We Just Saw Europe's Biggest Week in Decades

This week was a busy one and some of the most interesting things that happened came out of Europe, where policymakers announced up to €800 billion of additional defense spending and an easing of Germany's stringent debt rules. All of this comes as Europe responds to tariff threats from the Trump administration, as well as worries that the Trans-Atlantic security alliance may be over. So how significant could these changes be? And what do they mean for things like the euro, the dollar, and the wider financial system? And what are the vibes in Germany like right now? On this episode, we speak with George Saravelos, head of currency research at Deutsche Bank, about this huge moment. Read more:EU Backs German Push to Look at Easing Fiscal Rules for DefenseTrump Hails Tariffs as US Economy Barrels Into Trade Wars Odd Lots is coming to Washington, DC! Get your tickets for our Jones Act debate here. See omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 0:59Speaker 01

  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:39Joe Weisenthal?

  Hey, Odd Lots listeners, we're coming to DC.

• 1:42Tracy Alloway?

  We're finally doing it, Joe. It's going to be our first live show in Washington DC, our nation's capital. It's also finally going to be the time where we actually talk about the Jones Act.

• 1:52Joe Weisenthal?

  We've been talking about doing the Jones Act episode of Odd Lots for a long time and it's become this recurring joke that we've never done. But we're going to do it in grand style because we're going to be doing it live in DC and it's actually going to be a debate.

• 2:07Tracy Alloway?

  Yeah, so we have Sarah Fuentes. From the Transportation Institute, she's going to be taking the pro side. And we also have Colin Graybough of the Cato Institute. He'll be taking the against side. It's going to be really interesting to see how all of that shakes out.

• 2:23Joe Weisenthal?

  In addition to that, we're going to be speaking with Blair Levin, who was around during the telecom bubble. And we have Andrew Ferguson, the new head of the FTC, the one who's replaced Lena Kahn. We're going to be talking about mergers and acquisitions and all that stuff. So it should be a really fun night.

• 2:38Tracy Alloway?

  If you want to come and join us for that evening, it's going to be on March 12th at the Miracle Theater. Go to Bloomberg.com/oddlots and you can find the link to purchase tickets. We hope to see you there.

• 2:53Speaker 01

  Bloomberg Audio Studios, podcasts, radio, news.

• 3:08Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 3:13Joe Weisenthal?

  And I'm Joe Weisenthal.

• 3:14Tracy Alloway?

  Joe, do me a favor and pull up a chart of the 10-year German Bund.

• 3:19Joe Weisenthal?

  Oh, yeah. Okay, let's see. German generic 10-year bond.

• 3:25Tracy Alloway?

  You don't know the ticker?

• 3:26Joe Weisenthal?

  GB.

• 3:27Tracy Alloway?

  You haven't memorized it?

• 3:27Joe Weisenthal?

  No, but we have the beautiful auto. Wow, that is a chart. So, you know, back in the beginning of December, the yield was about 2%. It's been climbing. It was about 2.4% at the end of February. And in the last two days, it's rocketing up. It's close to 2.9%. And I saw a headline yesterday, we're recording this March 6th. Yesterday's move was the largest one day move since basically around the time the Berlin Wall.

• 3:54Tracy Alloway?

  Yeah, it's a line that goes straight up.

• 3:56Joe Weisenthal?

  Yes.

• 3:57Tracy Alloway?

  It's a pretty big move, as you mentioned. The euro is also up against the dollar.

• 4:02Joe Weisenthal?

  Yeah.

• 4:02Tracy Alloway?

  European defense stocks have been soaring. There are lots of lines going straight up charts out there relating to Europe.

• 4:10Joe Weisenthal?

  European financials doing really well, too. It's like, you know, everyone was so down on everything Europe. And then Trump was expected to make those lines go down further. And they've just been rocketing up.

• 4:22Tracy Alloway?

  Yeah, and the argument that seems to be happening here is the idea that the possibility of tariffs from the Trump administration and the loss of the US security umbrella

• 4:32Joe Weisenthal?

  Yeah.

• 4:33Tracy Alloway?

  are so bad for Europe that they could turn out to be good in the sense that Europe has to spend lots of money to counteract them, maybe they integrate some more and maybe that'll boost growth. And if you think about all the military equipment that they'll need to buy, or maybe the possibility that long-suffering German carmakers are going to pivot into defence or something like that, it kind of makes sense.

