Debt, Demographics, and Diplomacy: Europe at the Crossroads

And to help us do that , we have two really wonderful guests Veronica de Romanis , who is a professor of economics European economics in Rome , and Fraser Myers , deputy editor of Spiked , joining us from London . Fraser , veronica , welcome to the show , thanks for having me .

? Veronica , you want to start ?

But when it comes to the European institutions , I think , as any crisis that we have seen in the past , this kind of uncertainty has a sort of a positive outcome it tends to strengthen the 27 economies . So I think there will be a strong response and a response that will be a unique response .

Many of people in his party were , you know , all of about 10 minutes ago , telling us that Trump was a fascist , that if he comes on a state visit they would chain themselves to . You know the railings to stop it from happening . And now they're rolling out the red carpet , you know , bringing a kind of sucking up to him a bit .

They think that they can , they think that they can be , you know , sort of sort of be the trump whisperers and and keep things to a minimum . But of course trump is unpredictable . So you know , on the one hand you have the british government briefing this week that they're going to deal with , do a deal with him , um on on a wide range of things .

On the other hand , he comes out with something like you know , there's going to be tariffs on on films mates out made outside of the us , even something like that . That's a big , big business . In the UK . The car industry is a massive business . America is one of our biggest exporters . That's being hit . Pharmaceuticals is a big industry for us .

That's being hit . But certainly on this side of the English Channel , yeah , the government and the political class . It doesn't seem to be in anyone's interest to stir up a lot of fuss to play the patriotism card against Trump .

Slightly different , I think , over in Europe , where they're much more willing to slap on reciprocal tariffs , to say that Europe can compete against America . We know that's not really true . Compete against America ? We know that's not really true . Even you know the Europeans would admit as much .

Mario Draghi wrote a pretty scathing report about the performance of European economy in comparison with America only towards the end of last year .

But it has sort of galvanized , you know , as Veronica was saying , it certainly sort of galvanized that feeling that Europe needs to have more autonomy , can't be too dependent on the US , or strategic autonomy , I guess , is the buzzword that keeps being used in European circles . But yeah , it needs to re-industrialize , which is obviously a big deal .

That's a big change on how politics has been discussed .

Are people going to be less likely to spend ? We would be worried about recession , which we are . Are people going to be less likely to spend ? Is that the same concern that dominates economic thinking in Europe ? Veronica ? We'll start with you .

, I would say . In the US , growth has been quite sustained . Over the past 25 years , the GDP growth rate has been around 2.5% on average , whereas in Europe it has been around 1.2 , 1.5 . But if we look at what has happened in the US went from 50 , 51 percent in 2001 until 121 nowadays . So it's more than what 70 percentage points In the same 25 years .

The euro area so it's an average . Obviously , debt to GDP ratio went from 68 to 86 . Obviously , debt to GDP ratio went from 68 to 86 . So it's true that the debt has played a major role . And why so ?

Because it's easy for the US government to sell its debt , because people want to invest in US dollar , so they are ready to buy US debt without asking a very high return in exchange . So it's a sort of a vicious circle . And so the problem in the US it's not trade deficit , but it's the high debt and the high fiscal deficit .

That's why tariffs it's not the right response . The right solution should be try to reduce excessive demand , not only the private one , but in particular the public one . So , in a few words , what should be done is a long-term program of spending review . What has been done in the UK , for example , during the Cameron government .

So in Europe we have the opposite situation where internal demand , domestic demand , should increase and in some countries also public demand should increase , and I have in mind Germany . Germany has run fiscal surplus until the COVID and nowadays yes , last year the GDP ratio was around 62 , 63 percent , which is quite low .

The average is 80 percent 82 percent within the European Union . So Germany needs to spend more , germans need to spend more , but the German government needs to spend more and it will spend more .

So this is a good news , which means that there's going to be more resources that might give a boost to the whole economic performance within the euro area , within the European Union .

