This transcript was generated using transcription software.
00:00:04:19 - 00:00:10:04
Kassandra
Hey. And welcome to the, the podcast that brings the world's biggest money stories directly to you. I'm Kassandra.
00:00:10:04 - 00:00:21:01
Daniel
And I'm Daniel. And German industrial production has declined significantly, as well as the profits of German car makers, too. We'll get into all of that a little later.
00:00:21:01 - 00:00:45:11
Kassandra
But first 400 million barrels. That's how much oil the International Energy Agency has agreed to release from its members strategic reserves. This is all an attempt to counter, really soaring global energy prices amid the US Israeli war on Iran. And we should note first here that the human cost has been really high. It's included 1300 Iranians killed as of Thursday.
00:00:45:11 - 00:01:01:12
Kassandra
Nearly 600 people in Lebanon have also been killed since Israel began strikes there last week. And from the US side, seven soldiers have been killed and at least 12 Israelis. There have also been deaths reported in Syria, Iraq, the UAE and many other countries in the Gulf.
00:01:01:14 - 00:01:15:14
Daniel
Yeah, and further problems could be seen in the for the days and weeks to come because infrastructure has been a key target. And, you will want to zoom in to part of that infrastructure, which is the energy infrastructure and in particular oil.
00:01:15:14 - 00:01:37:04
Kassandra
That's right. So this week in particular has seen massive swings in oil and gas prices with that historic release of 400 million barrels of oil reserves from IEA members that we mentioned earlier. So with that in mind, I want to bring in Christoph Brule. He's a senior research scholar at the Center on Global Energy Policy at Columbia University.
00:01:37:05 - 00:01:48:00
Kassandra
Christoph, thank you for joining us. First of all, and I want to ask this, 400 million barrels of oil that will be released from members reserves. How big of a deal is this?
00:01:48:11 - 00:01:55:01
Cristof
It's, you know, I'm an economist by training, so we say it depends, but it's a big deal.
00:01:55:01 - 00:02:15:11
Cristof
It's a big deal. When you look at the sheer quantity and the volume. Since the biggest, strategic reserve release ever. And it's also, by most accounts, the biggest supply disruptions ever. But when you step back and you look at it on a sort of daily, from a daily perspective, you could wonder why this big gun was actually necessary.
00:02:15:13 - 00:02:33:23
Cristof
Because what has happened here is, number one, we have, as we all know, the disruption which everybody warned about the last 40 years of the Strait of Hormuz and apparently no plan B on part of Israel and the US. So that's all true, that oil is no longer coming. But number two, there's another exit pipeline from Saudi Arabia.
00:02:34:00 - 00:02:59:09
Cristof
The figure is often quoted in the media or in crude oil products, so it's not quite as bad as it's sometimes portrayed. But the bottom line is it's a flow which has been disrupted, production which has been shut in. That's something which is recurrent day after day after day. And it's a stock. It's the storage, the inventories, the strategic reserves which are thrown against that which is depleting, depleting day of the day and not being replaced.
00:02:59:14 - 00:03:21:10
Cristof
So that is one thing which has people worried. The second thing I would like to point out, which I have, why some people wonder why such a big gun was necessary. This happens in a very well-supplied oil market. There's no dispute among oil. Analysts say the last 6 to 9 months oil supply globally was larger than, oil demand.
00:03:21:12 - 00:03:50:02
Cristof
Most of that people argue how much it is disappearing. In China, the biggest oil importer of oil. So there's also no no dispute that we have very large strategic reserves around the IEA. 2 billion barrels of oil, of which 400 have now been released. And we have very large supplies in China, which has absorbed that surplus over the last months or years even, and which nobody knows how much, but are sitting on a tremendous pile of inventories.
00:03:50:04 - 00:04:12:15
Cristof
And we have oil on the water, as it's called, floating storage. Mostly. All these barrels came out of Russia and couldn't go into India alone. So it's very well supplied. Question then why this big release? And I think the answer is a traditional one when nobody wants high oil prices. And of course, they're designed to bring oil prices down because they cause inflation and high interest rates.
00:04:12:15 - 00:04:37:04
Cristof
They call slow growth. Slow down immediately because oil dependent economy is to suffer. But there's also something else. And that I think is is key to understanding the situation. We live in times gratefully, enjoyably where the global economy is pretty solid. But we also live in times where financial markets are very, very exuberant, the very highly prized. Long before the invasion in Iran, people were scratching their heads.
00:04:37:04 - 00:04:56:22
Cristof
And you must have heard it's a bubble, right? It's Covid created, sort of causing a ruckus in the market. It's private equity running out of headroom. What brings the market down was the big concern. And into this gap between a very exuberant financial market and a well-performing economy, it comes to the hit of very high oil prices,
00:04:56:22 - 00:04:59:04
Cristof
a situation apparently out of control.
00:04:59:04 - 00:05:27:04
Cristof
The uncertainty is a big deal for markets, a war which spreads. And it's not clear how we're just going to step a stop to seems to be no plan B, with all respect, and that is an additional danger. And I do think that the peak, the size of the gun is determined not only by keeping oil prices where they are and put a lid on them, which doesn't even seem to be working, and not only to tame the uncertainty, but also to avoid that from spreading into the global economy via the financial markets.
00:05:27:04 - 00:05:45:04
Kassandra
So there's a lot to unburied there, and I want to just stay with this historic IEA, announcement before we start to go through some of the other things that you mentioned. How long is it going to take to deliver that much oil to the market? This isn't going to be something that people are going to see release onto the market this weekend.
00:05:45:04 - 00:05:46:13
Kassandra
For example.
00:05:47:17 - 00:06:09:09
Cristof
Well, the mechanism by which this says the SPR Strategic Reserve Petroleum Reserve releases work. It's not that it is dumped on the market somewhere. First of all, it's decided collectively by the member States, the total sum that each member state has a quota, but it's implemented by the member states. And of course, you cannot force people to buy more oil.
00:06:09:11 - 00:06:27:08
Cristof
So what that means is it's made available. And then the extent to which is actually used depends on the demand. And what we have is two types of storage. So there's some government storage. For example the US has a large amount of storage and some sold sovereigns in the Gulf of Mexico, which can be pumped out and then delivered to refineries.
00:06:27:10 - 00:06:49:09
Cristof
And there's commercial storage. The oil companies, the shales, the BP sections of this world are obliged by their governments to keep a certain amount of oil available as a strategic reserve, which then can be released. And that is just a phone call where the government says, okay, your storage requirement is no longer 100 barrels, is 50 barrels, meaning 50 barrels are up for sale.
