Europe’s Role in a More Fragmented World

Recorded at the CEPR Paris Symposium, 8-13 December 2023

High Level Panel on Europe’s Role in a More Fragmented World
Chair: Moritz Schularick (Kiel Institute for the World Economy, Sciences Po, and CEPR)

Panellists:
Alexandra Roulet (INSEAD, and CEPR)
Lars-Hendrik Röller (ESMT Berlin, and CEPR)
Arancha González (Sciences Po)

Thank you B and welcome we’re very happy that we have a um reasonably uh you saw you here in such big numbers um my name is Mor sh I’m a a professor here at sanspo and also the president of the KE Institute for the world economy and I’m the least important person tonight

Because I’m just the moderator for a fantastic panel and I’m just going to go in the order of um of this the seating order Alexandra roule is a professor at anat she is also she was also ENT very recently president macon’s public Economic Policy advisor just sort of

Left the Eliz to return back to the teaching trenches and we’re very happy to have her here and hear about sort of the not just the French perspective but definitely also uh what’s going on in the minds and hearts of people in the in

The El then with L HRI rer who is um who was I should say he’s a professor at esmt in Berlin but he was for a long time um Angela merkel’s chief economic advisor in the chancellor Chancellor in in Berlin and uh someone who has uh shaped European uh economic policy for

The better part of the 201s I should say and last but very much not least uh aranta who is our dean of um International the School of International public affairs I’m very happy to have you here Professor TPO and um among many other things former uh

Foreign minister of uh Spain and uh so you already see we have a panel that has uh economists and international relations Scholars and U all of the three here are not only sort of excellent researchers but they’ve also done you know a fair share of public policy in the last uh

Uh last decade or two so we’re very happy to um have that combination as Beatrice always reminds of excellence in research as well as uh public uh uh policy um uh roles and influence um we’re going to start with a five minute uh statement the question is Europe’s uh

Future Europe’s role in the fragmented world and um I have uh you’ve prepared I think a five minute view on what is what are the challenges for Europe what are the instruments that we have to deal with them what’s missing and uh without further Ado Alexandra and then L and

Then arancha that’s okay in that order yeah please thanks a lot Morris for the introduction thanks a lot for the invitation uh so just a few remarks to kind of start um the discussion on the challenges that Europe is facing so I mean uh I guess the first one is the

Fact that the world is becoming non-cooperative in many ways so of course you know the the right of of protectionist policies it’s just one example we had a very good panel uh yesterday um on economic sovereignty where um there was a presentation of Chad Brown making very clear um what

Weaponization of trade can look like and so in this respect of course as European members we need uh we need to um to to compete in this non-cooperative world uh very much at the European level um just because of Market size because of the ability to pull resources Etc

Now it’s also the case that I think a lot of the challenges that we that Europe is facing now are more and more common shocks so 10 years ago within Europe we were facing a lot of asymmetric shocks and now recently we have faced in some ways common shocks

Like the pandemic like um uh supply chain disruption uh like climate change and so on so that’s kind of a little bit a change in the in in and that also pushes us towards kind of working more more and more at the European level now the third challenge es and I not the

Least that we’re facing is and also that’s not specific to Europe in some sense it’s a common threat in the world is the the the rise of populist movement so in some European country it’s not a threat is a is a is a reality in others

Like France it’s still like it’s still a threat but the way we do things at the European level uh clearly has some impact on on on electoral votes and and and it’s not exactly obvious what the consequences of this statement is but I think this is something that we should

Um that we should keep in mind now I think there is a challenge that is Al that that is also um in some sense a bit more specific to Europe and is the fact that in many cases even in the face of common shocks countries have European countries have diverging national

Interests and to a certain extent as Economist sometimes you know we tend to um to underestimate a little bit uh this fact so there that creates kind of a discrepancy between the fact that among experts among economists there are a few questions where we very much all agree

And you know it seems like obvious cases what we should do and then you look at the discussions in practice at the European level and it’s like endless discussion with uh which you know sometimes uh deliver an outcome but uh very with with a lot of difficulty so I

Can take two two example um for instance uh last year during the energy crisis uh when we wanted to uh when there was this big surge in gas price it was kind of obvious that we wanted from an economic point of view to do joint purchase of

Gas right and uh that was uh the the economic case was quite obvious but the discussions were much more tricky and in the end we ended up with an optional platform I mean now it’s no longer price of gas is no longer an issue but it was

Harder in practice than what you could think theoretically in part because for instance I think Germany was very concerned about quantities we were more concerned about prices that does not necessarily you know uh lead lead the the you know made made the discussion exactly uh aligned another obvious

Example is the reform of the fiscal rules so uh from you know I think from from an economist in an economist audience we all pretty much agree that uh we had to uh reform the the the the growth and the stability PCT to kind of move away from arbitrary numbers that

Were guiding our fiscal adjustments and move much more towards uh you know relying on debt sustainability and analysis and and that allow us to differentiate uh between between member states now this is kind of the the common principle on which we agree and then you see the you know the endless

Discussions of course um that uh that you know hopefully we will settle uh a deal by before the end of the year but uh I think you know as as as Economist sometimes we we we have a hard time fully fully I don’t know if it’s our

Role it’s probably not our role to internalize these constraints but um but the reality is is is is really I think that’s one of the challenge that we’re facing is how to actually uh make efficient decision uh even when the economic case is is obvious and um now

In terms of uh in terms of the instruments you were asking kind of you know and what’s what should we be doing I mean I think and probably I will we can keep that for the discussion but one of the thing we should really be uh

Focusing a lot uh in my view is you know and that was said in several other panels is the the investment in public goods uh and you know kind of uh as sometimes the president say you know we are very good at regula in Europe but a

Bit less good sometimes at investing I mean we have of course next genu which was a big success but we have to think about what comes next and in particular uh you know coming back to this uh to this reform of the fiscal rules I mean

