We Just Saw Europe's Biggest Week in Decades

Summary

Odd Lots Podcast Summary: "We Just Saw Europe's Biggest Week in Decades"

Release Date: March 7, 2025

Hosts: Joe Weisenthal and Tracy Alloway
Guest: George Seravelos, Head of FX Research at Deutsche Bank

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Introduction

In the March 7, 2025 episode of Bloomberg's "Odd Lots," hosts Joe Weisenthal and Tracy Alloway delved into a transformative week for Europe's financial and economic landscape. With soaring bond yields, a robust stock market, and significant fiscal policy shifts, Europe appears to be experiencing its most substantial economic surge in decades. The episode featured an in-depth conversation with George Seravelos from Deutsche Bank, who provided expert insights into these developments.

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Europe's Economic Surge

Rising Bond Yields and Stock Market Performance

The episode kicked off with Joe and Tracy discussing the remarkable performance of European financial instruments. They noted that the German 10-year Bund yield had surged from approximately 2% in early December to nearly 2.9% by early March, marking the largest one-day movement since the Berlin era.

Joe Weisenthal [04:13]: "Yesterday's move was the largest one day move since basically around the time the Berlin."

Additionally, the DAX index exhibited significant upward momentum, reflecting a broader positive sentiment across European financial markets.

Strengthening Euro and Sectoral Growth

Tracy highlighted the strengthening of the euro against the dollar and the impressive performance of European defense and financial stocks.

Tracy Alloway [04:29]: "European financials doing really well too. It's like, you know, everyone was so down on everything Europe. And then Trump was expected to make those lines go down further and they've just been rocketing up."

Despite initial pessimism regarding Europe's economic prospects, the markets have rebounded strongly, suggesting renewed investor confidence.

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Fiscal Policy Shifts in Europe

Germany's Bold Fiscal Expansion

A central theme of the episode was Europe's substantial shift in fiscal policy, particularly Germany's unprecedented move towards fiscal expansion. George Seravelos outlined the magnitude and speed of these changes, comparing them to historical benchmarks.

George Seravelos [07:45]: "I would say it's both the size and the speed that's taken markets by surprise."

Germany is channeling funds into a 500 billion euro infrastructure initiative and reforming the "Schuldenbremse" (debt brake) to allow increased borrowing for defense and other critical sectors. These measures are projected to elevate Germany's fiscal deficit from 2.5% to between 5.5% and 6%, approaching U.S. levels.

Comparison to German Reunification

Seravelos drew parallels between the current fiscal expansion and the financial strategies employed during German reunification, highlighting that the current measures might even surpass those historical efforts in scale and duration.

George Seravelos [10:56]: "This was when the eastern Deutsche mark and the western deutsche mark were equated one for one. It was effectively a fiscal transfer to eastern Germany... Now we're talking here 6% deficits, but for many more years."

Implications for Long-Term Fiscal Health

The sustained increase in deficits signals a long-term commitment to infrastructure and defense, potentially reshaping Europe's economic trajectory and fostering growth in new industrial sectors.

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Impact on Currency and Financial Markets

Euro's Trajectory Amid Fiscal Policies

The robust fiscal measures have positively impacted the euro, which has strengthened against the dollar. However, the exchange rate remains below pre-election levels, indicating room for further appreciation.

Joe Weisenthal [14:01]: "We've seen this big spike in the euro over the last couple of days... it's still below pre-election levels. Could this dramatically change the trajectory over the coming months and years of the exchange rate?"

U.S. Dollar and Treasury Dynamics

Seravelos addressed concerns regarding the U.S. dollar's dominance and the implications for U.S. Treasuries. He pointed out that while Europe has traditionally been a significant buyer of U.S. debt, current geopolitical and economic uncertainties could challenge this dynamic.

George Seravelos [28:34]: "If Europe is improving, but at the same time all of these properties are being undermined... that does put into question the dollar safe haven rule at the core of it."

Reserve Currency Considerations

The episode explored whether the dollar might lose its status as the world's reserve currency amidst these shifts. Seravelos emphasized that the outcome depends on the U.S.'s fiscal policies and the relative performance of Europe.

