Latest / Gunther Fehlinger Podcast / Nicolas Véron - 2026 Outlook: Ukraine, Europe’s Rule of Law, and a Shaky Atlantic

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Nicolas Véron - 2026 Outlook: Ukraine, Europe’s Rule of Law, and a Shaky Atlantic · Gunther Fehlinger Podcast

0:02
We are back here at the we are back here at the Gunter Filling
0:05
podcast. I'm very honoured to have a very
0:07
important guest this afternoon with me, one of the most
0:10
distinguished economists we have in the European Union from
0:14
France and in the Bragg Institute and also in the
0:18
Peterson Institute, which is about the Holy Grail of global
0:22
economists. And I'm very, very honoured to
0:25
have Nicola Veron here this afternoon with me and thanks a
0:29
lot for joining the show. Maybe you can introduce yourself
0:33
a bit for our audience, your background, and then we discuss
0:36
what's happening in the world of economics and how to fund the
0:40
war and this very important week ahead of the European Council.
0:44
I'm very honoured that you take time.
0:46
Nicola. The floor is yours.
0:48
Thanks very much for having me as you introduce me.
0:52
I work both for Bruegel in Brussels and for the Peterson
0:55
Institute for International Economics, which is in
0:57
Washington, DC I've been doing that for both for more than 15
1:01
years. I was part of creating Google 20
1:04
years ago. So I'm an economist a bit by
1:07
adoption. I didn't train in economics, but
1:10
I have been doing this for some time and I have a background in
1:14
public policy and also a little bit in business management.
1:17
I'm a French national, so a European citizen with a French
1:21
passport, and I work a lot on financial regulatory policy,
1:26
financial sector policy issues, particularly in Europe, but also
1:30
at the global level and in comparative perspective.
1:34
I'm very honoured that you take time for this show.
1:37
I want to jump right into the situation because you are
1:40
probably one of the key persons to ask about this.
1:44
We are now ahead 2 days of the European Council, where many say
1:49
it's a very crucial week for European destiny because we are
1:53
ahead of this big decision about the not the confiscation, but
1:58
the turning of the freezing of the Russian assets into the
2:02
European system into alone for the funding of 2026 for Ukraine.
2:07
What's your take on this situation?
2:09
What do you think will happen and what is the right way to
2:12
act? First, you're right to make a
2:16
clear distinction between different concepts.
2:19
As you know, the foreign reserves of Russia, part of the
2:22
foreign reserves of Russia, have been immobilized.
2:25
As a technical term, people say frozen.
2:27
It's practically synonymous, but I will keep calling them
2:32
pedantically immobilized. And that has been the case since
2:36
late February 2022, immediately after the full scale invasion of
2:41
Ukraine by Russia four days before.
2:44
And this immobilization is going to continue.
2:46
So basically, the legal status of the foreign reserve does not
2:51
change. They have been immobilized for
2:53
nearly four years. That will continue.
2:55
The only thing that has changed is that there was an important
2:58
decision last Friday which determines that the
3:02
immobilization is now for an indefinite period of time.
3:05
But instead of being for rolling six months periods, that had to
3:09
be renewed twice a year, as had been the case until now.
3:13
This is a bit of a technicality, but it's important for the
3:16
financial balance of the reparations loan.
3:19
So what is the reparations loan? This is a loan that the EU will
3:24
provide to Ukraine, which is itself financed by borrowing
3:30
from the EU, Borrowing by the EU, sorry from Europeia.
3:35
Europeia has a big pile of cash, which is the counterpart on
3:40
their asset side of the liabilities they have.
3:43
These are the central Bank of Russia.
3:45
I'm talking about euro care, because euro care forms the bulk
3:48
of the reparations loan. Technically, the reparations
3:50
loan will be €210 billion, of which 185 apparently come from
3:57
Europe here and 25 from a little bit more held at different
4:01
banks. There were rumors last week that
4:03
BNP Parba was a big part of it. We don't know exactly.
4:06
It's not a very transparent matter.
4:08
So remember those numbers, 185 billions at Europe here, 25
4:13
billion elsewhere 2200 and 10 billion in total.
4:18
I will keep talking about Europe clear because it's so
4:20
overwhelmingly the majority of the money we're talking about.
4:26
So Europe here owes money to Russia.
4:29
They have cash on their asset side of their balance sheet, and
4:32
instead of keeping that cash, or more accurately investing it
4:36
overnight at the European Central Bank, they would lend it
4:39
on a rolling basis to the European Union at 0 interest.
