Europe

President Christine Lagarde of the European Central Bank discusses inflation, interest rates, and the challenges facing Europe’s economic recovery. The C. Peter McColough Series on International Economics brings the world’s foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

Carolyn Kissane, academic director and clinical professor at the Center for Global Affairs at New York University, leads the conversation on the geopolitics of oil.   FASKIANOS: Thank you. Welcome to the final session of the Winter/Spring 2023 CFR Academic Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach here at CFR. Today’s discussion is on the record. And the video and transcript will be available on our website, CFR.org/Academic, if you would like to share these materials with your colleagues or classmates. As always, CFR takes no institutional positions on matters of policy. We are delighted to have Carolyn Kissane with us to discuss the geopolitics of oil. Dr. Kissane is the academic director of both the graduate program in global affairs and the graduate program in global security conflict and cybercrime at NYU’s Center for Global Affairs, where she is also a clinical professor. She also serves as director of the energy, climate justice, and sustainability lab in the School of Professional Studies at NYU. She was named in 2013 by Breaking Energy as one of the top ten New York women in energy, and top ten energy communicator. She’s a member of the Council on Foreign Relations and the National Committee on U.S.-China Relations, and serves on several boards. So, Carolyn, thanks very much for doing this. We really appreciate it. I thought we could begin by talking about how has the geopolitics of oil changed, especially vis-à-vis Russia’s war in Ukraine and OPEC’s recent announcement to cut oil production? KISSANE: Well, first of all, I’d just like to say, thank you so very much for having me. I’m really delighted. I am a big fan of CFR’s Academic Webinars. So, to have the opportunity to participate in this—in this way is very meaningful to me. So, thank you. So, wow. There is so much happening in this space, the geopolitics of oil. This has been a tremendous fourteen months. Russia’s reinvasion of Ukraine very much upended the geopolitics of oil because Russia is a significant producer, one of the top three in the world. And it’s—you know, it’s caused a kind of a reshaping, a kind of a remapping of the—of oil geopolitics. And we’ve seen some, you know, shifts in how countries think about oil security, in light of larger questions about broader energy security questions. And also, on top of that, is the ongoing energy transition, coupled with, you know, climate change, and the need to decarbonize. So, there’s just—it’s been quite a—you know, a year and a half, that has really sort of put energy security, and oil security, very much at the forefront of people’s minds. FASKIANOS: Fantastic. I thought maybe you had some really interesting data to show us. And if you could walk us through those—the trends you are seeing and really bring it to life, that would be fantastic. KISSANE: Sure. So, before I do—I have a couple of slides. And before I share my slides, I think it’s really important that, sort of, we understand how interconnected, sort of, the global energy system is, and how interconnected we are, when it comes to the flows of oil. You know, some countries are very well resourced-endowed, so they have oil. And other countries do not, so they need to import oil. There’s really no country in the world that doesn’t need oil for larger national security issues. And I think one of things that many people sort of are not necessarily aware of or think about, is the amount of oil that gets produced every day. So, every day, the world consumes over 100 million barrels a day. And every day, that 100 million barrels has to be—has to be moved. It has to be—you know, as part of getting it into the system, getting it to its respective destinations. And what we’re not seeing—which, maybe some people may have thought that we would see at this point—is we’re not seeing a reduction in demand, but we’re seeing an expansion in demand. And much of that global demand is coming out of Asia. And we’re also, of course, seeing the—with the reopening of China, lots of really interesting questions as to what oil demand will be in China for the 2023-2024 years, whether or not they will—they will, sort of, put extra pressure on global demand. And you know, Irina, just also, you know, it’s—I’m going to share this in my slides. But you know, last week’s decision from OPEC+ to reduce production, of course, had an impact on the price of oil. So when the decision was announced on Sunday, by Monday morning, we saw an uptick in the price. It’s stabilized, but we are sort of looking at $80-plus-a-barrel oil. And again, lots of uncertainty as to what that’s going to mean across economies that are in recessions, experiencing sort of the beginnings of a recession, and sort of what does it mean for the global economy, where we may see sort of more energy inflation. So, one of the things that I really like to do when I teach the geopolitics of oil is sort of show some visuals. Because I think, again, sort