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Geopolitical Implications

Europe's Increased Defense Spending as a Growth Engine

A pivotal discussion centered on Europe's strategic pivot towards defense spending as a catalyst for economic growth. Seravelos highlighted how increased defense budgets could spur technological advancements and industrial growth.

George Seravelos [27:20]: "Defense as a potential true engine of growth with spillovers... Just over the last few days, we've seen negotiations between Italy and Turkey to develop drone technology."

Integration and Cooperation within Europe

The episode emphasized the newfound cohesion within Europe, particularly Germany, in responding to geopolitical pressures. This unity contrasts with past political discord and signals a potential era of enhanced integration.

Tracy Alloway [31:04]: "It is very striking to see people coming together just a month later."

Impact on U.S.-Europe Relations

The hosts and Seravelos discussed how these fiscal and defense shifts in Europe might recalibrate its relationship with the United States, especially in the context of trade policies and mutual defense agreements.

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Conclusions

The "Odd Lots" episode underscored a significant transformation in Europe's economic and geopolitical landscape, driven by bold fiscal policies and strategic defense investments. These developments not only bolster Europe's financial standing but also have far-reaching implications for global currency dynamics and international relations. As Europe strengthens its fiscal position and potentially redefines its role in global affairs, the interplay between European resilience and U.S. policy uncertainties will be critical in shaping the future economic order.

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Notable Quotes:

• George Seravelos [07:45]: "It's both the size and the speed that's taken markets by surprise."
• Joe Weisenthal [14:01]: "Could this dramatically change the trajectory over the coming months and years of the exchange rate?"
• George Seravelos [28:34]: "If Europe is improving, but at the same time all of these properties are being undermined... that does put into question the dollar safe haven rule at the core of it."
• Tracy Alloway [31:04]: "It is very striking to see people coming together just a month later."

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This comprehensive summary encapsulates the key discussions, insights, and conclusions from the "Odd Lots" episode, providing a clear and engaging overview for those who haven't listened to the full podcast.

Transcript

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[Joe Weisenthal]

Hey, Odd Lots listeners, we're coming to DC.

[Tracy Alloway]

We're finally doing it, Joe. It's going to be our first live show in Washington, D.C. our nation's capital. It's also finally gonna be the time where we actually talk about the Jones Act.

[Joe Weisenthal]

We've been talking about doing the Jones act episode of Odd Lots for a long time, and it's become this recurring joke that we've never done. But we're gonna do it in grand style because we're gonna be doing it live in D.C. and it's actually gonna be a debate.

[Tracy Alloway]

Yeah. So we have Sarah Fuentes from the Transportation Institute. She's gonna be taking the pro side. And we also have Colin Graybaugh of the Cato Institute. He'll be taking the against side. It's gonna be really interesting to see how all of that shakes out.

[Joe Weisenthal]

In addition to that, we're gonna be speaking with Blair Levin, who was around during the telecom bubble. And we have Andrew Ferguson, the new head of the ftc, the one who's replaced Lina Khan. We're gonna be talk mergers and acquisitions and all that stuff. So it should be a really fun night.

[Tracy Alloway]

If you want to come and join us for that evening, it's going to be on March 12th at the Miracle Theater. Go to bloomberg.comoddlots and you can find the link to purchase tickets. We hope to see you there.

[BetterHelp]

Bloomberg Audio Studios Podcasts Radio.

[Tracy Alloway]

Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal.

[Tracy Alloway]

Joe, do me a favor and pull up a chart of the ten year German Bund.

[Joe Weisenthal]

Oh yeah, okay. Let's see. German generic 10 year bond.

[Tracy Alloway]

You don't know the ticker. You haven't memorized it?

[Joe Weisenthal]

No, but we have the beautiful Autofit. Wow, that. That is a chart. So you know, back in the beginning of December, the Yield was about 2%. It's been climbing. It was about 2.4% at the end of February. And in the last two days it's rocketed up. It's close to 2.9%. And I saw a headline yesterday, we're recording this March 6th. Yesterday's move was the largest one day move since basically around the time the Berlin.

[Tracy Alloway]

Yeah, it's a line that goes straight up. Yes, it's a pretty big move. As you mentioned, the euro is also up against the dollar. European defense stocks been soaring. There are lots of lines going straight up charts out there relating to Europe.