In particular if um if we settle on on some um you know some numerical adjustments that still kind of uh are are quite binding for some countries in particular for instance for us we have to keep in mind that this limits our ability to invest at the national level

Uh in public goods so you know the the corollary of that is that we have to do even more at the European European level and um I guess I could you know I I I’ll just stop there for the remarks and I can keep totally fine I’m handing over

Then to okay HRI thanks a lot wondering whether I should respond to what you said or tell you my three points worth which I wrote down I think I’ll do the the second so I think the analysis of of you know of the world I think is is

Quite obvious I think we’re moving towards one discussion bipolar or multipolar world I do believe it’s more going to be of a multipolar world if you look at how developments have happened and clearly the world is I’m not saying it’s Cooperative or not Cooperative it’s just more complicated and I think there

Are many issues one of them is climate and we’re just seeing that right now is it very difficult to get to some kind of of agreement that was always difficult by the way that hasn’t become uh that different actually in terms of the economics of it uh then you

Of course had the Ukraine war you had Co also I mean Co I was chairman of the the WT of of a working group of fairness during you know vaccinations I mean you know that we vaccinated our people the British vaccinated their people the Americans vaccinated their people and it

Was a super Global public good vaccin if you think about it and we weren’t capable of doing it and that really split also the West with the rest of the world uh and now of course we have other you know geopolitical conflicts where again Europe sometimes is actually more

Isolated than I think it um it should be um so I think the world is really in a very difficult situation Point number one but I think we share that analysis Point number two still on the analysis I think Europe’s economic strength is relatively declining I mean there was

Some reason numbers in the media that you know we were about as large as the Americans PPP or not PPP I think 2008 um the Americans now have economy twice the size of Europe and China of course is grown like hell they do have problems China I think we should not you

Know get too too worried always about China I think we need to do our own homeworks so the Europe is relatively economic strengths is declining I think Europe is strong I mean some of you have different views but I was the economic advisor because of its economic

Performance I mean we’re very bad in the military side I think we should do much more you and Germany’s doing more and but cooperating with France has always been a difficulty think about fcas and you know the fighter jet which they’re still fighting over I think or not

Having an agreement on so it has to be economically strong and I’m worried that that you know we’re going to decline relatively but by how much is something I think the economic policies of Europe is going to concern concerned and I think there also the next European

Commission which is going to have to set some priorities uh is very important as far as Europe is concerned also the Personnel uh which is of course always very complicated in Europe so I think you know multilateral Europe’s economic strengths is declining and there are lots of geopolitical risks out there I

Mean Donald Trump is one of them but there are many other ones and we don’t even know about that’s why I’m worried about the fiscal side because I think we do need to have Firepower on the fiscal side because the world is not going to

Get easier in the future I don’t I don’t believe in that it’s never been easier it’s always constantly been one crisis or the other so that’s my analysis uh my instruments very quickly I think again I already said one I think that the economic the competitiveness of Europe

You might expect me saying that I think that should be high on the agenda of the European commission so fiscal and you know investment and and these kinds of things obviously play a hand in that if you think about the energy climate policy I think there are four policies

You can think about pricing CO2 pricing you know talk about it for days regulating subsidies and you can think about the financial markets private investment and I think we should move the first and the last we’re doing too much regulation and regulation is complicated sometimes it works sometimes

It doesn’t it’s very convenient for politicians just like subsidies are sometimes very convenient we should do more of the first and and the last one so Europe’s economic strength we need to work on that is my you know I’m out of government now nothing to say anymore but I think I’m worried about

That second point is the geopolitical risks I think we need to price them into markets understood maybe we were too naive I wean were naive as we obviously didn’t do everything right think about energy and Russia um and um but we need to not go overboard with pricing in geopolitical

Risk and when I look at many of the policies which the commission which is not an elected body you know you think about the screening you think about export controls you think about Economic Security which they’re coming out with all good but I think we should not be

Too going too far I think we need to keep a certain sense of that because it’s going to cost us economically and we should pay for it but the question at what price do we want to pay for it so I think when I look at it and we can go

Through all the instruments I would think we’re going sometimes very very far and that’s the point also that we are very def ensive in Europe we try to restrict we try to protect our markets think about trade I think trade you you’re an expert on tradea there’s not good news I think and

Crate has been overloaded with climate’s always been like that it’s not something which has happened since Ukraine overloaded with climate which is a good thing overloaded with all kinds of other things it’s very complicated to do a deal with Europe because you know we are we are complicated so I’m so we’re doing

A lot of defensive instruments that’s my line and we should be much much more offensive and thinking about how can we improve investment in Europe and be proactive and open up markets rather than trying to restrict technological flow which I think one can do for like the Americans for very selected

Technologies you know Ai and others but I think generally our posture is one of defensive rather than offensive one which I think for the economy works better final point and then I’m done um you know this fragmented world going back to that team um and I do think that

Europe needs to play a constructive role um here would be my recommendation my modest recommendation that is for example reforming the international financial institutions there’s a big discussion on the World Bank and the IMF WTO and I think we need to be pragmatic here um because I think we we the youve

Always been saying that AR very important also even in the G7 and the G20 I think it was a good thing that we put the African Union into the G20 we need to open up to these countries and their priority is not Europe anymore we

Are not in the center of many of these countries anymore as Europeans um so I think that is that is very important and the final point is that and this is again maybe more pragmatic one and the the line is it runs all through policymaking that the perfect is the enemy of the

Good that um we need to think even with China my view I mean you know uh we need to think about areas where we should cooperate with him we should shift with Donald Trump we did the same thing by the way when he was there the first time

We didn’t talk to him about trade when we met him in the white house because it’s pointless you know especially if you’re ger if you’re ger um so you talked to him about things where you know have you have a partial agreement on certain areas where you can work

Together so I think if we can do a little like plurilateral agreements in trade where we can think about sub areas where the world can work together we should do work together and need to work with all of them I mean bar North Korea and Russia at this point but I think we

