Arancha Gonzalez Laya (3:56)

We still got the hard, tough job to do, which is get the European Union ready to not be satisfied with just enough to limp along, because that's too risky a business today.

Sarah Wheaton (4:09)

You'll hear my interview with her in a moment. But first, let's unpack the tech rules flare up. Donald Trump's threats are aimed at countries with digital services taxes and at the EU's own landmark rules, the Digital Services act and the Digital Markets Act. The first one pushes social media platforms to tackle illegal content, while the second one is meant to stop the tech giants from abusing their market power. We're talking about the likes of Google, Amazon, Meta X or Apple. So when Trump's latest outburst hit this week, I had a rare chance to grab instant reactions from two heavyweights. Very fittingly, I was moderating a session on Europe's future in an era of geoeconomic disruption, trade wars and shifting alliances. On stage, Sabina Wayand, the Commission's Director General for Trade and Economic security, basically the EU's top trade negotiator. And Joseph Stiglitz, a Nobel Prize winning economist. Here's what they had to say. Donald Trump posted his truth. He said that basically all tech regulations are designed to harm or discriminate against American technology. And I quote, I put all countries with digital taxes, legislation, rules or regulations on notice that unless these discriminatory actions are removed, I, as President of the United States, will impose substantial additional tariffs on that country's exports to the USA and institute export restrictions on our highly protected technology and chips. Sabina, we just had this deal worked out, but now he's already making this threat.

Sabina Wayand (5:48)

This is not new. We are familiar with concerns expressed by successive US Administrations about our regulations. This has also been the subject of the discussions in the last few months. And we have always been very clear our regulation is non discriminatory and we will apply it as decided by our democratic institutions. That is not up for concessions or negotiations with other countries. That doesn't change. You don't have to believe me. Read the article that Commission President von der Leyen published this weekend and she was crystal clear about this point as well. And that remains the EU position.

Sarah Wheaton (6:25)

Okay, so Trump's tweet or truth Social post, I should say was maybe an example of this. We've heard Jamison Greer, the trade representative, in his own op ed he wrote that we're witnessing a new trading order and in his view, it's more fair. It uses tariffs to better protect national interest and also to wield American foreign policy to get other countries to do what the US Wants. Joe, let me start with you. Do you also see that we're entering a new world order of trade?

Joseph Stiglitz (6:59)

Yeah, clearly it's new world order. We were since World War II or even before. We were trying to create an international rule of law, imperfect. There were power reflected in the terms of the agreement. The advanced countries, you know, there was a principle, no subsidies, but the advanced countries wanted to protect their agriculture, so they got those ability to keep agricultural subsidies. So it was a rule of law with a lot of flaws in it, but it was better than the law of the jungle. And the new order is an attempt by Donald Trump to basically capture for the United States more of the, you might say, value of the global supply chain rapid for itself. It's denial of the rule of law is against all the principles, you know, what economics would say, the basic principles of what makes a good economy function. He's using the language discrimination, you know, to see, but he's appropriating and says that anything against tech is discrimination against the United States. As you pointed out, you know, the, the rules apply to everybody. They're non discriminatory. They apply to European firms, Chinese firms, any firm operating in Europe. They're non discriminatory. But Trump doesn't understand things that way. My impression and Sabine can talk more about this when you're negotiating with them. From what I've heard from everybody, it's not a normal negotiation where you say we have a non discriminatory framework. And the answer will be you discriminate. You say, but we have a non discriminatory framework. The answer will be you discriminate. So that kind of conversation doesn't get very far. And I have a lot of empathy for anybody negotiating like that. But it is an attempt to just exert raw power. Now, what is the answer for Europe? Europe is a bigger economy, more people, bigger gdp, more engaged in trade than the United States. And many of the innovations have actually come from Europe, or more particularly, a lot of the innovators are Europeans working in America. So when you look at it that way, you say that's not what should have come out in a normal bargaining between two parties. If you have two symmetric parties, the outcomes should be symmetric, but the outcomes didn't appear to be symmetric. And so you say, what is this? Well, it's not just a trade negotiation, it's about everything. And nobody should confuse Europe is at war, but it's not just a trade war, it's an economic war, more broadly understood. And it's a military war, it's a war with Russia. And everything in that sense is at stake. And the US knows that. US knows that Europe needs American military supplies for the war in Ukraine. And so it's using that leverage to extract a better deal. So what is the answer to that? It's very clear you get better outcomes in bargaining when you bargain together. So UK should have joined you and other countries should have joined you in a collective bargain. When you bargain collectively, you get better than divide and conquer. And he's trying to divide and conquer. And most of the world fell into that trap. Secondly, you can't be dependent. You need national sovereignty in every dimension. So you urgently need to be able to produce the military equipment. The good news is that the key military equipment for the war in Ukraine are things like drone. Countries like Iran, Turkey, Ukraine are producing them and that means Europe can produce them. So, so there's no reason that Europe could not be for this war, real military power. There's no reason you should be depending on the United States.

