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The Rachman Review
Europe's response to the threat from Trump
00:28:19
Post-war security and trade framework crumbles under new US leadership
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- [00:02]
A
Hello and welcome to the Rachman Review. I'm Gideon Rachman, chief foreign affairs commentator of the Financial Times. This week's podcast is about Europe in the age of Trump. My guest is Aranta Gonzalez, dean of Sciences Po, the Paris School of International Affairs. She's also a former foreign Minister of Spain. So, with the transatlantic alliance in serious trouble, can Europe get its act together? That was the French President Emmanuel Macron addressing the nation in a televised speech last week. His message was that France and the world are now in a new era. I was at a dinner in Paris as Macron was speaking, and a lot of the guests broke off to see what he had to say. It felt like a historic moment. The following day, EU leaders met and agreed to establish a new fund worth 150 billion euros to fund the European defence industry. That same day, I sat down with Arantxa Gonzales, the head of Sciences Po, to discuss the way forward for Europe. I first met her more than 20 years ago when she was a trade specialist at the European Commission in Brussels. That expertise in trade, combined with a stint as Foreign Minister for her native Spain, gives Arantia Gonzalez an expert perspective on many of the issues that will shape the future of the EU and the uk. I began our conversation by asking her to define what's now at stake for Europe.
- [01:51]
B
This is one of the biggest tests for Europe since its founding after the Second World War. The question we have to ask ourselves is, do we still want to live in the shadows of the Second World War, or do we start a new phase of European integration and our own standing in the world? We have what it takes. We've got talent, we've got finance, we've got markets, we've got relations with the rest of the world. And more importantly, today, we've got stability at the time or in the world, and especially the world that we know best, which is the US is extremely unstable. But the question is, will we sum up the political courage to, in a way, emancipate ourselves from this long shadow of the US and build a more autonomous Europe?
- [02:45]
C
Well, what do you think? The early signs. I mean, it seems to me that the new Chancellor, incoming Chancellor of Germany Friedrich Merz, has emerged as a very important figure. How important is it that Germany shifts?
- [02:58]
B
It's very important that Germany shifts because given the size of the economy, given the size of the population, given the economic importance, the business importance, the innovation importance, the. The beating heart of Europe is Germany. And when Germany is not well, Europe is not well. And now Germany is saying that it wants to take its future, but also Europe's future in its hands. And it's a remarkable turn of events. That is Germany, that is today leading together with other nations, together with France, that on the defense and military front, sees it very clearly, together with Italy and Spain, that very clearly from the south are shoring up together with Poland, Finland and Nordic countries. I do see Europe taking steps in the direction of a more autonomous Europe, and I think that is good.
- [03:53]
C
And the country you didn't mention, the one I'm from, Britain, I mean, there does seem to me also a tangible warming in relations between the UK and the eu. What form that will take, I'm not sure. But it's striking, isn't it, that Starmer's working closely with Emmanuel Macron and I imagine will work closely with other leaders like Merckx.
- [04:10]
B
History is catching up and reality is dawning also on the uk. The UK is Europe. It may not be European Union, but it is Europe. And today Europe is under threat. It's under threat on the one side by a revisionist power, I.e. russia, and on the other side by the country that used to be our ally, including our security and military ally, and now is showing its desire to weaken Europe. So there is a convergence of national interests of the UK and continental Europe. And it's an interesting moment because this could give us a good reason to reconnect, starting from the most intimate thing we can reconnect with, which is our own security.
- [05:03]
C
Yeah. So let's talk about defence, because that does seem to be the first issue on the table. I mean, it's where European integration began, I guess, with the proposal for a European defence community in mid-1950s, which is rejected in France. What signs do you see that Europe's going to finally get its act together on defence?