4:43
And in a way that enables the European Union in turn to
4:47
provide financing to Ukraine for the same amount, in principle
4:51
maximum €210 billion. Even so, the European Union has
4:56
indicated that they would probably only lend 90 billion
5:00
during the first two years, so in 2026 and 2027, which
5:05
corresponds more or less to the funding that Ukraine needs, at
5:08
least under the current assumptions during that period.
5:12
The key point is that the European Union, of course, has
5:16
to be able to reimburse Europe here.
5:18
And this reimbursement capacity is provided by Member State
5:22
guarantees. So guarantees provided by the
5:25
participating Member States of the European Union, ideally 27
5:29
of them, in practice, probably Hungary will not join, maybe one
5:33
or two other member states will not join.
5:35
So it will be the vast majority or it is that the expectation of
5:40
EU member states providing those guarantees.
5:43
And there is also a possibility that the EU guarantee would come
5:46
on top. But for that we need unanimity.
5:48
So it's not clear that this will be part of the package.
5:51
Why is that contentious? Of course, the guarantees are
5:54
not debt for the Member States, they don't count as national
5:57
debt, but there is significant financial commitment in case the
6:02
money would need to be reimbursed at a given point of
6:05
time, which itself depends on the possibility of the Russian
6:10
reserves being de immobilized or unfrozen.
6:14
If Russia can claim their money from your cares and your care
6:17
will claim their money from the EU and therefore the guarantees
6:20
may be triggered. Unless, of course, there are
6:23
reparation payments from Russia, but at this point this is not
6:27
the immediate prospect. Nicola, let me ask you, do you
6:30
support this solution? Absolutely.
6:32
This is a very smart, very elegant piece of financial
6:36
engineering. It's the best way to use the
6:39
opportunity that is represented by the availability of all this
6:44
cash that you are clear because of the very unique, very special
6:47
situation of the immobilization of Russian reserves.
6:50
So important thing is that it does completely respect the
6:54
international rule of law. It does comply with the European
6:57
commitments to Russia. Even so, Russia is not behaving
7:01
well. The EU has commitments to Russia
7:04
under the international rule of law, and these commitments are
7:07
entirely respected by the reparations law, not just now
7:11
but also in the future. There is no scenario in which
7:15
the EU would have to confiscate the Russian reserves under that
7:19
scheme. And that's crucially important
7:20
because we have responsibilities not just to Russia but to the
7:24
rest of the world. And it's very important that
7:26
Europe demonstrates by actions and not just by words, its
7:30
commitment to the international rule of law.
7:33
But some have been criticizing the settlement that Russia will
7:37
retaliate and it will break our confidence in the euro and some
7:42
arguments like this. Do you think the euro will be
7:45
strong even when we do this measure?
7:48
Absolutely. And as you know, Gunchers, there
7:51
is a lot of propaganda by Russia.
7:53
They want to muddy the waters. They want to create uncertainty,
7:56
create doubt in public opinion, and therefore their main
7:59
instrument for that is frankly lying.
8:02
And they have been doing that a lot.
8:04
So it is a lie that the reparations loan represents
8:08
confiscation. It does not.
8:10
It is a lies that the reparations loan would undermine
8:14
the reputation of the euro as a currency, because, On the
8:17
contrary, it's a way to very strongly reaffirm or affirm the
8:23
commitment of the EU to the international rule of law and to
8:26
the sanctity of foreign monetary reserves under sovereign
8:31
immunity. So it is actually remarkable,
8:34
given all the hostile actions of Russia, you know, them, the
8:38
incursions of drones, the hybrid wars, the cutting of undersea
8:42
cables and etcetera, etcetera. Given all these very hostile,
8:47
aggressive actions by Russia, the fact that the EU goes out of
8:51
its way to preserve the integrity of Russian rights to
8:57
their monetary reserve place in Europe is a remarkable
9:01
affirmation of restraint. And I think if anything, that
9:04
strengthens the case for the euro as a reserve currency.
9:08
Will this be enough money to fund Ukraine's victory over
9:11
sustainance for the next two years?
9:14
Over the next two years, it's enough money very likely to
9:19
provide Ukraine basically for what they need on current
9:22
scenario. As you know, war is
9:24
unpredictable, so there could be scenarios in which Ukraine needs
9:28
even more money in the next two years.
9:30
I think it's more likely that they will just need money for
9:33
longer than two years and therefore after two years or in
9:37
the course, say of 2027, Europeans will have to think
9:41
about the next step of their funding of Ukraine.
9:44
If that becomes the issue, and it is likely because either
9:47
Ukraine keeps fighting or there is some kind of a peace
9:50
settlement, we don't know how and when, but then there will be
9:54
the challenge of Ukraine reconstruction and in that too,
9:57
there will be an interest for the EU to participate in the
10:00
funding. Even so, there will not be the
10:02
same kind of existential urgency.
