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Speaker

Robert Habeck
Federal Minister for Economic Affairs and Climate Action, German Federal Government

Moderator

Julia Friedlander
CEO, Atlantik-Brücke

MINISTER ROBERT HABECK: But I’d like to start with a broad picture, how I see the global situation, the economic situation, and the state of globalization, and then move onto the German-American, European-American relationship and concrete actions that have been taken and other ones that are to be taken.

I think it’s not surprising to say and to start with that globalization, as we knew it in the past, let’s say three decades, is now at a tipping point. It’s under pressure, if we consider that the pressure comes from outside, but I think this is not the right phrase. I think it has come to an end, because we tend to believe that globalization, open markets, traveling around, the supply chains always reliable, business deals are being made without interest or power interest. That has been always—that has always been wrong. At least now we see that this is not the case anymore.

This is not the case in two directions, of course. Globalization has fulfilled its promises in many, many areas and reasons. The amount of people being hungry, having less than two dollars every day has dramatically decreased, so global worth has increased; that’s true. But on the other hand, we see that the losses that were a little bit in the shadow of the successes of globalization have now led to a global tendency of mainly right-wing populism—it’s an all-time high of right-wing populism since World War II—and a shrinking number of liberal democracies. And this has actually nothing to do with specific situations or governments in different countries.

You know, if you come from Germany there has been a lot of debate about the heating law—I call it the heating law. This might be the reason that the right-wing populism in Germany has risen in the past half year. There are other governments that haven’t cared about the heating system. They don’t have an Ampel government. They are Western European countries, Eastern European countries, Northern European countries, Southern European countries, federal democracies, presidency democracies. It’s a broad picture and they all have, from my point of view, the threat of right-wing populism. So I think, to be honest, we have to dig a little bit deeper and it must be a problem of the system itself and the system itself has led to a decrease of the value of labor, from my point of view, which is hard to discuss and leads a little bit away from the topic of these days’ discussions.

But I think if we want to fight right-wing populism, we have to understand the source of it, and the source is not one particular political problem but disappointment with the promise that if you try hard you can make it always on your own. This is not true, actually. We know it by our lives. And this is a promise that points back to—if you are not succeeding that the failure is always your problem, and then, of course, this problem becomes combined with disrespect. And anyway, the tendency to move away from society and then you—the right-wing populism is like a—like a Hoover, searching for points where it can show that this system, the liberal democracy and also open-market democracy and open-market economy, has problems not solved. And this not solving the problems is overblown, then, and say: You see, they are impossible to solve the problems. So, long story short, we have to solve our problems to fight back right-wing populism.

But the idea is that globalization, as known in the past, is changing and a new period—some call it geopolitics—is coming or we are in the midst of it. This shift in the global policy framework is a difficult situation for open-market economies like Germany’s and also America. We are—but on the other hand, we are part of the game.

I can’t go over the last year with stating that also the terrible aggression of Russia against Ukraine is maybe the most visible point of this global change, that we are now using instruments of the last century once again on European soil. But it’s only one example. Others can be taken.

I think all major economies are trying to build interest spheres around their economic model, and this is also true for the US. You know it—the Inflation Reduction Act, as one, I don’t know, phrase for it, an example for it. It goes ahead with local-content rules. It goes ahead with the idea of re- or friend- or nearshoring—meaning, of course, speaking from an economic perspective, that not the cheapest place is the best place for production but we consider other measures, that we need also production in our own country. And this is a tremendous threat and change.

Europe, and also [the] US, mainly have all brought their raw materials from external countries into the continent. We don’t have that much exploration of energy, at least fossil energy, in Europe anymore. We buy it from other countries and we ship it to Europe. We don’t have at least only few experience in exploiting raw materials and critical minerals. It’s all coming mainly from China because it is cheaper there—cheaper for a different reason, but it’s cheaper.

If we’re now saying we want to have it on our own soil, this is not an economic thought. It’s a different thought. It’s called economic security. And I think we have to behave—we have to act according to the idea of economic security. But this goes ahead with a change also in the safety belief, political prefixes, that we are always buying from the cheapest places, for example. So if this is not an economic idea in itself but a security idea in itself, it is more costly. Of course it is more costly.

So we have to—we have to ask: How do the budget rules fit to this idea of re- or friend- or nearshoring, to this idea of economic sovereignty? And I’m not talking about economic independence. This is a stupid idea. This is not possible. It can’t be and it’s not desirable at all. But sovereignty means that at least some competence, some resilience, some parts of productions are within our own hands. This is a lesson we have learned now on the raw-materials side, on the energy side, and also looking back to the post-COVID-19 period also in the COVID-19 period.

