Hello and welcome to The Sound of Economics, the podcast from Bruegel, the Brussels-based economic think tank.Today is a very special live edition.
We are coming to you from the US, from Berlin, from Brussels, to talk in real time about what just happened in the United States.There was an election, you may have heard, Former President Donald Trump has been re-elected.
And now we turn to the policy matters of what this will mean for Europe.I'm your host, Rebecca Christie.I'm a senior fellow here at Bruegel.I am joined by my fellow Brugalians, Heather Gravy, Gwentram Wolff, and Fiona Scott Morton.
I will remind all listeners that Bruegel does not have a house view, so we are all speaking for ourselves, not for the organization or for any other organizations that we might be affiliated with.
With that out of the way, let's get into the conversation.By the way, we also have live Q&A at Slido.The hashtag is elections24.Fiona, you're in the U.S.What's it like?What do you think?
Well, I think your reaction depends on which side of the gulf that we have over here you're located on. I'm sure some people are ecstatic.
I would say that followers of this podcast likely want sensible economic policies, good relationships with Europe, less war and so forth, and are therefore pretty disappointed.
I'm both part of that group and a resident and native of the US and I am just appalled because what I have learned is that half my country affirmatively wants eight,
racism, deportations, misogyny, maternal and child mortality increases, tooth decay, more communicable disease, high inflation, huge deficits, corruption, and that's just the beginning.
So these are preferences of the electorate, at least as they've expressed themselves.And that's quite remarkable.
mean it raises other hypotheses like education and misinformation, which I think we'll find out more about over time as we study the problem.And then I think with just to quickly preview a few policy changes that I think will happen when
Republicans exercise their power in legislative branches.The first item will be tax cuts for the very wealthy.That's what Americans always do as the first thing when Republicans are in charge.
Perhaps not paid for, but if paid for, that would be with tariffs.I think that's what Trump has said many times.And that, of course, would cause the burden to fall on regular Americans and set off an inflationary jump.
Other things on the docket would be repeal of the Affordable Care Act, which would reduce health care for millions of people, a nationwide abortion ban, a big cutback on legal immigration, because that's easy to do, an attempt at deportations, rounding up people and deporting them,
maybe a crackdown at the border on illegal immigrants.I'm not sure about that because while it is a big talking point for Trump, he doesn't want to remove that big talking point.And it costs money.
And those people are cheap labor for many Republican businesses.So I'm not really sure he actually wants to get rid of illegal immigrants.
But blocking the entry of educated people who want to work in tech or science seems like a pretty attractive policy for the MAGA wing of the Republican Party.So this is a great opening for Europe.Innovation thrives in a free society.
So I say try to get those people.
Gunter, you are Bruegel's resident defense thinker these days.
What does this mean for the war that's happening in Ukraine, very close to Europe, and also for the role of NATO, which is based in Brussels but does have a very large, in its name, transatlantic component?
Well, look, I mean, we as Europeans, we have looked at this election and I think we are also quite amazed by the kind of choice that was taken.I think, Fiona, you put it very nicely.It's surprising what kind of policy program actually gets the vote.
And I think it's worthwhile for us to to think about what are the wider implications of that also for our European democracies.And I think there will be a lot to talk about in that space.
Now, specifically on the security aspects, I mean, the situation is such that the United States is and has been the security guarantor of the European continent for decades, for decades.
Europe has delivered a lot itself and contributed a lot itself, but the truth be told is that in the last 20 or 30 years, we've done less than we should have done.
And that has been, I mean, there's a start of a correction in the last few years, but the truth is we are not there and we are not fully capable to take care of our own security ourselves, right?And so the question is, what will the next U.S.
president exactly want to do?That we don't know.He has announced that he wants to end the war in Ukraine in 24 hours.Whether that is, you know, at all feasible, I highly doubt it.But in any case, he might support Ukraine less than the current U.S.
administration, which would be a significant burden on both the EU defense industry as well as directly on European armies, because we would have to deliver from our own stocks to support Ukraine further.
And perhaps last but not least, we need to think very carefully about how to increase our own defensive capabilities in a rather short period of time.I think the key as always in these things is the budget and the political will behind it.
we will need to do some of it, at least at the European level.And I think the interesting conversation to be had is, how do we bring together the security bubble and the European-EU bubble?
Because the security bubble essentially has always said, look, ultimately, it's the US.They are the grantor, and we can rely on them.And I think that belief is gone now or should be gone ideally.
And so the question is, what can the security people do together with the European institutions and the European Union?How much can we advance our security that way?
Heather, what about climate?Donald Trump is a lot less supportive of efforts to reduce the impact of global warming than other politicians we saw during his first-term rollbacks and a lot of international commitments from the U.S.
What are you expecting this time around?
Well, the outlook for international cooperation is pretty grim with COP 29 starting on Monday and potentially the US having withdrawn from the Paris Agreement already by then.That was a campaign promise that Trump made.