of, really reinforcing the interconnected nature of our global energy system, but also sort of seeing where in the world is oil produced, and where in the world are the—are the importers. And also, just a couple of sort of fun pieces on what we have seen, just this—you know, in the last week, of course, some of this—you’ll be familiar with, those in the audience—but this decision on the part of OPEC to reduce production by 1.2 million barrels a day—again, happening at a time, not when we have an excess supply, but when we’re seeing a tight supply across the oil market. So, it came as a bit of a surprise to—you know—to even the most, you know, longstanding analysts and OPEC observers. And again, part of this is directed probably toward self-interests on the part of Saudi Arabia and the oil producers that are really going to make the cuts. But of course, it also has an impact here for those of you that are sitting in the United States. What does it mean then for prices that Americans pay at the gas pump? So, the Biden administration sort of came out after this decision was made in sort of being disappointed, surprised that OPEC would make this decision. Now, it’s also important to sort of recognize that this is not just a singular OPEC decision. This is part of, now, a larger OPEC+. And OPEC+ does also include Russia, as well as other countries like Kazakhstan and Mexico. So, the OPEC that we have historically known is now different, because you have other countries that are not official members but nonetheless are part of what we now refer to as OPEC+. And these are the countries that are part of OPEC, and really the country that’s considered to be sort of in the driver’s seat of OPEC is that of Saudi Arabia, because Saudi Arabia is the largest producer within the OPEC organization, producing anywhere from 10 to 11 million barrels a day. Venezuela has the largest reserves, but it is far from being at capacity, in terms of what it can—what it can produce. So, just to kind of put that into perspective, these are OPEC countries and their respective reserves. And then non-OPEC—the United States being a non-OPEC country, but again, this sort of—this chart to the right shows, you know, again, the world is consuming a little over 100 million barrels a day, expected to increase over 2023 and into 2024, question marks as to when we may see peak oil demand. But again, to sort of link this to energy security—energy security, especially when it’s in the context of oil security—is making sure that we have adequate supply at affordable prices. So, when we see a reduction in supply at a time of tight markets, that suggests that we’re also going to see higher prices that’s going to directly hit vulnerable economies. And so, again, just to sort of point out sort of where in the world sort of are the top three oil producers: the United States, Saudi Arabia, and Russia. Russia remains in the top three. Canada as well, our, you know, neighbor to the north. And China is also a producer of oil. The United States figure here also includes gas liquefied, so liquid petroleum, which the United States is endowed with a lot of both oil and natural gas. And then the top oil consuming countries, you have U.S., China, and India. Now, the United States is not the largest importer. That position is now held by China. But as far as consumption goes, we consume over 20 million barrels a day. Again, big question mark about China, in terms of whether or not we will see higher demand coming out of China over the next year, two years, with China’s reopening and what is being, you know, discussed as revenge tourism. And more Chinese who have accumulated a lot of savings, 2.1 trillion, how are they going to use that savings and whether or not, after three years of being under lockdown restrictions, whether or not we’ll see impacts to demand. And I think Russia is—there’s lots of questions about Russia. And this is now—we’re fourteen months into, you know, Russia’s reinvasion of Ukraine—and I emphasize reinvasion, because oftentimes, we forget that, you know, Russia invaded Ukraine in 2014. But Russia is still moving its oil. And up until, you know, a few months ago, its overall production and exports were as high—at some points, even higher—than pre-invasion. Now, you have new countries that are takers of Russian oil, and they’re buying it at discounted prices. We see Turkey, Singapore, China has been a big buyer, as well as India, that they have been buying discounted Russian oil. Lots of interesting questions that we could discuss about the oil price cap and seaborne embargo to Europe. But I think the takeaway from this slide is that Russia continues to produce oil, continues to sell it, selling at a discounted price, but there are still many countries in the world that are eager to take Russian oil. And again, I’m not going to go into this, but I just love this slide, to just emphasize the—you know, the world’s pipelines. These are the pipelines that help sort of the transit of oil. Something also that’s really unique and interesting to look at is just tanker traffic, so, the tankers that carry oil around the world. But again, you know, there are a lot of pipelines, so twenty-three—two thousand, three