Economy

Exports in U.S. dollar terms rose by 0.5% year-on-year in November, defying expectations for a 1.1% decline among analysts polled by Reuters.
“There’s not going to be follow-through on the export side in the next few months, and of course on the domestic side with imports contracting again, that just highlights that there is still a steep hill to climb when it comes to generating that accelerating growth in mainland China,” HSBC’s Chief Asia Economist Frederic Neumann said.

Hong Kong observation wheel, and the Hong Kong and Shanghai Bank, HSBC building, Victoria harbor, Hong Kong, China.
Ucg | Universal Images Group | Getty Images

The Chinese economy still has a “steep hill to climb” despite a surprise pickup in exports and is unlikely to be bolstered by further fiscal stimulus, according to HSBC’s Chief Asia Economist Frederic Neumann.
Exports in U.S. dollar terms rose by 0.5% year-on-year in November, defying expectations for a 1.1% decline among analysts polled by Reuters. However, imports fell in U.S. dollar terms by 0.6% over the 12 months, well below a consensus forecast of a 3.3% increase.

Yet economists have noted that external demand is still relatively weak, and that policy support from Beijing that focuses on the supply side will struggle to make inroads into reigniting domestic demand to compensate.
Neumann told CNBC’s “Squawk Box Europe” on Thursday that the Chinese economy remains weak, and that the positive export figure, released earlier Thursday, should be taken with a pinch of salt.
“Some of the Asian numbers have looked better on the trade front — Korea as well, Taiwan, for example — but this is a lot of inventory adjustment coming through the global system,” he noted.
“There’s not going to be follow-through on the export side in the next few months, and of course on the domestic side with imports contracting again, that just highlights that there is still a steep hill to climb when it comes to generating that accelerating growth in mainland China.”
This global inventory adjustment, particularly among U.S. importers, combined with base effects pushing up the numbers, means the positive export surprise does not necessarily mean exports are accelerating meaningfully, he suggested.

Demand for Chinese goods has fallen this year as global growth slows.

“All the forward-looking indicators — new orders for electronics, for example, new export orders — they all suggest that there is not a pick-up in demand and in fact, it’s more likely the U.S. economy will slow into next year, European demand looks still wobbly and so does the rest of EM [emerging markets], so where is that demand going to come from for a sustained export cycle?” Neumann said.
“That’s really a bit of a headache then for Asian policymakers including in mainland China, because they need to rely on domestic demand to really get the engine going again, and for that we haven’t seen evidence of that happening just yet.”
The value of China’s exports to the U.S. rose by 7% in November from a year ago, according to CNBC calculations of official data. In contrast, China’s exports to the European Union fell by 14.5% year-on-year in November and those to the Association of Southeast Asian Nations fell by 7%, the analysis showed.
The government has tapped fiscal stimulus to shore up its ailing post-pandemic recovery and contain its spiraling debt crisis among the country’s property developers, and the International Monetary Fund forecasts GDP growth of 5.4% this year, and 4.6% in 2024.

Neumann said there was no doubt that there are still “very powerful levers” available to Beijing despite its substantial debt pile, but that the economic growth numbers are not sufficiently “catastrophic” to warrant further fiscal action that may increase that debt burden.
“It is not as if we see mass unemployment, it’s not as if we don’t see construction in infrastructure, for example — we do see that, so in some sense, the numbers aren’t bad enough to really trigger a big, big stimulus,” he said.
“That is I think a little bit of a disappointment for the market, because you’re still hoping for the bazooka, but guess what? Growth is just not so bad that you really need to bring out those big, big stimulus packages at the moment, so we just stay muddling through here for a while and it’s hard to see that pattern changing over the next few months.”