There's apparently, there are reports of a draft executive order to take the US out of the UN Convention on Climate Change altogether as well.And of course, he's made all kinds of commitments during the campaign
or said things certainly during the campaign about stopping offshore wind and also withholding funds not deployed under the Inflation Reduction Act.So we need to see how that plays out.
But in terms of the US's own transition, I think it's quite likely that renewable energy will continue to grow in the US because it's profitable.
And although the US has the same constraints as everywhere else about grids and interconnectors and so on, investments have been made, electricity is being generated, it's cheaper, and so that can continue.
But the chilling effect that this has on global climate efforts could be really considerable.It really empowers people in other countries, including in Europe, who say, Oh, we've gone too far with green.Look, the US isn't doing it.
They're a major emitter and, of course, an oil and gas producer. we shouldn't be increasing our efforts just at a moment when actually all of the, you know, we've probably crossed 1.5 degrees, the Paris target already.
And we're just at the moment when we're seeing devastating impact of hurricanes in the US, ironically, as well as floods and other problems in Europe.So the EU really is going to have to step up with global leadership.
and forge much stronger alliances with others who still care about climate.And most countries now do, including China.And I think an interesting question is, what could the EU do to forge closer ties with China on climate leadership?
As well as, of course, all of the other countries that are still pretty committed and which want to continue also using the UN framework. But as on defense, as Guntrum was saying, the question is, what can Europe do to step up?
What alliances can it make?Can this galvanize action that has previously been impossible?Or will we fall back into divisions and arguments in the EU about how to go forward, both on party lines and also between countries?
It's the leadership impact of Trump that is really the biggest question.Will this mean Europe gets its act together? on some things that has happened.
Under the first Trump administration, for example, countries really did increase their defense spending.Two thirds of the NATO allies are now at 2% of GDP.In terms of defense spending, that's likely to go up.
Strategic autonomy in both military and economic terms is a big thing.Economic security is a big thing.Trump will drive that further.But how easy is that going to be if the international system, not only for climate but also for trade, is
feeling the gap of the US withdrawing, even becoming quite belligerent on things like international trade, all of the question about what will Trump's tariff war lead to.
These are questions where the EU is going to have to be united and come up with a common strategy really quickly.And this is just at a moment when governments in Paris and Berlin are weak and when a new term is starting.
So it's a big challenge politically.
Is there anything that the world can do at this COP, the last one where Joe Biden's administration will be representing the US, to prepare for these inevitable changes?
The nationally determined contributions that countries are putting forward will be really important.And I think also just reminders about the climate science, that we're starting to feel really devastating impacts of climate change already.
and highlighting that, that this isn't just a one country or one region, but it's globally, everybody is gonna be facing more and more climate impacts and the huge damage to their economies that are coming from that and that would come from more inaction.
That I think is the most important thing.And to get countries to pledge that they will continue the course themselves because they can see the impact it's having on their countries as well as on the global climate.
Diana, we've already got a question for you asking how you think the CEOs at top companies, many of them in the U.S., will be briefed on the coming changes.Any predictions or analysis there?
Yeah, I think that one is pretty easy to predict.I think probably most CEOs have already been back channeling to the Trump administration and saying friendly things and trying to hedge their bets.
We had this interesting problem of asymmetry in the rule of law, where CEOs knew that if they sucked up to Trump, that that would help them a lot. if he were elected, whereas the Harris administration would use the rule of law.
And so saying nice things to Harris wasn't going to change how you got treated one way or the other.So I think many corporations have planned ahead.
I would say on competition enforcement, we should expect to see less following of the rule of law for two reasons.One is the usual traditional Republican preference for corporate profits over consumer surplus.
But now we have an additional reason that whoever influences Trump is going to determine policy rather than just the application of the law.So for example,
in any given case, one would want to check if either a corporation that was a defendant or one that was benefiting from the enforcement action is a company run by one of the bros on the Trump side or has a relationship with Musk or has a media property.
So for example, let's think about the FTC's monopolization case against Amazon. Amazon is run by Jeff Bezos.Jeff Bezos competes against Elon Musk in rockets.
So I imagine that that case will continue to go forward because Musk will want Bezos to have to face that pressure.
Apple might be deemed a liberal corporation, and therefore the lawsuit against Apple might continue, or we may see Apple offering some kind of privacy change, like allowing the Trump administration to jailbreak handsets so that they can get their case dropped, that kind of thing.
I think initiatives like the FTC's ban on non-competes would likely be dropped because those just help workers in a general way, and the incoming administration would not be making that any kind of priority.
Indeed, the opposite, that would be interested in making workers earn less and corporate profits be higher. So I think that's the rough overview.I mean, likely corruption in that way and likely very targeted enforcement.