hundred, and eighty-one operational oil and gas pipelines. Again, these are—it’s moving a lot of the oil that is consumed every day. And then finally, is this—is—you know, one of the things that we oftentimes—we think about the hundred million barrels a day that the world is consuming, over 75 percent of the world’s oil is controlled, managed by state-owned oil companies. So, Saudi Aramco being one, PDVSA of Venezuela being another. But it’s really important to sort of recognize the position that state-owned companies have. The rest is controlled or managed by international oil companies—ExxonMobil, Chevron, ENI, Total, and a host of other—host of other companies. But again, I think the—you know, to understand that NOCs, as they’re referred to, are very, very important for understanding their role in the larger context of the geopolitics of oil. And again, what we saw last week coming out of OPEC, this decision, this is also being driven by state budget concerns. This is—again, it’s about the production of oil, but it’s also about, you know, governments and their budgets. And oftentimes, you know, there is a desire to add more, rather than—you know, more revenues rather than less. So, those are the slides that I have. And I hope that they sort of provide some sort of context, and a little bit of, you know, that we can discuss in the questions that I really look forward to answering from the audience. FASKIANOS: Thank you, Carolyn. That was great. So now, we’re going to go to all of you for your questions and comments. (Gives queuing instructions.) All right, so I’m going to go to the first raised hand in the thing. Amadine Hom, go to you first, and please accept the—unmute yourself. (Pause.) You are still muted. (Pause.) OK, I don’t know—are you there? Oh, I think—OK. Let’s go to Morton Holbrook. Q: Yes, good afternoon. Dr. Kissane, what a shocking presentation—(laughs)—a hundred million barrels a day and it’s going up, notwithstanding the Paris Climate Agreement of 2015. Is that agreement simply a dead letter, or is it having any effect on oil—on fossil fuel production, particularly oil production? Or what’s the best scenario, in terms of reducing dependence on fossil fuels, considering the oil market? Thank you. KISSANE: Well—hi, Morton, thank you so much for that excellent question. Yeah, that’s kind of why I emphasize that number, is because a lot of people sort of just aren’t aware of how much oil we continue to consume, and again, what the demand expectations are moving forward. And these demand expectations are, you know, coming out of forecasts from the International Energy Agency. So, I think there’s a big question as to when we see peak demand. And, you know, if you look at BP scenarios, they expect peak demand to happen, you know, before 2030, where, as, you know, others kind of contest that they—that they think that peak demand won’t happen until after 2030. I mean, again, a lot depends on, you know, what we are now experiencing in the energy transition, and how, sort of quickly are we—can we transition away from oil. I think what’s really critical, when we’re looking at oil, is oftentimes we think only about the transportation sector. So we’re thinking about cars, we’re thinking about planes, you know, we’re thinking about trucks, and tankers, and all these things. But it’s petrochemicals, you know? There’s just a lot of oil that also goes into fertilizer. So, it really is across our economy, and across economies, across the global system. One of the things that I always tell my students is even during COVID, where you had many countries, right, much of the world was experiencing some level of lockdown, we did have a reduction in oil demand, but it wasn’t—it wasn’t like 20 million barrels. It was under ten. So, the fact that now it’s 2023, the world has reopened, it’s really hard to sort of see, or to know with certainty, is when we’re going to see that—see that reduction in demand. Now, I think with the Paris Agreement, what’s also important is—to note is, you know, if you’re—if you’re in the oil and gas space—and I was just at a conference earlier this morning where this was a point of conversation—was, you know, what are the companies doing to reduce the emissions from production? So, how are they integrating carbon capture, sequestration, you know, how are they managing the emissions that come from the production of fossil energy—in this case that we’re talking about, oil. And I think one of the things that—I think if you sort of follow oil markets, or a country like Saudi Arabia, they are marketing low-emission oil. Now, we could—you know, we could sort of challenge, well, what does that—you know, what does that really mean? But you are having, you know, countries that are now sort of competing to state that they have lower emitting carbon in the production—in the production of oil. And that’s a whole other interesting sort of thing to look at, in the context of the geopolitics of oil, is to kind of understand the variation across emissions, across different countries, in the production of oil. So, we are—you know, again, we are going to be going into COP-28 this fall. Again, we are not seeing—you know, and we haven’t seen a, you know, reduction