Is it risky for the Chancellor to attack Trump?

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1:28That's warbyparker.com.

1:46This is Political Currency

1:48Ed Balls: with Ed Balls and George Osborne.

2:00Ed Balls: So we are in our studio in Hoxton back together after two weeks off, although not off for the podcast, because we had our special Libya 2011 series, which I think has gone down well. Yes, I've got lots of good reports about it. And I noticed when we come back to our studio, someone has taken our tablecloth. Have you noticed this? We used to have a bright yellow tablecloth on this. Now we've got a nice kind of wooden thing. I don't think that's related to our Libya special episode. No, no, I just think things have changed since we've been away. Things change. Things stay the same. How's your week been?

2:35Ed Balls: Well, so back in the GMB studio after a couple of weeks off, we had really good shows this week. But actually, I had one of those moments. I think you'll appreciate this. Tuesday, a funeral for Phil Willis, Labour MP and the immigration minister, the guy who famously had the confrontation with Joanna Lumley about the Gurkhas when he was the immigration minister. but he had brain cancer, just died beginning of this year. His kids are the same age as ours. They all grew up together. One of those hugely poignant moments, Tony Blair and Gordon Brown both spoke at the funeral in St Margaret's church.

3:10Ed Balls: He was somebody for complicated reasons. I don't think he ever had the credit he deserved in his lifetime, but in his passing, the obituaries, those speeches, the work he did in the 80s, tackling anti-Semitism through the National Union of Students, the first people there and then in the preparations for Tony Blair and then as a minister, the speeches by his sons, Jed and Josh, were, I mean, so powerful. And our three kids sat there in the church with us and, you know. Everyone was in tears. Everyone was in tears. But, you know, Phil Willis, what a guy. Yeah, I remember him actually and always had a very friendly relationship with him.

3:47And I'm very sorry to hear he's passed and much love to the family.

3:50Ed Balls: His wife, Tracy, did a brilliant job organising this funeral. And in life, you always wonder, you know, in my death, how will it be? And you'll never know. But if Phil could know, he'd be so proud. I did have a job in my early 20s of casting my eye over pre-written obituaries of famous people. They were occasionally passed to me by the Times and I was asked to comment on them. So I did see other people's obituaries before they died. I used to go around saying, I've just read your obituary. The big mistake as an obituary writer is ever to show it to the person when it's pre-written before they died.

4:23Ed Balls: Because then that gets you into deep, deep hot water. Oh, my goodness. How about you? I've been in Washington. I've had a really interesting few days in Washington. I just got back. Seeing important people? Seeing some of my friends in high places, I think. It's about as much as I can say. Well, so, look, to decode that for our listeners, that means J.D. Vance, the vice president, I am sure. And let's be honest. J.D., he's had a complicated week. talks in Pakistan to solve the war, which I don't think he ever agreed with in the first place, not gone so well. And his endorsement of Viktor Orban, the Hungarian leader, pretty much the night before he lost his election.

5:01Ed Balls: I mean, to see an American political leader getting involved in European politics in that way, and then for it not to work, I mean, quite something. What was JD up to? Don't tell me, don't tell me. I don't want you to break in confidences. You'd have to ask him. I mean, I follow it quite closely because my grandmother was Hungarian, so I am partly Hungarian. And, you know, I grew up with stories. I had no idea. No, I grew up with... How come your grandmother came to Britain?

5:24George Osborne: Well, she actually came as an art student in the 30s, but then her parents came after the Second World War, essentially as refugees from communism. And my mother has stories about the 56 uprising and people staying in their home in London, you know, sort of being got out of Hungary. And so I always had a kind of close... I always paid close attention to Hungary. I have met Orbán quite a few times, which maybe you know we haven't got time to unpack today but what is interesting is the very first time i met orban i was with william haig we went to see him uh this was in the 1990s so a long time and he was the big hero he was the liberal hero he was this young dynamic guy who was you know a kind of child of the thatcher reagan period who had led the student revolution who was you know A lot of kind of liberal hopes were placed in him.

6:15And he walked us around Hungary's amazing parliaments. If anyone's ever looking for somewhere to go in Europe, I have to tell you, Budapest is a great destination. It's got this incredible parliament, which is a bit like, it doesn't look like the House of Commons, but it's a similar kind of massive temple to democracy on the Danube. And then, you know, I've seen him over the years and he changed quite a bit.

6:37George Osborne: And essentially, it wasn't it. It was the corruption and the cronyism that brought him down. And I don't, you know, look, we could go into this in more detail at some point. We should. You know, the person who beat him was from his party. So I think if you interpret it as the kind of end of ethno-nationalism, that kind of MAGA style, Brexit-y stuff, you know, I'm not sure that is right, the right interpretation.

7:01Ed Balls: They did fight the election on re-engaging with Europe, supporting Ukraine, taking on Putin. The winner did, Peter Magyar. And also being critical of the American engagement in Hungarian politics. Yes.

7:15George Osborne: No, so it is true. But I think a lot of people who want to see the end of the kind of Orban-style politics, you know, may be reading too much into a kind of time for a change election rather than a rejection of the Conservative order. Anyway, we can speak about that at length. But we've got lots to talk about on this show. We've got to, of course, talk about the conflict in Iran, the ceasefire, the state of the peace negotiations. And maybe what that means back here in Britain. You know, the anti-Trump rhetoric has been stepped up by some members of the cabinet. There's a row about defence spending.

7:48George Osborne: So we're going to talk about Iran.

7:50Ed Balls: Then we're going to turn to events in Washington this week on the economic side. This is the spring meetings of the International Monetary Fund and the World Bank. the latest economic forecasts, which are challenging for Rachel Reeves, the chancellor, but also a big debate about how the global economic leaders should be responding to the economic turbulence, which is coming out of the war and conflict in Iran. So we'll talk about the spring meetings of the IMF and the World Bank second. And then finally, we just want to highlight something that's been happening in the AI world. And of course, you know, I work for OpenAI, as people know.

8:26George Osborne: The release of a model by the company Anthropik called Mythos. I say the release, they actually didn't release it. They released it to certain kind of trusted partners. OpenAI has done something similar. And it's all to do with the risks around cybersecurity. It's an interesting development and I think speaks to a kind of wider story on AI, which we thought we'd draw your attention to. But let's start with where I've just been, Washington, with the attempts to negotiate an end to the conflict, which, of course, the United States and Israel started. It's been a very fast-moving situation, and maybe, hopefully, things won't be too out of date by the time the podcast comes out later today.