10:06
So, so this is not the end of the road in terms of European
10:11
support to Ukraine in most in all likelihood, but it is
10:15
sufficient for the near term. And that makes a huge difference
10:18
because that means Ukraine is not under any financial
10:21
emergency, under any plausible scenario, which is a big
10:25
reassurance given the circumstances.
10:28
So that's a very, very important decision now to take and you
10:31
fully endorse it and it will be also taking I think this week.
10:36
We don't know. Of course there's a lot of
10:37
suspense. There's a very difficult
10:40
negotiation because it's not just Belgium.
10:42
Of course Belgium is a key part of it because it's a country
10:45
where European is located. But actually every member state
10:48
has something to negotiate. And because there is this
10:53
pressure of urgency, the time for negotiation is now, which
10:57
makes the discussion very, you know, untidy, if you will.
11:01
And there is a lot of media reports also misinformation
11:05
fueled by Russia and, and, and apparent discord.
11:10
But I agree with you. I think it is likely that we
11:12
will have an agreement on this loan just because the stakes are
11:16
so high for the EU. In a way, we cannot afford not
11:20
to succeed in this endeavour, given all the risks that are
11:25
there, including from the US, from the geopolitical
11:28
environment, at the current moment of European history.
11:31
Because Ukraine anyhow would need all this money.
11:34
And if this is not working now, this week, it would mean that
11:39
Europe would have to take euro bonds or make a big collateral
11:44
itself ultimately. So it's much better to do this
11:47
and then to take all the loans directly and all the cost of
11:51
Ukraine. So it's a good scenario.
11:54
That's correct. Alternative to the reparations
11:57
loan is not no money to Ukraine, because the commitment of the EU
12:01
to provide financial assistance to Ukraine is very strong.
12:05
It's just less money and in a way which is more difficult for
12:09
the EU, both in procedural terms but also in financial terms.
12:14
The reparations loan is a very financially beneficial scheme
12:18
for the EU. It's a 0 interest loan on a very
12:21
large amount which doesn't have to be over guaranteed unlike
12:25
other forms of you borrowing. So this is really a great
12:29
opportunity, a great deal as somebody might call it.
12:33
In the long term, do you support on the debate of euro bonds, do
12:36
you support European borrowing? Because we have started with the
12:40
COVID, with the recovery fund 750 billion, I think that worked
12:45
quite well. What's your assessment on that
12:47
one? And would it not also possible
12:49
to do euro bonds for victory basically when it's necessary
12:53
2000 26 that we issue a major loan as well as with COVID in
12:59
order to fund the reconstruction of Ukraine, which according to
13:03
many estimates will cost €600 billion somewhere in that
13:08
direction. So would not that be anyhow
13:11
necessary in 2026? So the reconstruction of Ukraine
13:16
indeed will be a multi €100 billion endeavour, but it will
13:20
not be immediate. There is no possibility that
13:23
Ukraine could absorb several €100 billion of spending on
13:28
reconstruction in just one year. Remember that before the full
13:32
scale invasion to Gross National Product of Ukraine, the GDP of
13:37
Ukraine was about €200 billion. So we're not talking whether
13:43
there's a challenge of absorption capacity.
13:45
And I'm not even talking about the problems of corruption and
13:50
integrity, which are very real problems in Ukraine as we know,
13:54
which is not a reason not to provide assistance, but
13:57
highlights the challenge of what the technocrats call absorption
14:01
capacity. So in practice, the
14:05
reconstruction of Ukraine, a bit like the current financial
14:08
support under wartime isn't the 10s of billions per year rather
14:12
than in the hundreds of billion per years.
14:14
And then the question becomes do we really need EU level
14:17
borrowing for that? It may be the case that at some
14:20
point we will come to it, but it is kind of a borderline case
14:24
because in many ways it is possible that this effort could
14:28
be provided under the financial framework of the EU budget, the
14:33
multi annual financial framework to MFF, which is still under
14:37
negotiation for the next 7 year period.
14:40
So basically like you, I am sympathetic to your bones.
14:45
I also I'm very aware of the political obstacles to EU
14:50
borrowing. It's not something that is
14:52
straightforward from a political or even legal perspective.
14:56
It is likely that if we want to make your bonds a permanent
15:00
feature of European life, we need a treaty change.
15:02
And you know, as I do, how difficult it is to consider a
15:06
treaty change in the current circumstances.