– CNBC’s Evelyn Cheng contributed to this report. More

Other governments, particularly in Europe, are trying to counter the Biden administration’s industrial policies with their own incentives.The United States has embarked on the biggest industrial policy push in generations, dangling tax breaks, grants and other financial incentives to attract new factories making solar panels, semiconductors and electric vehicles.That spending is aimed at jump-starting the domestic market for crucial products, but it has implications far outside the United States. It is pushing governments from Europe to East Asia to try to keep up by proposing their own investment plans, setting off what some are calling a global subsidy race.Officials, particularly in Europe, have accused the United States of protectionism and have spent months complaining to the Biden administration about its policies. Governments in the European Union, in Britain and elsewhere are debating how to counteract America’s policies by offering their own incentives to attract investment and keep their companies from relocating to the United States.“I think we all deny that there is a subsidy race, but up to a certain extent, it’s happening,” said Markus Beyrer, the director general of BusinessEurope, Europe’s largest trade association.The United States is deploying nearly $400 billion in spending and tax credits to bolster America’s clean energy industry through the Inflation Reduction Act of 2022. Another $280 billion is aimed at facilities that manufacture and research semiconductors, as well as broader technological research.The Biden administration says the full agenda will unleash $3.5 trillion in public capital and private investment over the next decade. It is both a response to the hefty subsidies offered by governments in China and East Asia and an attempt to rebuild an American factory sector that has been hollowed out by decades of offshoring.Fredrik Persson, left, and Markus Beyrer, executives of BusinessEurope, a large trade group. “I think we all deny that there is a subsidy race, but up to a certain extent, it’s happening,” Mr. Beyrer said.Virginia Mayo/Associated PressThe administration says the investments will put the United States in a better position to deal with climate change and make it less dependent on potentially risky supply chains running through China.But the spending has sparked concerns about taking government resources away from other priorities, and adding to the debt loads of countries when high interest rates make borrowing riskier and more expensive. Gita Gopinath, the first deputy managing director of the International Monetary Fund, said in an interview in October that the spending race was “a matter of concern.”Ms. Gopinath pointed to statistics showing that whenever the United States, the European Union or China enacts subsidies or tariffs, there is a very high chance that one of the other two will respond with its own subsidies or tariffs within a year.“We are seeing a tit-for-tat there,” Ms. Gopinath said.The spending competition is also straining alliances by giving the companies that make prized products like batteries, hydrogen and semiconductors the ability to “country shop,” or play governments against one another other as they try to find the most welcoming home for their technologies.Freyr Battery, a company founded in Europe that develops lithium ion batteries for cars, ships and storage systems, was partway through building a factory in Norway when its executives learned that the Inflation Reduction Act was under development. In response to the law, the company shifted production to a factory in Georgia.“We think it is a really ingenious piece of modern industrial policy, and consequently, we’ve shifted our focus,” Birger Steen, Freyr’s chief executive officer, said in an interview. “The scaling will happen in the United States, and that’s because of the Inflation Reduction Act.”Mr. Steen said the company was keeping the Norwegian factory ready for a “hot start,” meaning that production could scale up there if local policies become friendlier. The company is talking to policymakers about how they can compete with the United States, he said.Some countries are reaping direct benefits from U.S. spending, including Canada, which is included in some of the clean energy law’s benefits and has mining operations that the United States lacks.Canada’s lithium industry stands to benefit as battery manufacturing moves to the United States and companies look for nearby sources of raw material.Brendan George Ko for The New York TimesKillian Charles, the chief executive at Brunswick Exploration in Montreal, said in an interview that Canada’s lithium industry stood to benefit as battery manufacturing moved to the United States and companies looked for nearby sources of raw material.But in most cases, the competition seems more zero-sum.David Scaysbrook, the managing partner of the Quinbrook Infrastructure Partners Group, which has helped finance some of the largest solar and battery projects in the United States, said that America’s clean energy bill was the most influential legislation introduced by any country and that other governments were not able to replicate “the sheer scale” of it.