So I’m following this idea. And in the possibilities, or within the possibilities I have in my ministry, we tried to push the economy also in this direction, like investment screening. It’s now a lot of—in a lot of cases, we have stopped Chinese investment in Germany because they go into critical areas—satellites, semiconductors, you name it. But of course, this can be considered, from a German perspective, also a disadvantage.

I talked about the money problems, the budget problems that this idea of economic security creates. On the other hand, it is also a disadvantage compared to the other European partners. You remember the debate about the port of Hamburg where Cosco tried to invest into a terminal, one of the smaller ones, and they did after we lowered the investment rate they could get. But of course, they were right—or, I mean, the Hamburg government was also right pointing to Rotterdam or to Piraeus. So if it is in disadvantage, if you create a more—higher security network in your own country disadvantaged then you won’t do it anymore.

So I think the right consequence out of this very brief analysis is that we have to move forward on a European level, meaning that investment screening into critical infrastructure or business should be following the same routes in Europe, meaning that outbound investment is necessary, as the Biden administration has done it now, but not so much the European countries.

I’m advocating for this idea but it must be done on a European level, meaning that cooperation in the defense industry is more than necessary. I guess you have discussed it many times in this audience. Actually, we have twenty-seven natural defense industries and they work together, yes, more or less OK. But more or less OK is not OK enough anymore. So creating an own European defense industry cooperation at least in the sector is also one result of this brief analysis I just gave you.

So now this all leads to the question how’s the European—the German—Germany in Europe, European connection and in relation to the US. I have to say that the partnership, I would like to call it—the friendship actually to the different ministers—and I think we have Katherine Tai later on in the evening or the afternoon—is really wonderful.

We are friends, and if we have problems we call each other. So many times where I got text messages: Robert, there is a problem, can we talk? And then we try to solve the problems, and a lot of problems have been solved. I have now a written a speech here, if I can name it, TTC—US trade and technology country suspension—suspension on tariffs in the dispute area between Airbus and Boeing, agreement on principles for a minimum carbon tax rate, the work on global agreement on steel, the agreement on transatlantic data transference, so on and so on.

You know, a lot of progress has been made. But from a European perspective we can’t oversee that the biggest defining relationship for the US is not Europe but China, and I really can remember a telephone conference I had with Secretary Yellen in the beginning of the [IRA] where I pointed out that these local-content rules for cars is a problem for the European and German automotive industry and I will never forget the silence on the other side of the telephone. It was like, oh, shit, there’s a problem. And then she was very, very, very direct and said, well, I think we forgot you. They forgot you or this was not—it’s not directed against Germany or Europe. They just thought not about Europe. They just thought about China.

And this is telling a story. What is your European industry doing if the US-China conflict becomes more harsh, if they force us to make a decision selling cars or whatever we are selling in China or on the US market and what—on the other hand, and this is definitely not something I wish—what if not the Biden administration or a Democratic-led government is on the other side of the Atlantic but a Republican one and what if US and China become, in a way, authoritarian partners? What is Europe then doing?

So put it one way or another, I think the consequence is clear and we have to—we have to be honest. The old world is gone. A new world is rising. This is a new world where the economic question alone can’t be the political leading question.

We have to think about reliance. We have to think about security issues. We have to think about also reinventing the European idea of cooperation in many areas. Otherwise, we are—the European, the German partners—too weak and this is I think also in the interest—I hope at least—in the interest of a democratic US government that you don’t have a weak European partner but a strong European partner that is working with you together side and side, hand in hand, for a liberal democracy.

Thank you very much.

JULIA FRIEDLANDER: It’s working. Thank you so much, Mr. Minister.

You’ve touched on so many of the issues in just a few minutes that we’ve been discussing all morning. I’m an American and in Germany, so I’ve got a foot on one side on the foot on the other, and an alumna of the US government. And one of the main challenges that I have observed over the past years working on these issues is that we’re having a little trouble deciding what belongs to competitiveness and what we would call economic security, wirtschaft sicherheit, and what is national security.

So maybe you can help us understand within the German context, when you’re sitting around the table and you’re negotiating over what to what to do, how is the dialogue different when you’re saying we’re going to do this because we want to, you know, keep Russia from being able to prosecute this war versus we need to do this to make sure we have a security of supply? They are two sort of two different objectives, right, but they overlap in the means.