Need to work with all of them and I think that’s what Europe should work a constructive role thank you great thank you so much arancha gonalez we are so let me compliment um compliment Alexandra and lar hendrik with three points can also compliment if you compliment and compliment let’s say the two

Um first on the Diagnostics I mean I think the big problem we have is a greater share of security in the economy a greater content of security into what was before more driven by efficiency uh and that having a cost and that having a price and deciding where

And who will pay the bill so we have uh basically in front of us a more security driven economy with consequences uh for the economy uh in terms of inflation and needing uh for the EU uh the need uh to provide uh a response a response which I would say should be without

Panic given uh that in reality the economy is proving to be extremely sticky Global value chains are pro proving to be very sticky so let’s imagine that in the Diagnostics we avoid hyperbole so what does Europe need to do in my view and that’s the second Point um Europe needs to uh

Essentially hedge its weaknesses and invest on its strengths so how does it do that in my view in a uh four uh recipe first Economic Security seen from Europe has to be targeted it has to be acupuncture and not bazooka hence uh my abandoning hyperbole uh second I think the EU has

To play for its strength and its strength and a big source of its resilience is called its single market and I do hope uh that the next uh cycle the next European commission will pay more attention to the single Market as a source of resilience for the European economy uh

Three it has to double down on energy transition and on circularity because it has a big gap and a big uh uh let’s say competitiveness Gap uh on the energy front and on the absence of raw materials hence circularity uh fourth and final uh in my

View the EU has to Double Down On Building more trade infrastructure both multilaterally but also at the bilateral level and this is only logic if you you if you see a continent that essentially depends on foreign markets more than the average of China and the

US for its own growth now my third point where is European’s problem where is Europeans ailles Hill as not on the economy is on the political economy is on the ability that it has to play to address these four ingredients and this essentially requires the European Union addressing uh a

Trilemma um what I call the national illusion versus uh the European spring board the idea that uh especially bigger countries in the EU with bigger budget budgets may think that they can do this uh as a collection of national actions as opposed to truly European action the second trilemma which

Is Investments versus debt where some see Investments others see debt and that is hugely paralyzing at the moment uh I would want to hear l herri a little bit on that uh in a moment and the third part of the trilemma which is the illusion of sovereignty of Independence as opposed

To the management of interdependence so uh Mor to me uh What uh Europe has to do is address the political economy conundrum that in my view will give the EU the competitiveness that it can build uh on the assets but also um hedging better uh the liabilities that it

Has great let me let me uh come in and and and by the way prepare your questions we obviously have this interactive and we have microphones I think at some point in the room um R you you talked about acupuncture versus bazooka um although Bazookas have become

Very popular in recent years so this is an moment for acupuncture there is a a related uh U word by um by Jake Sullivan of the small yard high fence sort of the idea that we for geopolitical or Brazilian reasons carve out very small

Areas so let me ask the panel what is in your what is in your yard what is in your small yard where Europe should have a high fence what are what areas are in there what is the or R I can ask you what is the where where is the acupuncture treatment still

Needed I think the acupuncture is on critical and the word critical is the one that matters not every trade relationship is um dangerous or critical not every industry is critical not every sector is critical now of course this is tantamount to saying how do you delineate what is effectively

Economic competition from where uh you put the cursor on your economic security security I would say is with capital S and let me tell you where I come on uh on this and where I come from on this um having spent a lot of time uh on the World Trade Organization where National

Security was capital n capital S we’ve now are we’ve now driven this National Security to be anything from Cars aluminium socks or shoes becoming National Security so to me it’s a narrow definition of National Security obviously there is a big uh part of this uh within technology especially there

Where the fusion between civil and Military uh is uh more evident uh which is where uh we obviously uh give even a more uh geopolitical uh or rather Rabel uh world uh is where in my view where we should care about I I um obviously uh can add to that list critical raw

Materials that we need and which we do not have um and this is also a bigger specificity of the EU when compared to the US or China so but but to me the important word is critical yeah just uh it’s interesting that um it’s actually relevant again Donald

Trump when he imposed tariffs on Europe which are still there by the way on steel and aluminum which they were trying to get rid of I think also recently they haven’t been able to do it for obvious reasons because of political reasons in the US um and I think Europe has a good

Position on that one um but those were imposed uh under Trump in 17 I think it was and he was threatening to do the same thing on automobiles which of course made us very nervous which he never did so a lot of barking but no biting actually and interesting question

Is that also going to be if it happens in Trump 2 Trump one was actually not so bad uh was not good for Europe U he imposed those tariffs on steel not only on us but also by the way on the Canadians um and the Canadian Prime Minister was very emotional about that

Based on National Security considerations so you know and and that’s why Justin trudo was very emotional he says look Canadians died with Americans in World War II side by side and now you’re imposing Terrorist on us on National Security grounds so these arguments about National Security they always play well and they’ve always

Been there and I think our screening law in Europe if I’m not mistaken is also not economic or industrial policy I mean if it’s industrial policy call it industrial policy but it’s actually the German Law’s public interest so we didn’t call it National Security we have public interest so there are all these

Things which can be very easily abused in an environment like this one where obviously the population is quite concerned about the rise of China and the decline of Europe and and so that’s why I like Jake’s point but you know let’s just talk the obviously Americans

Are usually about action uh is is small yards and high fences but the problem of course that’s a slippery slope and I think they’ve defin also AI I don’t know if that’s critical I mean to me that’s yes it’s critical but it’s also very general uh they done Quantum Computing

Semi so the Americans have defined these sets of Technologies where they’re restricting exports quote unquote to China okay and um and I think that that we should be very careful going too far that was my point and following all of that because even if the others are doing it and you know

I can be accused of naive and old school you know because we were against these things mostly the German position was on International economics together with other countries that that even if others are doing it it’s not obvious that we build our economic strength by following some of