9:08But this is what Donald Trump has been saying most recently. I had to divert, because if I didn't do that,

9:15George Osborne: right now you would have Iran with a nuclear weapon, and if they had a nuclear weapon, you would be calling everybody over there, sir. and you don't want to do that. Well, you keep saying was. Is this war over? I think it's close to over, yeah. I mean, I view it as very close to over. You know what? If I pulled up stakes right now, it would take them 20 years to rebuild that country and we're not finished. We'll see what happens. I think they want to make a deal very badly.

9:43Ed Balls: Kind of a broken record. I mean, we last talked about this three weeks ago. Donald Trump was saying they're destroyed. They want to do a deal. very badly and the deal's not been done. The Iranian military activity continued up to the ceasefire. He is still doubling down on the war and the argument that this is the right thing to do, even though the poles are still moving against him, the divides on the Maga side are getting wider. He's now saying that he's not opening the Straits of Hormuz to get the oil flowing, He's blockading to punish the Iranians and the economic fears are growing. I mean, it all feels a bit stuck for Donald Trump.

10:25George Osborne: Well, things have changed since we last met to do this podcast because, of course, there is a ceasefire in force, at least in the Iran part of this conflict, not in the Lebanon. And pretty extraordinary event happened. I mean, of course, people come into this with such sort of strong views, you know, particularly that America made a mistake getting into this. that to some degree people are so dismissive of everything that they miss, I think, sometimes the big picture. The big picture is for the first time in decades, the United States sat down with Iran directly. It's been done before through proxies.

11:01George Osborne: It's been done through allies. But, you know, the vice president of the United States sat down with what now is the leadership of the Iranian regime in Islamabad. And although they didn't reach an agreement, the ceasefire is held and they're planning to meet again as far as we can see.

11:18Ed Balls: If you remember the day after the presidential election, when we did this podcast, we said maybe Donald Trump will be the guy who finally gets around the table with the Iranians. That he is a sort of a mold breaker and does sometimes surprising things. And we wondered whether that would happen. Yeah. And I think all previous American presidents would have been advised, don't send your vice president into this situation and so on. But it's happened. And they were also also advised, don't go to war with Iran because you'll close the Straits of Hamus and the economic damage will be massive and you won't know how to get out of it.

11:52Ed Balls: And that is also true. That's what I meant by stuck. You know, it's not clear what path to an end game is now open to Donald Trump.

11:59George Osborne: except I think it is the case that both sides want a deal because the US administration, I say both sides, we'll come back to actually the position of Israel because there's a third dimension to this. I think the United States administration wants now a conclusion to this. They wouldn't have agreed to a ceasefire. And I think all the advice they're getting, we're going to come on to the kind of global economy is that if they can bring an end to this conflict now, the kind of permanent damage will be more limited. But even if it extends for another few weeks, you might see a kind of permanently higher base for the oil price, which will start to do real damage to the global economy.

12:37George Osborne: I think the economic advice they're getting at the moment is it's still not too late for this to be, you know, a kind of temporary thing rather than a, you know, a lasting thing. But don't you think J.D.

12:48Ed Balls: Vance has been saying that to him for weeks, don't get into this? And it isn't a question for Donald Trump now. On the domestic agenda, Think about ICE in Minneapolis. Think about what he did in some ways with the Epstein files. But you could say the same thing with other domestic issues. He's been able to pivot back to the popular thing, not with his base, but with the wider American public on this one. It feels as though a pivot to calm this down and stop the damage is going to look like a defeat for him because he won't have achieved regime change. He won't have ended the Iranian regime and its conflictual attitude towards America.

13:27Ed Balls: All the things he said, including the clip we just played, don't come true. Isn't Donald Trump worried it's going to look like he's lost?

13:34George Osborne: The only thing really that most Americans care about, and this may be a gross generalization, so I apologize. But, you know, they're not really that interested in kind of what Iran's going to look like next. and the Straits of Hormuz and the kind of very difficult situation the Gulf states find themselves in, or indeed other things that countries like Britain are deeply concerned about, which is, is the United States going to pull out a NATO, for example? You know, what most American, what the domestic American political debate is about, is about the oil price, the gas, you know, what they would call the gas price at the pumps.

14:08George Osborne: You know, is this going to damage the US economy?

14:10Ed Balls: Where the polling is all be moving against him. tariffs and iran are the two things which are hitting his voters in the pocketbook and can he

14:21George Osborne: get out of that and so the advice they're getting at the moment is there's still time for the damage not to be permanent but the clock is ticking and then you go like to your point so what is a kind of exit strategy and you can have a whole debate about whether it's all about this in advance but

14:38Ed Balls: know and i think they'd listen to our libya episode they might have worked out that knowing the end game is kind of a vital lesson right you know i think they you know they would say you know donald trump does say well first of all we literally eliminated the leadership of iran

14:52George Osborne: there's a new leadership who are ready to deal second we've massively degraded the missile stocks and the military capability of iran we've sunk their navy and third you know they are willing to talk to us about their nuclear program i think what's at the moment the sticking point is going to be like a exactly what the language is around that nuclear program and whether they're ceasing it or giving it up or pausing it you know i think that's where the kind of negotiation language is but it's quite semantics and it's to do with national pride and face saving and so on but ultimately those things should be solvable and then a big question is the ongoing role of iran on the straits for news and whether they're going to kind of charging tolls which countries like Britain, you know, others in the world and the Gulf states are absolutely against.

15:38Ed Balls: Although you slightly wonder whether Donald Trump is a little bit tempted by the idea that, you know, that could be his Iranian partnership, you know, an American-Iranian double toll in the Straits of Hormuz. I mean, he has said that in public and then was then pushed down. I mean, I have no idea what was going on in Pakistan with J.D. Vance, but you slightly wonder whether, you know, even he was tempted.

16:00George Osborne: There's definitely on the table a big package of economic support for the Iranians, you know, should they make an agreement, which is supposed to be, I think, a kind of compensation, if you like, for not doing the tolling. But we'll see how that all plays out.

16:15Ed Balls: So that would be from America to Iran. But that is a real backing of the new leadership. Do they even know who the new leadership is?

