Europe's wake-up call, with Alexander Stubb and Kristalina Georgieva

Summary

Podcast Summary: "Europe's Wake-Up Call," GZERO World with Ian Bremmer

Guests: President Alexander Stubb (Finland); Kristalina Georgieva (IMF)
Date: January 24, 2026
Location: Davos, Switzerland (World Economic Forum)
Host: Ian Bremmer

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Episode Overview

This episode delves into the intensifying transatlantic rifts and the evolving geopolitical landscape as the US steps back from its global leadership role. Ian Bremmer first speaks with Finland’s President Alexander Stubb about Europe’s increasingly urgent efforts to respond to crises and the future of the alliance with the US. He then brings in IMF Managing Director Kristalina Georgieva for an economic perspective, exploring European competitiveness, the resilience of the global economy, and the effects of emerging technologies like AI.

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Key Discussion Points & Insights

I. US-Europe Relations and the Greenland Dispute

[02:05 – 04:40]

• Transatlantic Tensions & Greenland

  • Trump’s renewed interest in owning Greenland and threatening tariffs has shaken the Davos gathering.
  • President Stubb confirms that while the Finland-US bilateral relationship is at an all-time high, the broader transatlantic relationship is strained.
  • Quote: “If closeness means that we can talk frankly to each other. Yes. But… there are, of course, right now, a few disagreements, which I think we can't shovel under the carpet.” — Alexander Stubb [02:27]

• Arctic Security & Diplomacy

  • Stubb emphasizes the need to de-escalate rhetoric, find diplomatic off-ramps, and establish Arctic security as a joint NATO objective.
  • Quote: “We need to find an off ramp and then a process. And then in the long term, we need to think about what can we do together about Arctic security.” — Stubb [03:05]

II. EU Unity and Response Capacities

[04:40 – 07:24]

• European Alignment

  • According to Stubb, the EU is the most united it’s ever been—initiated during COVID, reinforced by Russia’s aggression, and further tested by new crises.
  • Quote: “I don't think I've ever seen the European Union more united than… ever since COVID.” — Stubb [05:03]

• EU Trade Tools

  • European “anti-coercion instruments” and trade policy are handled at the EU level, offering significant leverage.
  • Preparedness includes both searching for de-escalation and retaining the ability to retaliate.

• Diplomatic Calculus

  • Emphasis on the need to privately communicate credible retaliatory capability to the US, especially given Trump’s style.
  • Quote: “The tools you need to have in your pocket are in part for credibility. That of course, Trump does not respect weakness.” — Bremmer [06:56]

III. Ukraine, Russia, and NATO’s Asymmetric Challenges

[08:31 – 17:14]

• Ukraine War Status

  • Stubb is “carefully optimistic” about the progress: Security guarantees, plans, and packages are in motion, but Russia remains the unpredictable factor.
  • Quote: “The negotiations in Miami… we've made some progress… I think we're in a good place there. But I don't know what the Russians are going to do.” — Stubb [08:59]

• Putin’s Calculus

  • Russia has failed in initial objectives; military gains are minimal, sanctions are tougher, Russian economic indicators are grim.
  • Stubb frames Russia’s refusal to end the war not as strength but as fear of losing.

• US Posture and Engagement

  • Perception that the US is showing more willingness to engage with Putin than Zelenskyy, raising European concerns about alliance priorities.
  • Quote: “If you're Putin… it seems to be that the United States wants to engage more with Putin's perspective…” — Bremmer [11:01]

• NATO’s Response to Hybrid Threats

  • Russia's hybrid warfare includes drones, infrastructure sabotage, and border provocations; NATO and frontline states are adapting with targeted operational responses.

• Russia’s Global Standing and China

  • Russia’s attempts to project power, including through the Wagner Group, have largely failed, making it a “junior partner” to China—potentially dangerous.

IV. Shifts in World Order and Multilateralism

[16:16 – 17:54]

• Changing Multilateral Dynamics

  • Stubb discusses the options for structuring the world order—between transactional multipolarity and a re-invigorated multilateralism.
  • Quote: “The big debate is, do you go for multipolarity transactionalism and deals… or do you go for multilateralism, cooperation and international institutions?” — Stubb [16:46]

• Need for Institutional Reform

  • Advocates for more inclusive global governance, bringing in actors “not in the Security Council, from Africa, from India and elsewhere.”