These things I think some of it is necessary uh but we should be very careful and once you put it into the hands of politicians um you know they have to Define these critical in a very rigorous way and if you go through some of these regulatory issues which are now being

Discussed Economic Security is coming up I mean let’s see what what uh I think the first drafts are out what how far we’re going to go that way so my point would be yes that all makes sense and it plays very well politically but um think about Europe’s interest interest and how

How to develop um uh you know the European economy and the Technologies to the extent that we need to protect it let’s do it but let’s not overdo it because the pressure will be the political economy will be to do too much politics is always from one extreme to

The other I mean that’s my experience in the co crisis we didn’t have enough masks and we had too many masks because you know the political system is asymmetric if you if you don’t take care and something bad happens you get killed if it doesn’t happen looks like you’ve

Done a good job preparing for it so there’s an asymmetric uh uh thing built in so I think that we should be very careful with these National Security and on the critical issue I always thought a useful thing and this is why I think the critical raw material act with I think

The French commissioner in all its wisdom industrial policy wisdom um is uh proposing which focuses on the inputs rather than the product Market markets I think that is useful uh I think I would be more worried about so if I look at Daimler or Mercedes they’re selling a

Lot of cars in China fine let them sell the cars in China I mean it creates a dependency I would agree um but um you can also try to develop other markets which they’re trying to do but I’m less worried about selling lot of cars to China but I’m more worried about the

Critical raw materials which they used for batteries where China actually has a monopoly of n which is what going after so that there I would be strong on Industrial policy but restricting trade on the output Market I would be very skeptical but but precisely I think that’s where economists can help so in

Defining you know what’s critical I mean we’ve seen this presentation by Isabel M yesterday she has a methodology that because of course the worry is uh lobbying and the fact that you know the the the the choice of these critical um uh inputs is not going to be uh is not

Necessarily going to be driven by the good reasons so this is precisely where you know maybe some independent economists can help actually figure out where are the vulnerabilities and what we we now have the data that allows us to do this so in fact you know I think

That’s one area where we can be confident in being able to to to Define some of it yeah but the problem is that yeah I don’t know how it is in France but I think the link were back to this old topic between good economic research and policy making should be

Improved I guess that’s your point yeah that’s so so let me one topic that comes up a lot when we talk about resilience and and and fragmentation is the role of the the European single market and it seems that’s an obvious one we could deepen it and we could become more

Competitive I think that’s what what lassander G also um had in mind but then it looks like uh we we’ve woken up in this very in this new world world this is less rules based and less less multilateral but uh for 15 years now we basically have made progress on Capital

Market Union on banking Union um and I mean let let me give this position let me give this question to to alasan ruella because it’s been very much the Germans who have been for fiscal um reasons of fiscal policy or what whatever fundamental objections not been very um uh let’s call it enthusiastic

About the prospect of banking Union and uh maybe a little bit more about Capital Market un know but also there it seems that like Petty players are kind of preventing big European steps what is your view yeah I mean I think one is the whole fiscal debate we’re having right now you mentioned

That and and I can give you my view on that which wouldn’t be very surprising um and then there’s the other issue is why we don’t make progress on some difficult dossier and I haven’t been there for two years now one of them was Capital Market you know we were very

Positive on Capital Market Union but I think there were uh all kinds of interests there which were difficult to resolve on the banking Union um you know it’s not my view it was the view of the official German government before is that on the common Deposit Insurance

Scheme we um didn’t want to go as far as some of the proposals especially you know France was very supportive of that there also asymmetries in the markets it’s going to affect the German banks well German banking system is a different one than the French one and I

Don’t want to defend it but it’s just a fact and that’s why we had um so we proposed some intermediary steps which may have been taken and not really up to Snuff in terms of what happened on on common Deposit Insurance scheme so the idea is how much do you share risks

Across countries through the com because we have a Deposit Insurance scheme in Germany which is a little different than the European one because actually ures not the depositors which you might argue as an economist that’s what it should it actually protects the German Savings Banks the so-called Spar Hassen and this

Is something which has been there for you know 100 years and some people argue not me that this is an important part of the German competitiveness and financing the economy of small and mediumsized firms I don’t agree with that but that’s the argument but I don’t want to you know

Belabor that point but I think the point is very very true I think that looking forward I think the new commission and you know I will have nothing to say Obviously but I think that that you know something like that I mean some of you were here when this happened last time

Um you know some internal Market or a new program but you need to have a sexy political you cannot just say we want more internal Market because this is what we’ve been saying for years um but maybe some clever people can think about how to push that forward and I do think

That is obviously the right way to go because I think the best China policy is having a strong Europe and I think having a internal Market will help that we can talk about the fiscal side but I think I’m going to be in the minority on

That one so we can talk I will U and I’m not part of the government anymore so but that’s okay hasn’t changed actually much you know that’s amazing um so we’re having a debate in Germany which some of you know um and look I mean I I’m I like the debt break

We have in Germany I think you can talk about making it more flexible the debt break in Germany as you know allows you to have a structural deficit of. 35% which is pretty low and that’s you know but it it’s structural so if the economy does well you can make more debt that

Year and this year I think it’s 20 next year it’s 20 billion which you can legally uh increase your your Deb your deficit your debt um within the debt break so the debt break has some flexibility you can make it more flexible um and then there’s a possibility I don’t know whether you

Probably all of you know that that you declare an emergency and then you can borrow as much money as you want so there’s no debt break and for that you just need a simple majority in Parliament but changing the debt break in itself would mean a two-thirds

Majority because it’s part of the German Constitution we did that in 2011 we were very proud of that at in the middle of the financial crisis that we going to put some kind of stop to politicians spending money on useless things which may not be true politicians

May be spending things very smartly I’ve been in politics for 10 years and I’ve seen huge amount of waste in terms of where money goes um so I think we can make it more flexible uh but I kind of like it uh and the and the other there