- [05:20]
B
Well, the biggest signs that I see is that we are clearly looking at how to finance the capability gaps that we have. There are areas like air, like space, like intel, where we've got gaps. ISIS signals that we are clear that we have to finance that with different mechanisms. More spending at the national level, common spending collectively, maybe with a new round of mutual debt, which, by the way, would be very interesting because it would also give us the financial stability and power that we so need at the time when US markets are very unstable, and with a third component which is unlocking also more private financing of the defense sector. Looking at ESG rules that maybe in the past have prevented financial institutions from investing in the defence sector as they should, given the circumstances. The third area where we need to think a little bit more is what kind of organizational structure will we need? And there we've got to look at what the options are. Whether we take more responsibilities within NATO, knowing that right now the US has a big say in how NATO works and the US is showing to be quite unreliable for Europe's security and defence, or do we imagine other setups outside of NATO? Outside of NATO, we just have to think what until very recently was unimaginable. But we have to do that because it's the security and defence of the continent that is at stake. When there is a conflict, you can't wobble, you can't doubt. You've got to have a very clear chain of command and you have to be very clear that you've got a capacity to project power that your enemies will see and will respect and therefore will not dare attacking you. This has to be very clear.
- [07:19]
C
But there are many potential problems with European defence. One of them is that because of the existence of NATO and the fact that so many European countries have bought weaponry from the United States, dependence on America is very deep. Do you think that can be changed? Clearly, not overnight, but even over many years, it's going to be very difficult.
- [07:39]
B
Yeah. And I think our attempt should be to remain in good relations with the United States. That should be our guiding star. Right. But since we cannot guarantee that, we also have to make sure that we take control of, as far as we can, as fast as we can, of our own security and our own defense. Now, none of this is going to happen overnight.
- [08:06]
C
Does that mean not buying American weaponry in future?
- [08:08]
B
No, I don't think it means not buying American weaponry, but it means de risking our defense and security, something that we've started to do on our civil economy, so to speak. We've been de risking our economy. We've been looking at where we had excessive dependencies, where we had specific dependencies that made us very weak. And this is what we also have to look at in the defense sector. Again, we wish this was not the case, but given what we're hearing, given the pronouncements that we're hearing from this US administration, I don't think we have a choice.
- [08:45]
C
One of the other problems is that every country in Europe wants to have its own defence industry. And so although Europe actually does spend quite a lot on defence, it's spent very inefficiently. I mean, you've sat around European Council tables, the Spanish Foreign Minister and so on. How confident are you that this sense of crisis will actually persuade people to buy on a pan European level.
- [09:07]
B
Well, this is what's happening. This is where big efforts are also being put. We now have a commissioner for defence. That's not a commissioner to direct armies, it's a commissioner to construct the European defense single market, which we don't have. We don't have interoperability, we don't have the same standards, we have a proliferation of technologies for the same product. We've got more than 20 tanks in the European continent. We don't need that. So we have to do a big consolidation effort, we have to do a big integration effort. What we've done for the civil economy, we now have to do this for the defense economy. But this work has started and I am confident, because we are under pressure and because budgets will be under pressure and because a lot can be achieved without spending more, but spending better. And that has to be also a central part of the conversations in Europe. Build the European Common Market, single market one day for defence.
- [10:15]
C
Yeah, you know, domestic politics. You were Spanish Foreign minister for the Socialists and Spain doesn't spend that much on defence compared to other European countries. So imagining yourself back in Spanish politics, do you really think you could make the case when there's so many other financial pressures to spend more on defence in Spain?
- [10:35]
B
Well, first, Spain has done a huge effort in the last five years to increase its defence spending and move the needle. And it has done that because it has realized that. That protecting the Spanish citizens, contributing to the protection of the European citizens is not something that we can put last on our list. Our citizens have understood that we've got a problem with Russia and this is why Spanish citizens have been supporting that we continue to provide military and financial support to Ukraine. And they've understood that because we've been discussing with them that defending Ukraine is defending Europe and this means defending Spain too. We have to explain why it matters today that we pay more attention, that we put higher on our list, defense and security, and that we need to finance that and that we need to articulate how we also cover the rest of the needs. Because we also need to care about things that our citizens care about, whether it's education, whether it's health care, whether it's housing. So we just have to find a better way to invest our resources. And we've got to be better at investing individually as member states and collectively as European Union, because there are economies of a scale we can achieve if we do this. Also at the European level.