Benjamin, where do we see global markets headed?Starting this morning, we saw the dollar was up.Generally speaking, the prospects of a Trump victory have boosted American markets rather than hurting them.And yet there is talk that the U.S.
deficit will continue to grow.And some people speculate there could be sovereign debt issues going forward.You're no stranger to sovereign debt crises.What do you think?
Well, I mean, let me first just echo the point that Fiona made about sort of the Latino capitalism, let's call it like this, Latin American capitalism, where there's a lot of sort of connections between politics and big firms.
We saw today, this morning, that the Tesla shares rose by more than 12%. I mean, that shouldn't happen, right, in an election where the rule of law applies to these kind of firms, but it does.
And so markets really sort of anticipate that this will have a concrete impact on corporate profits of the firms that are on the right side of the spectrum, right?And so I think this is really ultimately extremely harmful for the U.S.
economy, for U.S.consumers, but even for U.S.productivity growth.We know that this kind of stuff ultimately is a bad thing for your own growth, right?
And so... I hate to interrupt, but the debate on national champions just couldn't fit better with your remarks.I mean, Europe is deciding whether to have national champions.
In the US, it looks like we're going to have national champions not picked on the basis of anything sensible, but just whether they're friends with the president, which is remarkable.I mean, what a productivity waste.
Exactly. Now, and then look on the broader question that you asked, Rebecca, on the macro side.I mean, I would say what we saw is a textbook-like appreciation of the US dollar.
That's exactly what markets should do when they expect US tariffs to go up. That means ultimately exports for US firms will get more difficult.
Imports, while you have more purchasing power thanks to the appreciated currency, basically you lose out because of the tariffs for which domestic consumers pay.
The Peterson Institute has calculated that this will be a significant burden, in particular on the small and the poor households.Now, the implications for Europe are such that
European traditional strengths, so firms that traditionally are strong corporates, industry players, corporate, I mean, industry manufacturing, that export a lot to the United States, will be negatively affected by the tariffs.
So Europe now exports, I think, more than 500 billion per year to the US. That's a really big number and it will be directly impacted on by the tariffs.And so the real economic policy question for Europe is, what do we do?
I mean, how do we replace some of that lost exports in a moment when China will face even higher tariffs and therefore will redirect some of its export surpluses to Europe and to the rest of the world.
So competition will just go up a lot for industrial goods and that's bad news for European firms.And I think my interpretation and my recommendation is that European firms need to
modernize and go towards a more domestic demand, reducing their reliance on exports ultimately.
We got a question, will Lena Kahn continue in her position?And given that she's holding an expired term for a change of administration, it seems pretty likely that the new administration will want to put in their own person.
So thank you, questioner, for asking that.
I'd like to come back to just the global economy and this trade-off between individual companies thinking of this as a profit-making opportunity, investors and not those companies thinking that also, and yet all of the things that we are expecting to change that go against what we think leads to growth and productivity.
Heather, do you have any thoughts on how to square that circle in our heads?
Well, there's a huge problem with policy becoming more and more unpredictable.Policy often changes after elections, but it's changing so dramatically between one American election and the next.
And that really inhibits investment, especially of the kind of long-term investments that you need, for example, for the energy transition and for infrastructure.
I mean, a lot of American infrastructure is really old and really rickety, not only for energy systems, but also airports and all kinds of other things. So these kinds of investments, both by the private and the public sector, get inhibited.
And that, of course, does have an impact on productivity over time because the capital stock gets eroded.There's also the question about longer term.What does this mean for American human capital?
if the education system is underfunded, also if there is some kind of sovereign debt crisis, if the US deficit and then debt level continue to rise under Trump.So all of those questions are very difficult.And also this key point that Fiona made,
that if corporations do well because of their personal links to the president and his family and the benefits that the president and his family gain from them, then that is not very good for the competitiveness long-term of American corporates.
But it's also not good for Europeans either, both because there are the exports that Gudrun was talking about and the pressure from China directing more of its exports towards us,
But it's also emboldens those leaders in Europe who would love to follow the Trump playbook, who want to erode the rule of law, who want the executive to have primacy over the courts, so to erode checks and balances and have all-powerful executives, and especially to tighten the nexus between politics and companies, politics and the private sector.
Now, the EU has been a big break on that because it's a community of law with really strong provisions to ensure the continuing implementation enforcement of EU law.
But of course, there comes a point where that whole system starts to break down if enough leaders are playing that game.And the problem is, we do see something of a contagion effect.
If it's one or two relatively small countries, it doesn't make a big difference.If it becomes the name of the game in more countries, then the EU as an entity its community of law starts to break down.
So I think we watch this with a great deal of trepidation.It's not just American democracy in terms of elections that's at stake, it's the rule of law as the underpinning of a sound economy.
Yeah, let me add on to that.I think we've had a few changes in the U.S.that have made this worse, and maybe Europe can avoid those changes.
So first, we have free speech in our constitution, and then the Supreme Court has interpreted that to be without limit.I mean, you can be a billionaire and use your billions to speak more than other people.