Two more reasons why I think because we do need to worry about future crisis and I think we have a good German fiscal discipline that helps us in the current crisis um and um and um the other thing is that when you looked at the German budget this is what convinced me the

Most by the way so I had you know I I was from the chancell I was my people looking at the budget and every year on investment infrastructure we didn’t spend the money which we had allocated in the budget so the problem was not that we didn’t allocate enough money or

Borrowed enough money of the markets was actually getting it done and spending it and that is IR regulation bureaucracy takes forever so so um so given all of that and now the mood is in flowing in a different way we need money we need the future we need to invest I understand

All of that I still think some kind of debt break is a is a good thing now in Europe it’s a different story because some of European countries are very highly indebted and uh um anyways yeah yeah so I will reply to this one um I

Mean I guess the the point of the reform is to there was kind of few principles behind one is country European the European reform one is country kind of ownership of their debt trajectory I think this is quite important in in kind of at least two respect I mean and so

That’s when you’re saying that we have to stop we have to put limit on like spending in useless stuff well I think that that was true in Germany yeah but I I I understood but we at least what’s for sure is I don’t think at the European level we can this is something

What’s useless or not useless is something that has to be decided at the at the country level because there’s a whole history of how you know how you you get there what what is uh what are typical uh spending patterns and even though you can you know change it a

Little bit there is still going to be a lot of um differences across countries and that’s kind of where the second principle comes in which is to allow for this differentiation um and I think that’s the reason I think this reform is actually important is I think this is

One that can have direct impact on um you know the rise of populist movement because if you put uh numerical safeguards that are by Def which in the end will happen you know but um the reason why I I I was not keen on these safe board is that I think you

Know if you put them that they will constrain your action to a point that um you know that may not allow you first to meet the challenges invest the you can always redeploy uh spendings but not to the extent that you know of the amount that we need to actually uh face the

Challenges of climate and so on and on top of that um you know you really uh don’t want to to do anything that would be too much on the austerity side not just for economic reason but I think also for political reason in the moment

That we we are in Ran can I can I ask you to come in here and and and it seems that like you all agree that the world is Shifting before our eyes and we’ve woken up in a very uh increasingly in a very uh different environment with strategic actors that are not

Necessarily subscribing to you know sort of the win-win logic of of global economic integration but then I don’t know what the audience thinks but like listening to you I think we like deep down into the same old European debates we’ve always had and it feels like the world is changing and we’re just

Discussing the same things we’ve discussed for decade and uh how where is this going to go why is there not where where where is this why is not why isn’t there more of an you know realization that maybe defense integration has to make a big Quantum Leap uh that maybe that necessitates

Some kind of fiscal Union why why is there so little um um so little enthusiasm to like just urgency to to be more European no I mean or does this just depend let’s say that um Europe has been procrastinating uh for a while essentially on three areas and the three

Have come to roost at the same time and it doesn’t make it easy for the EU we’ve been procrastinating on enlargement of the EU where we said we would but then we dragged and dragged and dragged and now it has become um not only uh an enlargement necessity but a more

Security related necessity more geopolitical necessity so the need hasn’t changed but the urgency to do it and the reason why we need to do it has changed defense has been the big procrastinator we were not even spending as much as we said we would spend uh belonging to Nato and now

Um in particular since Donald Trump became the president of the US and we realize the fragile U investment we had made on the most intimate uh uh Alliance that one can have which is the one related to security uh we realize with then uh War uh in our vicinity that this is no

Longer possible to procrastinate and we’ve seen incredible moves uh on the defense spending uh including across uh the European Union sometimes in terms of budget spending sometimes it’s been in membership to Nato or even in renouncing to uh or even in in in entering uh the EU security and defense space the third

One is the EU single Market where we’ve been also procrastinating now I can give you a lot of intellectual uh reasons why we’ve been procrastinating if you look at the list of Crisis that the EU has had to manage since 2008 I mean it’s pretty phenomenal uh

Starting with the 2008 crisis the Euro crisis uh the brexit let’s not forget that we also had to put a lot of uh political energy uh in there uh at Donald Trump at Co at so in my view uh we are coming to the point where we need as Europeans to take

Responsibility in those three areas and it’s either that uh or uh declining I don’t think we are in Decline I think we can be in decline if we do not uh address uh the three political uh and Eon rather economic but also political geopolitical priorities

Uh in front of us so I think our task now is to maybe reframe the reason why we need to do this I mean when I look at the Horizon and a possible uh Donald Trump version to uh I think would give us maybe a bit of a political incentive uh additional

Political incentive to move uh so we have to reframe the why we need it and we need to uh put more urgency into the task we just need to look around our neighborhood yeah I agree I think I I don’t think it Europe is um doesn’t have

Options I think Europe is um as you say I think there are areas where Europe um should um improve and and U and and the commission I think is the the proper place of doing it I think defense is a is a big issue also if you think about

Donald Trump and there are some people who are saying you know he’s been talking uh not clear what he will do but you know leave NATO um you know Germany I don’t know France is different but Germany depends completely on the Americans militarily because our fighter jets have the nuclear

Option nuclear we say in German you know we we have our F this is why we fought with France about the Euro Fighter versus buying the American fighter jet because the Americans give us the nuclear bombs we put them underneath the fighter jets and it has to be licensed

By the Americans and Americans want us to buy the F-16 or the F32 or whatever the next one was right and France was very upset because why don’t you wait until we have the next Euro Fighter develop this fcas project which is taking forever because we have

Interest France wants to use its own industry and we want to use our industry but we depend the upshut of this you know I mean this is little bitup of this difficulty we have to agree on something basically means we’re completely dependent on the Americans and if the

Americans don’t give Germany any nuclear Shield anymore um I mean you can talk to some foreign policy experts and you think about Putin and all of that we are in trouble um so one possibility is of course that we slip under the French uh but we are totally and with Donald Trump