16:21George Osborne: Well, I think they do because they sat down in a room in Islamabad. And, you know, from what I hear, it's the Speaker of the Iranian Parliament is actually kind of running. the country at the moment, not the potentially injured new supreme leader. But, you know, I think there is a landing zone.

16:36Ed Balls: So they're still trying to do a Venezuela? Well, I think they've certainly given up on, you know, regime change in the sense of actually changing the Islamic Republic, even if the individuals have changed. And that's like Venezuela, where, you know, they put the vice president in and here they'll live with the kind of new leadership in Iran. And by the way, the new leadership in Iran are, you know, want some kind of guarantees around their personal safety. I think we have underestimated,

16:59George Osborne: You know, if you're actually one of these people, the threats to your life are very real. Now, interestingly, in all of this is left out Israel, who were instrumental in the decision to go into Iran.

17:12Ed Balls: And clearly don't like the ceasefire. Certainly Netanyahu doesn't. But I don't think public opinion in Israel does either. Yeah, but Netanyahu's agenda is like this is the moment to cripple our kind of existential threat to deal with the proxies.

17:24George Osborne: But I don't think the United States are that interested in the proxies. and that sort of broader mission with Iran. They're now, what they want, a kind of deal on the nuclear program. And it's interesting when you listen to Trump's language in the clip we played earlier, it's all about the nuclear program. So, you know, I think you can be...

17:42Ed Balls: Which we thought he'd destroyed last year. Which we thought it... I mean, I think they actually think the kind of enriched uranium is all buried under the ground, but nevertheless, it is there.

17:53George Osborne: All of that is an, you know, means that for all the kind of drama of this, we might be actually close to this ceasefire turning into something more permanent.

18:02Ed Balls: And did you get that feeling when you were talking to senior people?

18:04George Osborne: Well, I certainly think they want to call an end to it.

18:07Ed Balls: They are suing for peace and stability in some sense. Peace on terms that don't lead the Iranians in charge of the Straits of Hormuz is essentially the thing. But it kind of begs the question. I mean, first of all, you've got lots of other countries in the world who've got a real interest in this. China, I thought it was very interesting.

18:22George Osborne: President Xi, who doesn't actually tend to react to events. He's much more sort of measured and kept out of the kind of day-to-day politics by the Chinese state. And it tends to be their foreign minister who comments on things. But he made a comment earlier this week about Chinese shipping, essentially, or it was interpreted as a comment about, don't you start trying to stop Chinese ships going through the Straits of Ormuz. That was a message to the United States. And of course, you've got the European allies, including Britain wanting to play a part, wanting to be involved. Britain is hosting, isn't it, an event later this week about, you know, what could be a kind of international effort on the policing of the Straits of Hormuz later.

19:03George Osborne: And I think I detect in countries like ours a real concern about, you know, could all the kind of recriminations in Washington after the event, how did we get into this, where were our allies genuinely lead to Trump pulling the United States out of NATO, which would be, of course, a huge, huge crisis for the West. So there's quite a lot of domestic blowback. And of course, there's a kind of counterpressure, isn't there, which would be good to get your thoughts on. Because as we said before we broke for Easter, you know, Keir Starmer sort of found his voice on the war. You know, he's like, I stopped us getting into this war.

19:37You, Kemi Badenot, you, Nigel Farage, would have had us in the war. I stood up to Trump. And he sort of found a message that's working for him. And I can't help notice that Rachel Reeves, the Chancellor, has been using very similar language. She's now in Washington for the IMF. This is her speaking this week. I feel very frustrated and angry that the US went into this war without a clear exit plan, without a clear idea of what they were trying to achieve. And as a result, the Strait of Hormuz is now blocked. We're not getting involved in the US blockade. We don't think that is the right approach.

20:14All the way through this conflict, we have said de-escalate, de-escalate. Obviously, what has happened, and obviously, you know, no one, no sensible person is a supporter of the Iranian regime, but to start a conflict without being clear what the objectives are and not being clear about how you're going to get out of it, I do think that is a folly, and it's one that is affecting families here in the UK, but also families in the US and around the world. Well, on the many trips I made to the IMF during my time as Chancellor, I don't think it was ever on my crib sheet to say, Chancellor, make sure you attack the American administration while you're in Washington.

20:53And just before you meet the U.S. Treasury Secretary, why don't you describe their foreign policy as a folly?

20:59George Osborne: But I think it's interesting, isn't it, that Reeves is kind of basically grabbing the coattails of the Starmer language because I think it's working for them both. And remember, a few weeks ago before all this happened, there was huge pressure and lots of speculation that Keir Starmer might be decapitated.

21:18Ed Balls: You can certainly see Rachel Reeves writing her script for the second half of the year. You know, I had a plan. It was working. Trump derailed it. And I'm very angry about it. So the blame shifts from Liz Truss and Rishi Sunak to Donald Trump. And, you know, that makes some sense as a strategy. And then I think also you're right that in number 10, they will look at the numbers and think that Keir Starmer's polling has improved from a very low base in recent weeks. And that is because he has been strong and stood up to Donald Trump. And Rachel Rees will be thinking, you know, I'll have a bit of that as well, please.

21:56Ed Balls: But it is not without risks because, you know, we as you were sort of saying there, there is a style you use when you go as a finance minister to the IMF and the World Bank. You know, you could call it chancellorial, kind of the sober language you use, the coalition building. And, you know, I think one of the things which is striking to me compared to past times is we haven't seen really any finance minister sort of emerging as the leader saying we need to work together. we need to you know a concerted economic effort to get oil flowing to make sure that there's not the wrong monetary policy reaction to make sure we're vigilant to these risks and instead there's a bit of a blame game going on i'm not sure whether this is the right way to build alliances with scott besant the u.s treasury secretary i don't know if rachel reeves was as um full-on in her language to him in their bilateral as she was about him and donald trump in her media interviews but you know if it is the case that we are emerging from conflict that will ease the pressure but if as many people fear this could go on for some months more finding a ways in which the international economic community can try to mitigate some of the risks you would think would be your purpose at the imf and world bank meetings in the spring and so this is a you know i understand the politics of it and it may work but it's not without risks and i i can't think of past chances who've done it quite like this no although to be fair it's quite hard to think of past chances put in this position that is absolutely um i you know i i think you know if you think back to all the speculation that there would be a labor leadership contest in may after the local

23:45George Osborne: elections. Keir Starmer would be got rid of. And frankly, everyone then assumed also Rachel Reeves would be got rid of. For both of them, this has been a political respite. The challenge is that the politics and what other members of the cabinet are saying is all kind of pushing you into this more anti-Trump language. And of course, I'm sure they probably feel exactly what she's saying publicly. How did we get into this thing? And why didn't they do any kind of thinking about it? at the very time when Britain is also trying to, you know, make sure it doesn't lose its kind of key security partnerships and is responding to US pressure.