15:08
And therefore I think we will continue for some time to try to
15:13
find solutions that allow for financing the projects we need
15:17
to finance without basically a fiscal union unless there is an
15:22
unexpected event that precipitates events and make
15:26
makes a fiscal union inevitable as we had for banking union in
15:30
2012. But in the absence of that
15:34
unexpected scenario, I think we will continue to navigate the
15:38
kind of halfway house that we have now where we have
15:41
demonstrated that the European levels, the ability to borrow in
15:47
as a single borrowers, that was the EU next generation EU plan.
15:52
And as you said, it was by and large very successful.
15:55
Even so, not everything was perfect in terms of the
15:57
spending, but it was very successful as a proof of concept
16:01
of EU level borrowing and spending.
16:04
And we can do that again. But but, but I think the the
16:09
financial engineering basically will be tailored to the
16:12
individual challenge at this point for financing Ukraine's,
16:16
the reparations loan is obviously the best solution.
16:18
We should hope it happens. We will have more EU funding for
16:22
a number of different projects, as has been the case recently
16:25
with SAFE. Whether it can be done at scale
16:28
and on a permanent basis is a different challenge.
16:32
In the Berlin discussions now between America, Europe and
16:35
Ukraine, there was the debate and it seems to be one of the
16:38
things where consensus develops about Ukraine joining the
16:41
European Union, even a relatively fast.
16:44
So there was 2027 mentioned. So immediately basically 2029,
16:50
the next European elections or at least in a overseeable period
16:54
from an economic point of view. What do you think?
16:57
Is it very good for Ukraine to be in the European Union and to
17:00
frame the construction of Ukraine in the European Union
17:04
enlargement context? So being a member of the EU
17:09
makes it even more straightforward for the EU to
17:12
provide financial assistance to Ukraine.
17:15
So from that perspective, yes, it is economically desirable for
17:19
Ukraine to join the EU as soon as possible.
17:21
And of course, all the benefits of the single market.
17:24
Now I am aware, of course, as you are Gunther, that this is
17:29
not just an economic issue and there are many other dimensions
17:33
at stake. And, and, and frankly, I'm not
17:35
sure I would put money on Ukraine being a member of the
17:37
European Union on the 1st of January 2027 or even the 1st of
17:41
July. But I think it is a welcome
17:44
signal that Europeans are talking about fast track
17:47
membership because that is reassurance to Ukrainian
17:52
leadership and public opinion that the EU is serious about
17:55
this. The place of Ukraine in the
17:58
future is clearly in the European Union.
18:01
It is important to reaffirm that even through the past, sorry
18:06
will be difficult and and the Ukrainians have, if I can put it
18:12
in this category, slightly casual and maybe a little bit
18:15
too glib way. The Ukrainians have earned their
18:19
membership of the European Union buys with the bravery that they
18:23
have demonstrated and the commitments they have
18:26
demonstrated to the defence, to their own defence, the defence
18:29
of Ukraine, but also for the sake of the values they are
18:32
defending, which are European values.
18:34
And this is what has changed the equation so fundamentally from
18:39
what it was even four years ago. You mentioned already the
18:43
European framework, the seven-year budget cycle which
18:46
the European Union gives itself and it's currently under
18:49
negotiation. When we take Ukraine into this
18:54
budget circle or at least integrate it in the next one
18:57
somehow and make pre accession in this one, then we need also
19:00
financially budget that in the in the framework.
19:04
So we have currently, because also Austria and the
19:07
Netherlands, we had this debate about the frugal 4 in the last
19:11
period period in 2019 I think it was.
19:14
And then we have limited the European Union funding on 1% of
19:18
the GDP of the what you think in this debate, where should we go?
19:23
How big should the budget of the European Union be be in terms of
19:27
EU GDP and what you is your wish?
19:30
What is your prognosis? What you think she will help me
19:34
on that one? So 1% of this is a bit
19:37
artificial. It has symbolic value, but at
19:39
the end of the day, they are challenges that require funding
19:44
at the European level because it's so much more efficient to
19:47
address them at with European monies than with national money.
19:50
And it's a way also frankly to make sure that there there is
19:54
fair burden sharing of those challenges.
19:56
If the alternative, if you take for example support to Ukraine,
20:00
if the alternative is between just support by the Nordic
20:03
countries because they are more closer to Russia, or support by
20:07
all Europeans, including Italy and Spain, it is advantageous.
20:11
For the Nordic countries, even those which have traditionally
20:14
been frugal in European budgetary discussions, to have
20:18
the funding at the European level rather than bilateral,
20:21
because that's a fairer burden sharing.
20:22
And frankly, because countries like Italy and Spain also
20:26
benefit from the security pluses that come with Ukrainian defence
20:32
and Ukrainian integration into the EU.