Sarah Wheaton (11:10)

So taken together, those two statements by Sabina Wayand and Joseph Stiglitz add up to a two step process. Defend the rules and match them with power by acting collectively. And that led to my next question about how Europe can adapt to a harder world without pining for an easier one. Here's Sabina Wayand, who struck me with this. Nostalgia is not a strategy.

Sabina Wayand (11:37)

I think we have to recognize that the order in which Europe was thriving is a thing of the past and it will not come back. And nostalgia is not a strategy. So I think we have to accept that we have to adapt to the world we live in. And that is more Power based and rules based. At the moment, now there are different sources of power. EU power has been largely economic and a trade power. Today that is no longer sufficient. Which is the reason why we need to work on our security hard security, economic security. By the way, I'm not just Director General for trade, but for trade and economic security. Now that does not mean, when I say we live in a power based world, that doesn't mean that we have to adjust to a Hobbesian world forever. We have the task to change that. And I think autonomy is not, I mean we were talking about technological sovereignty and all these issues, but autarky is not an option for anyone. Which means that for the EU we rely on the power of partnerships. That network of partnerships that we have to develop will be a lot messier than the order we had before. Now, short term, I think the contribution to a rules based world will come from bilateral agreements such as the one we are trying to negotiate now. And we will conclude by the end of the year with India. And you know, if you look for a silver lining in the current situation, it is in the fact that we are more attractive than ever before and that there is a realization from more players that we cannot just sit back, but we really have to take our fate into our own hands and, and build the order in which we want to live. Now we are also engaged in negotiations in Southeast Asia. We've just concluded politically with Indonesia. Negotiations with the Philippines, with Thailand, with Malaysia are going on and they are positive. We've just opened negotiations with the United Arab Emirates. The Gulf Cooperation Council is coming back. So there is a lot happening there. That, however, is not enough to compensate for the loss of the multilateral order that we have. But here the solution is, in my view, open plurilateralism. So we need to work with groups of countries in order to design the rules for the 21st century. Because let's be honest, the WTO rules have not been fit for the purpose of today. So there are deficiencies in the system, which is the reason why we've always been an advocate of reform. The WTO has not been able to digest the rise of China and to integrate China's state capitalist system into a world order. So there are things we need to look at, rules which relate to what is the role of the state in the economy, what type of subsidization is necessary and welcome to deal with the climate challenge. How can we do industrial policy without turning this into a beggar thy neighbor policy? So there are lots of rules we are Looking at, there are groupings of countries which are relatively like minded in the cptpp. We are just starting a dialogue with them.

Sarah Wheaton (14:44)

Sorry, this is the aid. They're kind of Trans Pacific, the Artist.

Sabina Wayand (14:48)

Formerly known as the TPP until the US left them and now they are the cptpp. But it will be messier because we will have overlapping groupings of countries, some dealing with market access, some dealing with rules, some dealing with economic security, some dealing with securing supply chains. So this is not something you create ex nihilo within a space of a few weeks or months. So we also need to invest in this and be ready to live in a situation which will continue to be very uncomfortable. But last word I wanted to say is let's not look at Europe only through the eyes of others. Europe needs to focus on its own strength and we have a lot we can work with here. The biggest asset is the single market and we need to focus on making that fit for the future. And that means also looking in particular at technologies. That is where we have our strengths. And let's focus on Europe's strengths and not just react to what others are doing, but be an actor of our own, shaping our own destiny.

Sarah Wheaton (15:56)

Okay, we need to take a quick break. When we come back, Arancha Gonzalez on how Europe moves from limping along to setting the pace. Stay with us.

