What Munich Means for the Shifting Global Order

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

1:02Bloomberg Audio Studios. Podcasts, radio, news. And I think Barker did a great job at Munich.

1:19I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. And this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next. And this week, as we heard at the top of the show, President Donald Trump thinks Secretary of State Marco Rubio did a great job at the Munich Security Conference. But how did European leaders and the world more broadly interpret his message? And where did the Munich summit leave us in relation to Europe and its future relations with China? Well, I know it happened a few days ago, but I thought for once we could linger a little on that conference because it is a good opportunity to take stock of where we are.

2:01and also to show off the fact that our editor-in-chief had the only sit-down interview with Marco Rubio. And we also had our head of geoeconomics, Jenny Welsh, in attendance, launching lots of exciting research. So I am joined by John McIntyre, editor-in-chief of Bloomberg News, and Jenny Welsh, chief geoeconomics analyst for Bloomberg Economics. John, as I mentioned, you had the only sit-down interview with him. What were your kind of personal impressions? Had you met him before? What did you think of him? I had met him a long time ago when he was more in the kind of, I suppose, neoconservative mould than the I love J.D.

2:39Vance mould. I thought it was interesting. I think you said style and substance. I think if you look at the substance of what he said, he was quite careful not to digress too much from the kind of Trump agenda. But in terms of style, it was said way more nicely. and also with a lot of kind of common cultural heritage. You know, he really believed these things about the Rolling Stones and beer and Christopher Columbus. That's very much part of the kind of Rubio worldview is that there's this great common civilization and we're much stronger together in that way. And that's, I think, the main thing that came across.

3:20I think the other bit is a degree of self-confidence. I mean, remember when he went into the Trump administration, there was a lot of talk about, you know, little Marco's gone to join. Actually, as the years have gone by, he has become a much stronger, more significant figure. And you see his fingerprints all over things to do with Venezuela, most obviously, and the Americas. But just quite cleverly, you know, deciding which bits he's going to have an input into and which one. Some of the Middle East stuff he's handed over to Wyckoff and things, but he's more popular with the State Department people than you might have expected a few years ago.

4:00He's on and up, but people are relentlessly thinking about the presidential side where you could end out of the Trump cabinet. Him and J.D. Vance are the two obvious people who could head in a presidential direction. Jenny, we've had Chris Kennedy on the show a few times in the past. recently, he was talking about Venezuela. He works for you now as a geoeconomics analyst. But before, up until last summer, he was working for Rubio in the State Department's policy planning unit. Very much to John's point, he wrote an essay for Bloomberg highlighting that he was one of the few figures in the administration who'd found a line somehow between the America firsts and the more neo-conservative wings of the president's coalition.

4:44Do you think that's going to come under more strain? Did you see any of the strains in evidence in Munich? Yeah, I would agree with Chris's take there. And by the way, he also has a really great profile of Rubio available on the terminal for terminal clients as well. And this is something he's highlighted too. Rubio has played his cards exceptionally well over the last year or so. He's been given far more responsibilities. He's not just Secretary of State. He's also National security advisor. He's leveraged that to his advantage and has especially played a really strong hand in U.S. policy towards Venezuela, which Trump regards as incredibly successful, especially after the operation to Aos Maduro.

5:23That being said, and this is often a law in Washington, the more successful you are, the more powerful you are, the more risky your position can be. And especially as you start to gain prominence, right? One of Rubio's, I think, tactics over the last year has been to make sure that he doesn't steal the spotlight, that he has been very careful to, you know, follow and implement policy and pay respect to the president as kind of the strategist in chief. And one of the risks that I think he faces is the more his star has risen, the more attention there will be to him personally. And that can be a very tricky thing to navigate in Washington, but especially in the Trump administration.

6:05So Jenny, did you find they sort of focused on the tone of the speech and much less on the pretty uncompromising and still quite conditional approach to the transatlantic relationship that was actually in the small print of what he said. What was interesting to me is that there was widespread recognition. You heard this from every European speaker who took the main stage. You heard it in the side events. You heard it in the lounges and in the hallways, too, of the idea that the world is changing. Europe needs to step up, not just because of American pressure to do so, but also because of the friction with the United States and concerns about reliability there.

6:44What still seemed to be very much a nascent conversation is how does that actually happen? There didn't seem to be very many clear paths forward. There was still a lot of discussion about internal divisions. And then obviously, especially for EU members, there's additional bureaucratic hurdles to overcome that get in the way of everything from figuring out how do we develop a more independent, self-reliant defense industrial base to how do we address critical mineral reliance on China issues when we have to work more together as a union and the United States is kind of a unitary actor that can move much faster.