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Economic Perspective: Kristalina Georgieva

[18:32 – 33:51]

I. Upgraded Economic Forecasts Amid Volatility

[18:46 – 22:49]

• Global Economic Resilience

  • IMF has upgraded its outlook for major economies, citing four main reasons:

    1. Governments have largely ceded economic activity to the private sector, making economies more agile.
    2. Negative impact from tariffs has been less than feared—US is the outlier, but global trade blocs have adapted.
    3. AI is driving productivity and investment, with observable gains already materializing.
    4. Post-2008 institutional learning has made fiscal and monetary policy more prudent and evidence-based.

  • Quote: “All these four reasons together… are protecting the world economy from the uncertainty that of course is dominant.” — Georgieva [22:51]

II. Europe’s Growth Model and Structural Challenges

[23:05 – 27:31]

• European Performance

  • Europe’s economic growth is lagging the US, primarily due to lower risk-taking, less venture capital, and regulatory burden.
  • Innovation exists but does not scale as in the US. Europe is “a lifestyle superpower”—attractive to talent and investment for quality of life, not dynamism.
  • Quote: “In 2008 the European economy was bigger than the US, now it is smaller. And why? Because of lack in productivity growth.” — Georgieva [25:19]

• Key Structural Reforms Needed

  • Georgieva calls for a “capital market union” and integrated energy policy to increase competitiveness and channel European savings into EU businesses.

III. AI’s Differential Impact and Labor Market Effects

[27:31 – 29:35]

• US and China Lead in AI

  • The US and China are far ahead in leveraging AI, with developing countries lagging.

• Labor Market Shifts

  • AI skills command higher wages and boost overall employment, but entry-level jobs are at risk, increasing anxiety among young people.

  • Quote: “The biggest danger we see from the data, tasks that are eliminated are pretty much entry level job tasks. So young people are panicking and they have reason to panic.” — Georgieva [29:26]

IV. Market Risks, Tech Bubbles, and Central Bank Independence

[29:35 – 33:51]

• AI Valuation & Potential Corrections

  • While AI investments are yielding real productivity, a market correction is possible, but not (yet) in dot-com collapse territory. Risks are heightened by non-bank institutions and crypto.
  • Advice: “We at the fund, we say to everybody: be ready. There could be surprise, stay calm and adapt.” — Georgieva [31:15]

• Safeguarding Central Bank Independence

  • Georgieva warns against politicizing central banks, highlighting evidence that independent, data-driven policy is essential for long-term economic stability.
  • Quote: “Evidence based monetary policy is good for businesses and good for households… Well managed, accountable, independent central banks need to remain.” — Georgieva [32:19]

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Notable Quotes & Memorable Moments

• On EU Unity:
  “I don't think I've ever seen the European Union more united than… ever since COVID.” — Alexander Stubb [05:03]

• On Russia’s Failing Aspirations:
  “I think we need to reverse the narrative that Putin is winning this war. He is not winning this war. He tried to take over Ukraine, he failed. He tried to stop NATO from expanding, he failed.” — Stubb [09:34]

• On Transatlantic Tension:
  “It seems to be that the United States wants to engage more with Putin’s perspective than it does with Zelenskyy.” — Ian Bremmer [11:01]

• On AI’s Societal Effects:
  “1 in 10 job descriptions would include at least one new skill AI-related … but entry level job tasks… young people are panicking and they have reason to panic.” — Georgieva [28:34]

• On Reforming Global Governance:
  “You need to give agency to guys that are not in the Security Council, from Africa, from India and elsewhere.” — Stubb [17:04]

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Timestamps for Core Segments

• [02:05] — Start of conversation with President Alexander Stubb
• [05:03] — EU unity and response to the US over Greenland
• [08:31] — Ukraine negotiations and Russian calculus
• [13:17] — NATO’s response to Russia’s hybrid warfare
• [16:16] — World order: multilateralism vs. transactional multipolarity
• [18:32] — Start of conversation with Kristalina Georgieva, IMF
• [19:05] — IMF’s updated economic outlook
• [23:13] — Europe’s economic weaknesses and need for reform
• [27:31] — AI-driven productivity and labor market disruption
• [29:35] — Financial market risks and potential corrections
• [32:19] — Central bank independence and policy credibility