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Sarah Wheaton (16:59)

Now to my conversation in Alpac with Arantxa Gonzalez. Laia. She cut her teeth at the European Commission on trade policy and negotiations, then moved to the UN system. Later she served as Spain's Foreign minister, and now she's in academia. She also has a knack for sharp phrasing, including that limping along warning you heard earlier. I began with another one of her punchy lines. In a recent interview, you said that the EU had finally learned to be a bullfighter with Trump. You're referring to the negotiations that they were part of over. Over Ukraine, the White House meeting that we saw early last week. Can you explain a little bit more about what made you say that?

Arancha Gonzalez Laya (17:40)

Yeah, I mean, we've gone through different episodes of having to deal with the current US President. We tried with a nice way, convincing, arguing, putting rational arguments on the table, convincing the president that we are on the same side, that we are playing with all the same team. But we've had episodes where we've clearly seen that we don't seem to be on the same team. And if I had to pin at one moment when this was very clearly on display was when Ukrainian President Zelensky was invited to the Oval Office, where we very clearly saw that maybe the US President was not on our team. So Natalie tried. We are trying a different way. We are trying to be the last one to whisper in his ears. That seems to work for a person that changes his mind pretty often. We demonstrate that he really think he's good, he's great, he's a genius. At times. We praise his ego, which seems to work. So we're learning to, you know, the art of maneuvering the current news present. But let's not kid ourselves. This is only one part of what we can do to win time to do what we need to do. It's not enough. And if I have Sara. One regret about this summer, which has been pretty tough for us in Europe, for those that like democracy and freedom, if I have one regret, is that it has been the summer of just enough to limp along and just enough to limp along is not enough. And that's the problem we have. So, yeah, we've learned to maneuver the U.S. president, but this is not enough. Let's not take too much comfort into that. We still got the hard, tough job to do, which is get the European Union ready to not be satisfied with just enough to limp along, because that's too risky a business today with a.

Sarah Wheaton (19:50)

Foot injury here in Albaca, I'm going to try not to take that personally. Just limping along. But, yeah. So, yeah, what would not just limping along mean? I feel like that's something that has not fully been confronted because it seemed, you know, we had one Trump administration people Definitely. If anything, they just kind of closed their eyes and hoped that it would be over. And it was. It was over briefly. And then there was a lot of relief when Biden came in. And then Trump looked like he was going to come back, and people got nervous again. And then I remember when Biden dropped out and Kamala Harris seemed like she was off to a good start again, you saw the negotiations kind of ease. People are like, okay, good. Again, we're going to be able to count on the US and then here we are again. So do you think that this recognition has happened, that this might just be the new normal, or is there more just kind of okay, we just have to get over the next.

Arancha Gonzalez Laya (20:52)

Till now, I said this when to our European disappointment, let's say, or at least to the disappointment of many, the US Electorate chose President Trump. I said it very clearly. The problem is not Trump, and the solution would not have been Kamala Harris. This is disempowering Europe. And the problem we have is that we keep on disempowering Europe. And the answers to Europe and the answers to European citizens and the answers to European democracy and the answers to Europe's economy is within Europe. The answers are with us. So I want to refocus the conversation, because otherwise, it's almost like someone else has to do the job for us. It's not someone else. We have to do the job for us. So I think we have three big priorities that we need to get right. The first one is our ability to defend ourselves. We've done a lot of talking, and we've put a lot of efforts into giving a numerical figure to that objective. But this is only one very small part of the conversation.

Sarah Wheaton (22:00)

This is the defense spending.

Arancha Gonzalez Laya (22:01)

Defense spending is okay. It's part of this conversation, but it's not just about how much more do we spend, but how do we spend it, how good do we spend it, or how bad do we spend it? Do we do this at the national level? For the moment, we are spending a lot at the national level, but this is not going to make for European defense policy. This will not be enough. It's not enough to give the Europeans the ability to defend themselves. So defense and security is an important one. I heard something yesterday that bothered me a little bit, like, Europeans are not ready to die, quote, unquote, for Europe. And I don't think this is fair. Europeans have died for Afghans. Europeans have died for Iraqis. What Europeans have not done yet is command their own defense. The command of the European defense has been in American's hands, not in European hands. So defense and security spending, more spending, better spend, spending as a European Union, investing in us as a European Union and commanding our own defense. Second is, again, it's the old job of the single market. This. We don't need anyone to decide that other than us. We invented the European single market. We got to do that ourselves. And the third one, and it's becoming a very important one, has got to do with capital markets, is how will we be able to retain our own capital that is flowing more and more to the US and how will we attract foreign capital, including capital that thinks that maybe America is too risky a place today to be attractive to Europe? This all is, Sarah, in our hands. So I want to place this conversation in an empowered Europe, one that is ready to take this responsibility itself.