Decides uh to do something like that um we better be ready and I think working more on defense is a big issue this is if you think about the lessons of the stupidity which we did which is not knowing that Putin was going to start this

War uh if the lesson from that is that you need to think about what are the big future risks that is one of them but then it’s not enough to just know the future risks everybody knows the future risks I mean you just read a lot of

Smart people who tell you this you need to then politically act on them and um and that is not easy so we would actually have to do much more together on the defense side if we want to hedge against that kind of risk and I’m sure they’re talking about

It but are they doing it but I mean to to some extent it sounds like a classical coordination problem we also like industrial policy we want to you know we ideally I guess we want to if we want to do it we want to do it on European level to in the

Defense we want to capture the economies of scale that are there that the Americans get and we don’t now it’s 27 countries buying two more tanks each I don’t know that gives us much in terms of defense capability anyways but that’s a big question so um um it’s late I know

You’ve had a long day of great talks but I’m going to open it up if there are any questions over here if we can get a microphone be please Jean and let’s yeah let’s uh challenge our and and have questions for our panel please thank you thank you for a very nice discussion

Introduction so I I I come from from Brazil and you know I think honestly you guys should be a bit more cheerful about about Europe can you speak little up a little bit more I I come from Brazil cheer and honestly I think you guys should be more cheerful about Europe I

Mean we got B and got rid of it so things move now H there is of course in the glob of South and Brazil is part now of the global South a bit of resentment against the west and Europe is considered as as part of uh of the West so in order to

Sort of maybe find an angle to differentiate is it possible that you know among the ways in which you could be more cheerful is precisely by sort of finding the right way in which Europe strategically could differentiate itself in the west Visa the global South now of

Course I’m not suggesting there is a war there is security reasons on this front it’s sort of a noo but uh think of let’s say two or two or three or let’s say two areas where this could be done Visa the global sou one would be you have a sort

Of huge network of uh public sector public development Banks including European development Banks ebrd theb I mean would it be Poss you have the financing common Alliance at the agance fres the develop now so is there possibility that uh in the differentiation one way one Avenue would

Be to explore more European financing to the global South in terms of let’s say the type of invest infrastructure green financing that uh uh Europe could provide and of course financing the mitigation and adaptation strategy of the sou this would be a way to differentiate uh Europe Visa V the um uh

The West the Second Avenue could be for example climate I mean Europe has very strong uh institutions there and willingness and plans and the well functioning uh t s carbon Market let’s say helping this the global South in these areas perhaps maybe I don’t know creating a European climate agency I

Think we are all missing a coordinating agency in this area and that could be a way in which Europe could differentiate itself from uh the west and perhaps sort of creating sort of a new type of dialogue with the global South and that I’m sure have the same time International relationships a

Bit more coordination it would of course help the global South but it would also help I think Europeans to find the sort of meaningful ways in which it can reconstruct its uh sort of fearful Spirit of of the beginning of all this great I think I think we got the

Question so what was what is where can Europe differentiate herself and what maybe also like what role between the two superpowers should we how much how much room for maneuver do we have maybe um you want to start and then I mean just quick reaction but that’s exactly the

The spirit a bit of the summit that President mcon kind of organized last June uh to try precisely to be a leader in terms of um of uh helping uh the global South meets its climate goal and not have to choose between fighting poverty and preserving the planet and

Trying to help with the financing and the way but the way it was kind of viewed is not so much creating like European funding or agency or whatever but more uh pushing in favor of reforming the the governance of the of the institutional of the World Bank and

All these uh all the the International Financial architecture in order to uh make the the global so the voice of the global South uh more heard so I think clearly Europe is is is um is is but not so much in kind of differentiating and

Acting on its own but more kind of being the leader in that direction yeah and maybe being a bit more understanding uh and it’s um I very much agree with Alexandra on the finance uh add to that oceans which is another topic that France is also championing uh

Where there are a lot of countries in the South that care about protecting Marine um spaces uh that uh they see as important for their future add to that medicines uh if you look at where there is additional production capacity now uh in in particular in Africa has been

Through Investments that uh Europe has been spare heading both in terms of knowhow uh R&D but also um uh investment so I mean I think um we have climate Finance oceans medicines and a little bit of trade uh in the mix too let’s not forget that I think it makes for a

Powerful um mix now is not uh there here too Europe has to be careful how it does it let me give you an example of uh something that Europe has not done well Europe cares about protecting the forests so do many countries in the South Europe has produced a a regulation uh on

Deforestation uh that is very very problematic uh for many countries in the South because it obliges them it’s a one- siiz fit all uh that uh is has been conceived in Brussels for application in uh uh countries that do not have the means so I think we in Europe need to be

Much more sensitive today to using the space that we have to build alliances with other countries as being part of the resilience building and being intelligent about how we do it okay um I think one point marur might actually help you know passing that trade deal this is something which we

Negotiated in 18 finished negotiating in 18 it’s not happening so it’s a well might be a good start um be please and then John and Frances so I think I agree with Lis that there could be a bit more cheerfulness on this panel um because after all

Europe hasn’t done so badly right I mean after all the risks that you mentioned um initially and those were risks maybe at some stage they have materialized into large uh symmetric and sometimes also asymmetric shocks and and yet we are here uh in 2023 and can look back on

Those and say well they weren’t so badly managed after all and Europe did not fall apart with the brexit and neither did it fall apart with the Euro and yet and maybe this is mostly to you L Henrik I mean over the last 10 years since I

Was in the in the de Zing my impression is that nevertheless front lines have hardened Germany has become smaller rather than larger it is sinking less of Europe its fiscal position is totally dug in and you know 10 years ago there was a fear that the German

Taxpayer would have to pay for it all now 10 years later it didn’t have to right is it because Germany is so I mean what is happening why is Germany not becoming more European yeah I don’t why is Germany not become more European I don’t know um um but I think you’re