[Joe Weisenthal]

European financials doing really well too. It's like, you know, everyone was so down on everything Europe. And then Trump was expected to make those lines go down further and they've just been rocketing up.

[Tracy Alloway]

Yeah, and the argument that seems to be happening here is the idea that the possibility of tariffs from the Trump administration and the loss of the US Security umbrella are so bad for Europe that they could turn out good in the sense that Europe has to spend lots of money to counteract them. Maybe they integrate some more and maybe that'll boost growth. And if you think about all the military equipment that they'll need to buy or maybe the possibility that long suffering German car makers are going to pivot into defense or something like that. It kind of makes sense.

[Joe Weisenthal]

While I'm going to say what I'm about to say, you just pull up a chart of the dax. Oh yeah, it's pretty.

[Tracy Alloway]

Another line going straight up.

[Joe Weisenthal]

You know, there's two elements. I mean, I joked yesterday that the history of finance, Twitter is essentially 15 years of waiting for Germany to pull out the fiscal bazooka, to sort of pull back from its obsession with balance budgets, the Schwartznuhl. Did I say that?

[Tracy Alloway]

Okay, Schwarzeneg Schwarznuel. Yeah.

[Joe Weisenthal]

So there's two things though. There's one, there's the realization that perhaps more money should be spent and then two, there's can you get the political stars to align to act on that realization? And one thing people seem to be thinking is, and this is a very complicated problem for all kinds of structure, architectural reasons within the EU or the Eurozone. And there seems to be a belief, and more than a belief that this sort of actions of the Trump administration over the last several weeks may be solving both of these problems at once.

[Tracy Alloway]

Right. In the sense that maybe you need a common enemy to galvanize some action. And I will just say specifically what we've seen this week. So we saw talk of a 500 billion euro infrastructure fund. We saw Germany saying that defense above 1% of GDP could be exempt from the debt break. This is the famous Schulden Bremse. And they also said German states can now borrow up to 0.35% of GDP. That is up from zero. So a change there. And so I guess in conclusion, there is a lot going on in Europe and we should definitely talk about it. And I do in fact have the perfect guest for you. It's someone who I used to talk to all the time about European developments, specifically when we had the euro crisis back in sort of 2011 to 2013. We're going to be speaking with George Seravelos. He's the head of FX research at Deutsche Bank. George, thank you so much for coming on the show.

[George Seravelos]

Thank you very much for having me. It's a great pleasure.

[Tracy Alloway]

All right, so I've seen a few people call this a watershed moment. I've seen people call it whatever it takes 2.0. Barclays is calling it what it costs. Ralph Preusser over at bank of America is calling it a paradigm shift in the sense that Europe is no longer funding the US Fiscal expansion. Instead, it's funding its own. And you yourself have called it history in the making. Walk us through how significant this is and why.

[George Seravelos]

Sure. I would tend to agree with all of these characterizations. I would say it's not just the size, and I can help walk through the size and provide some context, but also the speed that is remarkable. You have to remember just a few weeks ago we're having the German election. The centrist parties lost the 2/3 majorities and the centrist parties as well, especially the leading centrist party, the cdu, was not campaigning on any sort of fiscal expansion compared to what we're seeing now. So I would say it's both the size and the speed that's taken markets by surprise. But just to go back to the size and you went through the changes, infrastructure we think will be at least a bit more than 1% of GDP a year. The state level, easing the reform to the debt break, that's another 0.35. There's gaps that are being freed up on defense because now anything above 1% of GDP can be excluded. But Germany's already spending 1 1/2. So you have a half a percentage gap that's released immediately and then any extra defense you want to do on top. And we think Germany would potentially target between 3 to 3.5% of GDP defense spending. If you add all of these things up, we're talking about a swing in the deficit of somewhere between 3 to 3.5%. Now to contextualize that the current German deficit is 2 and a half. So if you add that on top, we're somewhere between 5.5 and 6% fiscal deficit. Now that is extremely high. It's approaching US levels. And we know how wide the US deficit is.

[Tracy Alloway]

We know how the US feels about its deficit as well.