They also ruled that the executive, the president, is immune, basically, from liability for illegal acts while in office.So Trump can violate the law as much as he wants, and he will not be held accountable.
And that, I think, is quite an unusual feature of a country.And the last one that I think is important is that the Supreme Court recently ruled that gratuities for public officials are allowed. A gratuity is not a bribe.
Apparently, a bribe is when you pay the government official to get the thing you want in advance, and then you receive the policy you want.
If you receive the policy you want, and then you pay the public official, that's a gratuity, and that's not illegal.So this just opens the door to enormous amounts of corruption in the United States.
And I think if countries could avoid, could clamp down on misinformation online with their free speech rules,
make sure that the rule of law is followed, as Heather said, and basic ideas like corruption and paying bribes to officials, whether before or after, is not allowed.That would be a big help.
I think there's also a geopolitical dimension to this because of the strategic use of corruption that Russia has exercised both in the US and in Europe.We've seen a number of scandals around parties and individuals receiving bribes from Russia.
So how might that go forward? especially if it's linked to fossil fuel interests, something where we've seen Russia investing more in a fossil fuel industry, for example, in the Balkans and so on.
I think this issue of corruption, it's bad economics, it's not good for growth and for economies, but it really undermines countries as a whole.
I mean, perhaps I can say a word about the issue of Ukraine, because we got, I think, a number of questions on how we would see this situation.
We did, and you read my mind when I was going to ask you.
Yeah, exactly.So look, I mean, the situation, I think, is already bad enough, right?I mean, we know that Russia is stronger than it used to be in February 22 at the start of the invasion.It is claiming territory.It is advancing.
It now has North Korean soldiers on Russian soil fighting Ukrainian soldiers.And if in that situation the U.S.support for Ukraine should go down, that will have, of course, material effects on the Ukrainian capability to fend off Russia.
Now, is Europe capable of replacing the United States? I would say in part, yes, in parts, no.So I think we can, of course, in the short term, supply more weapons.
We do have some stocks of some weapons that are actually very effective, including cruise missiles, such as the German Taurus cruise missile.We don't want to do this at the moment for political reasons.
But if we had to, I mean, there are some stocks on which one can draw and one can supply.
Now, then what you need to do immediately is you need to ramp up the weapon industry, the weapon production, which is lagging behind actually also in the US, but also in Europe.And for that, you need long-term predictable funds.
So I think there we need a strong initiative on funding, ideally European funding.And I think we are talking here of not just 50 or 100 billion, we're talking of several hundred billions, if not half a trillion or more in the coming years.
So that's sort of a big European initiative. that I think would be extremely helpful to anchor Ukraine, but in the West and really support it.
Now, what we cannot do in the short term, and let's be honest about this, is replace the US in terms of their strategic, political, and I would say even intelligence leadership that it provides to the European continent.
I mean, how will we organize our support for Ukraine.
If we don't have a leader that tells us, well, they need this weapon, this weapon, and now they need this funding, and make sure that you watch this specific threat, this is going to be the real challenge.
It's a really, I would say, first and foremost, it's a political challenge.And given the difficulties, I'm just in Berlin at the moment, the political difficulties in some of the major capitals,
Of course, it's a big question mark whether we can step up.I surely do think we need to.I hope we will.But it's going to be really, really difficult.
So what about the UK?The UK is no longer a part of the EU.
The special relationship that we used to talk about between the UK and the US has already been changing and seems likely to change further given the isolationist nature of all of these trends.Heather, what do you think?
Well, this certainly is focusing minds on what the UK and other European countries have in common.I mean, that already was the case with the Russian invasion of Ukraine, where on security and defence, the UK is very much
with the European allies of NATO and would want to continue supporting Ukraine, regardless of what the US does.
I don't see any likelihood of the UK changing position on that, because the security implications for Britain, as well as for the rest of Europe of Russia taking over in Ukraine would be absolutely enormous.
The question is, in what fora and what kind of shape the cooperation might take.There's already been some talk about having some kind of security agreement between the UK and the EU.
I think there are many opportunities for aligning on procurement and on some of the strategic questions about how to equip Europeans as well as equipping Ukraine, because it's about ensuring
the continued support to Ukraine in terms of weapons, but also restocking among the other NATO allies in Europe.
And that's where I think, as Guntram said, the opportunities for both having a cost-effective way of doing defence procurement, that will continue.But what will be really tricky is on the trade side.
because Trump is very transactional in his approach to trade and he likes to use tariffs as a negotiating gambit and to try and peel off one country by offering a special deal.It's possible he may try and link tariffs with security.
that he may try and do some kind of trade security deal saying, OK, I'll protect you from my tariffs or you'll get fewer tariffs if you come with me on one issue or another.
Or I will do a security deal just with you, but not with the rest of NATO if you come with me on a trade war, for example.So that's where it's going to get very sticky, especially for the UK not being part of the EU now.
because of course the EU has a common trade policy, it would be harder for Trump to peel off European countries, EU members rather, but it's easier on the UK.