“Other countries can’t match that fiscal firepower,” he said. “Obviously, that’s a threat to the E.U. or other countries.”The United States has sought to allay some of its allies’ concerns by signing new trade agreements allowing foreign partners to share in some of the clean energy law’s benefits. A minerals agreement signed with Japan in March will allow Japanese facilities to supply minerals for electric vehicles receiving U.S. tax credits. American officials have been negotiating with Europe for a similar agreement since last year.But at a meeting in October, the United States and Europe clashed over a U.S. proposal to allow labor inspections at mines and facilities producing minerals outside the United States and Europe. Officials are continuing to work toward completing a deal in the coming weeks, but in the meantime, the lack of agreement has cast a further pall over the U.S.-E.U. relationship.Biden administration officials have continued to defend their approach, saying that the Inflation Reduction Act does not signal a turn toward American protectionism and that climate spending is badly needed. Even with such significant investments, the United States is likely to fall short of international goals for curbing global warming.John Podesta, the senior adviser to the president for clean energy innovation, said in a conversation at the Brookings Institution in October that foreign governments had been doing “a certain amount of bitching.” But he said the U.S. spending had ultimately spurred action from other partners, including a green industrial policy that Europe introduced early this year.“So with the bitching comes a little bit more shoulder to the wheel, so that’s a good thing,” he added.Ursula von der Leyen, president of the European Commission, presented the European Union’s Green Deal Industrial Plan in Brussels in February after the United States enacted the Inflation Reduction Act.Yves Herman/ReutersIn addition to the Green Deal Industrial Plan, which the European Union proposed in February, the bloc has approved a significant green stimulus program as part of an earlier pandemic recovery fund, and additional spending for green industries in its latest budget.Japan and South Korea have proposed their own plans to subsidize green industries. In the technology industry, South Korea and Taiwan both approved measures this year offering more tax breaks to semiconductor companies, and Japan has been setting aside new subsidies for major chipmakers like TSMC and Micron.Europe also proposed a “chips act” last year, though its size is significantly smaller than the American program’s. And China has been pumping money into manufacturing semiconductors, solar panels and electric vehicles to defend its share of the global market and prop up its weakening economy.The competition has also given rise to anxieties in smaller economies, like Britain, about the ability to keep up.“The U.K. is never going to compete on money and scale at the same level as the U.S., E.U. and China because we are firstly under fiscal constraints but also just the size of the economy,” said Raoul Ruparel, the director for Boston Consulting Group’s Center for Growth and a former government special adviser.British officials have made it clear that they don’t intend to offer a vast array of subsidies, like the United States, and are instead relying on a more free-market approach with some case-by-case interventions.Some economists and trade groups have criticized this approach and Britain’s resistance to creating a sweeping industrial strategy to shape the economy more clearly toward green growth, with the assistance of subsidies.“The question is, do you want to capture the economic benefits along the way and do you want to tap into these sources of growth?” Mr. Ruparel asked.TSMC is building a $7 billion plant in Kikuyo, Japan. Japan has been setting aside new subsidies for major chipmakers like TSMC and Micron.Kyodo News, via Getty ImagesSome experts insist fears of a subsidy race are overblown. Emily Benson, a senior fellow at the Center for Strategic and International Studies, said the scale of overall spending by the United States and the European Union was not significantly different, though European spending was spread out over time.“I don’t see some huge kickoff to this massive subsidy race that will completely upend global relations,” Ms. Benson said.Business leaders and analysts said the frustration in the European Union stemmed partly from broader economic concerns after the conflict with Russia. The combination of higher energy prices and tougher competition from the United States and China has pushed down foreign direct investment in Europe and sparked other fears.Fredrik Persson, the president of BusinessEurope, said the companies his group represented had “a very strong reaction” to the Inflation Reduction Act.“We fully support the underlying direction with the green transition, but it came at a sensitive moment,” he said.Madeleine Ngo More

Currently, the Federal Reserve’s benchmark interest rate is set between 5.25% and 5.5%. Despite this, investors are anticipating a greater than 50% chance of a rate cut by March. They also expect the central bank’s benchmark rate to fall to around 4% by the end of 2024.During her meetings, Yellen emphasized the independence of the Federal Reserve in its decision-making processes. This statement comes at a time when traders are speculating about future monetary policy moves and their potential impact on markets.The Treasury Secretary’s comments highlight the delicate balance policymakers must maintain while navigating through market expectations and the actual fiscal decisions made by the Federal Reserve. As investors look ahead, they remain attentive to signals from economic leaders like Yellen for insights into future rate movements.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