[George Seravelos]

Exactly. And critically, I would say this is not a one off in the sense that the COVID support was a one off. We are talking about a sustained increase in deficits of this order for multiple years, at least 3, 4, 5. But for context, the Infrastructure Fund is a 10 year fund. The closest proxy I think is German reunification. But even if you go back then and you look at the numbers, these are actually even bigger. Wow. So if you try and contextualize it, there were two big rounds of fiscal easing during the German reunification. The first one was 1990 and that was a de facto helicopter drop of money into eastern Germany. That was when the eastern Deutsche mark and the western deutsche mark were equated one for one. It was effectively a fiscal transfer to eastern Germany. We calculate that to be 8% of GDP. So that was 1990. And then in 1995, you had another fiscal expansion, a one off fiscal expansion of roughly another 8%. Now we're talking here 6% deficits, but for many more years. So if you add up the numbers, arguably this is even bigger than German reunification.

[Joe Weisenthal]

You put out a note on March 4, and it's filled with dramatic language. You say it's hard to overestimate the scale of change taking place in global economic and geopolitical relations. You say that this is the biggest shift in trade relations since the collapse of Bretton Woods. And I think it's very interesting that you mentioned even just a few weeks ago, when Germany was having its national election, there wasn't much talk about this. What specifically from the Trump administration, whether it's on trade or defense, has caused such a dramatic about phase.

[George Seravelos]

So I would say it's been building. It's been building for months. It's been building for weeks. But the watershed moment was really the Munich Security Conference. And we are Deutsche bank, we're based in Germany, we get the vibe, so to speak. But the political vibes domestically in Germany dramatically shifted after the Munich Security Conference. The speech that was given by the Vice president, the broader body language around that, I'd be reluctant to say that was the single thing that caused everything. But most certainly it was a trigger for a change in mindset. And this change in mindset we identified as soon as the election was over. In terms of the negotiations beginning, it culminated this week with the announcements, say the announcements even we were expecting something, but even for us, it was at the very top end of expectations.

[Tracy Alloway]

Can you talk about the corporate vibes? Maybe our companies? Are management getting excited about extra fiscal stimulus, or are they still very nervous about both the security situation and the potential incoming tariffs?

[George Seravelos]

So the geopolitical backdrop has been a challenge. Trade uncertainty is clearly huge, and we saw it with the ECB meeting earlier today. But what I would say is this has been present in the background now for months. And you can see it in policy uncertainty indices in Germany and in broader Europe, which have been very high for a long time over the last couple of quarters. So in a sense, what is really genuinely new over the last few weeks is this positive shock. I think what is most interesting is to give you an example, we had a large investor roundtable just last week in Germany. This is after the negotiations had begun. And around that roundtable, we had a large number of real money investors domestically based In Germany allocating their money to European fixed income. While everyone expected announcements around defense, no one really expected anything big on infrastructure. No one expected the reform of the debt break upfront. So I would say this is just the biggest surprise internationally as it is domestically, at least from the investor feedback and the corporate feedback I've experienced.

[Joe Weisenthal]

We've seen this big spike in the euro over the last couple of days, but you know, it's still fairly low and it's not even back to where it was in the beginning of December. It's actually, it's still below pre election levels. Could this dramatically change the trajectory over the coming months and years of the exchange rate?

[George Seravelos]

So I think to answer that question, you have to look at both sides of the Atlantic. So you have to question what is going on with the US administration, what's happening in Europe? A very good starting point is to think about relative neutral rates or what's known as relative R star now in kind of high frequency, short term, on a short term basis. Of course, these things are very hard to estimate. But if you take a step back, relative neutral has been a pretty good guide in the broader dollar trends over the last few decades. Now what's interesting is, and I use this reunification analogy, if you go back to then, that period saw the relative R star between Europe and the US go from around minus 200 during the mid-1980s to zero in the early 1990s. This was a period where the European neutral rate was rising as eastern Germany was being unified with western Germany. You had the big increase in fiscal expenditure. To answer your question, if this big infrastructure shift, defense shift goes ahead, if it's able to push trend growth higher, productivity higher, by extension, ECB rates higher, I think it certainly has potential to be materially positive for the euro. Now how positive also depends on what's going on the other side of the Atlantic and what are the policies pursued there. Maybe that's something to discuss in our conversation, but I would say how much trend growth is being affected? And the ECB is at the core of how much this can affect the Euro.