• 4:56Joe Weisenthal?

  While I'm going to say what I'm about to say, you just pull up a chart of the DAX.

• 5:00Tracy Alloway?

  Oh, yeah.

• 5:00Joe Weisenthal?

  It's pretty.

• 5:01Tracy Alloway?

  Another line going straight up.

• 5:03Joe Weisenthal?

  You know, there's two elements here. I mean, I joked yesterday that the history of finance Twitter is essentially 15 years of waiting for Germany to pull out the fiscal bazooka, to sort of pull back from its obsession with balanced budgets, the Schwarz, the Schwarznull, did I say that okay?

• 5:22Tracy Alloway?

  Schwarznull.

• 5:23Joe Weisenthal?

  Schwarznull?

• 5:24Tracy Alloway?

  Yeah.

• 5:25Joe Weisenthal?

  So there's two things, though. There's one, there's the realization that perhaps more money should be spent. And then two, there's can you get the political stars to align to act on that realization? And one thing people seem to be thinking is, and this is a very complicated problem for all kinds of structure, architectural reasons within the EU or the Eurozone, and there seems to be a belief, and more than a belief, that this sort of actions of the Trump administration over the last several weeks may be solving both of these problems at once.

• 5:57Tracy Alloway?

  Right, in the sense that maybe you need a common enemy to galvanize some action. And I will just say specifically what we've seen this week. So we saw talk of a 500 billion euro infrastructure fund. We saw Germany saying that defence above 1% of GDP could be exempt from the debt break. This is the famous Schuldenbremse.

• 6:20Tracy Alloway?

  And they also said German states can now borrow up to 0.35% of GDP. That is up from zero. So change there. And so I guess in conclusion, there is a lot going on in Europe and we should definitely talk about it. Yes. And I do in fact have the perfect guest for you. It's someone who I used to talk to all the time about European developments, specifically when we had the Euro crisis back in sort of 2011 to 2013. We're going to be speaking with George Saravelos. He is the head of FX Research at Deutsche Bank. George, thank you so much for coming on the show.

• 6:53Speaker 04

  Thank you very much for having me. It's a great pleasure.

• 6:56Tracy Alloway?

  All right. So I've seen a few people call this a watershed moment. I've seen people call it whatever it takes 2.0. Barclays is calling it whatever it costs. Ralph Preuser over at Bank of America is calling it a paradigm shift in the sense that Europe is no longer funding the US fiscal expansion. Instead, it's funding its own. And you yourself have called it history in the making. Walk us through how significant this is and why.

• 7:26Speaker 04

  Sure. I would tend to agree with all of these characterizations. I would say it's not just the size, and I can help walk through the size and provide some context, but also the speed that is remarkable. You have to remember, just a few weeks ago, we're having the German election. The centrist parties lost their two thirds majorities and the centrist parties as well, especially the leading centrist party, the CDU, was not campaigning on any sort of fiscal expansion compared to what we're seeing now. So I'd say it's both the size and the speed that's taken markets by surprise. But just to go back to the size, and you went through the changes.

• 8:06Speaker 04

  Infrastructure, we think, will be at least one, a bit more than 1% of GDP a year. The state level easing, the reform to the debt brake, that's another 0.35. This Gaps that are being freed up on defence, because now anything above one percent of GDP can be excluded, but Germany's already spending one and a half. So you have a half a percentage gap that's released immediately. And then any extra defence you want to do on top. And we think Germany would potentially target between three to three and a half percent of GDP defence spending. If you add all of these things up, we're talking about a swing in the deficit

• 8:49Speaker 04

  of somewhere between three to three and a half percent. Now, to contextualise that, the current German deficit is two and a half. So if you add that on top, we're somewhere between five and a half and six percent fiscal deficit. Now, that is extremely high. It's approaching US levels and we know how wide the US deficit is.

• 9:13Tracy Alloway?

  And we know how the US feels about its deficit as well.

• 9:17Speaker 04

  Exactly. And critically, I would say, this is not a one-off in the sense that the Covid support was a one-off. Um, we are talking about a sustained increase in deficits of this order for multiple years, at least three, four, five. But for context, the infrastructure fund is a ten-year fund. The closest proxy, I think, is German reunification. But even if you go back then and you look at the numbers, these are actually even bigger.