in fossil energy demand. Again, lots of people are sort of, you know, hoping that we’ll start to see it sooner rather than later. But for the time being—and again, you know, to Irina’s first question, that, you know, the last fourteen months, and with, you know, with Russia’s invasion of Ukraine, it has both shown us that, you know, Europe is sort of seeking to hasten the energy transition, by building out more renewable energy, and creating more opportunities to buy electric vehicles. But there’s still big swaths of the world that, you know, are still, and have yet to move towards, you know, really reducing—and that are actually going to see higher demand moving forward, as their economies grow. FASKIANOS: Thank you. I’m going to take the next question from Jovana Vujanic, who is a graduate student at Lewis University: How big of an—of an impact will the decision of the Saudi energy minister to cut oil production have on the relationship between the United States and Saudi Arabia? KISSANE: Love the question, thank you so much. Yeah, no, it’s a great one. So, my take is that, of course, this decision came as a bit of a surprise, and it wasn’t something that the United States, you know, wanted. But I would say that the U.S.-Saudi relationship has been very tense for the last ten years. And as part of that—there are lots of different reasons for that, but this is yet—kind of another thing that Saudi has done. And again, I think it’s also—Saudi has taken a non-alignment policy with relation to its position on Russia and Ukraine. So, it continues to—you know, it continues to have a relationship with Russia. It also has the relationship with Ukraine. As we saw, you know, China just brokered a very significant deal between Saudi Arabia and Iran. You know, again, Saudi Arabia and Iran are two—are two important producers for China. So, China is a large importer of oil. So, if you go back to World War—the end of World War II, that’s when the United States established the oil-for-security relationship with Saudi Arabia. And as we have grown, sort of, more—I wouldn’t say independent, but our—as our own oil production has increased, especially through the shale revolution, our dependence on the Middle East and Saudi Arabia, more specifically, has shifted. So, I think we’re seeing a very different Saudi Arabia today, which I think is going to be a challenge for the United States. I think it’s going to be very interesting to see what the summer holds. Last summer, the Biden administration did tap into the U.S. strategic petroleum reserves, the largest—the largest take in the history of the reserves, which started in 1975, you know, taking 180 million barrels out, you know, not because there was massive supply disruptions. But because, you know, as the administration said, it was—you know, it was—it was—it was a war—it was a war-specific decision, because the—you know, Russia’s invasion of Ukraine was causing energy prices to skyrocket. And to cushion the American consumer, and to better cushion the, sort of, the global economy, the United States withdrew from the SPR. So I think the summer is going to be very interesting. But I think we’re going to see, definitely, much more attention in the years to come, between the United States and Saudi Arabia. It’s not the relationship of the past. This is a kind of a very new relationship. That’s a great question. FASKIANOS: Thank you. Thank you, let’s go Curran Flynn, who has a raised hand. Q: Hello? FASKIANOS: We can hear you, but we’re getting feedback. So you might have two devices open. Q: Can you hear me now? FASKIANOS: Yes. Q: That’s better. OK. FASKIANOS: That’s better. Thank you. Thank you so much. Q: So, I’m here at King Fahd University in Saudi Arabia, right next to Aramco, here with my class from international relations. And one of my students has a question, Nasser al-Nasir (ph). Here he is. Q: So, thank you, Mrs. Carolyn. My question is: How could Russia’s use of alternative transportation methods, such as the East Siberian Pipeline to China, impact the U.S. market, the domestic market, and the role of the SPR, given potential insurance workarounds from Russia’s side such as ensuring Russian tankers through their RDIF fund? And thank you to Mrs. Irina. KISSANE: Thank you. And, Dr. Flynn, thank you so much for having your students join this webinar. So, I’m a little—so, the question is about the East Siberian Pipeline? Just could you—would you mind repeating it? I just want to make sure I have it—I’m clear on the question. Q: So, how could Russia’s use of alternative transportation methods, such as the East Siberian Pipeline to China, impact the U.S. energy markets, I mean domestically, and the SPR, given potential insurance workarounds from Russia’s side such as ensuring Russian tankers to the RDIF fund? KISSANE: Yeah, and that’s a great question. You know, I think that, you know, begs a lot of things that we could be looking at, right, in terms of, you know, Russia’s kind of ability or capacity to sort of work around, or find workarounds, to the sanctions that were imposed. And I think we’ve seen sort of new markets—so, this kind of reshaping of the energy map with oil, we see that as—kind of in technicolor, right, whereas, you