20:34
So these are the fundamentals of this discussion.
20:37
It's not about an artificial boundary at .99 or 1.01%.
20:43
It's about what do we need to finance in common and what is
20:46
the best way to achieve that. And it is the case that with the
20:49
increase in global security risk, with the deterioration of
20:53
the geopolitical environment of the EU, the this balance is
20:57
shifting towards the EU. Because in the security domain,
21:00
including but not limited to the defense of Ukraine against
21:04
Russia, there are increasingly things that are better done with
21:08
European level action than with national level action.
21:11
So there's huge resistance against that, particularly from
21:14
the National Defense establishments, the military
21:17
industrial complex in individual member states.
21:19
They want things to remain what they are because there are many
21:22
rents and established incumbency situations in that space and
21:26
they're very difficult to displace.
21:28
But we need longer term, we need European integration of our
21:33
security effort and everybody knows it's Even so many people
21:36
are resisting it very actively. Nicola, the question about
21:40
common defence procurement, that means that we buy things
21:44
together as European Union in the expensive items like
21:47
aircraft carrier, potentially nuclear deterrent or this kind
21:52
of fighter craft of the future and all these very expensive
21:56
items. Wouldn't it not be better to do
21:59
1 common platforms for all this very expensive kit and do that
22:04
via the European Union in the future?
22:08
So economists will always say yes because this is so much more
22:10
efficient. But there are not many non
22:12
economic parameters here, starting with the decision
22:15
making, as you know. So executive decision making at
22:18
the EU level is not of the same nature from what we have at the
22:22
national level. And for something like nuclear
22:25
deterrence at this point, and maybe I'm biased by my French
22:28
passport here at this point, it is probably preferable to have
22:32
nuclear decision making at the national level then at the
22:35
European level given all the veto points that we see for
22:39
European decisions. And this deterrence of course is
22:42
worth nothing if it is not credible.
22:44
So we have to navigate this web of constraints and that's true
22:47
for other non nuclear aspects of defense where we need to
22:52
understand that it's not just special interest.
22:54
Even so, they're very powerful, but there are also military and
22:58
security arguments for keeping some aspects of the decision, at
23:02
least in the current state of EU institutions at the national
23:06
level. So we need to find compromises
23:08
between the obvious necessity of European action, particularly
23:12
for procurement, because of the efficiency of imperative, and
23:15
the realities of a Europe, European Union, which is not a
23:20
country which doesn't have an integrated executive but has its
23:23
own institutions, with the checks and balances and also
23:27
sometimes frankly, the inertia that that entails.
23:31
Sadly, that means that we will probably have to live for
23:35
protracted period of time with a lot of economic inefficiency.
23:39
We will need to live with the second best, particularly in the
23:42
area of procurement, and the aim of policymakers should be to
23:46
reduce this inefficiency as much as possible, with the awareness
23:51
that we will struggle and we will probably fail for the
23:54
foreseeable future to reach the level of efficiencies that would
23:58
come with fully integrated structures.
24:02
The Europeans have lived now 70 or 80 years under the American
24:06
nuclear umbrella and we have been able to build safety,
24:10
security, prosperity in free Europe because of American
24:14
ultimate protection. Now this seems all a little bit
24:17
more shaky, our transatlantic bonds with the recent turns of
24:21
events in the United States. So the question is, is France
24:25
ready to take over this ultimate protector role of Europe and Are
24:29
you ready to defend us potentially under the French
24:33
nuclear deterrent? I think the French nuclear
24:36
deterrent is credible, and it is in my understanding.
24:40
Even so, I'm not a specialist of this.
24:41
Frankly, it's always been part of French doctrine that the
24:45
trigger for the deterrent was not the physical border of the
24:50
French territory. In other words, France has a
24:54
kind of holistic understanding of its vital interests and these
24:57
vital interests have always incorporated a European
25:01
dimension. Now maybe there is a need to
25:05
express that reality, that long standing reality in a bit of a
25:09
more specific way. And I think this is what
25:12
President Macron and the French leadership and authorities are
25:16
thinking about. But I think it it it it would be
25:20
misleading to frame it as a complete revolution in French
25:25
military affairs, to have a European dimension to the French
25:31
nuclear deterrents. This is something that has been
25:33
present in French doctrine for a long time now.
25:36
Of course, this was in complementarity with the
25:39
existence of an American deterrent applied to Europe.
25:43
And at this point, the American component is in flux.
25:47
And as you know, the UK nuclear deterrent is not entirely
25:50
autonomous, at least in some dimensions from the US decision
25:54
making. So, so we are in this changing
25:57
environment. The withdrawal of American
25:59
leadership makes a huge difference.