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Tone and Takeaways

True to their roles, both Stubb and Georgieva blend optimism with sober warnings. Stubb stresses unity, pragmatic diplomacy, and the need for institutional adaptation. Georgieva highlights resilience but issues clear warnings about Europe’s structural stagnation and the risks of technological, economic, and political shocks. The episode leaves listeners with a sense of urgency and a call for adaptive, collaborative leadership in uncertain times.

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Transcript

[A]

Hello, and welcome to the Gzero World Podcast. This is where you can find extended versions of my conversations on public television. I'm Ian Bremmer coming to you today from Davos, Switzerland, home of the 56th World Economic Forum. Nearly 3,000 participants are gathered here from more than 130 countries, including hundreds of CEOs and dozens of heads of state. It's the largest gathering of such leaders in the post Covid era. But one man made an entrance that chilled even the crisp alpine air. On the eve of this gathering, US President Donald Trump doubled down on his desire to own Greenland, even threatening tariffs against the bloc of European countries who drew a red line in the snow and stood with Denmark. This transatlantic battle is, of course, just one of many geopolitical challenges on the table in Davos and a moment defined by enormous uncertainty in Europe. Allies are adjusting to an America that is more transactional, one that is dismantling the global order it created and fostered for decades. And today, I'm bringing you two conversations that get to the heart of that shift. Finland's President Alexander Stubb joins me to discuss how Europe is responding to this new reality. And also I spoke with the International Monetary Fund's managing director, Kristalina Georgieva, about what the change in the world order means for the global economy. Let's get to it.

[B]

The Gzero World podcast is brought to you by our lead sponsor, prologis. Prologis helps businesses across the globe scale their supply chains with an expansive portfolio of logistics, real estate, and the only end to end solutions platform addressing the critical initiatives of global logistics today. Learn [e-mail].

[A]

President Alexander Stube. So nice to see you.

[C]

Nice to see you.

[A]

Not our first rodeo, huh?

[C]

No, no.

[A]

So last year we did not talk about Greenland.

[C]

No.

[A]

This year I think. I fear we can't avoid it.

[C]

I think you're right.

[A]

But I want to start with a quote I heard from Treasury Secretary Scott Besant. He says that US Europe relations never been closer. Would you agree with that statement?

[C]

Well, I'm an avid pro European, avid pro American, an avid transatlanticist. And if closeness means that we can talk frankly to each other. Yes. Then there are, of course, right now, a few disagreements, which I think we can't shovel under the carpet. But all of us who cherish the relationship want to bring it as close as possible. One thing I can tell is that the bilateral relationship between Finland and the US has never been closer to.

[A]

Well, that's good to know, but it doesn't describe the transatlantic relationship as a whole. And Greenland is an odd thing to be fighting about in the sense that, right, everything that the US wants in principle can be provided through the alliance. Am I right about that?

[C]

Yeah. I mean, and I think in diplomacy, what you always have to look at is short term and long term. So in the short term, I think what we now need to do is to de escalate the language. We need to find an off ramp and then a process. And then in the long term, we need to think about what can we do together about Arctic security. I come from an Arctic country. We have probably the most competent Arctic army in the world, certainly the largest for Arctic conditions. I think if we can find a process which leads to the NATO summit in Ankara with a big package on how NATO reinforces Arctic security together, of course, with the United States, then I think we will come off quite well.

[A]

Thus far, President Trump, at least, has not shown any inclination to. To de escalate. Is your belief that that is a negotiating stance?

[C]

Well, I mean, Davos is for discussion. So I think the good thing is that the US administration is coming here, really, as the most impactful administration ever. I've never seen so many ministers, secretaries of State and other U.S. players, including, of course, the president himself. I'm sort of, you know, carefully optimistic that we will.

[A]

So you think we will come out of Davos and actually we won't be talking about the United States need to own, take sovereignty of Great Britain?