24:23For example, you know, it's very clear in Washington that the US is putting pressure on countries like Britain to start sailing naval ships through the Straits of Hormuz to demonstrate that they're open. So you've got that going on as well. And by the way, it was also ignited, hasn't it, here at home, a row across the parties, but also within the party, within the governing party, around defence spending. And George Robertson, who you would have known very well, and I know pretty well, who was a defence secretary under Tony Blair, Secretary General of NATO. He's about, maybe not alongside Tony Blair and Gordon Brown, who you were mentioning earlier, but he's one of the absolute elder statesmen of the

25:03George Osborne: Labour Party and the author of this government's defence review. He has come out this week and been very critical of Keir Starmer. This is what he said. There is a corrosive complacency today in Britain's political leadership. Lip service is paid to the risks, the threats, the bright red signals of danger. But even the promised national conversation about defence can't be started. The cold reality of today's dangerous world is that we cannot defend Britain with an ever-expanding welfare budget. So I'm going to assume that someone in number 10 has not been very good at kind of buttering up George Robertson and keeping him informed of what's going on.

25:52And they got him to do this defence review and maybe they've forgotten to speak to him since because that feels like someone who's now on the outside. And the language he's lived, you know, if you actually listen to what he just said there, you know, lip services paid to the risk, corrosive complacency in Britain's political leadership i.e. our prime minister and then this you can't defend Britain with an ever-expanding welfare budget I mean that is literally what Kimi Badenow could have drafted for him I mean what's going on there with Robertson what do you

26:21Ed Balls: how do you read it I don't know what's going on but something has clearly gone wrong and this isn't look it's so easy to say this is the normal military lobbying process when there is you know if they know there is a dispute going on between the defence department and the treasury which they clearly is about money then we need to get out there and sway the prime minister you remember i don't know if it happened in your time we certainly had one year when the um chiefs you know the the generals walked up downing street to see the prime minister in a very sort of open and public um way you always know when they put on their uniforms it's trouble because they quite often turn up in suits for like regular meetings but when they're in their full dress outfits you know, oh, they're coming to make their point.

27:06Ed Balls: But this is more than that, because this is a former Labour Defence Secretary, as a consequence of that, the head of NATO, in the Lords, loyalist, not somebody who you would think of as wanting to pick political rows. I mean, somebody who you might have expected to have left this to the military professionals. And why has he done this? And either he feels as though the Treasury is just not taking their review seriously, or he thinks that number 10 is not taking their review seriously, or maybe he just hasn't had, they haven't had the kind of face time with the Prime Minister which they would expect.

27:51Ed Balls: If you remember back to the conversation we had on this podcast, when that defence review was first announced we both said you know good on john healy stolen a march you know a defense review here being run by three members of the sort of defense military world george robertson a former general and then an american security expert where is the treasury and if the treasury is not involved in that review you at least need to have something happening in parallel about um procurement and efficiency and rooting out waste. Because if not, the Treasury ends up a bit on the back foot. And they're clearly on the back foot now, because if you ask the public, they'll want more spending on defence, or they won't want to either see taxes increased or cuts in the triple lock on pensions or spending on the National Health Service to pay for it.

28:41Ed Balls: It's very difficult for Rachel Reeves now, I think, to see her way through this in terms of how you create the fiscal space to do the kind of numbers that they're talking about. You know, Keir Starmer in his Munich speech said, I want more defence spending sooner. That is a direct challenge to the Treasury. But for George Robertson to have decided to go so full frontal and against number 10, I mean, he clearly thinks something's gone wrong. And, you know, coming out of the spring meetings, I think for number 10, the local election results and which are going to be bad is the next big pressure point for Keir Starmer.

29:19Ed Balls: That's less of a pressure point for Rachel Reeves. For the both of them, where the living standards are start to recover this year, the economy grows or whether you see that ongoing living standards squeeze hurting people, which I think is probably the expectation this year. But for Rachel Reeves and the Treasury, finding a way, this is one of those few times where this metaphor works square a circle over defence spending with the fiscal rules and the other pressures on her, this is going to be the challenge of 2026 now for the Treasury. Yeah, the pressures on the budget are only going to grow, not just because of the asks on things like defence, but also because of the underlying state of the economy.

30:01And even if position that the Prime has taken and the Chancellor and others in quotes, standing up to Trump, has helped them in the short term. Politically, if the economy is deteriorating and inflation is rising, that is going to be no end of trouble for them in the years ahead. And we are going to turn to the state of the global economy and what it means for Britain next.

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31:37Ed Balls: So welcome back. One of the two big global fix points of the economic calendar, the spring meetings of the IMF and the World Bank in Washington. The annual meetings in September happen sometimes in Washington, sometimes in places around the world. We went to them in Hong Kong and in Prague. You'll have been to different countries when you were chancellor. Lima and Tokyo, where am I? But the spring meetings are always in Washington and the IMF comes up with its forecast. And the interesting thing, I think, about the forecast this week was that they said, on the one hand, the global economy has been more resilient to, in particular, the Trump tariffs and the hit people feared to grow from trade wars than might have been expected.

32:26Ed Balls: but there are big downside risks if the big rise in oil prices and the conflict in the Middle East continues this year. And while they posted the UK having higher growth than our European partners, Britain had the biggest downgrade in growth this year from the IMS of all of the big G7 countries because I think partly about interest rates, we'll come to that in a moment, partly about Britain being exposed to these kind of global energy prices, particularly the gas price. This is a flavour of what was being discussed in Washington this week. And slowing global growth down from 3.4 % last year to 3.1 % in 2026.