26:01
I'm not trying to minimize it. And that means that France has
26:05
to reconsider its responsibility in Europe under these new
26:10
circumstances. But that shouldn't dominate.
26:15
Even so, of course, nuclear deterrence is central to any
26:18
security considerations. There are so many other aspects
26:22
of the security equation and of the burden sharing and of the
26:26
responsibilities in Europe that also have to be brought into the
26:30
conversation. In terms of economics and
26:33
security, it is transatlantic relation was the backbone of our
26:37
prosperity and security for the last 80 years, since the end of
26:40
the World War. And we have, with American
26:43
assistance, rebuilt us. We always had good access and
26:46
good straight relations with the United States of America.
26:50
But everything seems to be a little bit shaky now and I would
26:53
like to know your assessment, what's the future of
26:56
transatlantic relations? And if you also can say about
26:59
this Turnpike agreement, if what's what should make out of
27:03
it because it's very controversial in Austria and
27:06
Germany. Do you think it was a necessary
27:08
compromise or was it a bad deal or was it the best deal
27:12
available? How we continue with American,
27:15
with this America under Trump in the next three years.
27:19
Strangler, a deal is very unsatisfactory, but I believe,
27:23
as the European Commission van der Leyen has explained, that
27:27
this was the best available deal under the circumstances and what
27:31
she has been reluctant to say explicitly.
27:34
But the number of people at the European Commission and
27:36
elsewhere have made very explicit that the circumstances
27:40
include security and especially as military and Security
27:43
Assistance to Ukraine. As you know, Ukraine still
27:46
receives very significant US American input for its defence,
27:52
particularly in the area of intelligence.
27:55
This is militarily vital for Ukraine and it is justified that
28:00
Europeans would pay a high price to maintain that assistance of
28:04
the US security community to Ukraine for the longest time
28:09
possible. And so far it has been preserved
28:12
except for an unfortunate period of one week in March.
28:16
And that's a major achievement of European diplomacy in my
28:19
view. So, so I support the efforts
28:22
that have been made to achieve that, including the very
28:26
humiliating, very frustrating Turnberry deal that has been
28:29
part of that equation. I think going forward that what
28:33
that demonstrates is that there is something remaining of the
28:36
transatlantic partnership because to state the obvious,
28:40
the US military is providing this assistance to Ukraine and
28:43
not to Russia. And that is in the interest of
28:46
the European Union, of individual European countries.
28:49
So we have a partnership with the US which is not isolationism
28:54
of the US, which is not neutrality of the US, but which
28:57
is affected by the erratic policies of the Trump
29:01
administration. And the fact that the Trump
29:03
administration has been willing to make both decisions and
29:10
pronouncements in the public space, which goes which fly in
29:14
the face of any reasonable understanding of a strong
29:17
transatlantic partnership, including in the latest National
29:21
Security Strategy document. So the Europeans have to
29:25
navigate a very difficult set of circumstances.
29:28
They have to be good diplomats. That means sometimes accepting
29:32
the appearance of humiliation when it makes it possible to get
29:36
a tangible benefit, including in the security space.
29:40
And I think by and large, EU diplomacy, European diplomacy
29:43
since the beginning of the second Trump administration has
29:46
been quite effective at that. So, so I wouldn't pronounce the
29:50
transatlantic partnership and highly dead.
29:53
Even so, it's obviously very diminished by the policies of
29:57
the Trump administration. I will also note that those
30:00
policies of the Trump administration weakens the US
30:03
much more than they weaken Europe.
30:05
Europe is able to find resources of itself, including for the
30:10
assistance to Ukraine and to provide Ukraine's a means to
30:13
defend itself. So US is destroying its
30:16
influence in the world with the erratic policies that we're
30:19
seeing since the beginning of this year.
30:22
And this is ultimately inflicting more damage to the US
30:26
than to any other nation. President Trump seems to be
30:30
fascinated by some mineral deals with Russia and is always
30:34
tweeting about these great opportunities with Russia and
30:37
the oil, the gas and all these minerals.
30:40
While at the same time, to my best knowledge, the American FDI
30:44
stock in the European Union is somehow like 4 trillion U.S.
30:48
dollars of investment accumulated in the European
30:52
Union and we European companies and investors about 3 trillion.
30:57
What I remember some years ago that it was the number, some of
30:59
the relations. So it's a huge integrated
31:03
market, actually. And we are very, very deeply
31:06
intertwined continents. So why is nobody explaining this
31:10
to President Trump? Can he really make better deals
31:13
with Russia behind our back than what we give to the American
31:17
tech companies and to American investors in the European Union?