Sarah Wheaton (24:01)

Okay, well, I could go in several different directions from there. I was going to talk about Spain later in the conversation, but I want to maybe move there because it's a clear example of a place where the Spanish economy is good. People actually talk about this a lot. They say, how is it that a socialist is running one of the best economies in Europe? But at the same time, Madrid has really expressed a lot of reluctance to increase defense spending. But they make an argument, look, you know, we have a lot of other important priorities that are arguably security to spend our money on. I mean, with all the climate disasters happening in Spain, Europeans are also dying due to climate change. It affects security as far as increasing migration flows into Europe. So that's just one small example. But, yeah, Spain is a country where they're not, I think, as ready to sign up to these big defense booths. Are you having conversations with Prime Minister Sanchez?

Arancha Gonzalez Laya (25:02)

So let's talk for a moment about Spain, and let me start maybe with the economy, because there are also lessons to draw from that. We call this the Spanish miracle, but it's not a miracle. It's hard reforms that the Spanish government did in 18 and 19 and 2021, reform of the labor market, reform of the pension market, reform of the education system, the structural reforms that make for a more solid economy. Second factor for Spain's competitiveness is decarbonizing the energy. Spain has an energy market where prices are 20% below the average European prices. Again, there's no miracle. It's called decarbonating your energy needs. And the third one is migration is a labor market that is accepting migrants in a country whose demographics are not good, like the rest of Europe, by the way. So that is what Makes for very strong Spanish economy, growing almost double the average of the European Union. Now, on defence, let's say that Spain has clearly done a massive effort on defence spending. It was around spending 0.9% of GDP, well below the 2% that it had promised to do, and it has accepted to move it to 2% is a big increase. And I think it's part of realizing that we need to take control of our own defence spending, our own security, and it's not easy. Every country in Europe has its own history. We've got a difficult history also. But we are also realizing now that if we want to remain a democracy, and it's taken us a long time to be a democracy, we were a dictatorship for 40 years. If we want to remain a democracy, we have to invest in security, we have to invest in defense, and we have to do this probably with a wider lens, investing in military, but also investing in securing infrastructure, securing against climate change, securing against cyber attacks, securing against hybrid threats, which is very much in line with the European Union. Now, we've probably been more vocal than the average European country in saying that all of this is not only captured with a figure that we've got to discuss figures, but we also have to discuss the spending together and the spending better. And this is where probably some have thought that the country was not ready to spend on security and defense. And I don't think this is a fair characterization. So I think it would be better to say Spain is not pushing for a conversation on security and defense that is limited to just simply accepting a figure that is very much the figure that would accommodate the current US army administration.

Sarah Wheaton (27:52)

I am going to now turn to trade, something that we've been alluding to a bit. The trade deal with the US has kind of been coming in pieces. There was a handshake agreement in Scotland, and now we have kind of a joint political statement with the, with the broad outlines of the deal. But you've basically called it a geopolitical defeat. That quote, makes the EU smaller. Can you explain a bit why you see it that way? And, you know, with your old trade negotiator hat on, what do you think Brussels could have done to play its hand better?

Arancha Gonzalez Laya (28:24)

So, yeah, I mean, I think we have to be lucid. This trade deal was not good from an economic point of view. It's asymmetric. We supposedly got stability for as much stability you can get with the current US administration, who changes his mind constantly. And we are seeing this over and over again. One day is pharmaceuticals, the next Day is chips and the following day is steel and aluminum and the next day is another product. So we got a deal that is imbalanced. Where we gave concessions to the US we didn't obtain much other than the President's words that he would keep a level of protection that is significantly above what European businesses have had to access the US market in the last 30 years. So from an economic point of view, I don't think it was a good deal. But I'm more worried about the geopolitical signal that these deals with the EU and with others are sending. Because the geopolitical message is might is right. You only have to bully to get a good result for yourself. And that's not the world that the European Union would be very comfortable to face. But I don't think this is a world that many other third countries around the world would be very comfortable in. And we are seeing the impact that this is having in other nations. Let's think about Brazil, where the tariffs are not a means to redress an unfair trade situation, but to reinstate in power politician that is at the moment in court. So it's an interference in the judiciary system in Brazil or in India where the ask is disconnect your purchases of energy from country export white or Z.