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[Mikaela Shifrin]

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[Tracy Alloway]

Obtaining the award okay, I'm going to take the bait and ask the really simple question, which is what happens to a country's currency when they enact tariffs? So the US and the reason I ask it is because people seem to have different opinions. Opinions. On the one hand, some people think it slows down growth and therefore currency will come down. Other people think maybe it'll speed it up. Currency goes up, real rates go up, et cetera. Where do you sit in that debate?

[George Seravelos]

So it sounds like a very simple question, but I think as we've seen, it ends up being an extremely complicated one. I would say it depends on two things. How the tariffs being enacted and to whom are the tariffs being enacted. Now, if you're talking about a situation of bilateral tariffs, so for example, under the first Trump administration where it's just against China, the US clearly has an advantage. It's running a trade deficit. So by extension, if it applies a tariff, that tariff is going to be more damaging to the country it's running a deficit with because it's just a larger portion of that country's goods. Now, I think when we're thinking about Trump policy under the second administration, we're applying the same logic. The US Has a trade deficit with the rest of the world. But there are two key differences. And this has also taken me by surprise compared to the start of the year. The first one is how tariff policies being applied. And I think the danger it's presenting to the US Economy is it's being done in a very haphazard, inconsistent way where the market and businesses are struggling to understand both the path and the endpoint. And I mention that because if you look at the key transmission channel of tariffs into the economy, it's uncertainty. That was certainly the case during the first administration, certainly the case now. And the pattern we're seeing ever since January is US Uncertainty is now going up faster than it is in the rest of the world. Now, partly that's because the rest of the world's already been worried about tariffs for a long time. But I think it's also the way the policy is being executed that there is very little clarity. And there is a constant back and forth. Even say that's the first.

[Joe Weisenthal]

Yeah, I was just gonna say, even since we've been talking on this, we.

[Tracy Alloway]

Just saw what happened.

[Joe Weisenthal]

Trump likely to defer tariffs on goods and services under usmca, I guess by a month. It's unclear. And this is from Howard Lutnick speaking on cnbc. So there are changes afoot even to the sort of North American trade relationship. It's changing by the day. The exact nature of this anyway. Keep going.

[George Seravelos]

I think that's exactly it. It's the constant back and forth, which at the end of the day makes it extremely difficult to plan. And remember the starting point of expectation was a very positive one, that this would be a very business friendly administration. So I'd say that's one part. The second part relates to who you are tariffing. And if you are tariffing a country where the bilateral trade relationship is extremely strong, is less imbalanced, is more codependent, and here I'm referencing Mexico, but even more importantly, Canada. If you're tariffing such a country, the economic impact is going to be much bigger than if you're applying the same thing to Europe or China. Effectively, I think of the economy in the US as part of a broader North American economy. You have integrated supply chains that have been building for decades and therefore a tariff policy which essentially unwinds that and unwinds an international agreement which you've signed, I think is much more damaging than if we were thinking about the same for Europe and China. So it's taken me by surprise that the whole policy started with Canada and is taking place in such a haphazard way. And I think that's at the core of why the dollar is not strengthening.

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[Tracy Alloway]

I'm alpine skier Mikaela Shifrin. I've won the most World cup ski races in history. But what does success mean? To me, success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stifel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there.

[Mikaela Shifrin]

At Stifel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row.

[Tracy Alloway]

If you're an advisor or investor, choose Stifel.

[Mikaela Shifrin]

Where success meets success. Stifel Nicklaus & Co. Incorporated member SIPC and NYSE for J.D. power 2024 award information, visit jdpower.comawards compensation provided for using, not obtaining the award.