• 9:49Tracy Alloway?

  Wow.

• 9:49Speaker 04

  So if you try and contextualise it, there were two big rounds of fiscal easing during the German reunification. The first one was nineteen ninety, and that was a de facto helicopter drop of money into eastern Germany. That was when the Eastern Deutschmark and the Western Deutschmark were equated, one for one. It was effectively a fiscal transfer to eastern Germany. We calculate that to be eight percent of GDP, so that was nineteen ninety. And then in nineteen ninety-five, you had another fiscal expansion, a one-off fiscal expansion of roughly another eight percent. Now, we're talking here six percent deficits, but for many more years.

• 10:30Speaker 04

  So if you add up the numbers, arguably, this is even bigger than German reunification.

• 10:36Joe Weisenthal?

  You put out a note on March 4th and it's filled with dramatic language. You say it's hard to overestimate the scale of change taking place in global economic and geopolitical relations. You say that this is the biggest shift in trade relations since the collapse of Bretton Woods. And I think it's very interesting that you mentioned even just a few weeks ago, when Germany was having its national election, there wasn't much talk about this. What specifically from the Trump administration, whether it's on trade or defense, has caused such a dramatic about-face?

• 11:17Speaker 04

  So I would say it's been building. It's been building for months. It's been building for weeks. But the watershed moment was really the Munich Security Conference. And we are Deutsche Bank, we're based in Germany, we get the vibe, so to speak. But the political vibes domestically in Germany dramatically shifted after the Munich Security Conference. The speech that was given by the vice president, the broader body language around that. I'd be reluctant to say that was the single thing that caused everything, but most certainly it was a trigger for a change in mindset. And this change in mindset, we identified as soon as the election was over, in terms of the negotiations beginning.

• 12:00Speaker 04

  It culminated this week with the announcements. Say the announcements, even we were expecting something, but even for us, it was at the very top end of expectations.

• 12:10Tracy Alloway?

  Can you talk about the corporate vibes, maybe? Are companies, our management getting excited about extra fiscal stimulus? Or are they still very nervous about both the security situation and the potential incoming tariffs?

• 12:25Speaker 04

  So the geopolitical backdrop has been a challenge. Trade uncertainty is clearly huge, and we saw it with the ECB meeting earlier today. But what I would say is, this has been present in the background now for months, and you can see it in policy uncertainty indices in Germany and in broader Europe, which have been very high for a long time over the last couple of quarters. So in a sense, what is really genuinely new over the last few weeks is this positive shock. And I think what is most interesting is, to give you an example, we had a large investor roundtable just last week in Germany. This is after the negotiations had begun. And around

• 13:10Speaker 04

  that roundtable, we had a large number of real money investors domestically based in Germany allocating their money to European fixed income. And while everyone expected announcements around defence, no one really expected anything big on infrastructure. No one expected a reform of the debt break upfront. So I would say this is just the biggest surprise internationally.

• 13:34Joe Weisenthal?

  Yeah.

• 13:35Speaker 04

  As it is domestically, at least from the investor feedback and the corporate feedback I've experienced.

• 13:41Joe Weisenthal?

  We've seen this big spike in the euro over the last couple of days, but you know, it's still fairly low and it's not even back to where it was in the beginning of December. It's actually, it's still below pre-election levels. Could this dramatically change the trajectory over the coming months and years of the exchange rate?

• 14:02Speaker 04

  So I think to answer that question, you have to look at both sides of the Atlantic.

• 14:08Joe Weisenthal?

  Yeah.

• 14:09Speaker 04

  So you have to question what is going on with the US administration, what's happening in Europe. A very good starting point is to think about relative neutral rates or what's known as relative R star. Now, in kind of high frequency, short term, on a short term basis, of course, these things are very hard to estimate. But if you take a step back, relative neutral has been a pretty good guide in the broader dollar trends over the last few decades. Now, what's interesting is, and I use this reunification analogy.

• 14:40Joe Weisenthal?

  Yeah.

• 14:40Speaker 04

  If you go back to then, that period saw the relative R star between Europe and the US go from around minus 200 during the mid 1980s to zero.