A leading Gulf artificial intelligence company has said it is cutting ties with Chinese hardware suppliers in favour of US counterparts, in a sign of the growing geopolitical struggle over the new technology.G42 of the United Arab Emirates is making the move to ensure its access to US-made chips by allaying concerns among its American partners, which include Microsoft and OpenAI, chief executive Peng Xiao said.“For better or worse, as a commercial company, we are in a position where we have to make a choice,” Xiao told the Financial Times. “We cannot work with both sides. We can’t.”G42’s ventures include the launch of an Arabic large language model. Its investors include Mubadala, the Abu Dhabi sovereign wealth fund, and the US private equity group Silver Lake.Xiao was speaking just before reports last month that claimed to shed new light on G42’s deep links to China. According to the New York Times, US officials are worried by the Emirati company’s relationship with groups including telecoms giant Huawei.The report suggested the US also raised concerns that G42 could provide a route for US AI technology and Americans’ genetic data to reach the Chinese government and companies.Xiao said G42 was phasing out hardware from Huawei, which had provided servers and data centre networking gear. He added that G42 had decided to pull back from its China relationships to appease its US corporate partners and to ensure it complied with Washington’s rules on exports of advanced chips.“The impression we are getting from [the] US government and US partners is, we need to be very cautious,” Xiao said.He added: “In order for us to further our relationship — which we cherish — with our US partners, we simply cannot do much more with [previous] Chinese partners.” G42 declined to comment on recent reporting about its links to Chinese groups. It said it had been “at the forefront of technological advancements” and had made an “overwhelmingly positive” contribution to work on AI governance, ethics and regulation.However Xiao, who was born in China, studied in the US and is now a UAE citizen, added that G42 had never had “deep AI research relationships” with Chinese partners “because, frankly speaking, they’re not leaders in this domain”.The decision by G42 to cut some ties to China shows how Gulf countries with ambitious AI agendas have become battlegrounds in the competition between China and the US over the fast-advancing field.In September, G42 and Microsoft announced an expansion of their partnership with a plan to make sovereign cloud offerings available to the UAE, work together on advanced AI capabilities and expand data centre infrastructure in the Gulf state. The following month, G42 and OpenAI unveiled an agreement to use the Microsoft-backed start-up’s generative AI models in areas where the Emirati group has expertise, including financial services, energy, healthcare and public services.Microsoft and OpenAI both declined to comment.G42 and its chair, UAE national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, have been crucial to the country’s push to diversify its geopolitical partnerships to secure access to the latest technologies. However, G42 has been caught up in controversies. Reports suggest it has been involved in the development of ToTok, a UAE chat app allegedly used by the government to spy on the users’ phones. G42 did not respond to a request for comment about its alleged part in the creation of ToTok. The UAE sees itself as a node within a new multipolar world, where China, India and Russia have emerged as counterpoints to the west’s historic economic dominance. But the global scramble for AI chips, particularly those made by US chipmaker Nvidia, has limited Abu Dhabi’s room to pivot away from Washington’s orbit.The UAE chose Huawei to install the first national 5G infrastructure in 2019, despite US objections, citing an unavailability of similar technology from western partners promoted by Washington. Since then, however, state companies have signed further deals with Sweden’s Ericsson as the UAE pursues a policy of diversifying its telecommunications partners. The growing row over G42 highlights how it is hard for companies to simply pick the US or China when both have “a lot to offer” on AI, said Nikki Sun, an academy associate in the digital society initiative at the Chatham House think-tank. “It’s unsurprising that G42, as an AI-focused start-up, engages with China, given China’s extensive role in the global AI value chain, from hardware, talent, to end market,” said Sun, who is also a fellow at Schmidt Futures, a philanthropic venture led by former Google chief executive Eric Schmidt. “Severing these connections entirely seems very unlikely.” G42 insists its “extensive network” of international relationships is “no different” from “any other global technology company, including US companies”. G42 has partnered with