- [12:05]
C
And talking of collective efforts, you mentioned the idea of Raising European debt. A little bit of that was done during the COVID crisis. So in a way, the taboo has been broken. That potentially, surely is a huge source of strength for the European Union, because I would imagine there's a lot of demand on the financial markets for another safe asset that isn't the dollar, given the capriciousness of the Trump administration. So do you think that's going to happen? And if it does, is it a game changer?
- [12:34]
B
Well, if when I started my career in the European Commission, somebody would have told me that I was going to see the issuance of common debt in 2020, I would have laughed. We are at the time to think and do what until recently was unthinkable. So my bet is that there will be another issuance of common debt to finance our defence, not to finance all of our defence needs. Partly it will be done at the national level. Shoring up national armies is also a national effort, but investing in military capacities that are designed to protect all our citizens should be done at the pan European level. So my bet is on that. And that will have also a positive effect of creating a safe asset and shoring up the euro and building the capacity of Europe to be the much more stable and predictable economic and financial space at the time when lots of things we thought were solid, like the dollar starting to look a little bit wobbly.
- [13:44]
C
And yet the traditional objections, particularly in countries like Germany and the Netherlands, which have relatively low debts, is, hang on, who stands behind this debt? Is it the German taxpayer, The Dutch taxpayer? And even the people buying the debt would want to know where's the underlying revenue come from to back it. So does that imply European tax to back the European debt?
- [14:04]
B
So what's behind European debt is European gdp, European growth? And because Europe has also a clear view of what to do to improve its economic performance, I think it is perfectly fitting that we put the two together. We are already working in Europe to make our economy more competitive, to marry better sustainability, competitiveness and security. The plans are on the table. It makes sense to combine these two. This vision of more solid growth in the European Union, with the capacity also to invest together by borrowing together. Ideally, we could also expand the fiscal tools at the European level, and there are good ideas and good proposals on the table.
- [14:55]
C
And yet the European Union, historically, I mean, one of its strengths, but also its weaknesses, is it's a very democratic organization. You have 27 countries sitting around the table, they all have to agree and it follows the rule of law and there's the parliament and so I think if you're Putin or Trump, you think these guys will never get their act together. They just won't be able to move fast enough.
- [15:17]
B
Ha. But democracy is not a weakness. I'm sorry. Democracy is what gives us the solidity of the decision. Because it's democratic, because it's debated, because it's discussed, because you have to reach compromises, the result is more solid. So, no, I don't buy that democracy weakens the European Union. It's the European Union because it is democratic, and it's democratic because it cares about the views of the citizens. So those who want to disregard the views of the citizens, up to them. I don't see much stability at the moment in places where views of citizens are disregarded or where decisions are taken in the morning that are changed in the afternoon. Take the tariffs on the auto sector. I don't consider this to be very solid. So we in Europe, in our old European way, yes, it takes longer. Yes, it's the result of compromises. But yes, when there is an answer, we just walk the talk.
- [16:18]
D
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- [16:48]
C
You mentioned the tariffs and at the moment it's as we're speaking. Who knows in a week's time when this goes out what will happen. But it's Canada and Mexico. But I think April 2nd, they're talking about hitting Europe with tariffs. How should Europe respond?