And that's where I think the Stalmer government is really going to be difficult because of its exposure to international trade and the need to maintain, they want the multilateral trade regime as much as the EU does because it really benefits them and they want to do trade deals
with other countries.And so they don't want to join Trump in a trade war, but neither can they afford to be shut out of the US market.
But let's remember that this is a man who doesn't pay his bills, who doesn't follow up on his promises, who double crosses his supposed partners at all times.
I think the idea that you would make one of these difficult trade-offs, Heather, and think that that was actually gonna work for you would be the height of naivete.
I mean, I think the only thing to do for the UK is to stick to Europe, to use this emergency, as a reason to change policy a bit more, embrace Europe.I mean, we have, Guntram talked earlier about intelligence, the five eyes.
If Trump is busy on the phone with Putin, I don't know that the five eyes, the other four want to share with the US, but the UK is part of that.
And maybe there needs to be the four eyes plus the Netherlands or something and just make a new security framework because the US really can't be trusted.
I think you're right, Fiona, that this could really reshape things and it will certainly force the Europeans to work together much more closely and to overcome some of the blockages that we've seen in European decision-making on everything from support to Ukraine to getting off the Russian gas, for sure.
But everybody has to work with Trump, one way or another. I mean, I thought Zelensky's tweet was really interesting.
He and Mark Ritter and others have very much stressed peace through strength, Trump's slogan, as a means of trying to get through to the guy and get him on side for supporting Ukraine.And so he's unpredictable.
But I think everybody will try, at least in the first instance, to find some way of working with him.You're right, he doesn't keep his promises, he's not reliable, but they will try.
But I think that the Zelensky approach is the clever one, which is you frame the debate, you offer the choices.If you're going into a bargain with him that I'll give you some x in return for some y, where y is trade,
I just think that country's going to get double-crossed.
And so entering that kind of negotiation on his terms would be not the most clever and strategic approach, as opposed to thinking about it, reframing the problem, and pitching something that you're in charge of, not Trump.
So Europe has long supported all kinds of multilateral institutions, not just NATO, but also the World Trade Organization.Prospects for that look pretty gloomy.
Gundrum, do you think there's anything that Europe and like-minded countries can do to keep the WTO on life support or to keep the trade order somehow sort of doing something?
Well, I mean, I wish I would say yes, but I'm not so sure what exactly can be done.I mean, I think at the end of the day,
Europe will have to maintain a good trading relationship with the so-called Global South and also, of course, work with China in the international fora.
And on the WTO, Europe has been actually working quite well with China, where China at least formally respects the rule. rules, while the US has been actually pulling out of the WTO.
So at some level, it's actually easier to work with China in this situation.But of course, the problem being that China in itself poses a number of very, very big challenges even in the narrow field of trade policy and industrial policy.
So I think we are a little bit stuck here between, on the one hand, China and with its pretty strong state interventionism, and now the U.S.that will have a crazy trade policy that will go to the detriment of the U.S.
economy, but also to the detriment of international trade. And so in the end, it's the European Union that will want to trade with third countries, but they will face major competition.
So I think it's really a very tricky area where at the end of the day, I think my first recommendation now to the European Commission would be, I mean, let's work on something for the domestic market, right?
I mean, it's the single market that we have to boost.It's domestic demand that we have to boost.It's there and perhaps of a direct neighborhood where we can shape things.
That's where I would put a lot of sort of capital at the moment in, political capital.
I would like to second that, Gundrum.I think that's what the Draghi report says to do.It's what the letter report says to do.It's obviously the right thing to do, but it's politically difficult.
And perhaps, as somebody wisely said, I forget who it was, never let a good crisis go to waste.This is a crisis.And maybe that provides the impetus to actually do some of these more difficult things and make the internal growth be the replacement.
So we got a question asking, is this really about the economy or is this a reaction to things such as wokeism?
That I think is worth looking at straight on because first, does anyone out there think that the Biden administration is an especially liberal administration given its pursuit of tariffs? of deportation, of its position towards the Middle East.
It is not an especially left-leaning government.It is not a place where a lot of progressives feel seen and heard.On top of that, you can ask, does reaction to wokeism mean reaction to seeing a non-white male candidate?
So another way is asking, is America that racist? And the answer is maybe.Maybe more than half of the voters who turned out just couldn't stomach the idea of a woman who is of Black and South Asian heritage becoming president.
That's not a reaction to wokeism.That's an active choice to be racist.And I think when we think about issues such as demographics and issues such as choices, we need to look at it head on and not
sort of fall into these passive phrases of, well, maybe someone somewhere feels like someone else somewhere is too liberal.I don't think that is a constructive way to look at these results.
So let me just point out that the two sides culturally in the United States are so far apart that as you, Rebecca, say, well, the Biden administration is not nice enough to people in Gaza and trans people and whatever.