00:06:49:11 - 00:07:15:16
Cristof
And so the extent to which those 400 barrels are actually incorporated into the market depend on the market situation. And right now we have no shortages. We have no queues in front of gas stations, not even in South Korea, Taiwan or Japan, these very dependent economies. So it may take a while. And also to give you a sense of proportion, the oil which is going through the Straits of Hormuz no longer was about 19 million barrels per day in 1953.
00:07:15:21 - 00:07:36:21
Cristof
So say 1670 minus six coming out of Saudi Arabia, even if it's share and say 20 minutes, say 20 millions every day, then that would last for 20 days, isn't it? It would be if it had to replace that 40, which is not the case. So basically those 400 million lasts for a minimum a month, if not much longer.
00:07:36:23 - 00:07:54:20
Kassandra
This makes me wonder. We've been hearing since the US and Israeli attack on Iran and the subsequent closure, effectively, of the Strait of Hormuz. We've been hearing a lot about how critical this very small waterway is to oil exports. I'm wondering, you know,
00:07:54:20 - 00:08:10:03
Kassandra
what kind of what amount of oil, I guess is the better way to put it is actually in shortage right now, are already seeing a shortage, or is this, historic release meant to address an anticipated shortage if this war continues?
00:08:10:12 - 00:08:34:14
Cristof
So this release was addressed to pressure on prices. First of all, okay. There is no immediately physical storage shortage. We are seeing, some countries rationing it a little bit, and especially countries which are very, dependent on oil imports and have less storage. Pakistan, Bangladesh, poor countries. On top of that, we see a lot of worries in other countries like India also, who are really also import dependent.
00:08:34:16 - 00:09:00:22
Cristof
And we have of course, some economies which are in a in a bad situation because they are very industrialized. They are sitting on islands, they don't have much storage facilities and they need oil and gas. This is South Korea, Taiwan to some extent Japan. But even there is no physical shortage at the moment. So this is really sort of a proactive if you want a measure designed to keep prices under control, which is why I was addressing this at the beginning.
00:09:00:22 - 00:09:24:02
Cristof
What could be motives for, making this so important? Because if you let prices go, of course, that also means demand will no longer be so high. But obviously here there was. You intend to not let panic, spiral out of control. Having said all that, yeah. This was the feel of the war. Right now, production has been shot in by producers Saudi Arabia, Kuwait and especially Iraq.
00:09:24:04 - 00:09:41:08
Cristof
Now, production shot if in this region, they're done in an orderly fashion, then the market, then these fields can be ramped up as a matter of days, in particular in Saudi Arabia. But if they are done in haste or if their mistakes made, or if the fields are more complex dated, then there may be production damage in these fields.
00:09:41:08 - 00:10:03:14
Cristof
And that would mean that permanently capacity is sort of damaged. That's a little bit of a risk. In particular in places like Iraq. And the more the more than spreads and the more, you know, other oil producers, Russia, would take the, would take measures, the more reason for panic is there. But at the moment, I don't really see, a reason for panic in terms of physical shortages.
00:10:03:14 - 00:10:12:16
Cristof
It's just that people are worried that the situation goes out of control. And of course, if somebody puts fire to these oil fields or something like that, then, we have a longer term and bigger problem.
00:10:13:04 - 00:10:30:12
Kassandra
But it if if this release from the IEA was meant to address potential panic and keep prices steady, from my reading of the prices, it looks like after this announcement was made, that's when we saw prices spike above $100 a barrel again. So how does how does this all make sense?
00:10:31:01 - 00:10:55:17
Cristof
This is correct. So do you do observation prices so far hard to prove the counterfactual, but they have at least not come down. Let's put it this way. The reason to make sense out of it is that the head of the 30 year rule, the head of the IEA, said something which was very important and correct when he announced that release and said, of course, the only thing which could really diffuse the situation would be to make it free passage across the street of Hormuz possible.
00:10:55:17 - 00:11:17:00
Cristof
Again, the longer that is not the case, the more the, risk increases that ships are set on fire, that physical damage in the oil fields occurs, that, more lasting, long lasting damage occurs or that the reserves start to be drawn down. And this is really a drawn out conflict for weeks during which the Strait of Hormuz is closed.
00:11:17:02 - 00:11:23:16
Cristof
And then we will see an imbalance between, the missing flows and in the stocks which are, which have been thrown at the problem.
00:11:23:23 - 00:11:42:02
Kassandra
I wasn't surprised when this conflict started to see price increases or, you know, that sudden dip that we saw earlier this week. But I was really surprised to see this kind of whip lashing back and forth by $30 a barrel. That really caught me off guard. And a lot of this does seem to be hinging now. All of it we do.
00:11:42:04 - 00:11:55:17
Kassandra
We did mention this IEA announcement, but a lot of it does seem to be hinging on the latest statements from President Trump. So in your view, how much does how much influence does one political actor realistically have over global oil prices right now?
00:11:56:14 - 00:12:21:12
Cristof
In situations of great uncertainty and in situations where this uncertainty has a real dangerous background, like a war in the biggest oil producing region of the world, markets have to react with the whiplash because nobody rich, then nobody knows what's going on. That's the definition of uncertainty. You will see people acting on straws, acting on signals that may maybe silly signals.
00:12:21:14 - 00:12:41:15
Cristof
And one of the one of the biggest signals at the moment we have is the loud speakers of this stand in Washington and, and not so much. And we also have them in Iran. They're a bit smaller there. And that kind of, announcements which, black one day and white another day and a one day and visa day that throws markets into turmoil.
00:12:41:15 - 00:13:02:20
Cristof
And that's actually damaging because it goes beyond energy and beyond oil markets. And it has affected and starts to affect financial markets. That's where, in my opinion, one of the real dangers of the situation is that it spreads from energy markets into the broader financial architecture of our global system, and a lot of it has to do with the way the crisis is managed politically.
00:13:02:20 - 00:13:09:12
Cristof
I mean, there's very little real information and there's a lot of talk and that what can markets to react to the talk?
00:13:10:05 - 00:13:20:06
Kassandra
So what signals are you looking for then in the days ahead, as we mentioned, there are there are many signals of maybe arguably even noise. So what signals are you looking at.
00:13:21:19 - 00:13:45:12
Cristof
Like, you know, I'm standing outside looking in and there is not all this. There's not much to go by. One set of issues which already mentioned is that the market is actually very well supplied beforehand from other regions of the world, that there are several buffers. We mentioned them strategic reserves, China inventories, oil on the water, which were which was sort of, mitigate that shock.
00:13:45:14 - 00:14:12:24
Cristof
Also, that oil supply in the world is much more diversified than it was in the 70s. Oil shock or even in the in the 1990s, with the of the Arab Spring and later in the 2000s so much more diversified, which is, which is good for energy security. And from that pure oil perspective, so to speak, I'm much less worried than most people who probably don't have much of a grip of the numbers and just see, you know, ships burning.