Making a very good point I mean Europe is has done incredibly well we’ve done very well in the past the quality of life in Europe is very high um so so it’s it’s it’s a great the greatest continent in in the world um at least

That’s what we think I’m sure if you ask others um but I I would agree with that it’s very resilient um it’s remarkable okay CPR you know it’s just incredible um my point is only and I’m positive and I’m a good European and I like Europe also like France also like Germany is

That I think if you want to do an analysis looking forward I think um the world is changing a little bit and the challenges which are coming to Europe I think are are I mean there’s some opportunities I would agree with the global South but the challenges are

There uh you know and I I do think that it’s uh it’s it’s important that we know this and that we take the right decisions uh in Europe um and then if we do that I think my my my hopefully my main point is we do these DEC people

Vote right in the end it’s a lot is about who gets I mean one or to great um Poland um you look at the decision which we just took on on Hungary we just decided apparently at least the commission yesterday to give Orban the 10 billion which they’ve been

Withholding from the funds because of rule of law concerns because they’re worried about he also met with President M by the way probably also Schultz because on Thursday and Friday we have a very important Summit in Brussels where they will decide on the help for Ukraine

And Orban has been has been uh blocking that um he one got reelected so he’s very confident so but then we have Poland which is great we have the Netherlands we have something there so I think if you look at all of if the people vote right and if the politicians

Do a good job so that the people feel comfortable with the right kind of people then I I think we’ve got a bright future but it’s not going to be easier in the future for Europe um and that’s why I I thought I was supposed to say

Something like uh what are the CH moving forward for Europe I think the good news is it’s all in our hands because we’ve we’ve got all the all the things we can do and I think we need to just do the right thing and so Jean are we doing the right

Thing it’s going back to the fiscal side or do we have the resources to do the right thing I I was um louder please yeah yeah I I’m a bit um you know concerned when I hear that the single Market is a strength and I look at the numbers and I

Find that the crossing of national border divides the intensity of trade by a factor of five which is exactly the same factor controlling for economic weight and distance uh and that’s exactly the same factor as the one we find between the US and Canada and that after so many um

Attempts and the the banking Union Capital markets Union we mentioned I could also mention energy you know the uh the intensity of uh exposure to to to Sun and to wind varies enormously across Europe from factor it’s one to three for for Sun and despite that there are more

Solar panels in Germany than in Italy I mean it’s it’s the cost of of of of this are is just gigantic so so we’re not getting our acts together that’s perhaps my first my first comment um my second is uh are we able to Define our interest our the US would

Say our national interest and I’m afraid um we are facing difficulties defining our our common interest um and that’s critical in this kind of situation I mean we we we’ve got to to be clear about what are the priorities and what we to to give for for advancing our priorities

So how do we Define our stands with China is it the same as the US China the way the US sees its interest today is China I I doubt it is but are we are we able to to Define in the precise way the the C that

Is China so those those those are my my question I just want to add one point and that’s a minor point to to lendri when you said you were part of this WTO you were chairing this WTO working group on vaccines vaccines yeah why why is it that we were not able

To pay for the whole vaccines for the South why was a G7 unable to can tell you it would have been a fantastic investment both in economic and geopolitical terms why is it that this opportunity was missed so basically so just to answer his question the so that

Was a situation where we didn’t have enough vaccines they were not they were you know the production plans we had biontech and monana bch in Germany we had 1 billion doses I don’t know per month or something if I get this wrong so it was just enough to vaccinate the

Germans and then actually Brussels got very upset with the Germans which our health Minister Yen Shan who’s actually still a prominent politician in Germany he’s very good um uh that that we don’t say that publicly but basically I mean the Chancellor was writing her book maybe it’s in the book

Now basically said I don’t want this to be a German procurement we need to do this European and there was a lot of resistance inside Germany because obviously we could have easily vaccinated so so nationalistic and of course we had the same thing at the European level we had a task force at

The European level it was in Brussels uh fine you know is very much involved in getting vaccines which is now problem for her I think maybe not a big one um so they got a European task force with the goal to get the Europe vaccinated all of that a year later was

No problem anymore but the question was you know this is um what are we talking about end of 21 21 and then at the G20 meeting uh we decided to create a international Task Force at the WTO which was shared by Germany and South South um South Africa the reason it was

South Africa because ramapa together with Mori they came forward with a proposal which was very difficult for us that these um these called the waiver the intellectual property rights WTO issue we should wave them so basically that these drugs these vaccines could be produced by anybody now my company said

They can’t any anyways because you need quality control blah blah blah and we were very much against waving intellectual property in such an emergency situation and then we got killed internationally particular the Chan because was very vocal on that issue I still don’t know why because as

A as you know there’s a intellectual property you can have different views um so then we created this task force and in the task force we were thinking at the G20 level how can we create create more fairness because the world was totally divided and the British you know

They they got all their vaccines for themselves the Americans did not export anything in fact they passed the law which allowed which forbid their companies to export vaccines Europeans actually did export quite a bit so it was a complete nationalistic response by the world in a in a very catastrophic

Situation and then I was thinking you know what what can you do to improve this and obviously you cannot expect from a democratic government to not first think about their own people maybe you can but it’s asking a lot from a politician under that kind of pressure

So you need to think ex an before the next Crisis come what can you do to prevent this nationalistic behavior from happening again and this is why we talked about localized Productions so we started building some plants in in in Africa because like a credit the bill is

Makes it credible that you actually um produce in those countries so um so it was it was a was a disaster I think it turned out to be you know that 3% vaccination rates in Africa well we were at 60 70% in Europe and the Africans were

Saying help us you know and people dying anyways it’s a different issue so having been uh on the uh having to uh complain about about Yen no about Jens and span wanting to do a uh a deal between three European member states to vaccinate their citizens uh as opposed

To 27 EU member states I can tell you that it wasn’t nice but to your question uh Jean on the single Market the single Market is a huge resilience source for the EU because it has different production capacities different investment profiles different scales profiles and in a one political