• 14:56Speaker 04

  In the early 1990s, this was a period where the European neutral rate was rising as Eastern Germany was unified with Western Germany, you had the big increase in fiscal expenditure. So to answer your question, if this big infrastructure shift, defence shift goes ahead, if it's able to push trend growth higher, productivity higher, by extension ECB rates higher, I think it certainly has potential to be materially positive for the euro. Now, how positive also depends on what's going on on the other side of the Atlantic and what are the policies pursued there. So maybe that's something to discuss in our conversation.

• 15:38Speaker 04

  But I would say how much trend growth is being affected and the ECB is at the core of how much this can affect the euro.

• 16:01Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from the Dubai-based Virtual Assets Regulatory Authority has this to say.

• 16:17Speaker 05

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.

• 16:25Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Rees-Merica Ripple says.

• 16:33Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 16:52Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 17:03Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 17:44Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 18:25Tracy Alloway?

  Okay, I'm going to take the bait and ask the really simple question, which is what happens to a country's currency when they enact tariffs? So, the US. And the reason I ask it is because people seem to have different opinions. On the one hand, some people think it slows down growth and therefore currency will come down. Other people think maybe it'll speed it up, currency goes up, real rates go up, et cetera. Where do you sit in that debate?

• 18:52Speaker 04

  So, it sounds like a very simple question, but I think as we've seen, it ends up being an extremely complicated one. I would say it depends on two things.

• 19:02Speaker 04

  How are the tariffs being enacted? And to whom are the tariffs being enacted? Now, if you're talking about a situation of bilateral tariffs. So for example, under the first Trump administration, where it's just against China. The US clearly has an advantage. It's running a trade deficit. So by extension, if it applies a tariff, that tariff is going to be more damaging to the country it's running a deficit with because it's just a larger portion of that goods, of that country's goods. Now, I think when we're thinking about Trump policy under the second administration, we're applying the same logic. The US has a trade deficit with the rest of the world.

• 19:44Speaker 04

  But there are two key differences, and this has also taken me by surprise compared to the start of the year. The first one is how tariff policy is being applied. And I think the danger it's presenting to the US economy is it's being done in a very haphazard, inconsistent way where the market and businesses are struggling to understand both the path and the endpoint. And I mentioned that because if you look at the key transmission channel of tariffs into the economy, it's uncertainty. That was certainly the case during the first administration, certainly the case now. And the pattern we're seeing ever since January is US uncertainty is now going up faster

• 20:28Speaker 04

  than it is in the rest of the world. Now, partly that's because the rest of the world's already been worried about tariffs for a long time. But I think it's also the way the policy is being executed, that there is very little clarity and there is a constant back and forth. So I'd say that's the first, yeah.

• 20:44Joe Weisenthal?

  I was just gonna say, even since we've been talking on this, we just saw a headline, Trump likely to defer tariffs on goods and services under USMCA. I guess by a month, I don't, it's unclear. And this is from Howard Lutnick speaking on CNBC. So there are changes afoot even to the sort of North American trade relationship. It's changing by the day, the exact nature of this. Anyway, keep going.

• 21:09Speaker 04

  I think that's exactly it. It's the constant back and forth, which at the end of the day makes it extremely difficult to plan. And remember, the starting point of expectation was a very positive one, that this would be a very business-friendly administration. So I'd say that's one part. The second part relates to who you are tariffing. And if you are tariffing a country where the bilateral trade relationship is extremely strong, is less imbalanced, is more codependent, and here I'm referencing Mexico, but even more importantly, Canada, if you're tariffing such a country, the economic impact is going to be much bigger than if you're applying the same thing to Europe or China. Effectively,

• 21:52Speaker 04

  I think of the economy in the US as part of a broader North American economy. You have integrated supply chains that have been building for decades. And therefore, a tariff policy which essentially unwinds that and unwinds an international agreement which you've signed, I think is much more damaging than if we were thinking about the same for Europe and China. So it's taken me by surprise that the whole policy started with Canada and is taking place in such a haphazard way. And I think that's at the core of why the dollar is not strengthened.

• 22:46Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than Advanced degrees with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 23:29Speaker 01

  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 24:09Joe Weisenthal?