00:14:13:01 - 00:14:20:23
Cristof
The other way. I look at it, and that's where I'm completely ignorant, is to try to read the military segments, know me like everybody else wonders,
00:14:20:23 - 00:14:36:12
Cristof
how could you start a war in that region and not worry about or not prepare for the one thing everybody was talking about the last few decades, the power of warring parties in the Middle East to shut down the this, chokepoint, the Straits of Hormuz.
00:14:36:14 - 00:14:55:11
Cristof
But apparently that happened. There was no plan B, and now I'm looking at trying to figure out, are there convoys being called in? Is the European Union coming off its fence and probably offering to send some ships in order to mobilize that convoys? I mean, they use that oil. They could do that. But I haven't heard anyone discussing this.
00:14:55:13 - 00:15:16:16
Cristof
Is there a possibility of, you know, clearing militarily, at least the coastline so that one could meaningfully protect these ships and, you know, look at the politics. Are there statements which indicate that really there is a negotiation starting or really there is some sort of, you know, they declare victory and go home or we have a ceasefire and and keep and all of us keep our face.
00:15:16:16 - 00:15:22:19
Cristof
And it's a bit like watching children in a sandbox. Really not. But, much more dangerous.
00:15:22:22 - 00:15:46:19
Kassandra
Yeah. We we've talked a lot about oil, but it's not just oil that makes its way through the Strait of Hormuz being exported from these Gulf countries. It's also liquefied natural gas that goes through the strait. From what I understand, about a quarter of the world's LNG does go through that narrow body of water. Tell us more about what chemicals on top of, liquefied natural gas are making their way through the strait on a normal day?
00:15:46:19 - 00:15:49:17
Kassandra
And where do we stand now?
00:15:50:04 - 00:16:09:05
Cristof
So first of all, is also within oil division. So there's jet fuel in there to some extent diesel, which is particularly, which is going to be first hit because it's refined there in the region. Then the second big block is, of course, liquefied natural gas. That's the gas which doesn't come through pipelines, but which is frozen and then put on ships.
00:16:09:07 - 00:16:33:23
Cristof
And then, similar to oil, can go globally, anywhere, where there's a port and that's also the gas, which is in 22 or 23 after the Russian invasion of Ukraine helped Europe to avoid a very cold winter because it was brought into Europe and, due deed of confection for the plants were built in a hurry, very fast, and it could save Europe from a serious energy crisis.
00:16:34:00 - 00:17:07:24
Cristof
20% of global gas production is in Qatar, and that is almost all excitement. It's swimming with the truss and so on. About 20% of global liquefied natural gas is out now, so 20% of liquefied natural gas production is out of the moment. That causes prices to go high, not yet as high as there were in 22 or 23 when, when Russian gas supplies to Europe were disrupted because Europe was much more dependent on liquefied natural gas, as I said, can be shipped everywhere.
00:17:08:04 - 00:17:31:11
Cristof
So we don't have this pipeline situation where you cut a pipeline and the country is suddenly going from having all the gas it needs to having zero, liquefied. It's more and more diversified, more versatile, much better. But it drives prices up. And that causes particular problems in, countries which depend very much on these gas imports. And this is, again, South Korea, the countries on an island.
00:17:31:13 - 00:17:53:18
Cristof
We have a heavy industrial base. We need a lot of gas for for power production, including for the production of chips. And I'm in South Korea. So let's talk Korea and Japan and then poor countries who, have difficulty paying the increased prices. That's so again, Pakistan to some extent Bangladesh will be will be hit by the knock on this.
00:17:53:18 - 00:18:25:09
Cristof
It's India is very worried and starts to implement regulation in order to keep LPG available, as is thought of the gas for the for the normal family to be used for heating and cooking and things like that. So the the big shocks emanate in different ways through the system and generally rich countries, well-diversified countries with a multitude of different fuel types gas, coal, oil are much better off than poor countries who have trouble paying a higher bill with a list of ossified source of supplies.
00:18:25:13 - 00:18:42:15
Cristof
Maybe because they're on islands, and and, where people really depend on some derivative products like APG for their daily living. And these are the ones which, which will be hit first. Just speak. So Europe in a very good positions too.
00:18:43:04 - 00:19:04:21
Kassandra
But what about these other chemicals that are exported through the Gulf, or through the Strait, for example, for nitrogen? You we mentioned also the full scale Russian invasion of Ukraine. And what we saw after that was not only these energy price spikes like we we spoke about, but also a massive increase in the price of nitrogen based fertilizer.
00:19:04:24 - 00:19:15:18
Kassandra
Is that something we can also expect to happen now, if the street is such an important, passageway for nitrogen and essentially is food across the world about to get a lot more expensive?
00:19:16:01 - 00:19:34:09
Cristof
Yeah, there's a lot of other things which are which are coming through the fertilizers, the nitrogen, which is needed for fertilizers is one of them. But I would be cautious a little bit. This is they are obviously the front lines on a long cycle, because it takes time to, to to grow a plant and then and then harvested if
00:19:34:09 - 00:19:34:20
Cristof
it's a.
00:19:34:20 - 00:19:39:24
Kassandra
Critical planting season and a lot of parts of the world, like we're about to be in springtime.
00:19:40:01 - 00:19:40:12
Cristof
Yeah. But
00:19:40:12 - 00:19:58:19
Cristof
also a lot of it is already where it needs to be installed. So I'm not a cultural expert, but I would be more careful because they are on a longer term cycle. Usually that means they are less vulnerable and and they can be of course, also be exchanged between those countries who have storage and those who don't because they applied in a particular season.
00:19:58:19 - 00:20:19:14
Cristof
As you said. So that might cause a problem. But I don't see, the world running out of, out of food or into shortages. And it was similar to remember when when the Ukraine was invaded, about, the grain exports from the that was managed this will become issue, which will generally feed into inflation. That's the important thing.
00:20:19:14 - 00:20:43:12
Cristof
And the longer of course the disruption lasts, the more products outside of energy are affected, the more the inflationary pressures rise and the adverse, the more long term effects, on the global economy, which works through price increases and through higher interest rates and tighter monetary policies and knock on effects on economic expenditure of households and then on economic growth and so on.
00:20:43:14 - 00:20:51:08
Cristof
So these are all real issues. But for the immediate crisis, one is probably well advised to concentrate on energy.
00:20:51:14 - 00:21:16:02
Kassandra
Fair enough. Circling back to energy, one last question for you, Christoph. Iran and Russia are allies, and Russia profits when oil prices are high. And this US and Israeli attack on Iran in on Iran is driving oil prices higher. So stepping back, does this US and Israeli attack on Iran mean more money for Russia, especially to fuel their war machine?