Sinopharm, the drugs company, and BGI, the genomics research group, in relationships that originated during the Covid-19 pandemic. Sinopharm trialled and later manufactured and distributed its Covid vaccine in the UAE, while G42 worked with BGI to build a detection centre for the disease in the country. When US officials have complained about the UAE’s growing ties with Beijing, Emirati officials have replied that Washington’s reluctance to supply cutting-edge technologies gives them no choice but to co-operate with China.US reluctance to sell high-tech military equipment to the UAE and Saudi Arabia has allowed China to fill this vacuum and become an increasingly important player in the regional arms market. Additional reporting by Richard Waters and George Hammond in San FranciscoVideo: Can generative AI live up to the hype? | FT Tech More

LONDON (Reuters) -Ex Millennium trader and founder of hedge fund Kintbury Capital, Chris Dale, says he is short British telecommunications company BT. Dale told attendees at the Sohn conference in London that the debt levels of the company were rising and its decision to reinstate dividends would cost the company. Dale entered short positions on Oct. 27 and on Nov. 30, according to the FCA register. “We are confident that we can support our progressive dividend and that we will see a material uplift in our cash flow once our peak full fibre build is completed in December 2026,” a statement from BT said in response to the report. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief executive of the Bill & Melinda Gates FoundationAs COP28 continues in Dubai, one thing is clear: climate change is affecting everyone on Earth. But low-income countries are facing its most severe consequences. The flooding in recent weeks in the Horn of Africa has displaced more than a million, just as the region was emerging from its most severe drought in 40 years.Unfortunately, climate change is only one of the compounding crises affecting the world’s poorest countries. Deadly infectious diseases and poverty are both on the rise after years of decline. Low-income countries are showing the most economic scarring from the pandemic, with gross domestic product down 7 per cent from pre-pandemic projections.More than half the poorest countries are either at high risk of debt distress or are already in it. The UN reports that nearly half of the world’s people live in a nation that spends more on servicing foreign debt than it does on healthcare. The global financial system is failing low-income countries. In Dubai, leaders talked about solutions. But one of the most vital resources has been absent from the conversation: the International Development Association.IDA, an arm of the World Bank that provides low-cost loans and grants, has been one of the most effective development institutions since its creation more than 60 years ago. It’s one of the largest sources of financing for the 75 poorest countries — for many, it’s the only reliable source of external funds for development.But it relies on donor states and is straining to meet countries’ needs. This week, the World Bank, donors and low-income states are meeting in Zanzibar to talk about IDA’s finances. In the coming year, donors must increase their contributions substantially beyond the $23.5bn they pledged in 2021. If they don’t, IDA will be forced to cut the financing it can provide — jeopardising the health and wellbeing of hundreds of millions of people and threatening global prosperity and security.At this year’s World Bank and IMF annual meetings in Morocco, I met finance ministers from countries such as Pakistan and Nigeria who are increasingly frustrated by rhetoric about collaboration that doesn’t deliver real results for their people. They see many opportunities to transform their economies but can’t get affordable financing.That’s exactly why IDA exists. In the 1990s, it played a pivotal role in helping states address their debt crises, paving the way for spectacular poverty reduction. Between 2000 and the start of the pandemic, extreme poverty in low-income countries fell by 25 per cent.In recent years, IDA has boosted food production in countries ranging from Burkina Faso to Tajikistan. It has strengthened disease surveillance and emergency epidemic preparedness across west and central Africa. And it has helped millions of Tanzanian students get a quality education. These are the fundamental building blocks of flourishing societies.IDA’s ultimate goal is to put itself out of business by spurring economic growth and reducing poverty to the extent that countries no longer need access to its funds. This has happened to 36 states and many — including China, India and Turkey — have since become IDA donors themselves.During the past few months, consensus has grown about the need to update the global financial system to address the needs of low-income countries. A strong IDA replenishment will help prove to leaders of poor countries that global co-operation is a substantive promise, not a convenient slogan. More importantly, it means unlocking opportunities for people to reach their full potential. More children in schools. More women in the workforce. More people with access to basic human needs: clean water, food and medicine.Leaders have a chance to safeguard our global economy and help get the world back on track towards essential health and development targets. But the clock starts now — and half a billion people can’t afford to wait. More