31:21
It's, as you implied, it's difficult to understand how
31:25
President Trump thinks about Russia and Europe.
31:27
I will not try. I will just note that as you
31:30
said, there is a huge economic value in the transatlantic
31:35
partnership and there is nothing comparable, nothing remotely
31:38
comparable in terms of potential value even under the best of
31:43
circumstances in the Russia US relationship.
31:48
American investors in Russia, some of them have made money,
31:51
some of them have lost money. Generally speaking, Russia has
31:54
not been a good investment environment for American
31:56
investment over any period of an extended period of time that you
32:01
may choose, whether during the tsars, the Communist or the post
32:06
communist transition. Bill Browder is the emblem of
32:11
the difficulties that have met American investment in Russia,
32:16
and there are many others who testify to the fact that Russia
32:20
is unlikely, under its current regime, or indeed sadly, any
32:25
plausible successor, to be a favourable environment for
32:30
American foreign investment. You are about 20 years in top
32:34
economic decision making with the Prague Institute.
32:37
I'm sure you were also involved in the TT debate in the
32:40
Transatlantic Free Trade Agreement and Obama and Merkel.
32:44
Do you feel from time to time sorry about this lost
32:47
opportunity? And wouldn't we be much better
32:49
off if we had concluded a free trade agreement when we could
32:53
10-15 years ago? I'm not sure we could
32:56
unilaterally as Europeans, because I'm not sure there ever
32:59
was a space politically in the US to complete that negotiation
33:06
anyways. That's what are under the
33:07
bridge. It was attempted, it didn't
33:09
succeed. Now we have a very different
33:11
situation with the US and I think we have to look forward at
33:15
what our our relationship, our relationship as Europeans with
33:21
the US economy can be. But for that we need to
33:23
understand the US political regime.
33:25
And the US political regime is in flux right now.
33:28
It is in play. It is no longer what it used to
33:31
be. And therefore I think we have to
33:33
look at this not just from an economic standpoint, but also
33:36
strategically with immense uncertainties as to the future
33:40
of the United States. This week as we speak is another
33:43
historic decision in the European Parliament, European
33:46
Council. It's the ratification or at
33:48
least the enforce the putting of the free trade agreement with
33:52
Mercosur, another battle for economic rationality for the
33:56
last 30 years ongoing. What's your assessment of that
33:59
one? And will France support and
34:03
Austria hopefully as well? And will it be successful or
34:05
not? France is a bit reluctant and
34:09
I'm not a specialist of agricultural issues, but I
34:11
understand the French farmers are very opposed to Merco Sewer.
34:15
Having said that, the French economy is much more than just
34:18
farming and therefore I think we have to consider it in the big
34:22
picture, including the geopolitical and geostrategic
34:26
picture. And from that perspective, it is
34:28
obvious to me as to many outside observers, that Merco Sewer is
34:32
an opportunity and should be approved as soon as possible.
34:35
So I hope that will be the case. I'm not close enough to that
34:39
negotiation to form an assessment on how likely it is
34:42
to happen this week, but I'm pretty confident it will
34:45
ultimately happen. And I think this is in the best
34:48
interest not only of Europe as a whole, but also as of France as
34:51
a nation. Let me ask in closing this most
34:54
exciting topic of all, which Twitter has been cooking in the
34:58
last weeks, because the European Commission competition
35:02
department has fined a fine on X, actually, I think €120
35:07
million of fine for misbehaviour, or it was the
35:11
digital service department, some of the departments.
35:14
And so please can you explain our audience why this was
35:17
necessary, why this was justified and why this was such
35:21
a contentious issue on both sides of the Atlantic.
35:24
And please, Nicola, tell me, is there free speech in France, in
35:29
the European Union, or is it only free speech in the United
35:32
States of America? You'll see a lot of the lobbying
35:36
by Twitter and other big tech firms claims it is about free
35:39
speech, but it is not about free speech.
35:41
It's about the defense of economic rights.
35:44
And Even so, I'm not a deep expert of what happened with X
35:48
and the European Commission. I understand that the case that
35:51
we're talking about, the fines that was slapped on X by the
35:55
European Commission, has nothing to do with free speech.
35:58
So there is a lot of misrepresentation and
36:00
obfuscation from X and from other big tech firms in this
36:06
kind of cases. And I think it's important to
36:08
look at the substance. So it is welcome, I think, that
36:12
the EU is demonstrating its ability to enforce its own rule
36:16
of flu, despite the diplomatic context that calls for, you
36:21
know, restraint in that area. And, and I think it would be
36:27
unacceptable. Even so, I have defended the
36:30
willingness of the European Commission to make compromises
36:33
with the Trump administration for the sake of particularly the
36:37
defense of Ukraine. That doesn't mean that every
36:39
demand of the Trump administration is acceptable.