00:21:16:04 - 00:21:16:08
Cristof
Most
00:21:16:08 - 00:21:41:03
Cristof
definitely. If there is one winner, if there's one winner at all of this current situation, it's the Kremlin and the people representing the Kremlin. I mean, it's it's quite unbelievable. They already spoke Trump and Mr. Trump and Mr. Putin and, seem to have agreed on a lot of things. What what this means from Russia perspective is Russia was in dire straits because, number one, oil prices were in the process coming down significantly.
00:21:41:05 - 00:22:06:02
Cristof
They're just approaching 60 downwards. And going into the 50s when this happened. So that already had a hit on revenues. And income which the which, which Russia made. And number two Russia that said that the sanctions were actually tightened, including by the US. So Russia was just in a situation where it could no longer sell oil to India, or much less oil to India than for reimbursement.
00:22:06:07 - 00:22:34:11
Cristof
Most customers who buy the sanctioned oil is number one, China, number three, India number four, with a big gap in between, Turkey. And so no more exports to India and I guess to Turkey. This meant a tremendous amount of oil on the water. The so-called shadow fleet trying to find a home. Now, these kind of, ships on the water full of oil will always find a home because it's just a matter of getting the price low enough and somebody will buy it.
00:22:34:13 - 00:22:52:11
Cristof
But it would have taken time and it would have decreased revenues even further. Now, because of that war, the sanctions against India have been waived. The ships can go back to India. That means they can be sold. It doesn't need time. Money doesn't need to wait for its money very long. And number two, it would be sort of course, on a much higher prices.
00:22:52:11 - 00:23:11:22
Cristof
Even with the same discount. Brant is now above 90 or above 100 and. And not below 60. And, even if there's a discount on the official Brant price too, which may or may not normally be the case if there's a real shortage. But for now, it is still the case that brings the price maybe to 95 or so, rather than 55 or 50.
00:23:11:24 - 00:23:27:09
Cristof
That's a very big difference. And I think, when, you know, President Putin loses friends at a rapid clip, Syria, Venezuela, now Iran. But on the other hand, this current situation, economically speaking, only economically speaking, has an upside.
00:23:29:04 - 00:23:46:15
Daniel
So we've heard all about the energy situation the oil and a bit of the gases. Well well I wanted to find out about the macroeconomic impact. So how is all of this going to have a knock on effect on the European economy, Asian economy, the US economy as well. So I spoke to Neil Shearing. He is group chief economist at Capital Economics.
00:23:46:21 - 00:23:52:05
Daniel
And I started off by asking him what has been that macroeconomic impact so far.
00:23:52:10 - 00:24:15:08
Neil
Well so far I think it's been surprisingly limited. Now, that might sound strange. But the impact of global energy markets certainly if you compare to, say, the effects of the 2022, energy crisis caused by Russias full scale invasion of Ukraine, insofar as it relates to Europe has been smaller because we've not seen as firemen to move in European gas prices.
00:24:15:10 - 00:24:42:07
Neil
However, the potential for disruption caused by this conflict is even greater, clearly. Russia was an important energy artery for the European economy. In 2022, the Strait of Hormuz, which is the key chokepoint here, is a vital energy artery for the global economy. It carries about one quarter of global oil flows, and that seaborne oil flows about one fifth of a seaborne, natural gas flow.
00:24:42:07 - 00:24:55:11
Neil
So the key question really is it's not so much so far the impact has been quite limited. But the key question is how sustained, how prolonged is this conflict? The longer it goes on, the greater the economic consequences will will be.
00:24:55:16 - 00:25:04:08
Daniel
I we've seen that the oil prices leaped again despite the release of, oil reserves. Is there anything that big economies can do to ease the economic impact?
00:25:04:21 - 00:25:38:20
Neil
Well, I think the the part of the issue with, the release of the IEA stockpiles is just the energy infrastructures, and that's necessarily pushed them out through economies. If you don't have the pipeline capacity, to trans transport this, this energy, this oil, then that, that then then there's only so much you can do is put some of this into context, the potential loss of output due to a prolonged, closure of the Strait of Hormuz, is about 10 million barrels a day in, in isolation.
00:25:38:20 - 00:25:55:18
Neil
Looks out about 10 million barrels a day of oil from global supplies. Whereas the most that the IEA has ever been able to release from its stockpiles in one day has been about equivalent to about 2.5 million barrels a day. So the it's a sense of scale, the sense of potential loss versus this is the potential for that.
00:25:55:18 - 00:26:22:05
Neil
The, the the infrastructure capacity to get out into the into the, into these economies is more limited. I think that that's why you're starting to see, that's why you started it. You've seen only a kind of modest impact or no impact at all on energy markets. Now, as for what other governments can do, I mean, there's some things they can do that the most obvious thing is to try and get traffic going again through the Strait of Hormuz, that they're not in complete control of that.
00:26:22:05 - 00:26:51:04
Neil
But the US has clearly some agency, that, other important, actors, Iran and Israel, of course. And then elsewhere in the world, really, it's just about managing costs, that that might stray from there so that I'm sure that, first of all, the longer this this conflict persists, the more debate and discussion that that there will be about whether governments need to step in and provide some fiscal support for households and businesses, for example.
00:26:51:22 - 00:27:16:02
Daniel
Now, the, Islamic Revolutionary Guard Corps said you will not be able to artificially lower the price of oil. Expect oil at $200 per barrel. Obviously, that's a scare tactic coming from them. But do you think that that scenario $200 a barrel. Do you think it's realistic in, in any sort of, kind of modeling that you've done?
00:27:16:04 - 00:27:23:03
Daniel
And do you think that that scenario would have such a large economic impact that it's an effective scare tactic?
00:27:24:11 - 00:28:07:13
Neil
So in the modeling that we've done, and we've modeled kind of everything from the kind of severe but short lived, conflict through to a prolonged, protracted conflict that that, imposes substantial disruption to global energy flows. In that in the more extreme scenarios we get to oil prices of $150 plus, we get to similar increases in natural gas prices, to, so it's not quite 200, but I mean, frankly, the, the difference between 150 and 200, is to some extent moot because it though in those extreme scenarios, these, these models become quite the they're quite difficult scenarios to model to, to type that very accurately.
00:28:07:13 - 00:28:31:04
Neil
So I think it's certainly true that, that there is enormous potential for significant disruption and therefore, significant price increases, as a result. Now, I think that you kind of hit the nail on the head, a bit with the with the question, though, which is that there comes a point where the degree of disruption is so great, the degree of price dislocation is so enormous.