[Joe Weisenthal]

So one of the things that I mentioned in the beginning is that in order to get to a point where Europe really pivots or reforms or in some way or does something big, you really need two things to happen, which is you need the recognition that it should be done, and then you need the political stars to align. And that's very tricky within the eurozone for various reasons. You know, setting aside German fiscal expansion, capital markets, deepening capital markets, integration, other things like that, progress on areas like that has been really slow, et cetera. You know, one of the things that we've seen, very interestingly enough, is that Donald Trump breathed new life into the Liberal Party in Canada. They were basically left for dead about a month ago, the party of Trudeau, who's now not in the running to be the next prime minister. And now suddenly their polls are surging. Like, when you look at the European political landscape, do the sort of center right or center liberal parties, do they seem to have new signs of life in this environment?

[George Seravelos]

I think it's too early to tell because a lot of the major interventions in Europe have only happened over the last few weeks. And in reference to the Munich security conferen particular, but what I would certainly agree with you is that the threatened withdrawal of the security guarantee is providing, if I could call it a guiding star to Europe in terms of something everyone can coordinate around with, which is defense. And the one point to make is, of course, when you start, Europe has a very low industrial defense base. It will need to build that out. But that's precisely the reason why that could serve as a new growth engine. And we have to think about broader spillovers of defense. For example, just over the last few days, we've seen negotiations between Italy and Turkey to develop drone technology. We're seeing a potential shift away from Starlink to European satellite company for Ukraine and all these things. The initial trigger might be the military reason, but there's broader technological spillovers and growth spillovers. And the last point is, we have to remember the starting point of Germany is so low. Germany has not grown for the last two or three years. Germany has engineering expertise. It has excess capacity. The economy is actually fairly well placed to benefit from using defense as a new industrial strategy, so to speak. Germany's a third of Europe. So if Germany's moving, even if no one else is moving, it can be quite material, especially given that Germany has been the drag in the first place.

[Joe Weisenthal]

And Tracy, something that George mentioned, defense as a potential true engine of growth with spillovers. I mean, this is the story that we've been talking about in American industrial policy history. It really is always defense. And then defense gave us eventually the iPhone. But this is really always seems to be how it happens. Anxiety about existential security.

[Tracy Alloway]

I look forward to the German iPhone. Okay, I'm going to ask a sort of bigger question. Just going back to the scope and the significance of all of this, I have to ask what happens to US Treasuries here and the US dollar in the sense that, you know, I mentioned earlier that one way of looking at this is that Europe is no longer funding the US fiscal expansion. Instead they're funding their own. Germany has in fact been a really important buyer of U.S. treasuries in recent years. And Europe's also a big buyer of U.S. corporate bonds. And you know, U.S. treasury purchases kind of go hand in hand with the dollar's special status in the financial system as the reserve currency. Does this change that equation? Perhaps. Is the dollar at risk of losing its special status?

[George Seravelos]

I think you raise a very important question and there's different ways of looking at it. But my starting point would be that you're absolutely correct. In Europe being the marginal buyer of Treasuries, there's been a lot of discussion recently around the Mar A Lago accord and the role of reserve managers. Central banks have not been buyers of U.S. debt for the last 10 years. In fact, the share of reserves has been declining in terms of global gdp. So the marginal buyer has been the private sector. It's been primarily Europeans, potentially Japanese, as you alluded to. Does that create a problem for the us? I would say it depends on what's going on with the US policy stance. If the idea is the US fiscal stance is shrinking at the same time because the U.S. is consolidating, it's going to be okay if the U.S. is sticking with these deficits of 6, 7%. And I think critically, when we're thinking about the funding of the so called twin deficit, it's not just about the magnitude, but it's about the context. Is the US outperforming in terms of growth? Is the US respecting property rights, so to speak? Is the dollar a high yielder? If Europe is improving, but at the same time all of these properties are highlighted are being undermined. For example, tariff policy slowing down US growth, It's causing the Fed to cut rates. The dollar is no longer a high yielder. The Trump administration is making references to Greenland. At risk of slightly oversimplifying. That is a property ownership reference, which at the margin is eroding some of the attractiveness of the dollar as a safe haven. If all of these are happening at the same time, I would say it does put into question the dollar safe haven rule at the core of it. If I look at the US The US Needs to pursue sound economic policy and then it will be okay. If that doesn't happen, the threshold for the twin deficits to matter goes down.

[Tracy Alloway]

All right, George Cervelos from Deutsche bank, thank you so much for coming on odd lots. It was good to catch up with you after many, many years. Thanks so much.