[C]

Well, I'm not going to put words in the mouth of the strongest president in the world. He's the one who decides. But all of us working in the back office who are avid transatlanticists, are trying to find solutions which will work both for the United States, the alliance, and of course, for Greenland and Denmark themselves.

[A]

Talk about the European response. Certainly there is a level of, I would say, consistent private concern over this crisis needing to be responded to. How aligned would you say the Europeans are on a common position publicly? What needs to be done?

[C]

Well, I mean, the first thing to say is that as an EU nerd, I don't think I've ever seen the European Union more united than what we have been actually pretty much ever since COVID I mean, that's when people started to understand that it's good to have European integration. Then came Russia's war of aggression in Ukraine. Then came the energy crisis. Now we're working on defence, we're together in NATO. So I think there's a lot of unity. Of course, then you have countries like Hungary and Slovakia who Sometimes take a different line, but that's a little bit beside the point. In this particular case, I think we are very united and I think you have two schools of thought. One school of thought is, okay, let's de escalate, let's find an off ramp and do what we have done previously. And the other school of thought says, no, we need to go immediately for retaliatory measures. Well, the first thing we need to find, and I think the end result will be somewhere in between. So when you do the de escalation, you at the same time prepare just for a rainy day if something happens. Of course, the EU has the measures, I hope, and I don't believe that we have to go that far. So long answer. The short version is yes, I feel that Europe is very united.

[A]

To explain to our viewers all over the world, when you see the EU as the measures, what you mean is the competency to respond on trade, the anti coercion instruments, these reside at the EU level. They're not individual countries.

[C]

Yeah. So just to put it in very simple terms, the European Union has 27 member states and there are few areas where it has exclusive competence. And the key areas in this particular case is monetary policy, trade policy, customs. So, you know, you have a number of instruments that can be used if needed. I hope we don't have to use them and I hope we'll be able to de escalate. But of course, the next few days will tell. As I said, I'm carefully optimistic.

[A]

The tools you need to have in your pocket are in part for credibility. That of course, Trump does not respect weakness. And so, I mean, there needs to be a sense in the United States that if he actually goes beyond where the Europeans are comfortable, something is actually going to happen. That's certainly in that school of thought. Do you think that that is a component of what we actually need to see here? Not that you need to hit Trump back in the face today, but he has to understand that if the op ramp isn't found, there are clearly.

[C]

Well, again, I believe that in diplomacy you need to do a lot of the work behind closed doors or certainly out of the public. And I, I always feel quite uncomfortable with public diplomacy, although I do understand that is an element of what we do and who we are in this line of.

[A]

And Trump does it.

[C]

Well, yeah, Trump, I mean, you know, look, since the beginning of the year. So today is the one year anniversary of the Trump presidency and you take the 21st days of this year and you know, I've been In foreign policy for 30 years, I've never seen so much activity. And I don't say this out of a lack of institutional memory, but, you know, starts with Venezuela, then we have a big meeting in Paris on Ukraine, then we move on to Iran. We have issues with the peace plan in Gaza and working on that. We have the Greenland issue. So, you know, there's so many things that are sort of flooded at the same time and we're trying to deal with them together. And Trump has a different type of way of doing foreign policy, and a lot of it is actually quite effective, I have to say.

[A]

So you represent one of the strongest allies in the NATO alliance on Ukraine policy. No surprise given your long border with the Russians. It feels over the past months that the Ukrainians have given a lot in service of trying to keep NATO supporting them and also to get to a ceasefire. The Russians have not. How do you assess where we are in trying to bring this war to a close?

[C]

Well, I think we're in a good place. And by a good place, I mean that there was sort of a process and a sequence that started with the national security advisors in Geneva right after the G20 meeting, then moved on to a leaders meeting in Berlin and then finally in Paris on the 5th of December. And I feel that the US Ukraine and Europe and the coalition of the willing, we're now on the same page. We have a set of documents. Depends on how you count six or five plus two. I know different figure. But nevertheless, where you know, we have security guarantees, we have a 20 point plan, we have a prosperity package, we have sequencing plan, et cetera, et cetera. And I feel those are in a good place. And from what I hear, the negotiations in Miami over the weekend, we've made some progress. So I think we're in a good place there. But I don't know what the Russians are going to do. My big fear is that the Russians are going to say nyet. And why are the Russians saying nyet? And this is very important. I think we need to reverse the narrative that Putin is winning this war. He is not winning this war. He tried to take over Ukraine, he failed. He tried to stop NATO from expanding, he failed. He tried to keep NATO's defense expenditure down.