know, a lot of Russian oil would go west, is now going east, you know, China, India, being takers, and of course, you know, other countries as well. You know, what will be its impact on the—on the U.S. market? I think that’s—you know, again, I do think the sanctions were sort of carefully put into place, so that there wouldn’t be massive disruptions, so we—again, you know, Russia produces over 10 million barrels a day, and about 7 million of those barrels are exported. So, you know, if we lost all of that, that would be a—you know, that would cause some very significant economic disruption globally. We already saw, you know, impacts to sort of grains, grain exports, and food security in many different parts of the world. So, you know, Russia is finding different ways. You have shadow tankers that Russia is using to move—to move its oil—as you pointed out, the East Siberian pipeline. You know, I think there’s only so much the United States can do, or—and European countries that are part of the sanctions regime, can do to curtail Russian exports of oil. But I think that—you know, I think Russia, again, has a—has a desire, and also, you know, revenue needs—they’re funding a very expensive war—that they’re finding ways to get their—to get their oil out. I think an interesting question is, you know, what does this mean in the years ahead, the lack of investment, for example, that’s going into Russian energy infrastructure, a lack of, sort of, any kind of Western investment that is—that is going in, and what that is going to mean. But again, you know, I think, to your question, I think we will see some—you know, we are seeing some impacts, right? There’s a big question as to what—you know, what the next six months to a year will look like, with regards to the reduction from OPEC, and if we were to see a deeper curtailment on Russian oil. And you know, would the United States then tap more into the SPR? We’re now at—you know, we’re down to seven hundred thousand barrels, which, of course, is not insignificant. But we also sort of have to be, you know, judicious about how we use the SPR. But thank you for the question. FASKIANOS: Thank you. I’m going to take the next question from Michael—let’s see— Trevett, a Ph.D. candidate at the University of Southern Mississippi: China and other countries claim there are petroleum reserves under the South China Sea. What are your estimates of the potential amount there, and has China begun to extract any of this oil? KISSANE: Michael, thank you so much. That’s a great question. So, China already is an oil producing country, so you do have oil production in China. In the South China Sea, I can’t—I can’t say exactly. I know that there have been geological tests that have shown the reserves. Again, you do have—you know, you do have territorial concerns about sort of where—is this—you know, can China—can China tap those—or seek to explore and tap those reserves, again, if there are—if there is contention over the territory in which these reserves are located? So you know, China, again—one of the things that’s very interesting about China is that China is an oil producer, but China has seen, over the last, you know, the last decade, they have seen that they have experienced peak demand. So—I mean, sorry. Peak supply. So, they are not producing as much as they used to. And so you’re seeing a year-on-year reduction in the producing capacity. You know, if you go back maybe five or six years ago, there was lots of questions about if China could kind of replicate what happened in the United States around the shale oil revolution. I think one of the big challenges for China is that, of the—you know, where the shale reserves are located, it’s not near water, lots of questions as to—and some of it—basically, some of the tests have shown that it’s—it definitely is proving harder that, you know, they cannot sort of model the same level of development that we have seen in the United States. So, yeah, no, I think in the South China Sea, again, I think we—it’s potentially possible that we might see it. I wouldn’t—I wouldn’t—I wouldn’t say it’s soon. FASKIANOS: Thank you. I’m taking the next question from Rob Warren at the Anglo-American University of Prague. This question also got an upvote: How do you foresee Venezuela’s role in the global oil market changing moving forward? And can it be reintegrated into the global economy? KISSANE: Oh, these are all fantastic questions. Thank you all so much. Yeah, Venezuela is—again, you know, Venezuela has—they have the largest reserves in the world. As part of this webinar, right, you—CFR had a—kind of a primer on Venezuelan, and kind of—you know, you look at sort of where Venezuela is. And one of the biggest challenges confronting Venezuela is both its politics, but it’s also—it basically—you know, you don’t have—you don’t have international oil service providers in the country. I think the only—the only one now that the U.S.