But let's just point out, I think, that the Biden administration is trying to be a little more centrist than that left-wing position.What does that do?
It makes all those left-wing people upset because the Biden administration is not on top of them, but it brings them a little closer to the center where you've got some Republican women in the suburbs who aren't against this stuff particularly, but don't love it.
And so you're trying to peel them off of the right-wing white men all the time. position.
So somebody said, I read recently, that because the Trump position is so extreme on everything, that normal political discourse is happening inside the Democratic Party.And that, of course, means lots of heterogeneous views.
I'll say that a big thing that's really obvious now in the United States is the giant gender divide on these candidates.
And I think that comes from the fact that in the old days, if you stacked up people in terms of the social hierarchy, the men were on top and the women were on the bottom.
So if you were the lowest ranked man in your community, you were still at the 50th percentile of the social hierarchy.And that's not true anymore.Now you're at the bottom of the social hierarchy.And I think that there are many men
who feel that change, if you want to call that woke, I wouldn't personally, I would just say it's a long run change in society.And those people are angry because they perceive a relative decline over their lifetime.
And young people are not supportive of Trump, but people my age, 50s and 60s, these are people who have lost relative position in society.So I think that's a lot of what's going on.And then you have misinformation on top of it.
If you watch Fox News, you would think that the economy is terrible.You would think that inflation was rampant and the debt was enormous and lots of people are unemployed and there's all kinds of problems with groceries and so on.
The economic voting of people, I think, is a big part of voting, but that's driven by their perceptions of the overall situation, not their own household.
I mean, could I just add one point on sort of trying to explain the vote?I mean, I think some of the reporting that we are seeing is that economics did matter, actually, and a lot of
people, let's say, outside of the coastal areas did see that their real wages actually fall, right?I mean, so, and it's something, yes, inflation is under control, but at the end of the day, what you look at as a consumer is not inflation.
I mean, you look at the price level, right?And the price level doesn't come down, right?I mean, it stays up there.And if your wages don't catch up, I mean, that's really a cause of anger.And I can certainly testify
that this is a major discussion also in the country where I'm right now, in Germany, where, you know, of course, the 10% inflation that we've had, of course, it leaves a lot of people that, you know, live on a narrow wage angry because their wage hasn't caught up.
And I think that's something we certainly have to look in more detail, but I think the first evidence suggests that actually economics has been quite important in this vote also.
I disagree with that to a certain extent.
I see your point, Gautam, about real wages and also the kind of bizarre fact that Americans, like a number of people in some other democracies, attribute the inflation rate to the president, and he doesn't control that.
And you see that effect on governments becoming unpopular, even if independent central banks raise rates, and if inflation is higher as well, if rate rises don't work.They also look at things like the price of petrol and blame that on the president.
So there are certain attributions, but I think Trump has also fundamentally changed what politics is about in America.
I think he, like many other populists, I mean this is the populist playbook that he has now perfected and which many others are copying and they learn from one another, but the populist radical right playbook is to move elections from being about economic policy choices, which are costed and debated and discussed in detail,
onto a completely different ground of contestation, which is identity and culture.So in that respect, I think the whole kind of woke debate, I mean, that's just a really short hand for something that's a rather complex thing.
But the way that people are anxious about how fast their society is changing and their own relative position in it,
where, yes, there's a male-female thing, but there's also, this is a lot of what the migration debate is about, both in the US, but also in a lot of European countries, people seeing their societies changing rapidly around them and looking for who's to blame.
And you might blame women who, you know, are taking jobs that only men could have some time ago, achieving girls doing better than boys in education and people being worried about their sons, but also fears about migration, fears that migration is changing communities
and also providing competition in the labor market.Now, there are plenty of statistics, plenty of analysis that suggests that this is not actually harming the overall economy or the people who used to feel themselves to be on top in society.
and that in fact removing immigration and putting women down does not lead to economic benefits also for those groups.But this is about perception and Trump has absolutely thrived on changing people's perceptions.
He's told them, in one of his last rallies, his last big speeches before the vote, he was saying, are you better off than you were four years ago?
Well, many Americans are better off than they were four years ago, but he's managed to shift the perception.So this problem that economics plays into elections in a really different way from what it did, say, under Reagan, is a fundamental change.
And that's also the case in a lot of European countries.We see that also in France and Germany, for example.
He didn't shift the perceptions.Media, I mean, Fox News is, as far as we understand it from the economics literature, the main reason why perceptions have shifted.
But also, of course, Truth Social and all these other online... But he's made those claims that he's counting exactly in that direction.
It's a very specific kind of new media, and certainly the Republican Party has a history of making people feel beleaguered.You talked about Reagan, who was one of the original union busters.Let's bring it back to Europe now.
We've got some changes in European countries coming up as well.What does this mean?I'd be interested in your thoughts for the prospect of the German elections and the current German coalition, which is already struggling.