7:21So that to me was kind of this interesting contradiction of a real strong shared awareness of the issue, but still not a clear sense of the way to address it. That does tend to be the rule with Europe. They're really, really good at understanding the problem and analysing the problem, slightly less good at solving it. John, we're going to play a bit of your interview, but I guess we should ask you, what were the headlines you wanted? I think actually the honest truth is I went in there thinking he'd made quite an impressive speech, did I think pull on lots of issues that matter a lot to Rubio and which have always mattered to him.

7:55And yet he managed to do it in a way that wouldn't annoy Donald Trump, but also please the Europeans. So I tried to push him more into, you know, what does this mean in practice? You know, what do you actually expect the Europeans to do? Let's hear a bit of it.

8:13Mario Rubio, Secretary of State, thank you for talking to Bloomberg. You've just made this rather remarkable speech where you talked about the destiny of Europe and America always being intertwined. You talked about an alliance which has stretched all the way culturally from Michelangelo to the Rolling Stones. A first, I suspect, for a Secretary of State, but a culture that has bled and died together. But the very common theme of your speech was the need to share the burden, the need for Europe and America to do things together, which was slightly different from the vice president last year. Were you kind of offering a carrot where perhaps he was offering a stick?

8:51I think it's the same message. I think what the vice president said last year very clearly was that Europe had made a series of decisions internally that were threatening to the alliance and ultimately to themselves, not because we hate Europe or we don't like Europeans, but because what is it that we fight for? What is it that binds us together? And ultimately, it's the fact that we are both heirs to the same civilization. And it's a great civilization. And it's one we should be proud of. It's one that's contributed extraordinarily to the world. And it's one, frankly, upon which America is built.

9:17From our language, to our system of government, to our laws, to the food we eat, to the name of our cities and towns, all of it deeply linked to this Western civilization and culture that we should be proud of. And it's worth defending. And ultimately, that's the point. It is because we understand that ultimately, our own fate will be intertwined with what happens with Europe. We want Europe to survive. We want Europe to prosper because we're interconnected in so many different ways and because our alliance is so critical. But it has to be an alliance of allies that are capable and willing to fight for who they are and what's important.

9:50Do you see a parallel? You seem to see a parallel between the Cold War, which I think I would argue that America beat the Soviet Union because it had a common idea and it had allies on its side. You're now in a struggle with China. As people say, you've often been a hawk on that subject. you're in a struggle with China, do you think you absolutely need Europe to be able to win that? Yeah, I would say two things. The first, the mentions of the Cold War are to remind people of everything we've achieved together in the past in times when there was doubt. But it's also a reminder that at the end of that era, when we won the Cold War, there was this euphoria that led us to make some terrible decisions that have now left us vulnerable and de-industrialized the West.

10:29It left us increasingly dependent on others, including China, for our critical supplies. and that needs to be reversed in order to safeguard us. And so I do think, yes, it would be ideal to have a Western supply chain that is free from extortion from anyone. So I think we do have a vested interest in that regard. Today is different than yesterday, but it has parallels, not in that China's the new Soviet Union, but that in our future collectively will be stronger if we work on these things together. Various sort of allies. Mark Carney has just been to Beijing. Starmer has just been to Beijing. Mertz is about to go there.

11:03Do you worry that they're beginning to drift off too much in that direction? No, I think nation states need to interact with one another. Remember, I serve under a president that's willing to meet with anybody. I mean, to be frank, I'm pretty confident in saying that if the Ayatollah said tomorrow he wanted to meet with President Trump, the president would meet him, not because he agrees with the Ayatollah, but because he thinks that's the way you solve problems in the world, and he doesn't view meeting someone as a concession. Likewise, the president intends to travel to Beijing and has already met once with President Xi.

11:29And in this very forum yesterday, I met with my counterpart, the foreign minister of China. So we expect nation states to interact with one another. In the end, we expect nation states to act in their national interest. I don't think that is excluded. That in no way runs counter to our desire to work together on things that we share in common or threats we face in common. But I don't think visiting Beijing or meeting with the Chinese is on the contrary. I think it would be irresponsible for great powers not to have relationships and talk through things and to the extent possible avoid unnecessary conflict.

