you this stuff. You are going to be export net exports galore. And then our surpluses, our financial surpluses, we will recycle them into Europe and into Japan in the form of aid, of uh, of loans, um, state loans, private loans, and so on. So that you have the money to keep us in a net surplus.
So the Chinese now, unlike the Europeans, have two very good options. Now that I'm not sure they've decided which one to take, or whether they should take a mixture of it. One is to render bricks into a Bretonwood system where they remain the surplus country. Their currency, with capital controls and so on, is the anchor of the system where they recycle. They've already done it with the belt and road initiative and so on; they could be giving all the credits that are necessaries to countries like Malaysia, um, Pakistan and so on, and and even to Russia, and then sell them the net exports and this recycling system. That's one option they have.
The other option they have, which I agree with you because I suspect you will also think this is a better option, is to rebalance their own economy by essentially boosting aggregate demand consumption within—but you know, I just said they have two options. What does Europe have? Unless we create a United States of Europe. If we created the United States of Europe, because you and I have been arguing now for yonss in favor of a safe asset, a euro bond, but you can't have a euro bond if you don't have a federal treasury. And you can't have a federal treasury as a democrat and not have a proper federation, a democratic federation. And you know, we had this opportunity in 2012, 2013. Merkel killed it, murdered it. And now we don't have it anymore because the politics has become so toxic that we will simply never have it. So we don't have options. And that's that's why I believe that Europe is simply the stupid continent full of people that we are going to become utterly irrelevant.
Someone in this conversation needs to have a more optimistic note about Europe, and I'm going to take that role for one. Okay. But let me just let me throw this at you: Why might Europe not be quietly a beneficiary of the bipolar sort of willy-nilly standoff between the two mighty powers of China and the United States? We have got used in recent decades to basically attaching ourselves to the US. Maybe we now begin to attach ourselves to the Chinese imperium as well as the US, and we remain the the place with the beautiful cities, the place where people want to come, the provider of luxury goods to both empires, and uh, kind of stay out of it. Va, you take this; I don't have the will to do it. The Europe as a museum—there are will certainly, you know, some jobs in that business model. I just don't think this will be one in which, you know, 500 million Europeans will be will be employed and will be happy. Uh, and generally countries with very high degrees of tourism find find in Europe like France find themselves often, you know, in in difficulty because uh, tourism is something, you know, it's not it's not it's not a great thing to be dependent on tourism.
Even manufacturing, like your your German machines, German cars, can be sold to the Chinese—it may well—they can't. Why not? Let's just put let's just put your example: they can't. The problem with the Europeans is that that we you we no longer where we were 20 years ago. The German cars 20 years ago, Germany had crisis before. There's nothing nothing new, nothing new. But 20 years ago, the Volkswagen, whatever Beetle or Golf or whatever, was the state-of-the-art car in its class. That's not the case anymore. The state-of-the-art car and in its class is called BYD and has other names. It's it's nowadays it's uh it's it's mobile phone companies that that produce cars. Um, it's it's actually no longer a car. Actually, a car is is is a is a is an digital device with some wheels around it. The modern car, the electric car, it's it's a completely different product, like the computer is different from the typewriter. And the Germans are not good at this. And the British are not good at this either. We decided in Europe not to invest in these technologies that the Chinese and the Americans invested in. And we felt this was something to do with with with who we are. And we thought we needed to have data protection. And we taxed all these the digital services. And we now imposing our rules on those digital services, we felt very confidently that we can that we can swing this and uh and in the in the process of this we fell behind, and nowhere is this clearer than in Germany where the you know it's a very leather country, um you know I've just been to Germany, I could not hold a conversation in a train uh on my mobile phone—very normal; the trains are usually late—uh people tweet, you know, people write a tweet when the train arrives on time these days—very different from what it used to be. Uh, the mo the motorways are in and in in disrepair, but the entire digital infrastructure is is completely absent. Now they have a digitalization manager. They will probably, you know, find a way to replace the fax machine, which interestingly enough still exists in Germany and is heavily used. Um uh but this is not going to be the country that will be at the forefront of artificial in intelligence, especially given that we that it has an energy policy that is does not provide enough cheap energy u um for for this type of operation. So virtually all the parameters of business are going in the wrong direction.
So this is why the person we have this pessimism. It's not like we can sort of squiggle, you know, wiggle through this sort of global global global standup between America and China and kind of trade with both people. It's it's going to be going to find it difficult if the Americans don't want to observe our surpluses. The Chinese, you know, have basically no no longer need our products. This is what happened. I mean, Germany used to export tons of stuff to China until China developed a cap capability and turned it around. China's become a structural net exporter to Germany. China's beaten Germany at its own game. Um, and Germans have invested strongly in China. The relationship is very strong, and I think they will be, you know, they you will try to maintain and recalibrate this relationship with China. I believe they will. I absolutely agree.