We've got a question about, does this help Marine Le Pen if she wants to make another run in the next French election cycle?
We have many elections going around and it's hard for Europe collectively to take a leadership stance in the world when the leadership here is changing so much.Günter, what do you see in Berlin?
Well, I mean, this morning, one of the leaders of the current opposition party, Jens Spahn, so CDU-CSU, said clearly that this is a moment where we actually need a new government, because the old government
isn't on speaking or the current government isn't on speaking terms with Donald Trump.
And so we need someone who is actually able to speak to Trump and to be a responsible leader defending Germany's interests and being on speaking terms with our main ally that is key for our security and economy.
I know that, of course, some in the current coalition think the same way, perhaps at least think the same way, including the liberals that at the moment are sort of in a pretty big fight over the future of this coalition government.
Now, whether in the end, this coalition will fall because of Trump and because of all the problems they've had anyway, or whether on the contrary, because of Trump, they will all pull together and say, okay, let's
let's sort of try to fix this in the next year.I mean, this is anybody's guess.I think nobody can really predict it.Perhaps not even the Chancellor himself can predict it, right?So I think that's where we are in Germany.
In France, I mean, on the broader prospect of a Le Pen victory, I mean, I think what
The main problem of Trump for the European continent is that he will actively support fringes or extremist voices or even now, I mean, Le Pen is not fringe anymore, right?I mean, so people that do want a different kind of union, he
does not believe in multilateralism, he does not believe in constructions like the European Union.
He believes ultimately, I guess, in the nation-state and he will support all those that are actually supportive of the nation-state, including Marine Le Pen.Steve Bannon, under Trump 1, actively visited and supported
right-wing parties throughout Europe.And so I think that this will continue, this kind of policy.And yes, it will have an impact on the future of the European Union, a future that will be shaped also by these kind of forces.
So yeah, I think it's pretty significant for the European political landscape.
And I think it will vastly increase the power of Hungary because the Hungarian government has strong links to the Republican Party.
And so I anticipate that would give Hungary soft power inside Europe because they would be the place that you could go to talk to Trump.
I'm not sure about that.I think it will certainly embolden Viktor Orban, but I think it could also increase the will among the other EU member states to prevent him from disrupting the EU on so many different things.
They've already started using new tactics like workarounds in the European Council, finding ways of doing things without him.
I think what it could lead to is to some institutional innovation in EU decision making, actually, in order to stop him from using Hungary's unilateral veto from stopping things going ahead.So that could be good.
But what I think it will do also is just to increase the amount of political campaigning based on, stop the world, I want to get off.
Of people being worried about their, about cultural issues and about the world changing so rapidly and Europe being in decline.I mean, we're demographically in decline already.Our relative share of world GDP is falling too.
And so people who seem to promise that you can return to, you know, Making Europe great again, as the slogan has gone under the Hungarian presidency, will do better because Trump will be pushing that narrative more and more.
But actually, I think in practical terms, lots of different leaders will find ways of talking to Trump and his administration.
We have a question about research, innovation and technology, and I think that's worth spending some time on.The U.S.has been a productivity leader in the world.
Many of the world's companies that are spending the most on research and innovation are based there.Europe has been wringing its hands talking about how to close this productivity gap.Now, of course, we have all these extra factors like tariffs, like
possible corruption, like questions about how the laws apply.Fiona, what do you what do you see coming in the shifts?
Well, as I alluded to before, I think it's bad for the U.S.and an opening for Europe in the sense that I see more money being allocated not on the basis of merit and good ideas.
I see more difficulty of talented scientists and innovators getting into the United States in the first place.As immigrants, I see more policy uncertainty.As Heather mentioned, I mean, you don't invest.
when you don't know what the payoff is going to be.So I think the ability of the US to continue to be this unquestioned leader in innovation is really under threat in this new kind of environment. So that makes me feel like there's an opportunity.
Those innovations need to happen.
If Europe can create the policy stability and fix capital markets so that capital can flow a little easier, and also immigration, the ability, if you have talent, to set up shop in Europe, I think this would be a great opportunity because many of these
high end talented people are not doing this strictly for money.They're partly they want other things like education and parks and a free society and easy, you know, clean air and stuff.
And there are other places that can offer that besides the United States.
Can I just add to this?I mean, I think the opportunity is there, but it's very unclear that at the moment, at least, we have the conditions to really seize on the opportunity, right?
I mean, it's the capital market that you mentioned, Fiona, which I think is absolutely central and where we continue to perform really badly despite talk to the contrary.
But then beyond the capital markets, there is a question of, do we have the regulatory framework?Do we get it right so that firms in the tech space actually want to locate here, right?I mean, if I look at
Data regulation, some of it might be too harsh at the moment for big AI firms, or the AI Act might also demand too much from startups to really set up a business here.