00:28:31:04 - 00:29:08:21
Neil
And the hit to Riyadh incomes in the US and in Europe is so great, particularly the US, that it forces a shift in in policy. Now, we don't quite know exactly where that point comes, but this is, after all, an election year in the US. We have the midterms in November. So it's possible that the threat of disruption, the threat of problems, increases in price, in prices, gas, gasoline prices in the US, the squeeze to to real households, disposable income, and spending power that that would cause forces, a kind of some some kind of resolution in this crisis.
00:29:09:08 - 00:29:25:06
Daniel
Now, you mentioned the, Russian energy shock by way of comparison. Europe now uses, less gas. Overall. It takes in more LNG from from the US. So do you think that this latest shock is going to be easier for the EU to handle economically?
00:29:25:24 - 00:29:56:05
Neil
Not necessarily. No. No. The nature of the the shock, today versus 2022 is rather different. There was a short, very sharp, violent kind of cut off in supplies from from Russia in 2022, likely supply chains reoriented. So to the US as a Europe is cut hides Russia from the from its energy mix to to to a large extent not completely, but to a large extent this time around.
00:29:56:05 - 00:30:23:13
Neil
We don't know, the duration of the, the, the hit to energy supply. So that's a key difference from 2020 to 2022 is pretty clear that it was going to be a permanent, semi-permanent reduction in supply coming from Russia. No, we're not clear on the extent to, the supply, disruption. More generally, Europe is still enormously dependent upon imported gas, natural gas.
00:30:23:15 - 00:30:46:10
Neil
It just happens to get that more from from places like Norway, places from like not like the Gulf itself, which is obviously affected by this crisis and, and the US and the liquefied natural gas that's coming from the US because it's liquefied, because it can be transported across global markets, that's subject, to, to, to, to global price pressures.
00:30:46:12 - 00:31:18:09
Neil
And so we've seen the price of that increase, in, in recent, in recent weeks. So the US, the Europe is not, insulated from this as a result of the, the, the, the orientation of supply chains in, in 2022. What this really, really, what this really, really, emphasizes again is that choke points. Because severe choke points exist within Europe's economy with deep within the global economy, particularly around energy and in critical critical energy supplies and minerals supplies.
00:31:18:09 - 00:31:20:04
Neil
In the case of Europe.
00:31:20:04 - 00:31:35:19
Daniel
So should we be thinking. Thinking of this? More like the 1973 oil embargo. The word stagflation. Coming back in again. Of course, you know, for many who lived through the 1970s version, that will be a frightening word. What do you think?
00:31:35:19 - 00:31:58:00
Neil
well possibly. But again, history kind of rhymes rather than repeats. What do I mean by that? Well, the world and the world economy is very different to what was the, to to what it was in, in the 1970s. At the risk of states is stating the obvious, economies are less oil intensive to start off with.
00:31:58:02 - 00:32:18:08
Neil
So if you look at the unit of GDP, the unit of oils require unit of oil required to produce a unit of GDP, it's a lot, lower. Now, that was the case, in the 1970s, inflation expectations better anchored, monetary policy.
00:32:18:10 - 00:32:43:18
Neil
Yeah, I think so. Because inflation expectations have become better anchored. We understand a bit more about the the inflation process now and then. That's true too. If you look at the comparisons with, say, 2022. But then we had labor markets that were incredibly tight. We have fiscal support that was still rolling off from the pandemic. That meant that households were sitting on these accumulated savings that helped to cushion the blow of, from from higher energy prices.
00:32:43:18 - 00:33:07:04
Neil
And of course, interest rates back then were at near-zero and in some cases in the eurozone below zero. Right now, that's not the case policy said the more neutral setting. So so I think again, history rises, but it doesn't repeat. So it's clearly clear there's a stagflation risk if, energy prices remain extremely high and disruption to energy supplies persists.
00:33:07:06 - 00:33:21:04
Neil
However, the nature of that shock and the fed through to inflation and wage bargaining and price setting in in economies is rather different from was the case in in the 1970s. The channels through which operates will be slightly different.
00:33:22:12 - 00:33:41:13
Daniel
Now, I attended a briefing that you did earlier in the week, which said that you find it very unlikely in the current scenario. Obviously. Depends on how long this goes on. And where oil goes. But you find it, a very high bar that the ECB, for example, would be forced, to increase its, its interest rates.
00:33:41:15 - 00:33:46:15
Daniel
But do you think that it will at least rethink rate cuts because of the current situation?
00:33:47:03 - 00:34:03:23
Neil
Yes, I think that's true. The ECB, I think, is true. Most central banks actually, certainly in the very short term. Any plans to loosen policy? Now, off the table, I don't think that was likely in the case of the ECB. But in the case of the Bank of England, for example, I think it was it was a possibility in March.
00:34:03:23 - 00:34:23:24
Neil
If I think that it's no longer going to happen, because we have policy at a more neutral setting now, say, compared to 2022, when central banks were scrambling quite on the back foot, scrambling to get policy back to more neutral, even restrictive settings, they had to raise interest rates very aggressively back then. That's not the case now.
00:34:24:01 - 00:34:45:09
Neil
But I nor do I think they're going to be kind of cutting rates into what looks like it's going to be an inflation shock. If the shock proves to be short lived, then I think it's possible we still get rate cuts from the Bank of England later this year, maybe one from the fed, the ECB. I think the bar for rate cuts now is perhaps a bit higher, a bit spooked by the strength of services, inflation, tightness of labor markets.
00:34:45:09 - 00:35:14:03
Neil
It's been another cost shot. They might be a bit spooked by the few. If you look at some of the recent communications over the past few days from the ECB. But the bar for rate hikes in Europe and elsewhere is much higher than was the case in 2022. We'd need to see prolonged conflict, renewed surge in energy prices, evidence that inflation expectations were started to become unanchored as a result and that that was feeding through into to wage bargaining processes.
00:35:14:05 - 00:35:16:12
Neil
And of course, we're not there yet.
00:35:17:01 - 00:35:34:24
Daniel
Now, China has already cut its growth expectations for the coming years. Does an energy shock like this derail even those plans? Is China a very unique case in terms of how it's exposed to these, changes, these, increases in energy prices?
00:35:34:24 - 00:35:57:19
Neil
Well, at face value is extremely exposed. If you look at just the net energy trade balance of major economies, broadly speaking, those with energy surpluses are going to be better off as a result of higher energy prices. Canada, Norway, Russia, economies in the Gulf, although they obviously can't ship the products at the moment. And those with large energy deficits are going to be worse off.
00:35:57:21 - 00:36:21:13
Neil
Biggest energy deficits are principally in Asia. There's some in Europe, but they're mainly in Asia, Japan, Korea, India, and as you say, China. But China is slightly different in a number of important respects. One is that actually the energy intensive intensity of GDP, in China is perhaps a bit lower than many people commonly assumed, particularly when it comes to oil and gas.