[A]

He tried to.

[C]

It's to 5%. On the battlefield, he's failing.

[A]

In fact, sanctions have only gotten tougher.

[C]

And they should continue. So in the battlefield, he's failing. The progress is very slow. One percentage point of Ukrainian territory in the past 1,000 days on the economic side, the inflation figures for the two first weeks, if you multiply them for the last, for the year to come, it's about 30% interest rates, 16%, no growth in the economy. If the war ends, the soldiers will go home and they'll probably get no bonuses. So we're in a place where there seems to be very little incentive for Putin to end this war, but actually for the wrong reasons that we think it's not because he will win, it's because he knows that he will lose. So this is kind of a catch 22 situation that we have to deal.

[A]

With, but the fact that, I mean, I agree that the military gains that the Russians have made on the ground have been utterly marginal over the past months, but Putin certainly sees that from the United States. Pressure on Zelensky has been, on balance, more significant than pressure on Putin at the end of them. And Putin has just been invited to the Board of Peace by President Trump, and Macron actually said no on the back of that. Zelensky's not being invited. Putin was invited to Anchorage and he was given a red carpet treatment. Marco Rubio met him at the plane. Zelensky goes to Mar a Lago and nobody meets him there. No red carpet. I mean, if you're Putin, for some reason, it seems to be that the United States wants to engage more with Putin's perspective than it does with Zelenskyy. Why wouldn't you continue? Am I wrong on that?

[C]

Well, I mean, obviously, Putin has an ego, as most world leaders do. I mean, you know, whenever there is a little bit of a crevice in the transatlantic relationships, the Russians will, you know, use this moment. Whenever there is pressure on Zelenskyy, Russians will use the moment. But, you know, when I look at the documents that are being negotiated and the kind of end deal that's coming out of there, someone like Kushner is doing a lot of work on the practical side, of course, together with Witkoff, to try to find a solution. And I think actually we're gonna end up in a situation whereby the solution is gonna be so good for Ukraine that Russia will reject it.

[A]

Yeah. So you ultimately don't have a lot of. Of faith that we're going to get to a ceasefire this year?

[C]

Oh, we work towards it. I think we work on three scenarios. One is that this war of attrition will continue. Second one is that we get a ceasefire of 90 days and then a peace agreement. And then the third one, of course, is, you know, catastrophe of one form or another. We're working towards this second phase, it's taking a lot of time, but remember that Trump has been president only for one year, and we've been working on this more or less for one year. And really, in terms of textualizing and putting things down in documents, only for three months.

[A]

I want to also just bring up the NATO countries directly because, of course, Russia's not just fighting Ukraine. Russia's sending weather balloons over Lithuania. They're sending drones into Poland and Romania. There's been all sorts of attacks on critical infrastructure. We've seen the ships that have taken out the fiber optic lines. Right. And this is your country, this is your neighborhood. What does NATO need to do to respond? Are they adequately responding to that asymmetric warfare for Russia?

[C]

I think so. I mean, you know, warfare nowadays, I guess, has three different components to it. One is kinetic, what we're basically seeing in Ukraine right now. One is cyber, which all of us are hit with every day, all the time. And then one is hybrid. And the Russians, of course, they try to intimidate through the hybrid. And just to give you, I guess, three examples of how we've dealt with it, the first hybrid attack has been sending over asylum seekers across the Finnish border. Well, we legislate, we close the border. They don't do it anymore. Second, they start cutting cables. We have a Baltic sentry operation on NATO. They don't cut cables anymore. Or if they do, they do it because of incompetence. And then thirdly, there are drones flying and violations of airspace, and we put an eastern sentry. So, you know, we're doing what we can on this. And I'm quite quiet. And I think one of the conversations that we in the west don't necessarily have and don't understand, I actually think that the Central Asians and the Southern Caucasus are much more worried about Russian imperialism than we should be.