Community that’s the source of resilience but this resilience is below the potential of the single market now it’s not just Capital markets take Services take recognition of diplomas if we are thinking of a skill labor you need to have the mobility of this skill labor with their diplomas so there is a

Huge busting exercise to be done with this single Market because at the end of the day for all Europe’s Ambitions to be a geopolitical actor the EU will not be a geopolitical actor if it is not a geoeconomic actor so my advice to the next commission should be as start by building

Investing deepening your firing capacity on the geoeconomic side and that will give you more credibility geopolitically than pretending that uh you can uh build huge capacity in the short term on the military side which we know will take time uh second to your question about uh definition of common

Interests um it’s easier to Define what your common interests are when you find a common enemy um and there’s going to be a good chance next year that we find ourselves with a bunch of common enemies enemies please enemies uh that in my view can give us a

Bit more political ammunition to uh move forward because to beatric point yes we’ve been mled through we’ve been madling through but there is a cost moving forward in continuing to maddle through when the rest of the world is doing a step change that is what we need

To understand and we need to share with the public now finally um we do have an issue of not having a policy on China saying that we do risk instead of decouple is not a policy that’s a political statement we don’t have a policy Visa China and I just received on my WhatsApp

Uh the late the latest salbo from the US about a policy on China and it’s called and I quote a strategy to win America economic competition with the Chinese Communist party so here at least there is a view in Europe we still have to build it Fresco one specific issue on EUR versus

Us even you need to be very close I’m sorry sorry yeah it’s like basic swallow it specifically issue on Europe versus us even before enemies appear on the horizon we have a very specific uh industrial policy issue which is how to respond to the American subsidies now we

Need to do it because there are a number of European firm that are deciding to relocate their plants to the US to get Biden subsidies this first they relocate plant and the next thing they do they move to the US so in my view the obvious

Way to do it is to SC trp or reduce the um limits to State subsidies because uh with limit to State Subs you cannot do that and then the issue is how you do it in a situation where different countries have different fiscal space and it the

Conclusion of this view is that it is obvious that you scrap State subsidies and you do something like next Generation you you use European money to subsidize firms that the commission decides are worth subsidizing I think we’re still very far from there and before we agree we’ve lost a number of

European firms even before Trump comes so so maybe we was your question related also to the IRA and how Europe should respond or different because then I would say like maybe have a last round on there’s a challenge of friends doing policies that might not um be what we

Think how should Europe respond you want to start aland no but I I I totally agree with you I mean that’s kind of what we have been uh pushing for in respon respon to the IRA and there was still this uh uh industrial act last

February so I mean it is a the problem is indeed if you remove a state a limit is basically all to France and Germany so and mostly and mostly Germany so that’s a that’s you need you need the mechanism to to preserve from the fragmentation and that’s uh that’s not

As easy to to to get and to agree on that’s where I kind of you know that goes back to me a little bit to my initial point about the fact that at the end of the day I I feel like what we have not yet fully managed is to find a

Slightly uh less painful way to overcome our diverging National interest because you know what you’re saying is that it would be welfare improving and then it’s just like you were distribute but this is Economist the way we we we think about it and I fully agree but then it

Seems to me that in practice in the negotiation is always much much harder to to to push that logic yeah my my view on that is is a different one I don’t think we should start the subsidy war with the United States um and I’m not sure if it’s so

Much in the interest of the United States this inflation reduction act which is a lot of money it’s also flexible so it could go up even higher whether subsidies are the way to create competitive advantage or comparative advantage something you can debate um so I’m I think there are other policy

Instruments which would work better for Europe um and not starting to subsidize uh people to stay here if they really don’t want to stay here or to counter set that one um so I’m more on that line even though one should not be naive I

Think we should not be of course we are subsidizing like crazy uh if you look at the amounts of money we have on climate in the Next Generation I don’t actually it’s compare comparable to the us so I don’t think we are less Subs I think we’re subsidizing actually too much in

Europe I’m a big fan of the state aid rules they’ve been softened and softened and softened I think that’s the wrong policy instrument this relates back to the fiscal discussion also I think they better ways less regulation more integration more CO2 pricing with the social redistribution to to people um

Creating Innovation I think those are so it’s not a subsidy um and um you know and therefore I think that uh and and and the other issue I completely agree that Germany is the biggest subsidizes of all of them because we have the fiscal we are the biggest economy and I

I don’t think that is even good for Germany so I would not be in favor of that so tough state aid rules I think this is a comparative advantage for Europe not a disadvantage so on my side uh I would say it’s not all gold That Glitters

That’s what the British say so let’s look at how much the EU commission has approved in state AIDS 700 billion in state AIDS approved that’s is more than the IRA so where is the upside of the IRA easy to use Easy to sell where are the weaknesses first political fragility you

Already hear noise of what a a may be sucessor to President Biden could do with this and the other fragility in my view is that does not have it has not built the backward and the forward linkages that the subsidy to manufacturing requires including on a

Skilles building what you hear a lot of businesses in the US tell you today is that that’s is a huge gap that they have in being in being capable of using uh the mechanism I think I forgot that point but this is very important the way you

Do the subsidy is just a simple tax break in the United States whereas well that’s this endless negotiation with the European commission who tried to interfere into what France would want to do I think that’s that was one of I think that’s the main difference so if I

Would not do more subsidies I would do better subsidies good I think uh this was a fascinating panel we all have a boat to catch uh uh beay and team are taking us on a little cruise up the river the buses leave at seven but I

Mean from so should we continue the same place and um I mean we we it’s I was instructed to close on time but if we if you want another round of question we can go through that no no no I just want to correct my earlier statement they

Leave at 7 and from uh the same place as yesterday for those of you who were yesterday uh right on the corner of uh of sanom and s De pre so there is a bus going to be there correct wonderful so then let’s give a hand to our fantastic panel

Thanks a lot I learned a [Applause] Lot