33:12But if the conflict persists and oil prices stay high for an extended period, we must brace for tough times ahead. In rising public debt trajectory, fiscal space is much thinner than before. Price caps, subsidies and similar interventions are popular, but they distort prices. They're often poorly designed, hard to unwind and extremely costly. Most countries don't have that luxury anymore. The Fed has been wrong on inflation and the core inflation is coming down. But I understand if they want to wait till the data is clearer, but that will mean that interest rates should come down a lot more. So that was to begin with Kristalina Georgieva.

33:59She's the IMF Managing Director, the IMF's Chief Economist, who is Pierre-Olivier Gourin-Chass. I have to just look that up. Very good. And then Scott Besson, the US Treasury Secretary. And let's start with the, I mean, it's an interesting, you know, it's a sort of, in some ways, a sort of frustrating time for the IMF to meet because of the discussion we've just been having. They don't actually know when the conflict's ending and therefore it's quite difficult to work out what the longer term impact will be. But I guess it's good to get the decision makers talking to each other. I think Scott Besson's point at the end remains this kind of core question about monetary policy at the moment, which is, are we in an inflationary period now caused by rising energy prices or because of technology and AI, which we're going to come on to, are we actually in fundamentally a deflationary period where a shift in technology is bringing prices down?

35:03And it feels to me that, you know, the debate's still live, isn't it?

35:07Ed Balls: That's right. And you have to separate the political impact and the economic impact. We were talking a few moments ago about the opinion polls for Donald Trump. And the fact is that higher energy prices and higher food prices will hit living standards for American voters and the run up to the midterms. And the same thing is going to happen here in Britain. But the question is, is this a inflation shock which is going to have lasting effects? And does that mean that central banks have to respond to that by deprioritizing growth and living standards, raising interest rates to slow the economy down?

35:48Ed Balls: And the interesting thing about the financial markets is they've been assuming that is going to happen, that is going to happen in Europe. And there's now a real question about whether Europe will have a recession as a consequence. But here in Britain, before this conflict got going, the expectation was that the Bank of England would be cutting interest rates this year. The expectation in the financial market still is the Bank of England will, if anything, be raising interest rates this year. I think the market is pricing in a 0.25 % increase this year. That's right. And part of the reason for that projection of a bigger slowdown in British growth this year from the IMF is because the markets are saying interest rates are going to go up and that will be driving their forecast.

36:32Ed Balls: I personally think this is wrongheaded. It was very interesting to hear Andrew Bailey, the government of the Bank of England today, counselling against expectations of high interest rates here in the UK, because the reality is that the underlying momentum in European British economies is slowing, not accelerating. accelerating. Unemployment has been rising. Even if prices go up somewhat, that is not the same as underlying inflation becoming entrenched in our economies. I think if they were to be raising interest rates now, they'd end up with bigger cuts in interest rates later because growth would slow down.

37:09Ed Balls: My instinct is the Bank of England will not be rushing to raise interest rates. I hope the European Central Bank takes the same approach. And if that is the case, and if the conflict comes to an end more quickly, actually you could see interest rates coming down rather than rising here in Britain. And you could see a less hard slowdown in growth. And that would be good news for Rachel Reeves, good news for the public finances as well, because, you know, higher long-term interest rates not only hits mortgage holders, but it also means that the cost of servicing the much higher levels of debt we have now in our economy, it's compared to 10, 20, 30 years ago rises.

37:51So I think that I still think the markets on interest rates may be being

37:56Ed Balls: a bit too pessimistic. I sometimes wonder though whether the equity markets are being a bit too optimistic because if growth is slowing, are we really going to see that kind of momentum carry on? And that's, I think, probably what Scott Besson is saying as well. He doesn't think there's an inflation problem. He thinks inflation is coming down. And in that case, he would rather the Fed was cutting interest rates as well. Of course, you know, Jay Powell in a subtle political situation because Donald Trump is still... He's the chair of the Fed. That's right. Over the last week, who has Donald Trump chosen to highlight as his number one enemies?

38:32George Osborne: The Pope.

38:33Ed Balls: Well, the Pope, while posting a cartoon, a picture of himself as Jesus Christ laying hands on a sick person. And secondly, Jay Powell, the head of the Federal Reserve. You'd think his focus might have been on Iran, And I guess Keir Starmer was pleased to have a few days off. But, of course, there's going to be a change at the Fed very soon. Kevin Walsh about to go through his confirmation hearings. I don't know if you saw Kevin Walsh when you were in Washington. I'm sure at the moment he's in Perda. But there will be lots of questions about whether Kevin Walsh will be more dovish on interest rates this year for America.

39:13Ed Balls: Although, of course, his reputation is, if anything, for being a bit more hawkish than Jay Powell in his past pronouncements. Yeah, well, you and I both know Kevin and he's a good friend of mine. And he has his confirmation hearing this week. So I totally don't want to say anything that in any way might interfere with that. Should we support him or disown him? What would help him more? Maybe not talk too much about him. Except, you know, I think a point I've made before and you have made, which is for those who are, you know, just cannot stand the Trump regime. Anyone he nominates for anything is sort of put into the kind of manga base.

39:54And there's absolutely no doubt that Kevin is a supporter of the president and he is a lifelong Republican.

40:01George Osborne: But he is also someone very versed in in the international financial community. he's represented the united states at the g20 i mean you wouldn't call him maga don't say anything

40:14Ed Balls: george george is suddenly you know a picture of non-committal in this here he needs uh you know 53 republican votes in the senate for his confirmation he's not of course he's not yeah well i think what is true is that um he's a trump supporting republican yes and uh the same as being maga well i i'm sure he wants to make america great again who doesn't yeah but quite A lot of MAGA people want to remove Donald Trump now because he's got on some crazy war. People like Tucker Carlson, Alex Jones, Marjorie Taylor Greene.

40:45George Osborne: Well, I think it's certainly the case that I think the efforts to lead some kind of international cooperation for the United States to engage, as Scott Besson does in the kind of mechanisms of global cooperation, of which the IMS spring meetings are a great example. I think you'll see that absolutely under Kevin. He is, however, like Besant, a believer that the technology shift happening because of things like AI and robotics is fundamentally deflationary. And, you know, that's what he said publicly. And I think he says anything privately that he doesn't say publicly, certainly in my experience.

41:22What about the UK?