Sarah Wheaton (30:15)

So the India move is being cheered in some quarters of Europe because it's targeting India's purchases of Russian oil.

Arancha Gonzalez Laya (30:22)

Yeah, okay, but you know, it's a short term game for a long term pain. What sustainability would we have in a world where everything and anything can be weaponized at any point? What if the next ask from the European Union is please disconnect your purchases from China, Please stop investing in climate change, please. Let me rephrase this because there is not generally a please you now change your legislation on the use of social media because we don't think that protecting children against child pornography is compatible with our conception of freedom. So this is an unsustainable world. That is a world of dog eats dog. And I don't think this is a world that the European Union should be cheering for. Now the question is what could the European Union have done differently? There are a few things in my view that Europe could have done differently. The first one would have been to build a coalition of countries, insist more on teaming up with others around the world that faced the the same difficulties. It's true that everybody thought that they could negotiate their sweet little deal with the US administration. And Japan thought it could do this. Korea thought they could do that. Canada thought they could do that, but this was quickly discarded. So investing more in an alliance, investing more in partnerships, you don't have to do this in a visible way. You don't have to do this in an antagonizing manner, but you can do this effectively if you take a common stance when it comes to that. Second, the European Union is a large market to the US Too, in goods, even more so in services. It could have at least threatened to use retaliatory measures. I mean, I worked in the European Commission at a time when we had difficult relations with the U.S. we had the Iraq war where the Europe was totally divided and we had major trade conflicts on boy and herbus, on steel and aluminum. We were ready to put up a good fight. Now, it's true that geopolitically today is slightly different. We have a war in our flank, but we make ourselves smaller when we cave in, as opposed to trying to put up a bit of resistance, which is where I think we are also learning. And I can see that there is more a sense of resistance today than there was probably a month ago.

Sarah Wheaton (33:06)

What are you seeing when you say that?

Arancha Gonzalez Laya (33:08)

Well, I see for a start, a group of European leaders coordinating very closely to make sure that Zelenskyy would not go into the Oval Office to face yet another difficult moment. I see the ability of the EU to put together common script with common arguments to avoid being peeled off. I think European leaders are starting to realize that being too softy on the US Will have serious repercussions at home. You know, if I look at the last Eurobarometer, European citizens are telling their governments that they want ambition, they want integration, and what they are getting is caving in. So we have to be very careful in Europe that caving in and showing weakness and not integrating will not keep citizens on the sides of political parties that are European political parties. They will bring the European citizens to Euro skeptic political parties. And that is something that every leader in Europe has to be very careful with.

Sarah Wheaton (34:15)

Yeah, I mean, it a bit depends on the country. I mean, we saw Poland briefly move in a more European direction and then retrench back. And the Trump administration even said, I would rather deal with President Novrotsky, who's more of an ideological ally than Donald Tusk. And so Donald Tusk stopped being in some of these meetings.

Arancha Gonzalez Laya (34:35)

I would argue that Poland demonstrates that if you do not produce results, magic realism will not keep your European voters on your side. They voted for Donald Tusk because Donald Tusk had an agenda that wanted reforms in Poland. If you do not deliver those reforms, they will not be with you. It's as simple as that. So you know, disappoint your voters at your peril is what we are learning also from this summer of just enough to limp along. So back to the starting point, Sarah. The only way to assure, to give ourselves assurance, is that we can defend ourselves against revisionist powers on our borders or beyond. The only real way to defend Ukraine, the only real way to defend Europeans and democracy in Europe is to strengthen Europe. So all roads lead to that. I hope this ALBA conference is about how do we gather the political energy that governments in Europe will feel, make them strong to go the integration way as opposed to going the nationalist way that we know will not strengthen but weaken Europe.

Sarah Wheaton (36:00)

Okay, that's all from us this week. Make sure you subscribe to EU Confidential wherever you listen to podcasts, rate us and leave a comment or write to us@podcastolitico.eu Big thanks to the European Forum Altbach team. You can be sure I'll be back for those hikes. And thanks as always to Deanna Sturris, our senior audio producer, and to Ann McElvoy, POLITICO's head of audio. We'd also like to thank Sonia Dean for help with last week's episode. I'm Sarah Wheaton. See you next week.

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