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This article is an on-site version of Martin Sandbu’s Free Lunch newsletter. Sign up here to get the newsletter sent straight to your inbox every ThursdayIn Berlin last week, the IMF’s number two, Gita Gopinath, delivered a punchy speech on Europe’s position in a fragmenting global economy. I was at the same event, and caught up with Gopinath on the sidelines to ask about the prospects for the global economy and follow up on the recommendations she made for the EU. Read on for more about her speech and our conversation. Meanwhile, thanks to all who responded to my call for reactions to the financial engineering proposal for blocked Russian state assets I sketched out last week. Keep them coming!Gopinath’s speech is worth reading in full, as is the new fund research it draws on. It is not new that the IMF worries about economic fragmentation and protectionism, but it is bringing more information to the table. For example, we know that global trade has recently been stable as a share of global gross domestic product (rather than increasing as it did in the heyday of globalisation). But Gopinath highlighted that trade within politically aligned blocs now grows faster than trade between them. So a stable rate of global trade integration in the aggregate camouflages a splintering into more deeply integrating blocs (as there have been reasons to expect). The stakes for the EU are particularly large, Gopinath argued, because it is more open than the other big economic regions. But also because it has a unique mix of constituent economies that specialise in either innovation and manufacturing — which allows it to benefit more from that openness. And that also means the EU has a particular interest in safeguarding and boosting open economic relations not just in the rest of the world, but inside its own market. The fund research finds that deeper integration within the EU could boost its GDP by 7 per cent — comparable to the cost the fund has estimated of severe global fragmentation. If we are bound for a more regionalised globalisation, the EU looks reasonably well placed to cope with it.Hence some much more ambitious recommendations from the IMF than what EU leaders themselves seem able to pursue (see Other Readables, below):There is ample room to strengthen intra-EU integration. Better harmonizing taxes and subsidies across countries would increase investment in cross-border infrastructure and discourage “state aid” shopping. It is critical to complete the capital markets union and banking union to help mobilize sufficient funding for EU’s enormous climate and digital investment needs and keep the EU globally competitive and at the technology forefront . . . Given the externalities from carbon emissions, decarbonization targets should be set at the EU level, rather than at the level of individual members, to make sure efforts are concentrated where marginal abatement costs are lowest across the EU . . . To finance these interventions [in such areas as renewable energy, smart grids, and charging infrastructure] an EU-wide central fiscal capacity of a meaningful size can help ensure resources flow to where they have the highest benefits, and not where governments are more able and willing to provide state aid.I spoke to Gopinath after her speech to follow up on these arguments — as well as to get her take on the global economy. The transcript below is edited for clarity and length.Martin Sandbu: What are the challenges for the global economy over the coming year?Gita Gopinath: As we described in October, we have slowing global growth but with diverging parts and countries. For instance, for the US, we had an upgrade. The third quarter, 5.2 per cent is a blockbuster growth rate number for the US. On the other hand we had a downgrade for Europe. So we are seeing this, these differences across the major economies, playing out in terms of the big questions about where everything is headed.It depends, obviously, on what monetary policy needs to do. We’ve had a few good readings on inflation. But I think the strategy that both the US Fed and the European Central Banks have of not getting too euphoric about a few data points is a good, sensible strategy. We still have tight labour markets both in the US and in the euro area. And there is the question of what might happen with wage growth. Right now, that’s not an area of concern. But these are still tight labour markets.MS: There has been a lot of discussion about “lags”, how long it takes for monetary policy to hit the real economy. Just today we’ve had downside surprises in European inflation. Are you not worried that monetary policy may be too tight for too long?GG: You worry if you start seeing a significant increase in the unemployment rate. Are you seeing signs of significant slack building up in the labour market? Then, as a central banker, you would be more worried about this trade-off. [But] they’ve been getting the decline in inflation without much slack in the labour market, which is what makes this a truly exceptional period compared to past disinflations. Now, in the case of Europe, they do have the effects of the energy shock, which