41:23George Osborne: I mean, it's true, isn't it, that we should note today that the latest GDP figures for last month, so it's just one month, are pretty positive for the UK. There was a 0.5 % increase in GDP last month, which was somewhat above expectations. But as you say, the IMF forecast for the UK and indeed the OECD's forecast is that the UK has the biggest downgrade of any major Western economy because of the Iran conflict and our exposure to energy prices. Did you see this report that bond traders have a new nickname? For people who've been following this in the past, you know, the people who trade in government debt used to have a thing called the pigs.

42:08George Osborne: This was Portugal, Italy, Greece, Spain, who were kind of essentially their firing line, which, you know, to laymen means those countries have to pay more for their debt because people don't think they're credible. They don't think they can keep their budget balances under control and so on. Anyway, there is apparently now a new phrase out there in the bond market called the BIFs. And the BIFs are Britain, Italy again, and France. And that these countries, there's now, you know, a concern in debt markets that these countries are right on the edge of how much they can borrow. There's question marks over their fiscal credibility.

42:45George Osborne: and as a result they're all having to pay a higher premium than other countries say germany for their debt and their bond yields have gone up more than others over this iran period are you are you are you going to biff the biffs

43:00Ed Balls: personally i think this is actually garbage um i just don't think it's the right way to think about it was garbage greece albania so because britain is in a fundamentally different position from France, Italy, Germany, Portugal, Greece, because we're not in the euro. If you take France, Italy, because they borrow in a foreign currency, the euro, it's not a currency that their own central bank controls.

43:31George Osborne: I think they might object to the phrase foreign currency.

43:33Ed Balls: But in economic terms, it's the right way to think about it. You can conceivably have solvency crises for countries within the eurozone if you don't think that the European Central Bank is going to stand by you come what may. And that was the reason why you had the Greek crisis and why people feared a crisis in Ireland or in Spain or in Portugal. And it is true to say that France and Italy now have higher levels of debt and have had slower growth. And, you know, I think it's just premature to say that they are in any way on the verge of a sort of Greek style crisis. But, you know, clearly it's more challenging for them.

44:11Ed Balls: We're just not in the same position because we're not in the euro. We have our own central bank. We don't borrow on a foreign currency. We borrow in sterling. And if you look, secondly, at the rise in long-term interest rates, which has been pretty modest in the UK this year, it's much more a reflection of the fact the markets were expecting short-term interest rates to rise rather than some deeper solvency problem. And if, as I was saying five minutes ago, it turns out the Bank of England looks through the rise in prices we're seeing at the moment, decides that they don't need to have some emergency rise in interest rates, and in fact interest rates come down, I think that will ease those pressures for sterling and for sterling 10-year gilts.

44:53Ed Balls: And so it's much more about monetary policy and the short term than it is about big fiscal risk for the UK. I don't think that means that you can afford to be complacent. And I'm sure Rachel Reeves is worrying about the fiscal position, but she'll be worrying fundamentally about whether or not the economy is going to grow and whether she can make the sums add up given the pressure she's facing politically and on the defence side. And she needs to kind of meet her fiscal rules. And I don't think a Labour chance for the second half of a parliament is going to be able to solve fiscal challenges by cutting spending.

45:25Ed Balls: I think that ship has sailed for her in this parliament. But is she going to come back on tax if the fiscal position is tougher for her? So she's got lots of big political challenges. I just don't think there is a parallel between Britain, France and Italy because we're just in a materially different place because we're not in the euro.

45:42George Osborne: Well, except that what is true is that the bond market pressure is not really easing for Rachel Reeves. I think she would have hoped, you know, Labour comes in, in her own description, she would say, we took tough decisions. I set out tough fiscal rules. That's bought me credibility. And they've got a big political majority, you know, unlike in France where the government is paralysed. And yet a couple of years into this government, there's no, it doesn't feel like that, you know, what she would say as a kind of credibility establishing measures has sort of bought her any kind of respite in the bond market.

46:24George Osborne: Although arguably, I mean, she and both her and Keir Starmer, in fact, use it as a defense against Labour challenges within the party, which is, hold on, we're only holding it together because we're here. and if we weren't the bond market really would have a go at us because they'd think there'd be more left-wing and therefore more profligate leadership of the government but it does mean looking at the next kind of couple of years as you start to approach the election is you're saying okay they can't cut spending they've got this welfare tag which even people like george robertson are now kind of hanging around their neck tax rises are not really what you want to be doing in the second half of a parliament and they can't borrow you know i don't think you'd be sitting in the Treasury thinking one way out of the kind of Rubik's Cube with defence spending and all the pressures of, you know, other public services, plus, you know, the desire to have some kind of pre-election giveaway.

47:18George Osborne: The way to solve this is to go and kind of alter the fiscal rules and borrow some more. You know, things like the warning you get that there is such a thing out there in the bond market as the biffs just makes you think in the Treasury, because it's not an exact science, You just don't know. We are as kind of boxed in as we've always been.

47:36Ed Balls: The interesting thing, I'm just looking at the Bloomberg screen as we're speaking. There's been a small rise in our 10-year interest rates since the beginning of the year. I think that's short-term interest rate related because of what's happening with the war. If you go back over a year, slightly bigger, but still a small rise. The big rise in long-term interest rates has actually been Germany. And that was a fiscal event because the new government decided to borrow more to ease the constraints upon it. Although German long-term interest rates are still markedly below Britain's, markedly below France, and still markedly below the United States.

48:12Ed Balls: I do think that it was possible for Rachel Reeves to have been part of a concerted kind of defense-related move a year ago. We've discussed this before on the podcast. I think that ship has sailed for her because of the way she's responded. But are the constraints on her fundamentally about the bond markets this year and what they'll allow her to do? Or are they about what's happening to growth and the political constraints she faces? And, you know, if the bond markets think she's just going to borrow more and not face up to big decisions, then there'll be a problem. But no chancellor can can do that.

48:51Ed Balls: Her problems, though, are that the margins are still small. If the economy does slow, that's bad. But also, even with the tax rises that Rishi Sunak and now she and Kistama put in place, there's still big fiscal pressures. And there isn't currently a plan to get the welfare budget even, I was going to say, coming down, to stop it rising as fast as it's currently rising. I think those political constraints are more significant for her than the bond market constraints. If you had a change of leader and change of chancellor, they'd be in the same position. So where you're right is if you had somebody came in and sort of September anti-Burnham style said we can ignore the bond markets, we can just borrow more, we can just borrow to spend, then you've got a crisis.