[A]

The Georgians, for example, where they have really changed the political system.

[C]

They have. But then, interestingly enough, you see Azerbaijan and Armenia taking a completely different stand and, and integrating closer to Europe and especially the United states and the C5s of the Central Asian countries having a summit meeting with Trump with a lot of deliverables. So, you know, a lot of the tectonic plates are shifting. And on Russian foreign policy, look. Syria, how did that go for Russia? Not too well. Venezuela, how did that go for Russia? Not very well. Venezuela, how did that go for Russia? Not very well. So the US Is able to project power, but Russia is not. If you really want to simplify things, what the US did in Venezuela in 24 hours. And less was what President Putin wanted to do in Kyiv four years ago. Completely 1 million died in casualties later. Here we are.

[A]

Yeah, here we are. So I guess that leads to perhaps the biggest concern that I have, and I suspect you have it too, which is when Russia is a country that is run by a dictator aging, don't know, his health. We know that this was a country that he believes was strategically great under Soviet empire and that having lost it was a catastrophe. And now they're a shell of what they used to be and they can't project influence all over the world. You didn't mention the Wagner group and how much they've lost in Africa, for example, and the so called coup belt. I mean, the reality is that Russia's becoming at best a junior partner to China. That's a dangerous position for a man who has complete control of his country. Not to mention a lot of nuclear weapons.

[C]

No, it's true. And that's why we have to be balanced and tactful and try to navigate through this quite dangerous era of changing world orders. I firmly believe we are in this. We've had this conversation many times. I just wrote a book on the changing world order. And we can make a mistake, as they did after World War I, the system wasn't strong enough, or we can get it more or less right as they did after World War II, or we can be lazy as we were after the Cold War. And I think it'll take about five years for things to settle. And the big debate is, do you go for multipolarity transactionalism and deals, which we're seeing a lot of right now, or do you go for multilateralism, cooperation and international institutions? If you go for the latter, which I would prefer, of course, coming from a small state, then you need to rejig the balance of power in these institutions. You need to give agency to guys that are not in the Security Council, from Africa, from India and elsewhere.

[A]

Clearly what you and I agree on is that there aren't enough political scientists running countries right now.

[C]

No, I think there are. And remember, I mean, you know, we are nerds of international relations. And I just finished reading a biography of U thant called the Peacemaker.

[A]

The former head of the United nations.

[C]

The former head of the United nations in the 1960s. And you know, when you reread the Cuban Missile Crisis, when you reread Pakistan, India, when you reread the Six Day War, you understand that these crises are constant and the best way in My mind to contain them is through multilateral institutions fora and diplomacy.

[A]

First utahnt reference on public television. So good to see you all, man.

[B]

You're listening to the GZERO World with Ian Bremmer podcast, your weekly geopolitical deep dive into the world's biggest news stories, featuring in depth conversations with global leaders and newsmakers. To get more of Gzero's insights on global politics every morning, sign up for our free newsletter gzero [e-mail].

[A]

That was my conversation with Finland's president Alexander Stubb. Now for the economic view, here's the head of the International Monetary Fund, Kristalina Georgieva. Kristalina Georgieva, so nice to see you as always.

[D]

Thank you for inviting me.

[A]

So, I mean, it's been challenging, an uncertain backdrop, but not from the imf. You actually just increased the economic outlook for a lot of countries around the world. For China, for the US for India, for even a couple Eurozone. For even the Eurozone, which is kind of shocking to me. How can we get excited about why did you upgrade the Eurozone right now?

[D]

Well, let me start by saying that what we have done is pretty much we returned to the projections we had in October before Liberation Day. And at that time we saw okay performers, but not fantastic. And then of course, many got very excited about recession. In 2025, we were not among those. We said we see very strong systemic reasons why the economy is resilient. And I can tell you that has proven right. There are four things that are acting in favor of more resilient economy and they're holding it despite all the turbulence and uncertainty. The first one is over the last decades, governments smartly moved out of economic activity almost everywhere. There are very few countries where governments are still running companies. They left the private sector.