And the last point, I guess, which I think will be very important is the tax policy question.I mean, of course, if Trump slashes all the taxes and reduces massively taxes on these kind of firms, I mean, that's a big gain for the US.
And the question is, what is it that we want to do in that space?And so I feel it's, yes, I mean, I see the point.
In theory, there is an opportunity, but we will have to also focus our policies a bit more in the direction of pro-growth policies and a bit less defensive on some issues.But Fiona, you are a much more detailed expert on that than I am.
I mean, Europe has just finished with a revamp of its fiscal rules, which really control the environment for particularly government investment, but also a lot of the catalyst work that can start innovation and growth in some of these areas.
Guntram, do you think there's any way that this framework can be made to be more functional?We already see that Germany is having issues for it, and they were one of the toughest folks.
I would love to hear Fiona also on the tech regulation, to be honest, but I can just say one word on the fiscal framework.
I think the fiscal framework is extremely constraining at the national level and it will be extremely difficult to mobilize significant fiscal resources.I think a lot of the discussion we will have is about trade-offs, right?
I mean, do I spend the €1 in tax revenues, do I spend it on pensioners, or do I spend it on beefing up my R&D infrastructure?Or defence.
Or armaments.So yes, there will be a little bit more debt, hopefully at the European level for some things, but at the end of the day, a lot is about trade-offs.But I would love to hear Fiona on the tech regulation, to be honest.
Yeah, the tech regulation, I think, is a little more nuanced than you phrased it, Guntram.Europe is the only substantial jurisdiction with serious tech regulation.But the way I see it happening is it's not sufficiently
So, for example, let's just have call privacy a fundamental right, ban lots and lots of things, and don't at the same time set up a mechanism by which a business model that uses personal data that was a safe, non-exploitative business model could be allowed to work.
So, I don't want anyone taking my data about my religion or politics or sex life or whatever, let's leave that aside, and think about whether I went shoe shopping yesterday or it's lunchtime and I like a certain kind of food.
Am I willing to share that kind of data in exchange for some benefit?
So that instead of just giving the personal data to Google or Facebook and having them take it and turn it into profits, instead they compensate me for access to some personal data.
So what happens to generalize, a little bit of what these regulations look like to me is we're going to ban lots of stuff to protect consumers without thinking on top of it, how could we make a business model for firms
that was a halfway point, that is to say, banning the exploitative but allowing the productive.And if you don't do that second thing, you're leaving a lot of money on the table and you're also chasing away firms whose business model is advertising.
They want a way to do that safely.And my analogy here is to labor markets.People say, oh, data is a fundamental right.Well, your labor is also your fundamental right.And we allow people to sell their labor.But we have a lot of regulations.
We don't allow children to sell their labor.You can't be enslaved.There's overtime.There's health and safety.There's an awful lot of regulations around it.And we could do the same for personal data if we wanted those markets to work.
And right now, they just don't exist.
The productivity model is really helpful to me in thinking this through, so thank you for that.We've got four minutes left, so I'd like to do just a short round-robin.
Because we're Bruegel, we're gonna focus on the economy, so I'd like each of you to pick one economic thing you think Europe can do constructively to work with this in the next year.Heather, start with you.
Definitely savings and investment union and in order to mobilize the capital and also to complete the single market so that we have the leverage globally, not just with the US.This is our biggest strength.
And it's the thing that we still have that Trump can't take away from us.
Yeah, I think use the crisis to borrow at the European level and to knit back together with the UK in some substantive ways on defense and security and trade.
Gotcha.So I agree with those two.And let me just add perhaps the opportunity to attract some of the businesses, both in tech, but perhaps even more importantly, in the green space.
That was the best closing round I've ever done on this podcast.
And the workers that go along with those, I would add.
We've actually got three minutes left because this is a live podcast and we have a slot.So does anyone have a thought they would like to add or shall I put one of you on the spot to finish this out?
I think it would be useful just to consider where do we want to be in five years time? at the next American election?Could we be better prepared the next time around?Well, yeah, one thing is to get our act together on finances.
So to have an EU budget that's reformed to where it can really contribute to R&D and innovation and spend less on agricultural subsidies and make those greener.To have our own green transition really working
in a way that attracts business into the EU because we have really nice stable policies and good investments and that is itself attractive for foreign direct investment.
And that we actually have a working relationship with other countries that doesn't depend on the US
where our strategic autonomy in Europe is both about the alliances that we can build, which may be against Trump on some things, but it's also strategic autonomy because we've got both the fiscal wherewithal as well as the defence wherewithal to go it alone without the US.
That may mean some joint borrowing.It certainly means that we have to find better ways to work together and not allow divisions in the EU.
Thank you so much.We've got Heather Graby, Fiona Scott Morton, Gunter Wolff.I'm your host, Rebecca Christie.
You've been with us for a special episode of The Sound of Economics, the podcast from Bruegel, coming to you live from Brussels, Berlin, and the United States.Have a good day.
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