I mean , that's their view . They're basically , I think it being a Labour left-wing government , they're slightly spooked by the fact that the last Labour government left with a very high amount of debt . A lot of people blame them for the broader economic problems that still persist to this day .

So there's a sort of positioning game going on there whether Britain is not a physically fiscally responsible country . I think Germany is the key player here .

Definitely the removal of the debt break marks a massive , massive shift from how German politics has been done for the past few decades , or certainly , you know , the debt break sort of became part of the constitution . Running these fiscal surpluses was seen as a sort of article of faith , something that every responsible German government must do .

But I think everyone there now agrees that their infrastructure is crumbling . Contrary to popular belief , german trains do not run on time and you know people are worried about the you know , the rearmament of Germany . But they were in a situation where , you know , essentially soldiers were being made to train with broomsticks .

So they're starting from a very low base on that front and also a lot of the sort of money that's earmarked for what is called military will actually be redirected to the car industry . Car industry has taken a hammering from net zero , a hammering from China . They want to repurpose a lot of car factories for armaments , for making tanks , things like that .

So a lot of the more military talk has a lot to do with reviving , uh , europe's economy .

we're now the world's biggest oil producer and we're going to be

producing more oil than we know what to do with . Probably .

It's just that the new government is convinced that without increasing government expenditure , the German economy will turn into a recession . So there is a need to invest more , but not only on defense .

Actually , the big portion of new investments will be on infrastructures , new hospitals , new schools , technology , tech sector , which is , you know , there's a huge gap in the German economy . So that , I think , is very important . They will invest not only on defense , but in infrastructure and in technology and in research .

So when it comes to your question , Joel , yeah , that's going to be hard . They try to do it , but the goal , the program of the second mandate of Ursula von der Leyen , the president of the European Commission , is to have a much more gradual approach , not as stringent as the one that they have following during the first mandate .

So she has understood , but not only Ursula von der Leyen all the commissioners are totally aware that being too strict , having a plan which is too stringent , it's not going to be a good idea also from a political point of view .

That if we increase tariffs net-net , we're going to generate tremendous amounts of money coming into the United States from these tariffs . Where are the holes in that logic ?

So either you have a reduction on your debt or you have a reduction on your trade deficit . You can't have both . That's why tariff is not the right solution . That's why the solution should be to decrease domestic demand , private and public .

And motivation , you know I mean trump says anything and you know he'll lie and then they'll go on to another lie , um , so I don't take what he says very seriously . But what I think is driving this is the sense that the country has become much too dependent , particularly on china , for almost everything . I recall , um , during COVID , we couldn't get masks .

The United States of America , the most powerful country in the history of the world , can't make masks for medical purposes . And I had to call a friend who happens to live in Leeds , who had a cousin in Shenzhen who was making masks . So I became very popular because they sent me a big consignment of masks .

That , I think , is what's driving us as much as anything else , is this sense that we can't build submarines without Chinese parts . So the idea is to figure a way of re-industrializing the country . I mean , clearly , when it comes to cutting edge stuff , we almost always are ahead , but when that technology becomes commoditized we tend to lose control .

So , I think , does Europe have

a similar situation ? I mean , I assume that if you , let's say , go to EVs , you're going to end up to bend it on China .

But I completely understand Veronica's argument about this is , if you get past the strategic side and you look at not wanting to increase the cost of manufacturing by putting tariffs on top of things and that will make you more competitive if you can produce a product less expensively , does that cancel out the strategic side ?

So I don't know where does this mix of strategic versus economic fall ?

Currently , the current government is more china friendly um , I think it was , I can't remember which trump age denounced us as , uh , you know , cucks to the communist party , which I think is a bit , a bit far um but that's , you know , that's their way with words .

I guess , um , a previous government was sort of trying to um wean us off china , but you know , china is such a dominant um player , it's such a dominant player in technology . Um , in particular , you know , we we struggle to build a nuclear power plant , uh , without chinese help . We struggle to build the 5G mobile internet network without Chinese help .

