This edition of State of the Union focuses on the crucial visit of Ukrainian president Volodymyr Zelenskyy to the U.S., the latest economic forecast by the EBRD and attempts to support the struggling German car industry.
Category
🗞
NewsTranscript
00:00Hello and welcome to State of the Union, I'm Stephan Grobe in Brussels.
00:10For weeks now, Europe is anxiously looking at its number one economic powerhouse, Germany.
00:16To be more precise, at the country's ailing car manufacturers, some of Germany's industrial
00:22pillars.
00:23A serious car crisis in the Federal Republic, triggered by a quasi-collapse of the electrical
00:29vehicle market, could have severe consequences elsewhere in the EU.
00:35Threats of historic job cuts, plant closures at Volkswagen and plunging earnings at Mercedes-Benz
00:41and BMW prompted emergency talks at Berlin's economy ministry this week.
00:47But given strained federal finances and fights with China over tariffs, the government's
00:52toolbox is rather empty.
00:55Nonetheless, the economy minister expressed his willingness to help, but excluded quick
01:01fixes.
01:02Everyone said that plannability is the most important thing, long-term plannability, not
01:08a straw fire.
01:09Because they only have the effect that the market is pumped up again in the short term
01:13and then possibly collapses again.
01:18Germany is in the uncomfortable position today to be forced to reorient its entire manufacturing
01:23sector that depended on cheap Russian energy.
01:27I can already hear Ukraine's President Zelensky shouting, I told you so.
01:33Zelensky was at the United Nations this week to drum up support for what he called his
01:39victory plan.
01:41He also reacted to pleas from the European far left and far right to negotiate with Russia.
01:48We know some in the world want to talk to Putin.
01:53We know it.
01:54To meet, to talk, to speak.
01:56But what could they possibly hear from him?
02:00That he's upset because we are exercising our right to defend our people.
02:07Or that he wants to keep the war and terror going just so no one thinks he was wrong.
02:14How the Ukrainian economy keeps suffering from the war was detailed this week by the
02:18latest outlook from the European Bank for Reconstruction and Development.
02:23The EBRD covers not only Ukraine, but large parts of Eastern Europe and Central Asia.
02:30The bank's findings are an important bellwether for the global economy.
02:35Joining me now is Beata Jaworczyk, the Chief Economist of the EBRD.
02:39Welcome to the program.
02:42So your latest regional economic prospects report is called Along the Adjustment Path.
02:48That sounds like a friendly way of saying it's disappointing.
02:52What are the economies you invest in need to adjust to?
02:55Well, the situation in Europe remains quite challenging.
02:59We continue to have very high prices of energy, particularly the price of natural gas is five
03:05times as high as in the US.
03:08The demand for exports, particularly from Germany, is muted given the difficult situation
03:15of the German economy.
03:17And finally, the costs of borrowing continue to be high.
03:22There is this extra risk premium, this extra interest rate countries in the regions had
03:29to pay when the war in Ukraine started.
03:33And this risk premium continues to be there.
03:36On the upside are a decline in inflation and an increase in real wages.
03:41What exactly happened?
03:43Well, by historical standards, we have seen a very fast disinflation process, though,
03:51of course, the adjustment is not done yet.
03:55Inflation remains above the pre-COVID level.
03:58But on the positive side, we have managed to avoid hard lending.
04:03So this fight with inflation has come without very big unpleasant effects in terms of unemployment.
04:11As the inflation episode started, we saw a big decline in real wages, but then real wages
04:18started catching up.
04:20That was visible in the last few months, in the last year.
04:25They are not yet back to the pre-COVID trend, but they have certainly caught up in a significant
04:31way.
04:32I guess there's still some remaining inflationary pressures.
04:36What are they?
04:37Inflation still remains high in some countries such as Turkey or Egypt, still in high double
04:43digits and depreciation of domestic currencies, which has made imports more expensive, has
04:50contributed to further inflation.
04:55One country that is still in the spotlight is, of course, Ukraine.
05:00How are they coping with the ongoing war economically?
05:02Well, despite the war early this year, so in the first quarter, Ukrainian economy managed
05:10to grow very fast.
05:11The Black Sea corridor allowed Ukraine to export grain as well as metals and ores.
05:20But then this heavy bombing and destruction of electricity infrastructure happened.
05:26And that made the situation very difficult.
05:29There are rolling blackouts.
05:32There are shortages of electricity.
05:34The country is importing electricity from Europe, but it comes at a higher cost.
05:39And that's weighing down on the economy.
05:42All right, Beata Jaworczyk, Chief Economist of the European Bank for Reconstruction and
05:47Development.
05:48Thank you for your insights today.
05:50Thank you, Stefan.
05:52Before we finish, let's go to Portugal, a country severely hit by massive wildfires
05:57recently.
05:59Such a catastrophe leads many people to pray for God's protection.
06:04At the Fatima Shrine in central Portugal, an estimated crowd of 180,000 motor bikers
06:10gathered for the traditional pilgrimage of the Blessings of Helmets.
06:16A parade carried the statue of Our Lady of Fatima to the Basilica of the Holy Trinity,
06:22followed by mass where the helmets were blessed.
06:26The annual pilgrimage is organized by various motorcycle groups from around Europe.
06:31They come to the famous pilgrimage sites to ask for the Lord's protection for their trips,
06:37as a church official explained.
06:40According to national statistics, 124 people died in almost 9,000 motorcycle accidents
06:46in Portugal last year.
06:48If God can help bring these numbers down, let's give it a try.
06:54That's it for this edition.
06:55I'm Stefan Grober.
06:57Have an excellent week.