MINISTER ROBERT HABECK: Well, from a—it is complicated. The economic models in Europe are very, very different. Maybe I start with a look back on the energy question. We had—my French colleague, Bruno Le Maire, was just here the other week. And he, in a way—I would not say he complained, but he pointed out that France has lost its energy intensive industry in the past, I think he said, one and a half decades by half. So the industrial production, the energy-intensive industrial production in France was like it was—or is in Germany, 20 percent of the industrial production. And now it’s only 10 [percent]. We have still the same amount of industrial production like we have decades ago because we bought cheap energy. France did not. Not so much natural gas, at least.

Well, this is gone now and can’t come back so fast, not from Russia at least. And this is a problem now, an actual problem mainly for Germany, also Czech Republic, but not so much for Spain, for France, for Scandinavian countries. This is a German problem. So we have a very, very concrete German problem in the European family. And the same goes for the Chinese market. We are selling a lot of cars into China. It’s becoming a little bit difficult now because they are clever and know how to build electric vehicles, and the electric vehicle market in China is increasing very, very fast.

But German cars are sold well in China. France, for example, is not selling its cars, at least not so—not so many in China. Now, it was a friend of mine proposed that we should have a deep dive into the question if China is giving illegal or, you know, not WTO-according subsidies. The German economic system, the German automotive industry, is afraid—rightly so—that if this would be the case and tariffs would be invented on Chinese cars, or whatever, we have to fear counter action. For France it’s not a problem, because they’re not selling so many cars.

So you see, we are always coming from different angles. And it’s very, very hard to bring all these—all these different views together. So your question was, in reality, how is the discussion? And I can tell you, it’s very, very complicated. And to my—well, to my—I’m not satisfied. It takes so long and so long. To overcome this. I think we have to create a political idea of Europe. The economic zone of Europe, the idea of transatlantic partnership, where do we want to move to? And not only start from the—from the actual situation. This is a historical developed situation. We have to look into the future. But this is maybe—I still have this idealism that politics and politicians can solve big problems. And this is a big problem we have to solve.

JULIA FRIEDLANDER: Well, I tend to agree that Germany is not the sick man of Europe. So your response to the Economist article, I think, is—yeah?

MINISTER ROBERT HABECK: On the other hand, you have Germany—Europe can’t do without the German economy. We are the strongest economic power in Europe. If our economy would be harmed or has a problem, Europe has a problem. So we are we are all in this together. It’s interwoven. But when you’re sitting at the table and you are the French, the German, whatever, the Italian minister for economic affairs, of course you are arguing from the perspective of your own country.

JULIA FRIEDLANDER: Of course. And I think that we’re, certainly in the United States—and we were just discussing over dinner last night—there are two charts that are looked at—it’s the trajectory of growth in China and the trajectory of growth in Germany—as the arbiters of the global economy, right? So—and this is the focus of Washington. But when we—when we think about the pillars of that growth—and you referenced the IRA, and of course we could discuss it until we’re blue in the face—it really—it really makes me wonder about the balance between what you can expect the private sector to do, how much capital you expect them to invest, often without the promise of return or at least over the medium term, versus what is the role of the state. If you want to make the US a renewable powerhouse, maybe the—maybe the government has to go into the hole ahead of time and then initiate the private capital, right? So where is that balance? And where is that balance in Germany? Because there have been some major government investments in industry, chips for example.

MINISTER ROBERT HABECK: Well, for Europe the IRA is a problem. Not so much that we are in a competitive situation with the US or other markets; this is—I mean, we are proud to be in a market society, so competition is nothing we should be afraid of—but because of two reasons.

First, from a market perspective society, subsidies have only one good reason: to create a market that is not there. That’s a political decision. We want to have hydrogen, for example. Hydrogen is not available. We have to create the market for hydrogen. And this is the reason why we give subsidies to companies to do green steel or whatever. So this is the good reason for—in a market-driven economy.

The bad one is that we are in a subsidy race. The others are giving also subsidies, and this is now happening mainly because of the IRA. There is—a lot of companies want to invest into solar industry in Germany, and I want them to do the investment because of energy security or economic security. At least some parts of the panels we are building on our rooftops should be—should be built in Germany or in Europe. But they’re saying privately: Well, how much do you give me? And I say, oh, not so much, I don’t have any money more. And they say, OK, we get more in the US, then we go. So this is the—this is the first problem. It’s a subsidy race. It is also a problem for the US or could be a problem for the US, because if the world is doing this subsidy race you never know who will win.