[A]

The US is moving a little bit more in that direction.

[D]

This here, a little bit of this.

[A]

You'd say that that's at the margins, but it's not fundamental.

[D]

Yeah, the core is let the private sector do it. And at the time of uncertainty, private sector much more agile. They act swiftly and they bring dynamism. Second source of resilience, the fact that the tariffs have proven to be much lesser risk for the world than we.

[A]

Feared, even though they were when they were announced, the highest levels we've seen in almost century. The highest massive tax on American consumers. Everyone's saying the supply chain is going to break. Why not?

[D]

We were saying at that time, don't rush, let's see the data. Majority of the world Decided that tariffs. Thank you, but no thank you. Mid sized countries, smaller countries, regional blocs, they all decided that they want to protect a world of fair free trade. So we had then the United States as an outlier, but the United States won 13, 14% of global imports exports. 2. The announcements then were corrected through exceptions negotiations and the result is a much lesser impact, very mute impact of tariffs. Third reason it is there. It is there, but it is very minor. Now, mark my word, we should not take this for granted. We have to always remind countries of the benefits and costs of how they choose to participate in trade. Third reason AI not only enthusiasm and massive investment, 1.5 trillion, but actually we see the impact in terms of productivity already. And the expectation for increase in productivity is getting people hugely excited. Of course there is a worry. What if that increase in productivity doesn't come? The fourth reason is one that I want to stress because we absolutely take it for granted. And it is that since the global financial crisis, central banks, fiscal councils, finance ministries, they have learned to act responsibly and to have policy, fiscal and monetary policy that is positive for business and for households.

[A]

And it's also long term, it is.

[D]

Longer term, it is defined in a way, it is evidence based. So all these four reasons together, they are protecting the world economy from the uncertainty. That of course is dominant.

[A]

Even the Eurozone, sorry, Eurozone, because they don't seem to have the competitiveness, the productivity, the investment in technology, what is it?

[D]

So here it is. The Eurozone is consistent of countries where you have big businesses, you have SMEs, you have the Nordics that are very much innovation driven economies. So it is not one block that is all the same everywhere you have the new member states a little bit more hungry for performance. So that leads to the better outcome in Eurozone plus. In the Eurozone, what we see today is finally an awakening that they cannot anymore drag their feet on completing the single market. Now from accepting they have to do it to actually doing it. There is a lot of work, but there is a much more sober attitude. I know that people may think of developments tensions within the Western alliance only as a problem. I actually think it's a opportunity because it forces. Forces recognition more. Yeah, forces more determination to act. So the Eurozone got a little bump. 0.2% for fairness US 2.4% Eurozone 1.3. So the Eurozone has to aspire for more and better. But all in all, not a bad place. However, not a great place.

[A]

I mean, how did the Europeans who were sitting in Europe and they're so stressed about Ukraine and Greenland, they're so stressed about the transatlantic relationship, but they haven't been growing anywhere close to the pace of the United States over the past decades. How do they attract capital? How do they turn a growth model? How do they avoid turning into massive anti establishment populism that'll make it only worse for them.

[D]

So first, you are absolutely right. In 2008 the European economy was bigger than the US now it is smaller. And why? Because of lack in productivity growth. Why there is lack between the US and Europe. Many, many reasons. Risk taking much higher in the US than in Europe. Availability of venture capital much more there than the fact that in Europe regulatory overreach is suffocating businesses. So the question is, how do they still have money? I see two reasons. As you know, I lived in Brussels for seven years. First reason is Europe is a very nice place to live. The World bank some years ago wrote a report and classified Europe as lifestyle superpower. So many choose to invest in Europe and work in Europe and live in Europe because it's less stressful. Second reason, there is a lot of innovation nonetheless in Europe. It doesn't grow on scale. But when you visit research institutes or small up and coming companies, you actually see why there is so much appetite now in venture capital in the United States to invest in in Europe. But they have to get their act together and recognize, as the wizard of Oz movie would say, we are not in Kansas anymore.

[A]

Yeah. And I mean, so at the end of the day you've upgraded them. But the reality is there are big structural concerns about European competitiveness.