12:04But there will be areas we'll never agree on. And those are the areas that I hope we can work together on. So you think the rupture that many people have spoken about is illusory? That hasn't happened yet? There's no rupture. I mean, even as I speak to you now, there are U.S. troops deployed here on this continent on behalf of NATO. There are still all kinds of cooperation that go on at every level from intelligence to commercial and economic. The links remain. I think there is a readjustment that's happening because I think we have to understand that we want to reinvigorate this. This alliance has to be about different things than it's been in the past because the challenges of the 21st century are different than the challenges of the 20th.

12:38The place where that's being most obviously tested at the moment is Ukraine. You see all these numbers from the front where the Ukrainians do seem to be doing better in terms of what's happening to the Russians. Do you think Ukraine or do you think Russia is still winning that war? or where do you place it militarily? I think that's a difficult war to say anyone is winning. The Russians are losing 7 ,000 to 8 ,000 soldiers a week, a week, not wounded, dead. Ukraine has suffered extraordinary damage, including overnight and again to its energy infrastructure. And it will take billions of dollars and years and years to rebuild that country.

13:14So I don't think anyone can claim to be winning it. I think that both sides are suffering tremendous damage and we'd like to see the war come to an end. It's a senseless war. In our view, the president believes that very deeply. He believes the war would have never happened if he'd been president at the time. So we're doing two things. So obviously we continue, look, we don't provide arms to Russia. We provide arms to Ukraine. We don't sanction Ukraine, we sanction Russia. But at the same time, we find ourselves in a unique position of serving as probably the only nation on earth that can bring the two sides to discuss the potential for ending this war on negotiated terms.

13:49And it's an obligation we won't walk away from because we think it's a very unique one to have. It may not come to fruition, unfortunately. I hope it does. And I think there are days when I feel more optimistic about it than others. But we're going to keep trying because that is, in the end, this war will not be solved militarily. It will be, in the end, it will come to a negotiated settlement. We'd like to see that happen as soon as possible. Secretary Marco Rubio, thank you very much for talking to Bloomberg. Thank you.

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15:32So, John, we've obviously talked quite a lot about Mark Levy, but I wanted to also use this as a chance to kind of take stock of how Europe was responding to this new world that Trump has been helping to shape. And one of the issues that was discussed a lot is defence and even talk of the sharing of the nuclear umbrella between Germany and France. That seemed like a new stage. It wasn't just they're going to spend more on defence, but they're going to actually be seriously thinking about alternatives to the US or some kind of diversification away from the US if they're thinking about defending themselves from Russia.

16:08There's one European leader who rather nicely told me, and I'm going to get it slightly wrong, that the way in which Europe proceeded was you have lethargy, you then have crisis, chaos, and then you end up with a suboptimal solution of sorts. And I think they're somewhere in the kind of chaos towards the suboptimal solution stage of it at the moment. I think that Greenland, no matter how often the Trump administration now or people around the Trump administration try to say, oh, it really didn't matter that much. I think it really did matter. I think it struck through right into some of the main leaders in Europe that they realized that they can't rely on America.

16:51Many of them might hope that a different administration would be more supportive. Many of them might even have looked at Rubio and thought, well, if he was running it, we could deal with this. But the idea that they can necessarily 100 % rely on that, I think is now out. You've even got Germany looking at what the nuclear options are for it. You've got Britain talking to France about its nuclear science. Suddenly, a lot of things are on the table that weren't there before. In terms of where they've got to on that sort of voyage, yes, you've got Germany is going to build Europe's biggest army. You've got more money going back into defense in several different areas.

17:34But it's the sort of next stage where you get the suboptimal solutions. One really obvious point is Europe has countless defense manufacturers and different priorities in each part of different armies and different versions of tanks. Simplifying all that would not only save a fortune, it would also end up with a much kind of better fighting force at the end, and they don't seem to be getting there. I mean, it was very striking to me, some of that conversation about the nuclear deterrent and sort of potential options involving the French and potentially the British, or indeed a sort of pan-European deterrent.

18:12Jenny, I was wondering, how seriously do you take that? I think it's important to take it seriously. The other thing that comes to mind that I think is really striking here is the timing of this. This is coming after the expiration of the last major arms limitation treaty between the U.S. and Russia. New START expired earlier this month. And I think the world has yet to fully appreciate or reckon with the idea that we're going to see a new wave of nuclear proliferation. I think the Europe context is obviously unique and driven in part by these frictions with Washington, but it is taking place against the backdrop of this broader nuclear movement, where I think we're going to see not just the U.S.