00:36:21:15 - 00:36:52:09
Neil
So you see a lot of coal, and increasing amounts of, green energies. So to solar power and there's been a big shift, away from, I see vehicles towards, electric vehicles in recent years. So that helps to insulate China to some extent. And, over the past five years, the leadership is, on, on the, the leadership has been taking steps to build large amounts of energy, storage.
00:36:52:11 - 00:37:14:16
Neil
Oil and gas in storage. And so they have lots of stockpiles, and that which they cannot draw, draw down. So slightly different situation playing out in China than in other economies, looks exposed at face value and is exposed if this continues for a very long period of time. But there are a couple of factors that mitigate that exposure how to cushion it.
00:37:14:18 - 00:37:16:07
Neil
Ameliorate in the short term.
00:37:16:07 - 00:37:28:08
Daniel
something, interesting, which happened as a result of the, the Russia Ukraine war, which we saw, as I mentioned, the EU shifted, in terms of its energy, energy infrastructure.
00:37:28:08 - 00:37:50:19
Daniel
It wanted to get away from, its dependance on Russia. It's not fully managed to be, to, to be an energy autarky, of course. But clearly it's had an impact on their energy policy in a significant way. And the goal is certainly to become as independent as possible. Whereas before it was about building bridges, with other countries, like with, with Russia, in order to have mutual benefit on both sides.
00:37:50:21 - 00:38:05:05
Daniel
Do you think this particular shock is going to have a similar restructuring effect on the, energy networks and the choke points, as you mentioned, that exist, in the world today is it going to be that much of an impact?
00:38:05:12 - 00:38:33:22
Neil
Well, I like to think that this would Joe governments out of complacency. I have to say, I'm slightly skeptical. I mean, anyone that looks particularly at the European economy over the past five years will see an economy that is has a number of vulnerabilities, but particularly around the supply of energy and other critical minerals. Now, the response to some of that, the shocks and that exposure has been to reorient supply chains around energy, most obviously.
00:38:33:24 - 00:38:57:03
Neil
But in some senses, that's just shifted choke point from one part of the global economy to to another. It's not alleviated those those those choke points that has not yet been a proper grown up conversation in Europe about what is the right energy mix between fossil fuels and renewables. What's the goal for nuclear, in all of this?
00:38:57:05 - 00:39:17:16
Neil
Not just around energy, but also other critical minerals. We've seen rare earths becoming increasingly politicized between the US and China. But was the U.S., European policy on that? And how does that interact with particularly the development of green technology? None of this has been debated properly. There's nothing has been formulated in terms of long term strategic plans.
00:39:17:16 - 00:39:38:14
Neil
Policymakers talk about the need for resilience, but don't often fall short of a developing measures needed to, to, to, to to pursue that resilience or improve that resilience. And I'd like to think that this would be a kind of a wake up call. But if Russia in 2022 wasn't a wake up call, then slightly skeptical that this will be.
00:39:38:14 - 00:39:48:02
Daniel
Yeah. One final question. How is the US exposed to the risk of this crisis in a different way than Europe and Asia, which we've mentioned already.
00:39:48:02 - 00:40:11:03
Neil
on again, on the face of it, much less so, it has gone from one of the big shifts in the global economy over the past 15 years has been the transition of the US from being a net energy importer to being a small, net energy exporter. Obviously, that reflects that development. The massive development of shale oil in the US, also also shale gas and natural gas.
00:40:11:03 - 00:40:32:11
Neil
So that that has been a big shift. And that means that the US itself is less exposed in aggregate to these big energy shocks than was once the case. However, there will be distributional effects within the US and in particular US households are going to be feeding and indeed already are feeling the effects of higher global oil prices when they set up their their cars at the pump.
00:40:32:13 - 00:40:45:10
Neil
So there will be some losers as well as to what is in the US. It's just so happens that that the the should in aggregate balance out over time. Whereas in Europe and in Asia there would be more losers than there will be. There will be winners.
00:40:46:10 - 00:40:53:24
Kassandra
If you like what we do here on the dip. But you want the view not from the US but from Germany. Check out our sister podcast Berlin Briefing.
00:40:53:24 - 00:41:09:16
Daniel
That's right. From oil to drones, Putin to Trump. This podcast looks at the latest from the German capital. That's Berlin, by the way. The whole country didn't want to mansplain that to the whole country and the wider region. So here's a preview. Take a listen.
00:41:09:16 - 00:41:44:21
Berlin Briefing
When headlines get louder, we go deeper. Say hello to Berlin briefing. Your guide to Germany's impacts on the world between East and West autocrats and democrats. Germany's whole system is under stress. Politics. Power takes pressure from all sides, and the world around Germany is getting more dangerous. Is democracy glitching? Too much noise, too little clarity. We decode what it means for you from Berlin to right where you are.
00:41:44:23 - 00:41:49:17
Berlin Briefing
It's all in Berlin. Briefing on YouTube and wherever you get your podcasts.
00:41:51:10 - 00:42:11:22
Kassandra
Germany was once known as an industrial powerhouse in Europe, but key sectors, including auto manufacturing, have been struggling for years. The latest figures show a drop in profits. So for more, we turn to our business colleague, Steven Beardsley. Steven, thanks for coming in. German carmakers are struggling. This has been a long time problem, but what are the numbers telling us now?
00:42:12:07 - 00:42:35:01
Steven
Well, I mean, there was a couple things going on in 2025 that are worth noticing. One is that, Chinese sales have fallen dramatically, but they remain down. And that's been something that's been happening over a couple of years now. Another is that competition is heated up. Of course, we often talk about Chinese competitors coming into different markets where Germany is competing, especially even including in Germany itself and in Europe.
00:42:35:03 - 00:43:00:03
Steven
On top of that, you had tariffs as well. That was something new for 2025. So all of these combined to create a pretty difficult working sort of circumstances for German carmakers. But also what we saw was that there was there were efforts, efforts just to turn things around in 2025 and that they bore their own costs. For example, you had a number of companies with cost cutting measures getting rid of a certain number of positions, paying people to go out earlier that cost money as well.
00:43:00:07 - 00:43:23:17
Steven
You also saw strategy shifts, including some big ones. Porsche, for example, basically €5 billion right off, after it changed its strategy from pure electrification. Going back from that step, saying we're going to have, combustion engine models as well. That, of course, costs its parent company, Volkswagen. So a lot of these, big headline effects were actually some that we knew about in the past year.
00:43:23:20 - 00:43:28:06
Steven
They were just sort of all gathered together in a 2025 report that reminded us of how bad that year
00:43:28:06 - 00:43:28:11
Steven
was.