And the second one is that this is leading to the question—the political route we have given ourselves the last decades are fitting to the new problems. The US has a—has a very simple system. The IRA—the advantage of the IRA is that it is a tax-credit system, and this is not in line with the way we are doing things in Europe and in Germany because we have very strict budget rules. We have to know in advance how much money we are giving for this or that program. So the companies have to go to us and we have to go to the European Commission, and then back and forth and back and forth, and it takes two-and-a-half years. This is actually too long, but this is the way.

But the thing is, we know exactly we have, I don’t know, ten billion euros for hydrogen industry or whatever. It’s not becoming fifteen or sixteen or twenty [billion euros]. We know there is a budget, and if it’s gone, it’s gone. The tax-credit system in the US is actually saying—it’s very fast. You were doing the investment, and later on you’re bringing your investment to the tax administration, and then you get the advantage back. But you don’t know how much it will cost. All the numbers are just estimations.

And this—I mean, the minister of finance would get crazy if I would do things like that. If we are saying: Well, we have a program. Let’s say will last five years. And if it’s doing well, it will blow away all the budget restrictions. But this is something we want to. And while the US has, if I’m following the news right, their own problems, they have to raise the budget. This is something we can’t do. They have to raise the budget, and as far as I can see they don’t have agreed on it once again, so it’s not easy for them as well.

But the—you asked about the IRA, and the two problems are subsidy raise and different systems in these competition. It’s like handball and football. And if one is saying gripping the ball with your hands is not allowed, and you’re saying why and why not, I’m playing handball, well, then you don’t play the same game.

JULIA FRIEDLANDER: Mmm hmm. And what do you think could envision—an incentive structure in Germany or in Europe could be to generate the kind of private investment that the IRA hopes for, right, if it’s through capital market or other means—or the European Investment Bank, right, of course, which is now about to choose a new leader? Are there new tools that you think could be—could be developed that would be—that would be helpful?

MINISTER ROBERT HABECK: Well, there are also huge advantages in Germany. Now we have a harsh discussion about the standard Germany. And of course let’s—if I can put it blunt, we—our economic model relied on cheap Russian gas and the Chinese market. Well, and then you see the problem; the one is gone and the other one is systematic rivalry now. So it’s problematic, in a way.

And by looking into these two broad areas—and I hope nobody gets me wrong; we all know how politicians are and how politics works—but in a way, the country or, well, the government, whatever, have been a little bit lazy in the past times. We haven’t done our homework. We are not—the digitalization is not at the forefront. Our permitting processes take too long, way too long. Our competition—digital competition rules are not—they are created from an inside view how Europe should be—should create a level playing field. Fine enough, but this is not the real competition situation.

Our competition in Europe is with US or China. So the rules are not fitting to the problems, in a way, bringing labor force to Germany, to Europe. I mean, it’s not astonishing that we are getting older. And it can’t be a surprise that there’s a lack in the workforce now. But the rules were not fitting to these problems. So this has to be done now.

But the advantages are we are a stable democracy. We have a very, very attractive social system. We have high competence in the industries. We have very good education for the—for the workers in the industries. We have the European single market. We are the strongest economy. We have a big financial power if we want to use it. So there are huge advantage also for the German standard, so we don’t have to be afraid that we have to lose these challenging situation.

But we have to create an attitude that we will win it, that we don’t sit there like the rabbit and stare into the problem. Then we are going to be eaten by the other day. You have—well, you know in Germany football is a big issue. We lost in Japan, one to four. Japan is an OK football country, but, well, it’s not the most—it’s not Brazil. Let’s say it. And we lost. And one week—one week later, we succeeded in France. France is playing football very well—soccer—very, very well. It’s the same team. It’s the same ball. It’s—the grass was not going down. So the conditions were the same.

Why is that so? It’s about the attitude. If you want to—if you go into the game and say, oh, OK, this is very difficult, and I haven’t slept so well, and we have so many problems in our past, and I read in the news we have a problem in the team, then you will lose it. And if you go to the place and say, OK, there might be problems, but today we won’t leave the place without scoring our goals, then at least you have the chance to score some goals.

JULIA FRIEDLANDER: In graduate school, I learned that was called animal spirits.

MINISTER ROBERT HABECK: That’s a very American way to talk about it.

JULIA FRIEDLANDER: I know. Sorry.

But I’d like to ask you a little bit—we talked—so the first panel this morning was stocked with practitioners of economic statecraft. So they were people who actually are—sit in—they sit in the dark room, as I did at one point, and put—and design sanctions and export controls. And we also discussed the—we discussed the sort of technicality side of it, but then also the broader perspective on building global coalitions.