  So one of the things that I mentioned in the beginning is that in order to get to a point where Europe really pivots or reforms or in some way or does something big, you really need two things to happen, which is you need the recognition that it should be done. And then you need the political stars to align. And that's very tricky within the Eurozone for various reasons. You know, setting aside German fiscal expansion, capital markets deepening, capital markets integration, other things like that. Progress on areas like that has been really slow, et cetera. You know, one of the things that we've seen, very interestingly enough, is that Donald Trump breathed new life into the Liberal Party in Canada.

• 24:51Joe Weisenthal?

  They were basically left for dead about a month ago. The party of Trudeau, who's now not in the running to be the next prime minister. And now suddenly their polls are surging. Like when you look at the European political landscape, do the sort of center-right or center-liberal parties, do they seem to have new signs of life in this environment?

• 25:15Speaker 04

  I think it's too early to tell because a lot of the major interventions in Europe have only happened over the last few weeks and in reference to the Munich Security Conference in particular. But what I would certainly agree with you is that the threat and withdrawal of the security guarantee is providing, if I could call it a guiding star to Europe in terms of something everyone can coordinate around with, which is defence. And the one point to make is, of course, when you start, Europe has a very low industrial defence base, it will need to build that out. But that's precisely the reason why that could serve as a new growth engine. And we have to think about broader spillovers of defence.

• 25:57Speaker 04

  For example, just over the last few days, we've seen negotiations between Italy and Turkey to develop drone technology. We're seeing a potential shift away from Starlink to European satellite company for Ukraine. And all these things, the initial trigger might be a military reason, but there's broader technological spillovers and growth spillovers. And the last point is, we have to remember the starting point of Germany is so low. Germany has not grown for the last two or three years. Germany has engineering expertise, has excess capacity. The economy is actually fairly well placed to benefit from using defence as a new industrial strategy, so to speak.

• 26:42Speaker 04

  Germany's a third of Europe. So if Germany's moving, even if no one else is moving, it can be quite material, especially given that Germany has been the drag in the first place.

• 26:53Joe Weisenthal?

  And Tracy, you know, something that George mentioned, defence as a potential true engine of growth with spillovers. I mean, this is the story, right, that we've been talking about in American industrial policy history. It really is always defence and then defence gave us eventually the iPhone. But this is really always seems to be how it happens. Anxiety about existential security.

• 27:15Tracy Alloway?

  I look forward to the German iPhone. Okay, I'm going to ask a sort of bigger question, just going back to the scope and the significance of all of this. Have to ask, what happens to US Treasuries here and the US dollar? In the sense that, you know, I mentioned earlier that one way of looking at this is that Europe is no longer funding the US fiscal expansion. Instead, they're funding their own. Germany has in fact been a really important buyer of US Treasuries in recent years. And Europe's also a big buyer of US corporate bonds and, you know, US Treasury purchases kind of go hand in hand with the dollar's special status in the financial system as the reserve currency.

• 28:00Tracy Alloway?

  Does this change that equation perhaps? Is the dollar at risk of losing its special status?

• 28:07Speaker 04

  Well, I think you raise a very important question, and there's different ways of looking at it. But my starting point would be that you're absolutely correct in Europe being the marginal buyer of Treasuries. There's been a lot of discussion recently around the Mar-a-Lago Accord and the role of reserve managers. Central banks have not been buyers of US debt for the last 10 years. In fact, the share of reserves has been declining in terms of global GDP. So the marginal buyer has been the private sector. It's been primarily Europeans, potentially Japanese, as you alluded to. Does that create a problem for the US? I would say it depends on what's going on with the US policy stance.

• 28:49Speaker 04

  If the idea is the US fiscal stance is shrinking at the same time because the US is consolidating, it's going to be okay. If the US is sticking with these deficits of 6%, 7%, and I think critically, when we're thinking about the funding of the so-called twin deficit, it's not just about the magnitude, but it's about the context. Is the US outperforming in terms of growth? Is the US respecting property rights, so to speak? Is the dollar a high yielder? If Europe is improving, but at the same time, all of these properties are highlighted as being undermined. For example, tariff policy slowing down US growth.

• 29:32Speaker 04

  It's causing the Fed to cut rates. The dollar's no longer a high yielder. The Trump administration is making references to Greenland. At risk of slightly oversimplifying, that is a property ownership reference, which at the margin is eroding some of the attractiveness of the dollar as a safe haven. If all of these are happening at the same time. I would say it does put into question the dollar safe haven role. At the core of it, if I look at the US, the US needs to pursue sound economic policy, and then it will be okay. If that doesn't happen, the threshold for the twin deficits to matter goes down.