18:54and Russia because the expiration of this treaty. China has already been embarking on a major nuclear weapons expansion, but also other countries. And the consequences of that for geopolitical stability and the consequences of conflict are immense. You can't get more dangerous and more impactful than nuclear conflict, right? and that's the world in which we are going to increasingly live in. Just to follow on what Jenny said, if you remember in the Ukraine war fairly early on, there was this issue about whether Putin would use tactical nuclear weapons and the Chinese immediately jumped or supposedly jumped on his back and said, absolutely no way, that's sort of a road we're going to pass over.

19:38I think by the same token, the idea that Germany would ever think of sort of turning to people other than America to protect it. The idea that Germany might in the end even consider doing it itself. You know, this is a very different world. And it's that thing where Donald Trump has thrown a stone in the pool and the ripples are still heading out. And again, a lot of these things may not happen. But the mere fact people are thinking about it is a really, really big deal. Jenny, you mentioned China. And that's another thing that's changed at the Munich Security Conference. you were telling us earlier, used to be very much focused on transatlantic ties.

20:19But you now see much more. There's more people there from Asia. And clearly there's now more focus in Europe from a kind of strategic standpoint as well as an economic standpoint on China. So do you feel that you got a clearer sense of how Europeans were thinking about China? Because a few years ago, it would have been all about de-risking and reducing their vulnerability to China in terms of supply chains. As we discussed on the program a couple of weeks ago, now almost it's the opposite. Now people are talking about building ties with China. Absolutely. And as you're noting there, it's very complex.

20:59Europe is really facing difficult choices on both sides. On one hand, the frictions with Washington do lead them to naturally consider the other major power in the world. On the other hand, they're extremely frustrated with China for what they see as China's ongoing support for Russia during its war in Ukraine. And this was a question that got pitched to the Chinese foreign minister Wang Yi after his remarks, which, by the way, they purposely put right after Rubio. So couldn't underscore more clearly the idea that there's a contrast being painted here between the United States and China as the two major powers in the world.

21:33And his response, I think, left many Europeans deeply unsatisfied, which is essentially China remains very committed to the peace process, but no comments on questions about supporting Russia's war machine and ongoing strong economic and strategic ties. The other challenge that Europe faces with China is pressure from Chinese exports and Chinese overcapacity. And that's something that continues to be a strain that we heard from European leaders and inside events from other Europeans as well. And again, I think it's one of those examples of a recognition of the problem, a frustration with the problem, but no clear sense of the way forward, in part because they're navigating these difficult tradeoffs with Washington.

22:15And that's something I think we're going to continue to see to play out. And John, there's been a lot of focus on the quality of speeches in recent weeks. People were very impressed by Mark Carney's speech in Davos. You were saying that you thought Rubio's speech was very good. A sort of blockbuster speech is not what you ever expect from a Chinese foreign minister. But did you get the sense that there were more substantive meetings happening behind closed doors? There's definitely a kind of flirtation going on in that direction. And there's two bits. I mean, very clearly, privately, one of Europe's leaders, when asked what happens in Ukraine, they said very clearly that the only three people who can stop the war in Ukraine are Vladimir Putin, Donald Trump and Xi Jinping, because Xi Jinping could just simply turn off the support and then Russia would have to give in.

23:02And so I think there is a kind of realisation, certainly at the top of Europe, that this is a relationship you go into carefully. It's quite interesting that Rubio, when I asked him about that, said, no, that's fine. It's completely logical that the Europeans should also have a foreign policy towards China, which slight tension between that and what Trump has said a few times. But that was what he said. Now you can make an argument about how long the particularly Trumpish version of foreign policy in America continues. At some point, the likelihood is it is going to move away from that. And I think when it stops being quite so keen to go and beat up the Europeans and starts thinking we are in a competition with China and we're going to need allies, I think that is where there is quite a difficulty.

23:51Because I think people will forgive, American leaders will forgive Europe doing stuff if it's purely just a kind of reflection to what Trump has been up to. But if you come out of it with Europe seem to have deeper ties with China, that's going to really complicate the transatlantic relationship. So I think Europe has to be a bit careful on that, I think. Jenny, we're going to run out of time, but I do want to just touch on, because you were presenting this research at Munich, and of course it's a subject close to your heart because you were very focused on China and Taiwan policy when you were at the National Security Council.

24:28It's not as if the US policy towards China is completely straightforward at this point. And in fact, we are seeing a lot of mixed messages in terms of the doing of economic deals, the sort of hard talk, but also somehow the suggestion that there's kind of less support, for example, for Taiwan. And you, I mean, just for a sort of couple of headlines, I mean, you've highlighted in that report, you and the team, what the economic consequences would be of the US just stepping back from Asia. Yes, absolutely. We were very fortunate that the Munich Security Conference this year chose a theme of under destruction.