[Joe Weisenthal]

Yeah, that was fantastic. George, truly the perfect guest.

[George Seravelos]

Thank you. It was a great pleasure.

[Tracy Alloway]

Joe, I'm so glad we did that episode because as we pointed out in the beginning, there is a lot going on. Certainly here in the US the focus tends to be on what the Trump administration is doing, and there's been less focus certainly on the impacts in other countries. So it's good to catch up on all of that. And I think probably the most striking thing in all of this is the possibility of Europe really coming together and integrating. Because if you think about the struggles the Eurozone had in the past, it was mostly around integration and political discord. Even up until a month or two ago, as George was saying, we had some political difficulties in Germany and the coalition government and things like that. It is very striking to see people coming together just a month later.

[Joe Weisenthal]

You know, there is a sense that I play devil's advocate for a second that what is going on right now sounds very similar to what Jim Bianco told us a couple weeks ago about what a sort of de facto Mar a Lago accord would look like, which is Europe picking up a much, much larger share of the defense budget, the euro rising, the dollar weakening, et cetera. I mean, that's what Trump browbeated European leaders about in the first administration, that they weren't living up to their NATO obligations and so forth. You know, so there's a sense that part of what we're seeing is something that Trump has wanted to see for a long time. But it's really striking to me the two things sort of like this scale of whether it's in North America or Europe, leaders not feeling that the US Is a reliable signatory to various agreements. And then also the fact that from a macro perspective, and I'd include China here, too, we are seeing fiscal expansion in much of the world. At the same time, the US Is kind of going into austerity mode, at least visibly, like through Doge and so forth. And so that is a very. That's a notable macro shift.

[Tracy Alloway]

Well, you say that this is what Trump wants, but Trump also wants the dollar to maintain its special status. Right. And in this scenario, again, going to the fiscal expansion idea, is Germany going to have enough money to finance both the US and itself? If it's pouring, you know, billions of euros into its defense sector and things like that, I doubt it. I think that balance is certainly shifting now. That doesn't mean that there aren't going to be any buyers for US Treasuries. We talked with Jim about the idea that, well, you know, the US can always make its banks, for instance, buy more, more U.S. bonds. So there's that possibility. But I think this is something worth thinking about.

[Joe Weisenthal]

Yeah, no, totally. I mean, look, I think that what I would say is we're in uncharted territory. And I just think about like all of the business leaders that I've heard over the years, oh, we just want certainty. We, you know, we're okay with regulation. We just, and it's usually something that they say during Democratic administrations like, oh, we just want certainty. We just want to know what the rules are going to be and so forth. And businesses love certain all this stuff. And then really in the last few weeks, it feels like we've gotten the mother of all sort of uncertainty shocks as a result of all this.

[Tracy Alloway]

We gotta figure out an uncertainty trade that's not just buy the Vix. There should be a good one.

[George Seravelos]

Yeah.

[Tracy Alloway]

Or gold.

[Joe Weisenthal]

There's gotta be something. Yeah, but gold's done really well.

[Tracy Alloway]

Yeah, that's true. All right, shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Wiesenthal. You can follow me at the Stalwart. Follow our producers, Kerman Rodriguez at Kerman Erman, Dash O'Bennett at Dashbot and Kel Brooks at Kel Brooks. For more Odd Lots content, go to bloomberg.com oddlots where we have all of our episodes and a daily newsletter you can sign up to. And if you want to chat about all of these topics, including fx, including defense, check out our Discord where listeners are chatting 24 7. There's always activity going on there. Super interesting Discord, GG Oddlauds.

[Tracy Alloway]

And if you enjoy Odd Lots, if you like it when we talk about what's going on in the news, like all those surging European asset prices, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcast and follow the instructions there. Thanks for listening. In a world of pocket computers and AI poetry, it can feel impossible to keep up. If that resonates with you, join me over on the A16C podcast as we chat with the innovators shaping our future like Apple cofounders Steve Wozniak, A16Z co founders Mark Andreessen and Ben Horowitz, or the very first CTO of the CIA from the science and supply of GLP ones, or even self driving cars and boats. Eavesdrop on the Future with the A16C podcast. I'll see you there.