- [17:04]
B
Europe should first of all remain calm, united and determined. We all know that tariffs and counter tariffs are a loser's game. But we didn't start this game and we would like this game to frankly stop as soon as we can. And the best means we have to do that is to make sure there is sufficient pain not only on our economy, but also on the US Economy. Maybe this will bring a bit of rationale. What I'm seeing is a mess. Tariffs on automobiles, on the auto sector in the northern American market one day and removal of tariffs on another day because tariffs hurt. Tariffs are hurting the American businesses. If you take the tariffs that are being imposed, it's a tax that is being post on businesses and consumers in the U.S. the sooner this madness ends, the better it would be. If it's not going to end fast, then we have to make sure that we help do that by responding as forcefully as we can.
- [18:09]
C
And when you talk about forceful responses, I mean, it seems to me a lot of the things that people talk about in terms of counterterroriffs are slightly on the symbolic end. You know, bourbon whiskey, Levi jeans, these kinds of things that are super American. But the thing that the Americans are very sensitive about is their tech industry, and they're preemptively threatening Europe about don't regulate tech. So there are already issues around tech and data and so on. How, in that most sensitive issue, should Europe proceed?
- [18:40]
B
Well, first, Europe has its own view of how to regulate in general and the tech sector specifically. Europe doesn't regulate the tech sector against a particular country or against particular companies. Europe regulates the tech sector because it thinks it is important to make sure that our economy is not a monopolistic economy, that our democracy is not subject to foreign interference, that our public debates are fair and sound. We don't regulate technology to bully others. We do that because we want to protect our own market and our own citizens, and we should be free to do that. Now, I find it extraordinary that we be told how to do that by other countries. Let the European lawmakers, let the European Parliament and European governments decide what's good or bad for the European citizen. And once this has been decided, and there is a bit that has been decided already, let's make sure that we implement this. But we would do a big disservice to the European citizen by weakening our tech regulations just to please other companies, whether they are in the US Whether they are in China, whether they are in Japan or in India.
- [19:59]
C
Yeah, you mentioned China. One of the things that happened over the last four years was European Union policy became, I think, rather closer to America on this whole question of de risking China, a much more wary attitude to China. But now that the US has switched, do you think Europe is going to partly, as a result, warm up to China?
- [20:19]
B
Well, first, the de risking game wasn't started by the European Union, it started by China. They took their first decisions to de risk their own economy with this idea of a dual circulation, shoring up the domestic market as a means to build resilience in the Chinese economy. And we have understood that excessive dependencies are not good for our economy. So we also have followed, in a way, the route of de risking. Now, in my view, Europe needs a functional relationship with China and it doesn't need a functional relationship with China as a result of its relationship with the U.S. the relationship with the U.S. are the relations with the U.S. that when China represents close to 15% of international trade, around the same amount of global GDP, 32% of global emissions of CO2, it's an important country to preserve the stability of the financial system worldwide. And Europe is what it is. Europe needs to have a functional relationship with China because, Gideon, the worst that could happen to Europe is that the US and China organize themselves, get to their own arrangements, and we be a function of that relationship as opposed to we shaping our own relationship with the US and with China.
- [21:34]
C
And in terms of practical decisions, there's been a big debate in Europe about Chinese EVs, electric vehicles and the threat they pose to the car industry in Europe. How should that be resolved? Is that best resolved through keeping them out protectionism or working with them, opening up Chinese EV plants in Europe? How does that go?
- [21:53]
B
Well, I would say first, the European Union has not shut the Chinese EV out of the European market. Americans have, Europeans have not. If you look at the share of Chinese in the European market, it's growing. And I don't think Europe has said we don't want Chinese into the European market. What Europe has said is we want the Chinese presence in the European market to be on fair terms. So part of the functional relationship that Europe needs with China at the time when markets are opening and closing with the speed of thunder is maybe to agree that they will keep each other's markets open, but that this openness will come with respect for fairness, that we will not be weaponizing each other's markets, and maybe that we will have a framework for Chinese foreign direct investment in Europe with conditions that maybe will mirror the conditions that China imposes to the European companies wanting to invest in the Chinese market.