36:42
So, again, EU diplomacy and EU decision making has to take into
36:47
it to navigate this set of constraints, to accept the
36:50
acceptable and reject the unacceptable.
36:52
And I think this is what we have seen so far.
36:55
Given the huge outflows in digital services from the
36:58
European Union towards the US, should the US not be a little
37:02
bit more modest in complaining about such fines, which sounds
37:07
very big, but in reality to this billions and billions which is
37:10
transferred in digital service fees to the big US tech
37:14
companies? This is miniscule in relation.
37:19
Elon Musk and other big tech leaders know what they're doing.
37:25
I think in the EU we are. I guess our way of looking at
37:34
this had changed over the past year.
37:37
The use of big tech services being from X or Facebook, but
37:42
also from Apple, Meta, Microsoft, other big tech firms,
37:48
was considered natural until this year.
37:52
It is now considered more of a critical dependency and a
37:55
vulnerability by an increasing number of Europeans.
37:59
Now we know of course, that we don't have an immediate
38:02
replacement solution for those services because all the
38:06
competitors in that space are based in the US So that raises
38:10
the question of whether it is possible for Europeans to create
38:15
a competing offering of services going forward.
38:18
Maybe the answer can be yes, but certainly not in the very short
38:21
term. So in the very short term, I
38:22
think we have to accept that we keep buying those services from
38:27
the US. It would be very much in the
38:31
European interest if an alternative could develop.
38:34
We are at the end of 2025 and I would like to ask you, what's
38:40
your wish for 2026 and beyond? Where should the transatlantic
38:45
economic reality go for what should be the most important
38:48
steps? And should we achieve a free
38:51
trade agreement between the US and the EU in the future?
38:54
Hello. I've mentioned uncertainty about
38:59
the political regime in the USI think this has to be taken very
39:02
seriously. So my wish for 2025 is that the
39:09
EU, sorry. 26. Sorry, my wish.
39:15
Sorry, my wish for 2026. Apologies for not being used to
39:20
the change of date. Yet is not just for the EU to
39:25
retain it's democratic institutions, it's commitment to
39:30
the rule of law, it's quality of life, but to keep supporting
39:34
Ukraine. For Ukraine to keep being
39:37
successful in it's fight against Russian aggression and maybe
39:40
becoming even more successful in pushing back.
39:44
And for the US to regain it's attributes that I just described
39:50
for the EU, the commitment to the rule of law, democratic
39:53
institutions, quality of life and civilian peace, we have to
39:58
waste that for the US. And if that's the case, then we
40:01
can be hopeful for a renewed transatlantic partnership.
40:05
But there are so many uncertainties here that I don't
40:08
know if all my wishes can be fulfilled.
40:11
Let me close with maybe 1 optimistic thing, because, you
40:14
know, I'm a big fan of the euro enlargement.
40:16
In two weeks we have Bulgaria as a new member of the Eurozone.
40:21
That's very good. Maybe you can welcome the
40:23
Bulgarians. And we close it like this
40:25
because it's good news happening, and that's wonderful.
40:29
Absolutely. I won't be able to say it in
40:30
Bulgarian, but this is great news for the euro and it's not
40:34
going to be the last. There are other Member States
40:36
that are thinking about your adoption and I hope we will see
40:40
movement in that direction also in the course of 2026.
40:43
That would make me the most happy man alive.
40:46
Really. I really love the euro and if
40:49
it's enlarged it's much safer and every new country in the
40:52
euro is a sign of more unity and economic strength of our
40:56
European project. This was my discussion with
41:00
Nicholas Fernan here. Veron.
41:02
He's one of the leading economists in the transatlantic
41:04
rearm and works in Washington for the famous Peterson
41:08
Institute and for is one of the founders of the Brogley
41:11
Institute. I want to thank you very much
41:13
that to join the show. I want to also offer you, maybe
41:16
you want to have a last word here, a closing outlook,
41:20
optimistic as all economists should be, in the style of.
41:26
Because we mentioned Austria, Austria has been a long standing
41:29
partner and supporter for Brutal.
41:31
So we're grateful about that as well.
41:33
And I just want to also wish you Contour a very happy year 2026
41:38
and all the best for all your endeavours.
41:41
Thanks a lot and Merry Christmas to you success in 2026 and let's
41:46
win this war and success for Europe.
41:49
All the best, Nicola. Thanks for having me.
41:52
I will close now the recording.