is of course generating weaker output. In the case of the US, you have 5.2 per cent growth. It’s hard as a central bank to look at 5.2 per cent growth and thinking: am I tightening too much?MS: In an op-ed for us, you recently warned against the risk of public debt becoming excessively high. How do you reconcile that worry with the need to invest a lot more, especially in the climate transition, but also in digital transformation, defence, and many other things?GG: We have countries starting out with record high levels of debt and with projected large spending needs, including the climate transition, defence spending, industrial policy and what you have already in the pipeline with pensions and health. So I think there should be a clear recognition that the amount of expenditure that’s being projected for many countries is quite high. And the point is that it’s important first for countries to decide how much they can do on the spending side in terms of what they can and cannot do. They cannot be the insurer of first resort for all shocks. They will have to take a much more targeted approach to social support in response to shocks.The second thing is that they will have to make sure revenues are keeping up with expenditure needs. Now, not all of it, because there are obviously some investments that will generate their own revenues through higher growth. But still, there is a bit of a lagging effect between revenues and investments. There’s a lot more that needs to be done in terms of raising revenues. Get the [global] corporate minimum tax implemented. There’s a lot more in terms of loopholes, capital gains taxes, property taxes — fix those.We are in a political environment where nobody wants to cut spending or raise taxes. And that is a particularly difficult cocktail. We are no more in this space where the central bank is buying government debt [so] interest rates are going to be higher [and] more sensitive to government deficits than they have been in the past. It doesn’t mean that you don’t undertake the necessary spending, but you have to make sure that your revenues are keeping up with it.MS: We’re meeting in Berlin, and the German government, of course, now faces this dilemma in a very immediate way because of the constitutional court ruling. What’s your advice to them?GG: What’s feasible right now is about reprioritising spending and finding new sources of revenue. We do believe that investing in green infrastructure, the green transition, is very important in terms of cutting back on expenditures. We think getting rid of subsidies to fossil fuels is a good saving. On the revenue side, having a higher carbon price will raise revenues. Doing more on property taxes will raise revenues. And of course, if they can push on the structural reforms of the single market, that will help with growth, which will then feed into higher revenues, too.MS: This is a bigger question for the EU as a whole. And your speech tonight was about the EU’s situation in the current global economic reality. What’s your main message to Europe?GG: My message to Europe is that Europe is different from the US and China in terms of the risks that it faces and also in terms of the ecosystem it has — in terms of being able to build resilience. Therefore it should really chart its own course in terms of dealing with risks to the supply chain or national security risks — it should do its own thing. It should absolutely continue to advocate for the rules-based global trading system and, importantly, it should protect and deepen the single market.MS: On deepening the single market, you make some specific recommendations: better harmonisation of taxes and subsidies, carbon abatement set at the EU not the national level, a sizeable EU fiscal capacity. Those are quite big demands, right?GG: Yeah. Having EU fiscal capacity is one thing. It seems to be difficult at this time. But on the other hand, deepening capital markets union, I feel there’s more momentum there. And the banking union, there’s more momentum there. So those are places also that would help. Deepening the single market through capital markets union would be terrific.MS: But to be clear, you’re telling EU policymakers to do a lot more than they’re doing now. It’s a big leap.GG: Yes, absolutely. So, for instance, in the whole discussion on the EU fiscal framework, we like the proposal of the commission. We do think that in addition, it would have been good to have an EU-level fiscal facility like a climate investment fund and also having a stronger EU level enforcement mechanism for fiscal rules. Those would be two things that we would add to it.MS: And how do European policymakers respond when you make these recommendations?GG: I think it’s a difficult one.MS: Just to finish another difficult one, what do you think would happen if the US and Europe confiscate Russian central bank reserves?GG: It’s a good question. The IMF has a policy of neutrality, which has implications of what we can say on these kinds of questions. What the implications could be for the international monetary system is, of course, something that we always look into whenever there are any actions of this kind. But this is not an area where we’re directly involved in.MS: OK. Thank you so much.Other readablesNumbers newsRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More