[D]

Yeah, look, 300 billion hard earned euros of European savers are invested in the United States. Unless this is corrected, they simply cannot catch up. So capital market union, Energy Union 28 regime, they have to do all of this.

[A]

So Krystalina, you said that AI the productivity gains, you're already starting to see them. Are you seeing them in a dramatically differentiated fashion in the US and China than you are in other parts of the world?

[D]

So definitely the United States is leading definitely in China there is a very short path from invention to penetrating sectors. And the rest of the world is still a bit on the lookout in a sense. The world is now divided in three categories. Those who make it, those who use it, those no, those who look at it and see it and kind of aspire to use it. And those that are saying and what is happening. And so the US is here, unfortunately, majority of developing world in the third category. So you Ask do you see it? We did a very interesting piece of research that shows that already 1 in 10 job descriptions would include at least one new skill it AI related or 2 or 3 or 4. And when these people are hired, they're paid better. When they're paid better, they spend more. When they spend more, that benefits the low skill service workers. So what is the impact you have on 1% increase of new skills? Higher 1.3% increase in total employment. But the middle skills, those that are neither well paid nor benefiting from this high pay, they get squeezed. And the biggest danger we see from the data, tasks that are eliminated are pretty much entry level job tasks. So young people are panicking and they have reason to panic.

[A]

Now you did talk in the report about the potential of that. The risks are increasingly on the downside. And one of the risks that everyone is talking about is are these AI companies that are driving so much value, are they overvalued? Because when I look at US consumers and I see everyone spending in the top 10% of the economy and that's kind of it. I worry about if the stock market suddenly loses its zip, you got a serious problem. Do you think of this as a 12 month alert watch 3 year, like what's the timeframe where you think? I think there's gonna be a correction.

[D]

There will be a correction, of course. Would that be a massive correction or not? For now it looks like it is not in the category of dot com risk of massive correction. But that can change just because when we look at profitability, why are people investing? There is evidence that these investments turn into what I was describing. New types of jobs, new types of products. That is happening. I cannot tell you whether it would be in a year, in two years because our view is that we should not take this risk in isolation. We have massive increase of non banking financial institutions. More than half of money invested comes through non regulated entities. We have stablecoins likely to impact quite significantly risks, opportunities as well, but risk. And then we have geopolitical factors that now so significantly dominate risk factors. So accidents can happen. And we at the fund, we say to everybody be ready. There could be surprise, stay calm and adapt.

[A]

So if I'd go back to the beginning just to close out, one of the things you were structurally more comfortable with is private sector more efficient, more agile, actually doing much more than driving the economy. Government's doing less. You understand what state planned economies are like? Haven't worked that well historically. You've also said really critical that we have central bank independence that we have technocrats there now. The United States is, even though they're talking a lot about the state doing more in the economy isn't doing that much more. They're talking a lot about taking away independence from the Fed. And I know this is something that worries you a lot. This has not gone away is an issue. There's been consistent political pressure from President Trump to say I want lower interest rates and I'm going to appoint somebody that's going to do what I want. How do you deal with that?

[D]

Well, let me just focus on one thing, which is what is the evidence? The evidence is that evidence based monetary policy is good for businesses and good for households. What does that translate into? It translates into actually quite broad understanding that of course well managed, accountable, independent central banks need to remain. So when I say private sector is great, I also add and governments that do a good job in policies and institutions, these two things go together. We cannot go in wild wild west just because private sector is great. It does need a framework to operate, otherwise we may end up in a very bad place. So what I rely on is that this long term evidence that is valid for everybody, it's valid for big companies, it's valid for you that it would provide the buffer. And of course we see the Fed very important for the American businesses, for the American people, but also because of the role of the dollar as reserve currency, very important for the rest of the world.

[A]

IMF Managing Director Kristalina Georgieva it's always.

[C]

Great to see you.

[D]

My pleasure. Thank you.

[A]

That's it for today's edition of the Gzero World Podcast. Do you like what you heard? Of course you do. Why not make it official? Why don't you rate and review GZero World 5 stars only 5 stars. Otherwise, don't do it on Apple, Spotify or wherever you get your podcasts. Tell your friends.

[B]

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