There is obviously a sense that our industry is going to China and I think so many people in Europe , I guess , are a bit baffled that other Western countries are being sort of targeted . In this sense , we sort of think that we're on the same side . We have the same problems .

We also , you know , in Europe and there are similar conversations we also know that there are many shared reasons why we're also not competitive enough , whether that's to do with the cost of energy , over-regulation , things like that . There are many sort of shared solutions to these problems that we should both be pursuing .

So I think , yeah , a lot of people in the West think well , you know , they're especially on the sort of right in the West and in Europe , thinking we should have been allied in the same fight rather than being being targeted for tariffs .

If we look at the data , what is this ? The number of children per woman has decreased over the past 20 years . From this is an average euro number from 1.8 to 1.3 . In the USS is a little bit higher , although it is also declining .

So who's going to repay the debt , who's going to produce wealth in the future and who's going to be productive and being able to acquire all the new competences that would come from a digital transition or the green transition ? So demographics , to me , is the number one priority that governments should address .

So if we are extraordinarily fecund and we have a lot of children , we're not going to really have jobs for them , so we might as well not .

That's a very interesting element , in addition to the fact that we then focus on an area that is near and dear to Joel's heart , which is , if you have children , you can't afford to actually , you know , house them because the cost of housing is so expensive . But getting back to that cultural question , how do you feel is that that plays in Europe ?

Is that is the general feeling that technology is going to obviate the need for people working anyway ? So why have them ?

. And if you live longer , you need you know more resources . You need more people being able to help you , so that's why you need an increase in the workforce .

Is the problem the low employment , female employment rate and , at the same time , the solution .

So there was a big panic . We tried to get in as many people as possible . At one point there was one year after COVID when we let in 1.2 million people , which is the size of Birmingham . And to get onto that other issue you mentioned , housing , we are not building 1.2 million houses for these people to come to .

So it feels as if migration is not all bad , of course , but it's been so badly mismanaged . There's been such a huge increase in such a short period of time . And that's just legal migration .

Then you have the sort of illegal migration where you know , not just people turning up on the south coast of Europe , but now people turning up on the south coast of England , coming from France via the English Channel . People are just . People are baffled by this .

People are baffled as to why it's a matter for the British government to house them while their claims are processed . People are shocked at how many people are granted the right to remain in the UK , often despite committing crimes or seemingly having no real grounds for asylum .

So it's obviously creating a huge amount of resentment that's leading to a huge political backlash . It is in the English polls . Certainly . In Britain , migration is the number one issue , even more so than the economy .

I mean ironically , that's partly because we have an increasing number of people who are either elderly or , very tragically , here people are being signed off sick on benefits . The official unemployment rate is extremely low and it always has been in the UK for the past 10 years .

But you know we have around one in four people claiming some sort of disability benefit . You have , I think , around whole towns in the north of England where people are just wasting their lives away not appearing in the official unemployment figures but claiming disability payments and so weirdly , they're not actually affected by how the economy goes up and down .

They're not noticing the economic stagnation so much , but they are noticing migration . They are noticing that their hospitals are full , they are noticing that it's impossible to rent a house and things like that . So there's a lot of kind of trends quite dark trends that are rubbing up against each other , unfortunately .

But we have to remember what Angela Merkel said back then . She said wir schaffen das we can do it . We are a strong economy . And since , because of her past , she's the leader from the eastern part of Europe , and since , because of her past , she's she's she's the leader from the Eastern part of Europe , she said I know what it means living

in a , in a , in a in a in a in a regime without , without freedom . So we have to open our doors . So this is what she said , but unfortunately , too many people arrived at the same time .

But it's also , I would say , a positive story , because last year , the data showed that out of 1,500,000 people who arrived , 80% have a job , are fluent in Germany and are perfectly integrated in the German society . So they produce revenues , they pay pensions . So I think the important thing is to invest in integration .

What we don't do in Italy is exactly spending on integration , because from a political point of view , it's complicated to explain . Let me add one more thing . When Angela Merkel decided to open the doors , a new party became very , very popular , and this new party is Alternative for Deutschland , afd .