00:43:28:12 - 00:43:37:24
Kassandra
Yeah, the chickens have come home to roost, it seems like. But you've mentioned this. We've known about these issues facing the carmakers for a while, so why can't they seem to really get it together?
00:43:38:03 - 00:43:44:00
Steven
I mean, I think again, you have some special effects in 2025 that weren't expected. You have tariffs, right? I
00:43:44:00 - 00:43:44:11
Steven
mean tariffs.
00:43:44:11 - 00:43:45:18
Kassandra
The U.S. tariffs on German.
00:43:45:18 - 00:43:46:24
Steven
Cars, U.S. tariffs.
00:43:46:24 - 00:44:07:15
Steven
That also makes it difficult to ship to China, for example, and to supply certain markets that also create a lot of consternation and uncertainty for these companies and that aid into their bottom lines. The bigger issue really, is China, though, and that's something that they can't really control. The economy in China is down. And you had a number of carmakers, Mercedes and Porsche really stand out that really wanted to sell luxury to China.
00:44:07:15 - 00:44:24:16
Steven
And there was a luxury market that was doing really well. We see the same thing, for example, in French, luxury markets, for example, some of the biggest French companies out there, LVMH, for example, they've also really suffered because they serve that market as well. So that market doesn't exist as it used to. It's not as strong as it once was.
00:44:24:22 - 00:44:41:16
Steven
And those who really depended on it are really struggling. So again, you do see some movement in the past year, some efforts to start to turn the ship, but it is very slow. It's a very slow process and even developing new models that are maybe more attractive to many of your markets, including China, where they've struggled. That takes time.
00:44:41:20 - 00:44:49:17
Kassandra
Okay, so that was why they couldn't turn it around. But casting our eye to this year, can they turn it around? How crucial is 2026 to these German car brands?
00:44:49:17 - 00:44:50:06
Steven
2026
00:44:50:06 - 00:45:03:09
Steven
will tell us a number of things about how these companies are positioning themselves and how new offerings will appeal. There are some things to like when we look at the European market, which of course German automakers want to really defend as they see more competition coming from
00:45:03:09 - 00:45:04:19
Steven
China home turf. That's
00:45:04:19 - 00:45:09:12
Steven
right. We've had new releases from Mercedes, from BMW and Volkswagen.
00:45:09:12 - 00:45:32:10
Steven
I should say they're all going on sale this year. Really? For the Mercedes, we have, the GLC, EQE, that's an SUV, BMW, the Ix3. And then later this year, we're gonna see VW bring out the electric polo. And what's interesting about that is it's not an ID number, which was their first sort of Generation Rio kind of line series of electric fully electric models.
00:45:32:14 - 00:45:57:13
Steven
But it goes back to sort of those old names like polo, like Taiwan. We're going to see Taiwan at some point. And it says, you know, these models, they're just electric now. And so we're going to see if that including some design changes that really harken back to what people know from Volkswagen's, if that's going to appeal. And we see similar moves from Mercedes and BMW, these design touches that say, look, it's a modern car, but you know this, you can trust us on top of this, they're going to take some steps in China.
00:45:57:13 - 00:46:14:05
Steven
They're making those steps are going to produce more vehicles, more models. So we're going to see how come we're going to see come out just for China. Because that's what we see as the diversion of the Chinese and the European markets. They're working with Chinese, with Chinese partners. They're collaborating to to make something that's more exciting for that market.
00:46:14:11 - 00:46:31:15
Steven
And they're moving a lot of R&D out there as well. That's going to benefit the European market as well, because right now what we're seeing is that the hub, really the future of car making is centered more and more there in China. And European carmakers know that. So 2026 is going to tell us a lot about how these new models, these new efforts really fare.
00:46:31:15 - 00:46:34:14
Steven
And if they're going to be appealing both in China and in Europe.
00:46:36:11 - 00:46:45:24
00:46:45:24 - 00:46:53:00
Daniel
So myself, Roger, president of the German Institute for Economic Research in Berlin, can join us now to tell us a little bit more.
00:46:53:02 - 00:47:02:08
Kassandra
And it looks like German industrial production has slumped significantly. Is this just a blip or is this a sign of broader decline?
00:47:03:05 - 00:47:26:21
Marcel
This has been an ongoing process at least since 2019. So for the past 6 or 7 years, particularly the automotive sector, but also other sectors. So this has been a longer term trend. Though we have to be aware, Germany has a fairly large industrial sector, and not all sectors are affected equally, but the automotive sector is particularly strong in the sector.
00:47:27:07 - 00:47:46:12
Daniel
And so against this background, do you see, the crisis, for example, that's happening in Iran right now, the effect on energy prices as something which could significantly weigh, on Germany's economy as it tries to get out of this slump because one of the big issues that industry complains about is the high cost of energy in Germany.
00:47:48:01 - 00:48:14:16
Marcel
Yes, it will have a big impact on the German economy, partly because, Germany is highly dependent on energy imports of gas and oil, not necessarily from the Middle East, but from the rest of the world. And, as market prices all over the world are rising, it's hitting Germany hard, harder than others. Also, because we have a fairly large, energy intensive industry in Germany.
00:48:14:16 - 00:48:28:14
Marcel
And so one mechanism is precisely higher energy costs at a faster increase than, let's put, let's say, in the China or the United States. And that puts German industries at an additional disadvantage.
00:48:28:17 - 00:48:54:11
Daniel
Okay. And we've seen, for example, with the carmakers in Germany, the effect that all of this is having. Certainly it's the most prominent example to people who, don't look into the details of the German economy. And we heard from Steve earlier that VW profit has shrunk significantly. So what does it tell you that Europe's biggest car maker is operating on margins thinner than a supermarket chain?
00:48:55:17 - 00:49:28:22
Marcel
Well, I'm not sure this is true, but, and first of all, and the the profits by Volkswagen have halved, you could say a company in crisis that still makes 9 billion profits a year is not so bad, right? I mean, they're still making profits and they still have plenty of liquidity. The point here is that, Volkswagen doesn't have has really problem of of innovation.
00:49:28:24 - 00:49:59:03
Marcel
So it's losing market shares. The profit margins on on the regular cars with combustion engine not going down. Volkswagen is trying to cut costs and has been doing so already. So the problem is not so much the cost side as the innovation side. And we all know from Chinese, American, South Korean companies that moving ahead on, electric cars and battery technologies and German, car manufacturers are moving, are left behind.
00:49:59:03 - 00:50:17:08
Marcel
So the challenge is not short term that the China challenge is long term. And as I said, on the profits and liquidity position, it's still fully in the hands of German automotive makers, to turn the tide and become competitive again.
00:50:17:15 - 00:50:31:17
Daniel
Yeah. I mean, as for that supermarket level margin, I mean, it was 2.8% in 2025 for Volkswagen, and they're guiding for 4% in 2026. So those are certainly, very difficult numbers.