And so I’d be interested in your perspective, seeing—looking at the Russia case, potentially seeing other challenges where we’re going to have to use so-called punitive measures of economic statecraft, how big do the coalitions have to be among nations—among size of GDP or capital market, or choose your metric—so that it doesn’t blow back on us, right, has adverse effects? So in the Russia context, right, I mean, at this point last year we thought we were going to be in an energy crisis. I remember in my office in Atlantik-Brücke we were saying, OK, well, we’re going to shut the lights off. We’re going to turn the heat off. We’re going to do all this. It didn’t happen, right, but it was—there was that as a visceral risk.

MINISTER ROBERT HABECK: Let me start with the remark that the search for the right or the biggest coalition is at least a change in the idealism of a globalized world, because there the idea was the coalition is multilateralism. We create structures—WTO, Paris Agreement, the UN, and so on—where the different countries big and small and east and east and whatever, find a way for cooperation. Coalition means that this is—we don’t trust this multilateralism anymore.

And of course, we—and this is also a day-to-day problem from my work—we have to find our way in these difficult decision. We, Germany, is an export nation. So, in a way, WTO, level playing field, fair rules are for our advantage. So we are working hard that these level playing field, the WTO rules, are still in place, or can be repaired, or at least gain some success. But on the other hand, I sometimes have the feeling that we are the last ones doing it. Nobody’s playing to the rules anymore. And we are the last romantics of WTO, in a way. But in—really, in my ministry, we have to think about every day if we are doing now things like the others are doing, could that lead to a counter action and will in the end harm the German economy, because it’s export driven? If everyone is creating local content rules, it’s not good for the exporting countries.

But the point is, building coalitions is moving away from the idea from a perfect never being in place, but the idea of multilateralism. And there we are, actually. So what is happening now is something I would like to call selective multilateralism. We still are working for the institutions. We have to work for the multilateral institutions. But we don’t have to be or can’t be naïve. So we need partners, of course. Then, once again, these partners are all on different areas in their coalitions, of course.

So let’s say—let’s talk about India, for example. Yeah, a very important coming economy—or, not coming, still it is there. But I think it has a lot of potential. The growth numbers—the predicted growth numbers are impressive. Very young population, very fond of digitalization. So it is very interesting country. But it’s part of the BRICS nations. It has a—it’s also talking with China—well, not talking just China, but with Russia. It has its own interest. And, well, the same goes for South Africa, or for Brazil, and so on. So there are potential partners for cooperation, but not in all areas. And, well, this—you can—you can go through the number of nations that are coming up strong economies. So big as possible, I would say. And, if possible, we could build a coalition that is working for the multilateral systems, that would be the best.

JULIA FRIEDLANDER: Yeah, I mean, I think some people are saying this is an end of multilateralism. To me, it sort of seems like this is actually the beginning of multilateralism, because the power—the powers are shifting, and many countries have leverage over each other. I told your team that I was going to ask you three questions, but I’m going to—bonus question, and then I will let you get back to your very busy schedule. What does outbound investment screening mean for Germany? What does outbound investment screening mean for Germany, because—

MINISTER ROBERT HABECK: Yes, well, we have—I mentioned it in my brief introduction or introductory thoughts. We have investment screening system. It’s established, and in this way, old system. But now we make use of it. I just gave you some ideas that in the past year we said stop too many investments, at least more than one. But we don’t scan our outbound investment. So if companies are building a factory in, whatever, let’s say, for example, China, we are not looking into this business case what they are doing. And if they are building, whatever they’re doing there, satellites, software systems, and the knowledge is critical and goes away, that is the same problem but outbound.

But now, as this is a—this is not an old, established system, but a new question. It’s not a new one, but it’s not been done before in Europe. We have to avoid the problems that re level playing field problems in the system. So my argumentation would be, yes, we should do it. We should—we can’t be naïve anymore. This is not the world we’re living in. But you should do it on the European level. So we are now doing—the sanction system for Russia is agreed on, on the European level. And this is—trade is on a European level. The free trade agreements we’re doing are on the European level. So this is not much—this is not so far away from policy areas we have given to Europe. And I think the discussion will lead to this.

JULIA FRIEDLANDER: Thank you. And thank you so much for taking your time. I know—I can only imagine what kind of a week it must be. Ladies and gentlemen, please let’s give a round of applause for the minister.

MINISTER ROBERT HABECK: Well, thank you very much.

Watch the event

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