And AFD started campaign at the very beginning saying we have to leave the Europe . But after the open door policy launched by Angela Merkel , they started campaign against migration , against people asking for asylum , and it became very , very , very popular yeah , you know , for asylum so and it became very , very , very popular .

The issues that Frazier is bringing up of people who are coming in who are , you know , criminals or are economically ungrounded and are basically a suck on the system is the narrative that we're seeing most in the United States . So I think we need to somehow broaden out the positive side if we're going to create some balance .

So I appreciate you bringing that out .

You're going to get some of the immigrants who work really hard , but you're going to get criminals and you're going to get , you know , people that you're going to have to support . I mean , the state of California is providing free medical care to the undocumented at a time when the state has a huge deficit .

But it's also true that that the government decided to invest , to spend money to allow them to be able to be fluent in German , which is very important , to have an apartment , to find a job immediately , so , and that you know , at the end it helps , it works . So we see the results .

Right now , in Italy , for example , in the Southern European countries , it's more difficult because you have people arriving from the Mediterranean , and I mean the portion of doctors and engineers is , I mean , 0.0001% .

So you need a lot of money , you need a lot of money , you need a lot of money and , as I said before , it's not easy to um , to explain that to the population , especially in a high debt country like italy , where right now , we are in a sort of a austerity . Uh , uh , the government is , uh , is cutting expenditures , not increasing expenditures .

So if you say to uh , to your voters , oh , we're going to increase the spending on migration , it's not going to be very popular , yeah .

love to get your thoughts on the nature , the state of the divide . You know you both talked about how we're both on both sides of the Atlantic .

We're experiencing similar problems economically , demographically , politically and yet we have this new style with the Trump regime which basically accuses everybody of having ripped off the United States for the past 50 years in a very insulting and adversarial kind of a way .

We had some prominent Canadian journalists on that saying you basically insulted us personally and it's going to take a long time for that to come back and , by the way , my wife's Canadian , so I hear it all the time . So the state of diplomacy may be finding a new low , but I'd love to know what you guys think . How is that experienced in Europe ?

Is there a rift ? Is the rift permanent ? If there is a rift , and how would we resolve ?

You're crushing free speech . People aren't allowed to speak their minds . Now , everyone in the room was absolutely horrified by that and even , um , you know , one of the leaders of the conference ended up uh crying a few days later , um , because he he knew that the sort of land ticket line was coming to part .

But if you talk to working class people in in britain , in france or in germany , they think , yeah , well , jd vance was right , I agree with him . This isn't . You know , our elites are anti-democratic . They don't let me speak my mind . They they could have me arrested at any moment for uh , just for tweeting something .

So there's definitely a divide on on on that front . Um , I think that the European leaders did need to have their feathers ruffled . I think the question remains to be seen , you know , as to whether are they going to take their own defence seriously . Are they going to actually take the economy seriously .

There's been so much drift on that question for so long , or is what we're seeing now just mere rhetoric and posturing ? That , I think , is the is going to be the question , but certainly it has lit a firecracker beneath them in a way that might actually turn out for the best .

You are paying money but in exchange you are getting back goods and services . So if you present imports like a subsidy , it's obvious that then the other people are . The one to blame are the parasites . So you have to explain that it's not a subsidy . This is the wrong narrative . I'm paying for something in exchange . So that's the first point .

Second point Fraser was mentioning JD Vance in Munich . Well , in Italy the prime minister has really appreciated the words that JD Vance pronounced in Munich . She said Giorgia Meloni said he was right . He said that Europe is sort of losing its values .

But at the same time , when it comes to economics , she has to be much more cautious and prudent , because Italy is an export-led economy , so we are running a trade surplus , so tariffs will be very , very painful for us . So she's sort of in the middle .

She's acknowledged the fact that , you know , trump and JD Vance share the same kind of conservative political approach , but on the other hand , she understands that it's very important for Italy to stay within the European Union and try to avoid tariffs , because we're going to pay a very , very high price .