—the U.S. has sort of given a sanctions exemption to, is that of Chevron. But I think—yeah, I mean, if you were to see, you know, kind of shifts in the political regime, and you were to see more openness, then I think you could imagine, you know, Venezuela having an opportunity, or a pathway forward, to be more integrated into the global energy system, and the global oil system. You know, I think one of the big problems that Venezuela faces is that most of its infrastructure is really old at this point. And it would need a significant amount of reinvestment to get it up to a place that it could sort of meet its potential. So, you know, Venezuela is one of these countries that’s not producing as much as it could, right? It has the potential to be producing 2 million-plus more barrels per day. But you know, we’ve seen that they really have just—they went into freefall. So, I think that’s a big issue. And another big issue, which—God, it goes back to an earlier question—is that of emissions. So, the oil that comes out of Venezuela is a very, very heavy oil. So, it’s—it has very large carbon emissions associated with the production of that oil. So, that, I think, is—again, as we—you know, think about the emissions from oil production in countries that are sort of seeking to kind of market themselves as low-emission producers, you know, Venezuela definitely will have a very hard time recouping its—where its oil sector was. Again, it has the capacity, it has the reserves. But getting that—getting that oil out of the ground right now, you have a lot of significant above-ground risks. FASKIANOS: Thank you. I’m going to go next to Clemente Abrokwaa. Raised hand, so please unmute yourself. Q: Can you hear me, please? FASKIANOS: Yes, we can. Q: Thank you. Thank you so much for your—for your talk. I was also very shocked about the amount of barrels that we consume every day. (Laughs.) I didn’t know that. But anyway, I’m from Penn State University. And my question is: You just mentioned about the above-ground, you know, effects. And—so the movement towards, like, electric vehicles and so on, how do you think it is going to affect the African continent? KISSANE: Thank you. Q: I am—I’m thinking, you know, the economies, and then infrastructure. It will be very difficult for them to—(laughs)—move with the rest of the world in terms of electric vehicles, and so on. I just wanted your take on that. KISSANE: Thank you, Clemente. It’s an excellent question. Yeah, I mean, you have countries across the African continent that not only have oil reserves, but are already producing, right? Nigeria is a—is an oil-producing country, also has more capacity, but again, you have some above-ground risks. You also have the need for investment of new infrastructure. I think one of the things that has been very interesting—and I think it’s getting—it’s getting more attention, as it deserves, is how Western governments are—some of—I think a challenge across Africa is that a lot of Western governments have sort of said, listen, we’re not going to invest in fossil fuels—or also, financial institutions, Western financial institutions—we’re not going to invest in fossil fuels, or new projects that are fossil-based. And that—you know, that’s problematic when you look across the African continent, where you still don’t have, you know, 100 percent energy access. You know, the idea of the transition to electric vehicles, which is taking a very, very long time, even here across the—across developed economies—so the need for the infusion of more capital to go into, you know, across the continent of Africa for oil and gas, that’s for their economies and for their own economic growth, I think, is really, really pivotal. And I think this is something that, you know, is being discussed across multilateral financial institutions. And also, you know, is it hypocrisy, right, for Western banks that have, you know, kind of funded the oil and gas industry, or helped to fund the oil and gas industry in the United States and many different parts of the world, and that are now sort of not allowing those funds to flow to Africa. And they have the—again, they have the—they have the resources. So you know, is it—you know, the equity of some of these decisions that are being made, I think, is one that’s—is one that’s really important. And again, I—you know, I said earlier in this talk, is that, you know, all—most of the demand for oil is not coming from North America and from Europe. All of the demand that we’re seeing and new demand that we’re going to see, is coming from Asia, and is going to come from Africa. So again, you know, how are we going to make sure that that demand is met, again, going back to that idea of energy security, so there is—there is accessibility, so there is reliable sources of energy at affordable prices, you know, without sort of thinking about kind of a whole-of-energy approach. So, I think it’s very—it’s a very complex issue. And I think, you know, Western banks who have sort of taken very sharp positions on what they will and will not fund, when it comes to new oil and gas projects, are getting sort of challenged as to, you know, what does that mean, then, for, you know, countries across Africa that are still very much in need of more energy, not less. And again, recognizing that, you know, EVs that, again, are still—are—you know, we’re seeing adoption here in the United States and across Europe, but it’s a big, big, big adoption in China. But it’s very uneven. So