Lots More With Isabella Weber on Draghi's EU Competitiveness Report

SPEAKER_1 (0:03)

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Tracy Alloway (0:10)

Hello, how are you? It's so good to see you.

Isabella Weber (0:13)

It's nice to have you.

Tracy Alloway (0:15)

Yeah, of course. It's nice to be able to do this in person as well. So I saw, I think you tweeted it, but you're here for an event, right? With Adam Tooves. Yes. We just had him on. His episode came out today. Oh, okay. This is like a nice segue. You're going to be sat right here.

Isabella Weber (0:35)

I'm not going to read from the notes. I just took some notes on the report because there's so much in there. I don't know.

Tracy Alloway (0:40)

That's good because it's 400 pages and I didn't read all of it.

Isabella Weber (0:43)

Yeah, exactly.

Tracy Alloway (0:45)

Joe, is there anything more European than Mario Draghi writing a 400 page report on how to boost European productivity?

Joe Weisenthal (0:53)

No, it's perfect. I did a deadlift. One, two, three.

Tracy Alloway (0:58)

Hegemony. Okay, go. Hegemony. Barges.

Joe Weisenthal (1:03)

This is an after school special, except...

Tracy Alloway (1:05)

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Joe Weisenthal (1:11)

Where's the best squid in pasta?

Tracy Alloway (1:13)

These are the important questions. Is it robots taking over the world?

Joe Weisenthal (1:16)

No, I think that in a couple of years, the AI will do a really good job of making the Odd Lots podcast. And people will think, I don't really need to listen to Joe and Tracy anymore. We do have...

Tracy Alloway (1:28)

Cha-ching. The perfect guest. You're listening to Lots More, where we catch up with friends about what's going on right now.

Joe Weisenthal (1:36)

Because even when the Odd Lots is over, there's always Lots More.

Tracy Alloway (1:39)

And we really do have the perfect guest.

So that report came out this week and it was sort of long awaited. I think it was delayed in the end, which also seems very European. But it took a year to write. And it's all about how to make Europe more competitive.

Joe Weisenthal (1:58)

Right. We talked about this a little bit on a recent episode with Adam Tewes, some of the issues in German. There does seem to be a lot of anxiety about the state of the European economy in general, getting really squeezed on the manufacturing side, the energy side. Growth has been quite mediocre there, particularly if you compare it to the United States. I think there was a good chart in the Draghi report itself. It's about at one point, European was like 15% is big and the gap is widened versus the United States. It's not good. It doesn't seem good.

Tracy Alloway (2:28)

Oh yeah, Isabella, didn't you tweet that chart?

Isabella Weber (2:31)

I did. So looking at that chart, I think we can basically see that with every crisis, there's a bit of a divergence between the US and Europe. And it seems that the US is pretty good at bouncing back, Europe not so much, which has to do with the fiscal rules, I think.

Tracy Alloway (2:45)

So we are here with Isabella Weber. She is of course an economics professor at University of Massachusetts-Amherst. And she's been on the podcast a number of times. But it's interesting to see this report come out and actually touch on a number of topics that you have addressed through your work on pricing and shockflation.

Isabella Weber (3:08)

Yeah, thanks so much for having me on. It's a great opportunity to talk shockflation in the report. And maybe looking at this divergence-convergence thing 28-2020, I think that the energy crisis actually looms very large here. And the notion that was very prevalent in 2022 in Germany, that basically this is just like a little shock that we can easily absorb, that was very dominant in certain economic circles, I think is now playing out to possibly not be true. So we kind of start to see the medium-term consequences of the energy shock and just how hard it hit Germany and Europe.

Joe Weisenthal (3:43)

The idea of every crisis being a moment where the US and European economies further diverge. And I think one of the parts of the story is European fiscal constraints. We know about the recession with government debt and particularly in Germany, but elsewhere in the fact that none of the countries have their own currency, their own central bank. So I guess basically with every shock, productive capacity diminishes. People lose their jobs, factories close down. That happens in any economy. And then what happens is basically in Europe, they sort of accept that their potential is just lower than it was before. Is that basically the story? And then they don't really do anything about it?