49:35Ed Balls: But I think probably for Rachel Reeves, it's less about worries about her credibility right now with the financial markets and much more about her credibility politically.

49:46George Osborne: maybe ai is going to save the world and save rachel reeves going to bring about this great productivity uh shift and improvement that people have been talking about but does it also bring with it new threats we are going to be talking about that next

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51:47Ed Balls: Welcome back. So we were talking about tensions between the Federal Reserve outgoing chair, Jerome Powell, the Treasury Secretary, Scott Besant, about interest rates and what should be happening there in the American economy. But where they've been agreeing, in fact, they called the heads of the major U.S. banks into an emergency meeting at the end of last week, was the worries about the cyber threat, which is coming from the world of AI, and in particular from a new model, the Mythos model, which has been released by Anthropic. And the worry with this new AI model is that it is so powerful and it can work at such a pace and intensity that no cyber war is up to defending itself against its capabilities.

52:42Ed Balls: And therefore, whether it was a teenage hacker or a Chinese government operative, if you wanted to break into the major computer systems of the world, which in particular include the major financial computer systems of the big banks, this could be hugely destabilizing to our economies. It emerged just a few weeks ago that this new model was being developed and to be released and had these capacities. It first came out in a Fortune magazine report. I think that they had found a blog which had inadvertently been released by Anthropic, which had this information in it. Although a bit of a suspicion that this slightly taught Anthropik's book because it suggests that, you know, they're brilliant, they're state of the art, they're ahead of the competition, this huge power.

53:33Ed Balls: And so there's been a lot of scrambling around trying to say, well, you know, it's not supposed to be released and we're cooperating with the authorities. And it's going to help us to tackle these cyber risks by spotting them and then shoring them up. But I know here in Britain, the Bank of England and the financial regulators are also worried, been talking to the banks. What is going on, George? Because this is the world you understand in detail. How should we think about this? Well, I think it's a really interesting moment. And I think we should think about it both in the kind of immediate case of what are these models and what can they do on cybersecurity or cyber defences.

54:11And I think it also speaks to a kind of broader thing about AI. So on the immediate point, so, you know, Anthropic, one of the big AI companies, has this model Mythos. They all have names. They give these model names. And, you know, what they're saying is it has a cyber capability, which is potentially very dangerous in the wrong hands. But it also can be useful in the right hands because it can help you identify weaknesses in your defenses and patch them. and that they're going to work with the authorities in the US and with major what they call trusted partners, like the big American banks and the big American tech companies to kind of use this tool to identify weaknesses.

54:54And OpenAI, the other big company in the space who I'm associated with, have also got a model called 5.4 Cyber,

55:03George Osborne: which they're saying a similar thing, which is we'll work with trusted partners to help on cyber defences. But there's no doubt it's kind of across the US. I felt this particularly in Washington. Everyone's sort of woken up to the cyber threat that, you know, unconstrained use of AI might bring about. And for me, A, that in itself is, of course, important. And these companies are working closely to, you know, with the authorities and these big other corporations and the like to try and make sure that's all properly handled. But it speaks to me of a kind of different thing as well, which is, you know, and I see the capabilities of AI today, frontier AI of the kind deployed by OpenAI and Anthropic, you know, those capabilities are actually not that well understood.

55:58George Osborne: The jargon in the industry is there's a capability overhang. In other words, these things can already do things that most people, even the kind of day-to-day users of AI, don't really fully appreciate. And it's beginning to dawn on people what these tools can do. And that's both a kind of positive and a negative. The positive is it can do all sorts of wonderful things that we're not really making enough use of already. and then there's also like and there are risks and there are and of course the companies are aware of those risks and the you know authorities are increasingly aware of the risks but i think you know if you look at the pace that this technology is moving at the pace of change is accelerating not decelerating often when you have a kind of new invention there's the invention and then there's the deployment and here the the invention because the invention you know increasingly the events itself, that's the kind of capability of AI, you know, the pace of innovation is changing.

56:58George Osborne: And I just think increasingly for all the conversation on this podcast and everywhere else about Iran and the global economy, which is very, very important and a reminder that, you know, real world events constantly intrude on things. This 2026 could also be the year that the real potential of AI becomes much more apparent to the world.

57:21Ed Balls: So let me ask you about the response to this. I mean, interestingly, I was a bit sceptical to begin with. I thought to myself, you know, is this Anthropic trying to do a bit of PR, a bit of marketing about their capability? And I got in touch with a friend of this podcast, Verity Harding, who wrote the book AI Needs You, ex-Google, now at Cambridge University. She said to me, look, there is a bit of talking a book, but also this is real. Don't panic. But there are big risks here, and it's right that they are being, in a responsible way, discussed by the AI companies with governments in this way.

57:55Ed Balls: But if you take financial risk, you know, banking, if you take chemical weapons risk, if you take medical advance and medical risk, normally you would have a process, an international process where these things are discussed in a forum. you'd be talking about international cooperation about about standards about how you monitor how you verify how you validate responses and um i said in our conversation earlier in this um podcast that i thought it was surprising that the imf spring meetings on iran you don't have that sort of finance ministers being global leaders but when it comes to this there is an american conversation happening with American banks, and there's now a British conversation between British banks.

58:44Ed Balls: But in the AI world, it does feel to me as though there is a sort of international process gap. I know we've had conferences, but where is the collective, coordinated, potentially regulated or enforceable work being done between countries to go after this? I mean, it worries me, rogue states but also you know question mark how does china use these models potentially to destabilize are they part of a an international process doesn't seem to have happened yet in the the world of ai regulation governments don't seem to be leading this in a multilateral collective way it still feels kind of very bilateral and reactive i just wonder where the government needs to get this act together uh well it's a good question i think if you look at the history of these new technologies, the development of nuclear weapons, development of chemical weapons, you know, what has often happened is they've been used in conflict.

59:42George Osborne: The atomic bombs have been dropped, chemical weapons were deployed on battlefields. And then the world tries to come together and have sort of conventions. Now, AI is different because it's not a weapon. It's a technology that's designed to improve the human condition.