00:50:31:22 - 00:50:55:00
Kassandra
But we want to with the carmaker decline. That's been a story in Germany for quite a while. And we know the ingredients here. Right. It's increased Chinese competition, higher energy prices. These are increasing the cost of making German cars the high energy prices that is there. There are many factors here. So is there any remedy in your view or do we just have to accept that the German car industry is in its, decline era?
00:50:57:00 - 00:51:26:03
Marcel
Well, you know, from an economic point of view, companies, industries often go and ways, they have good times. They have kind of the German automotive sector has had spectacularly good times between, let's say, the late 90s and, 2018, 2019, increasing sales, capturing market share for the world. The key point is the automotive sector worldwide is growing, right?
00:51:26:03 - 00:51:54:21
Marcel
As Chinese consumers, in particular, Indian and other consumers are, becoming richer and want to buy car. So over the long term, that's still a growth sector. And the question is, will German car manufacturers keep losing market share until they're out of the market entirely, or will it stabilize, or will they turn the tide and actually manage, to regain that their competitive advantage?
00:51:54:21 - 00:52:18:10
Marcel
And as I said, German automotive, companies have been too slow in adopting new technologies, both at electric cars, battery technologies as well as autonomous driving. That will be the next challenge. And that will be probably a much, much bigger challenge to the automotive sector than the e-mobility.
00:52:18:10 - 00:52:39:11
Kassandra
When you put it that way, it almost makes the problem sound worse, that there's a pie that's growing, and even still, the German slice of it is shrinking. It makes me think of, the people who have these jobs which were once considered quite safe jobs here in Germany, because more than half of German business associations are expected to cut jobs in 2026.
00:52:39:15 - 00:52:46:24
Kassandra
How bad could the unemployment picture get here? Especially when we're talking about industry and autos and the like?
00:52:49:07 - 00:53:17:21
Marcel
Well, unemployment is very low in Germany for at least for historical comparisons. We don't have an unemployment problem. In at an aggregate level, yes. Industry is shedding jobs. But these jobs are needed elsewhere. In particular, Germany has a huge demographic problem. So we will lose 5 million workers net over the next ten years out of currently 46 million employees.
00:53:17:21 - 00:53:44:22
Marcel
So more than 10%. So there will be a reallocation of those jobs. As I said, the chances are good that they're going to find jobs elsewhere, but probably not as well paid. The automotive sector has been paying spectacularly well. If you look at the skills and, the wages that we have, received compared to other sectors, but, that will change and that will hit, of course, many workers very hard.
00:53:45:00 - 00:54:03:21
Daniel
And plenty of companies, and industry associations have been saying, well, then how about we lengthen the time until, retirement, let's cut taxes. Let's have more relaxed labor laws. Are you of the opinion that those things are necessary in order to turn around the economy?
00:54:06:09 - 00:54:26:13
Marcel
Well, quite the opposite. I think we don't need to bring people in early retirement, as I said, to relaunch the German economy, to, regain growth and competitiveness. We need skilled workers. We actually need far more skilled workers than Germany can provide. We need immigration.
00:54:26:13 - 00:54:35:20
Daniel
I think that's one of the suggestion, is that they say that the statutory, age for retirement should be pushed back as long as possible.
00:54:36:03 - 00:54:57:02
Marcel
Absolutely. Well, maybe not as long as possible. You don't want to have a retirement age of 80, but certainly more than 67 as it is going to be in Germany over the next few years. So, yes, we need a higher, retirement age. Much more importantly, Germany's biggest potential in the labor market is female employment. Employment by women.
00:54:57:04 - 00:55:21:09
Marcel
Apart from the Netherlands, no country in the world has a higher, share of part time women working. Not necessarily voluntarily. Many want to work more. So there's a huge potential in the labor market of highly skilled people and also immigration, by the way. So, that provides an important potential, for companies to have the skilled workers they need.
00:55:21:11 - 00:55:36:12
Marcel
But as I said before, the challenge right now is how to shift workers that are laid off in industry, in the automotive sector to other sectors where they need it, and that may need some reskilling and some additional training, to be fit for those jobs.
00:55:36:12 - 00:56:12:07
Daniel
Okay. And one last question. Because we're running out of time, in his book, caput Wolfgang Moonshadow suggests that, Germany's biggest curse is that it needs to break corporatism, the idea that the government is tied up with industry, that the government essentially picks winners, it chooses subsidies to support its, favored industries. The idea being that then bad ones haven't been allowed to go out of business over the past decades, and instead, poor industries have been, subsidized, to continue a kind of, overstimulated growth.
00:56:12:09 - 00:56:27:18
Daniel
And, he says that if it was a case of the products not being competitive enough, then that would be fine. Then cuts to taxes would have been fine. But it's the product selection that is just wrong in the face of the competition that's coming from abroad. Do you agree with that assessment?
00:56:28:21 - 00:56:54:14
Marcel
I agree with the assessment that corporatism is a problem in Germany. We have too much proximity between big business and politics. And that explains why it's so difficult, for the government to, to let go and allow a transformation, and more competition. Having said that, we have to be a bit careful to believe neoliberalism. So let the market decide everything.
00:56:54:14 - 00:57:20:18
Marcel
And the government stands back and markets regulate themselves. That's equally naive and and wrong. So we need to find the right middle ground and, to me, it's important. First of all, that, picking winners, is not a good strategy. The governments should provide good framework conditions on regulation, good infrastructure, sufficiently skilled labor.
00:57:20:20 - 00:57:44:11
Marcel
And finally, for me, the key point is we have to stop thinking in national terms. Industrial policy will succeed only at a European level, not at a national level. We need to understand in Germany that Germany has a small market for a small economy compared to the US or China, and our best hope, to produce European champions is really European.
00:57:44:11 - 00:57:58:06
Marcel
We won't have national champions, but the European champions are no champions. And, that hasn't sunk in. So we need to understand Europe is our future and, everyone in Europe is doing too little to realize that at the moment.
00:57:59:12 - 00:58:07:22
Kassandra
And that is it for us this week. If you like what we do here, give us a like a follow a subscribe and you'll be one of the first to know when we drop new episodes.
00:58:07:23 - 00:58:14:21
Daniel
That's right. And you can also comment as well, wherever you're listening to this. But you can also send us an email. We check them every day.
00:58:14:21 - 00:58:15:15
Kassandra
Every single day.
00:58:15:15 - 00:58:17:13
Daniel
That's the-dip@dw.com.
00:58:17:15 - 00:58:20:17
Kassandra
But until next time, this has been the death.
00:58:20:21 - 00:58:23:03
Daniel
See ya. Bye.