Let let me let me be kinder to Freddy's uh optimism and his you know good spirits regarding the possibilities and the prospects of Europe. Look, there is no doubt that Europe could do things in its own interest. For instance, regarding China, I'm not saying that you should become subservient to China. You should remain critical. You should uh remain vigilant regarding a number of issues that we have open with China. But things that they could do, for instance, abandon all the tariffs that they introduced on the behest of the United States, because the the United States, especially under Biden, have been pushing the Europeans to impose particular tariffs, partic for instance on solar panels. What is the point of putting, you know, tariffs, European tariffs on Chinese solar panels when in Europe we no longer produce solar panels? We need solar panels for the green transition, and it's only we did it only because the Americans asked us to, and now the Americans play hard ball with us. Why should we continue to play the American game against China when it comes to solar panels? That that's one example. Secondly, we should have not only a trade deal with China, but we should also have what we had in April 2009 at the global level in London when Gordon Brown brought the G20 together and organized uh a coordinated reflation of the world economy after the 2008 collapse. Now Europe and China are facing the backdraft, the um the the recessionary waves that are coming from the United States as a result of the uncertainty, the result of the tariffs and so on. We have a common interest with China for the European Central Bank, the Chinese central bank, for instance, to coordinate their policy in order to reflate both the Chinese and the European economy. Okay, we're not doing any of this. And I just honestly lose the will to live when I hear European great leaders, the kind of conversations that they have with with one another. They they discovered suddenly rearmament, as you know, military jingoism as the way out of this, which is absurd. It is absolutely absurd. It will have no effect macroeconomically speaking that lasts for more than 2, 3 years. It doesn't reorient Europe.
So Freddy, yes, Europe could do the right thing by itself, but I don't see the political structures that can produce, you know, once upon a time we had a leader in Europe. I don't like her very much, as Wulka knows, her name was Angela Merkel, but she had the political capital to give a speech of hope for Europe, let's say, if she wanted to, and to consolidate, to bring us all together. Now we don't have that. The Franco-German axis is kaput. It's finished. You can see that we have very weak leaders. You know, three merch. We had black smoke just like the pope in the first uh uh vote in the Buddhist tag. We have a lame duck Macron president. Uh, even if they got together now, you know, when I was in government, there was a north-south divide. Now we have an east-west divide. Whatever the Franco-German axis say regarding Ukraine, regarding China, uh, Poland, Lithuania, Estonia are going to veto it. So I hope you turn out to be correct, Wolf Gang. I'm going to give you the final word.
Yeah, we've we've run out of times. So Wolf Gang, if if there's any optimism left in the bucket. Uh, please find it. Look, we've been, you know, the reason I mean Yas was talking about Euro bonds. You know, we used to we used to favor this. We stopped; we gave up because what's the point? What's the point? The people—it's just, you know, the they if there is no willingness to create a European Union, you know, sort of a small federal union, and there isn't—there's now it's now getting politically more difficult—even the commission and the European Parliament no longer want it, so there isn't anymore sort of, you know, why why advocate things that nobody wants anymore, and it's it's really it's it's, you know, there was a certain there was a certain push for this in the 10 years ago; we've we've moved really backwards, and you know, unless this changes, I I will not rule out that it could change, but I don't see it on the horizon. Uh, so the the EU has no plan. The EU has no plan to deal with Trump. The EU has no plan to deal with China. It has no plan to it. You know, at the moment, it's all about Ukraine. If you just listen to Osafon, she talks about the big idea is to fight a war with Russia. That's the big idea uh that the EU has. Um, you know, I why should I be hopeful that this is going that there's going to be an intelligent strategic response uh to the to the to the to the this incredibly difficult challenge that we're facing from, you know, China, the United States, Russia too. Um, and and and and follow our interests. We haven't done this. You know, I don't see any any anyone who who advocates this. So no, I think the EU will get squashed, and you know, as you said, Hungary will go that way, and France depends on who leads it will go this way, and Italy will whatever Italy does.
My friends, we have run out of time. I feel like there will be people across Europe who might have been feeling a little bit more optimistic uh today or Friday by the time this maybe goes out. They might have thought, ah, Trump is doing these trade deals. The whole thing was a bit of a bluff. Things are going to get back to normal soon. Um, the world will continue spinning on its axis, or any such optimism you two have fully destroyed over the last 60 minutes. Uh, we're not in the optimism business at unheard anyway. We want the truth; hope is the hope of the idiot. There we go. Janice Marafakis and Wolf Gam Moonshow, thank you so much for your time.
Thank you. A pleasure.
Well, if ever the idea that old-fashioned ideas of political left and right are less relevant than they used to be, I think that conversation pretty much proved it. Wolf Gang Munchell, someone considered as part of the center-right, Janice Farrafakis certainly someone who is considered part of the left, but none of that mattered because they were agreeing on a whole load of issues, right? From the wisdom of the Trump administration, at least in its identification of the problem, they both rejected the way he's going about dealing with it. Uh, right up to the complete inadequacy of the European institutions to respond to this challenge. I thought that was absolutely fascinating. In fact, I've made them promise that they will both come back. So, we will be having further conversations with Janice uh and with Wolf Gang on what this new world order is all going to be about. A reminder, if you haven't already, to subscribe. Go to unheard.com, and you will get lots of wonderful uh very inexpensive offers to subscribe. That way you can get all of our articles, the daily email, all of our interviews and videos and the rest of it. Lots of things that are not available on this channel. Do check it out. In the meantime, thanks for joining.