- [22:57]
C
So something like the kind of Chinese joint venture model that they used to apply, that you had to work with a local partner.
- [23:04]
B
Well, this is to be discussed and decided. I mean, I'm not here to put the conditions on the table, but it would make sense in my view. The EV sector is an interesting sector and Chinese investors have shown their interest in investing in Europe. But we would have an interest in making sure this investment is productive in Europe is also benefiting Europe. There are spillover of technology in Europe, just like China ask Europe to do when the European companies went to China. So there is a space to discuss this functional relationship. Again, given the size of the Chinese economy and the importance to global economic and financial stability, it would make sense to think a little bit how that relationship could work a bit better.
- [23:53]
C
You've spent a lot of your life as a Trade specialist and you were chief of staff to the head of the wto. Do you think the World Trade Organization can survive? I mean maybe it'll survive as a nameplate, but the thing that it represents is that going to survive the Trump tariff wars and everything else around it.
- [24:10]
B
You know Gideon, as a result of the changes in the US trade policies, I've been looking a little bit at history. And when I look at the history of the international rules based trading system, the architect of this system was to a large extent the US 1947, end of the Second World War. The UK wants to keep imperial preferences and the US does not want the UK to keep the preferences. And they fight each other like dogs. And at some point it almost looks like this attempt to negotiate some form of rules based order for trade kind of collapses. Until Truman decides, two years after Yalta, when the Soviet Union is engaging in carving a sphere of influence in Europe, when the Cold War is starting, it decides that it's better to find the UK halfway. And for geopolitical reasons it agrees. A set of rules. That is basically the trading system that we have had up until today. This is the product of President Truman's vision to make sure that economic and trade would be put also at the service of security. And it is in a way very sad to see that it's an American president with the stroke of a pen, with an executive order renouncing this incredible building, this edifice that the former US President built. So I'm saying thus because I do think it's important to look at history. This may be a good moment to invest in shoring up the multilateral trading systems. There are options. I've just written a little paper with options that those countries that care about having a rules based international order on trade could work on. But the thing to keep in mind is that there are options for those who want to invest in keeping a system alive.
- [26:09]
C
What are those options briefly?
- [26:12]
B
So one is we could agree to have more flexibilities within the existing system, accept that there's going to be a little bit more unfairness, maybe a bit more asymmetry, but do this within the confines of an agreed framework, so controlled environment. Second is obviously variable geometry. Those countries that are ready to move on, they move on. And those countries that are not ready to move on, they wait or they remain outside. Given the fact that 80% of world trade today takes place under WTO terms under the most favored nation principle, it would be a huge cost for the US also to remain outside the system. If all others decide to move forward. The third option is the one that I would not want to contemplate because it would be some form of big bang coming out of a new 1947 moment. But for that, probably a big clash would have to take globally for countries to gather the political energy to re engineer a system. And I wish we don't have to go through that.
- [27:11]
C
Indeed. Last question. You're now running a major academic institution and you have some of the brightest people in Europe studying here. Young people, are you worried by their prospects essentially in this new world? And how do you think they see some of the questions we're talking about?
- [27:30]
B
The young generation, especially those that are studying international affairs, are concerned because all the things that they are looking at in theory are being messed up in practice. And the most important message, in my view, that we have to give these young people, them and many others around the world, is that they have options, that they are empowered, that they have the possibility to influence the future, that the future is not written, the future is not given. The future will not be confiscated by others. I tell them that in this moment of upheaval and confusion and conflict and maybe deconstruction, there is an opportunity to reconstruct, to recreate, to reinvent. And it's up to them that they have the power to do it. Because if we take away this power from these young people, the only avenue left is violence. And I don't wish this for our world.
- [28:35]
A
That was Aranta Gonzalez, Dean of Sciences PO in Paris, ending this edition of the Rachman Review. Thanks for listening, and please join me again next week.
- [28:54]
E
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- [29:17]
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