59:57Ed Balls: It could be a weapon in the hands of a rogue state using cyber warfare. Right. So like any new technologies, there's always the potential for misuse and harmful use. And I think, you know, on the kind of positive side, I think there is quite a lot of a, there is a kind of global conversation happening about it.

1:00:16George Osborne: And, you know, previously on this podcast, I said, actually, Britain can take some credit that it did create the first of the international meetings on this. And there've been, you know, three since, and these global summits on AI are going to continue into the future. But like any kind of, you know, if you grew up in, as we did in the kind of Cold War period in the superpower age, that's all very well. But what about the big players? And, you know, these frontier models, they either live in a couple of American companies or potentially, and we don't, you know, we don't know as much about what's going on in China, but they are potentially in some, you know, the Chinese state of development is also very advanced.

1:01:03George Osborne: And frankly, no one else in the world is anywhere close. And so you have two countries, China and the United States, you know, whose companies are developing this technology. And I think a kind of interesting kind of question is whether there's going to be any kind of discussion between those two countries. Now, obviously, they don't want each other to get a kind of technological lead and it's widely felt at the moment that the United States has the kind of lead or US companies have the lead and certainly the US will not want to kind of give that up if you like which is which is an argument in Washington around be careful you don't over regulate or stop the development and then kind of hand the advantage to China and there's no doubt that if China could get a lead on the US it would want to I mean I think The only one who knows the Chinese regime will know that.

1:01:55George Osborne: I just think it's potentially an interesting topic for when this postponed Trump-Xi summit actually happens later. They say it was postponed because of the Iran conflict. You know, if you hang around in Washington, they are sort of thinking, well, is there a way of engaging China, particularly on the sort of cyber security risks? Because what neither country wants is some kind of teenage hacker sitting somewhere or some rogue state, even if they're loosely allied to China, let's say, you know, sort of using this stuff. Because what they're both interested in is stability and security. And while they want the potential to, you know, deal with each other, they'll not want anyone else.

1:02:37George Osborne: That was actually the story of the development of nuclear weapons over the last 70 years. those who had the nuclear weapons wanted to keep everyone else from getting them broadly although you know that club has grown given the technology is 70 years old it's striking how it hasn't grown more in my view so i i think that may be something interesting to watch and maybe cyber security is not the only potential you know it's not the only big issue around ai but it may be the thing that leads to sort of you know some kind of global conversation about how you manage both the kind of competitive pressure between superpowers but also then the risk of harm i wonder where that

1:03:19Ed Balls: conversation will will happen i mean at the moment we have these um these national government organized events rishi senak was first you were in india just a few months ago but that's not really a sort of underpinning legal auspice, hard to see the Trump administration thinking the UN is the right place to do that. If I was the International Monetary Fund, I would think if I can start around cyber risk to economies, I could maybe steal a march and make this something where I could be the convener and the coordinator of the global conversation at the moment.

1:03:56George Osborne: The UN did that with climate change, didn't it? It did. And then started having the COP meetings and so on. Exactly.

1:04:03Ed Balls: I wonder whether that will happen in the AI world, because it doesn't feel to me as though it's happened yet. And if I were, if I had been at the spring meetings, I might have been as a British finance minister thinking that's something for me to push and take a leadership role. What you know always with the Americans is they never want anybody to lead other than themselves. And they don't want to be an auspice because then they'll set up their own to try and avoid it. But in the end, if you can get it into the agenda of the IMF or the World Bank or the UN, they will in the end come along. And the Chinese will also be cautious at the beginning.

1:04:41Ed Balls: But you can in the end get them in. And we've managed that in the past on many issues, whether that's risks to global stability or corporate tax through the OECD. There are lots of economic places you can go to. And this is a big economic risk. So you don't have to kind of say we're going to have the AI Global Institute or the AI Global Legal Framework. You can start in the area which is yours. If I was the IMF, I think I'd be pushing this hard.

1:05:10George Osborne: Bit of a power grab, piece of advice on a power grab for the IMF.

1:05:15Ed Balls: Well, that's what you have to do in the global conversation. We've always been quite good at it.

1:05:21George Osborne: Britain is actually not badly placed in this space because, you know, London is definitely a center of AI activity. and all the companies have their European research hubs here. The AI Safety Institute that was created under the last government is kind of widely respected. And we were the instigators of the annual summit. So, you know, although the UK is not the host of many of these companies, it does have a space and it has a history of writing the international rules.

1:05:50Ed Balls: It's clear to me what we need. We need somebody who has a track record in kind of government economic leadership. somebody who was former chair meetings at the highest level former chief advisor to the treasury somebody who may have had um kind of important roles in the imf edward balls step forward somebody somebody who's played a leading role in the ai world george i'm building you up here i know but you know my my look my ai experience i had my shot of being appointed to something by the government and they chose peter mandelson instead so now it's your chance i in fact i'm doing at the kendy school um a project with um uh two um guys um nasha weinberg who's a lawyer who's worked with me a lot in the past a guy called dylan evans who's um ex cabinet office on how you use ai and policy making um and we've been talking to um the ifg to kendy school is this so sorry are you doing a job application no i'm not because i was just going to say i don't think when it comes to global cyber risk it quite cuts the mustard okay well when you get your top ai job Remember, you know, when I got my job, I continued the podcast.

1:06:56Ed Balls: I'm too busy presenting Good Morning Britain. And we're too busy doing this podcast. And that is it for this week's episode of Political Currency.

1:07:04George Osborne: Look, we're going to be back on Monday with ex-ministers' questions. Make sure you tune into that. Although you can get it early, of course, if you're a Political Currency gold or Kitchen Cabinet member.

1:07:16Ed Balls: Don't forget, if you're a member of our Kitchen Cabinet, you get episodes not only ad-free like our gold subscribers, but also you get our regular newsletter and we do events and you get a mug.

1:07:26George Osborne: And of course, you get extra insights into our regular show from us. But also, if you enjoyed our Libya series, there's more to come if you're part of our team, because we're going to release the fuller interviews that we do with Cathy Ashton, with Hugh Powell that made up that those episodes, which I hope you enjoyed, which taught us how Britain fights a war.

1:07:48Ed Balls: And if you enjoyed our Libya series and if you have questions about that or questions about any subject, then you can always send in your questions for EMQs to questions at politicalcurrency.co.uk. We'll be back on Monday with our next EMQs early for our subscribers. See you then. See you.

1:08:18Production.

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