• 30:12Tracy Alloway?

  All right, George, Sarah Velos from Deutsche Bank. Thank you so much for coming on Odd Lots. It was good to catch up with you after many, many years. Thanks so much.

• 30:20Joe Weisenthal?

  Yeah, that was fantastic, George. Truly the perfect guy.

• 30:24Speaker 04

  Thank you. It was a great pleasure.

• 30:37Tracy Alloway?

  Joe, I'm so glad we did that episode. Because as we pointed out in the beginning, there is a lot going on, certainly here in the US. The focus tends to be on what the Trump administration is doing, and there's been less focus certainly on the impacts in other countries. So it's good to catch up on all of that. And I think probably the most striking thing in all of this is the possibility of Europe really coming together and integrating. Because if you think about the struggles the Eurozone had in the past, it was mostly around integration and political discord. Even up until, you know, a month or two ago, as George was saying, we had some political

• 31:19Tracy Alloway?

  difficulties in Germany and the coalition government and things like that. It is very striking to see people coming together just a month later.

• 31:28Joe Weisenthal?

  Yeah. You know, there is a sense that I play devil's advocate for a second, that what is going on right now sounds very similar to what Jim Bianco told us a couple of weeks ago about what a sort of de facto Mar-a-Lago accord would look like, which is Europe picking up a much larger share of the defense budget, the euro rising, the dollar weakening, et cetera. I mean, that's what Trump browbeat European leaders about in the first administration, that they weren't living up to their NATO obligations and so forth, you know? So there's a sense that part of what we're seeing is something that Trump has wanted to see for a long time. But It's really striking to me, the two things, sort of like this scale of whether it's in

• 32:11Joe Weisenthal?

  North America or Europe, leaders not feeling that the US is a reliable signatory to various agreements. And then also the fact that from a macro perspective, and I'd include China here, too, we are seeing fiscal expansion in much of the world at the same time the US is kind of going into austerity mode, at least visibly like through Doge and so forth. And so that is a very, that's a notable macro shift.

• 32:38Tracy Alloway?

  Well, you say that this is what Trump wants, but Trump also wants the dollar to maintain its special status, right? And in this scenario, again, going to the fiscal expansion idea, is Germany going to have enough money to finance both the US and itself if it's pouring, you know, billions of euros into its defense sector and things like that? I doubt it. I think that balance is certainly shifting. Now, that doesn't mean that there aren't going to be any buyers for US treasuries. We talked with Jim about the idea that, well, you know, the US can always make its banks, for instance, buy more US bonds. So there's that possibility. But I think this is something worth thinking about.

• 33:21Joe Weisenthal?

  Yeah, no, totally. I mean, look, I think that what I would say is we're in uncharted territory. And I just think about like, all of the business leaders that I've heard over the years, oh, we just want certainty. We, you know, we're okay with regulation. We just, and it's usually something that they say during democratic administrations, like, we just want certainty. We just want to know what the rules are going to be and so forth. And businesses love certain, all this stuff. And then really, in the last few weeks, it feels like we've gotten the mother of all sort of uncertainty shocks as a result of all this.

• 34:03Tracy Alloway?

  We got to figure out an uncertainty trade that's not just by the VIX. There should be a good one.

• 34:08Joe Weisenthal?

  Yeah.

• 34:08Tracy Alloway?

  Or gold.

• 34:09Joe Weisenthal?

  There's got to be something. Yeah, but gold's done really well.

• 34:12Tracy Alloway?

  Yeah, that's true. All right, shall we leave it there?

• 34:14Joe Weisenthal?

  Let's leave it there.

• 34:15Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 34:20Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at theStalwart. Follow our producers, Carmen Rodriguez at Carmen Erman, Dashal Bennett at Dashbot, and Kale Brooks at KaleBrooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have all of our episodes and a daily newsletter you can sign up to. And if you want to chat about all of these topics, including FX, including defense, check out our Discord where listeners are chatting 24/7. There's always activity going on there. Super interesting. Discord.gg/oddlots.

• 34:52Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about what's going on in the news, like all those surging European asset prices, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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