how do we ensure greater energy security for the continent of Africa, I think, is a really critical question. FASKIANOS: Thank you. I’ll take the next question from Kyle Bales, who is a senior at Lewis University in Romeoville, Illinois: How is the war between Russia and Ukraine having an effect on the progress of the European Green Deal? Maybe you can tell us what the European—define the European Green Deal for us, Carolyn, give us the context for that. KISSANE: Yes, so, again, this is another fantastic question. Yeah, the European Green Deal, it’s—this is—this is great. Yeah, I mean, a lot of people would say that the European Green Deal now is—that the—Russia’s invasion of Ukraine has sort of said, hey, this is why the Green Deal is so important. This is why we really need to more quickly transition to renewable energy, because look what—look what happened when we were dependent on Russia for over 30 percent of our natural gas. And look, when Russia, you know, illegally invades Ukraine and suddenly weaponizes gas, we are left very energy-insecure. It affects—it affects consumers. It affects industry across the continent. So, I think we’re seeing, not just through the Green Deal, but we’re also seeing through, sort of European green industrial policy—so in some ways, akin to what, you know, we put into effect in—this past summer, is the Inflation Reduction Act. And we’re seeing almost, kind of, this industrial competition around clean energy technologies. And so, Europe is investing—you know, I think it’s about $250 billion, the United States, it’s about 370 billion—towards the—kind of the energy transition, and helping to support domestic industries and companies to—you know, to be able to, you know, develop the technologies, and to have the, you know, the opportunity to contribute to the energy transition. So, I think one thing, though—whenever I talk about Europe, it’s really important, is to sort of recognize that, you know, when you look across Europe, you have very different policies and kind of approaches, to sort of thinking about energy, and how quickly some countries want to transition and can transition, whereas others, you know, are probably going to experience a slower transition. So, just really interesting example, as you talked about the Green Deal, is the EU taxonomy, the green taxonomy, that went into effect in the—January of 2022. And there, you had, like, really a lot of contention between France and Germany, because France wanted to make sure that nuclear was part of the green taxonomy. Germany was opposed, right, but Germany wanted to make sure natural gas was part of the green taxonomy. So ultimately, in the end, both natural gas and nuclear—and again, this was—this predated Russia’s invasion of Ukraine. But in the EU green taxonomy, you have—you know, you have both nuclear and natural gas, in addition to other renewable energies that can make up this taxonomy, that includes specific measures towards adaptation and mitigation for climate change. So you know, I think you’re seeing this kind of—some people call it a race, a competition. You know, ideally, it’s—you know, we’re kind of working together to—because we’re all sort of going in the same direction—to, you know, support the transition, and to reduce—to reduce carbon emissions, and to bring in more, sort of, cleaner energy technologies into our system. FASKIANOS: Thank you. I’m going to take the next question from Dr. Laeed Zaghlami. Q: Yes, good afternoon. This is Laeed—good afternoon, Irina. Good afternoon, Carolyn. I’m very pleased to be part of your program. Just to—want to be back to Africa and particularly to Nigeria, how practical the two projects that Nigeria is advocating for pipelines, one from—through Algeria, and the other one to Morocco through western African countries? How practical are these pipelines to supply gas to Europe and parts of some African countries? FASKIANOS: And Dr. Zaghlami, you are at Algiers University, correct? Q: Indeed, Irina, yes. I am professor at University of Algiers, faculty of information and communication. FASKIANOS: Thank you. KISSANE: Dr. Laeed, can I—can I keep you on for just one second? Can I ask you, what is the—what is the status right now? Is it—it’s planned, under construction? Where is—what is the status of those two pipelines? My understanding is that it’s—they’re proposed, but— Q: Yes, well, actually in—practically, the pipeline between Algeria and Abuja, which means through Niger and so forth, is already in progress, whereas the other project, through thirteen western African countries, they are supposed to be implemented by 2047. But is it—is there any political game or something of strategic—(inaudible)—how practical, how logical, how efficiently will be for Nigeria to have two similar project(s)? KISSANE: Yeah, no, it’s—again, thank you for the question. You know, pipelines, again, that’s why I wanted to show the—(laughs)—kind of the map of pipelines, is because, you know, a lot of pipelines transverse, you know, multiple countries, right? And this is—this requires not just, you know, a lot of cooperation, but it requires technically. It also can be very complex to build—to build pipelines. And when you’re talking about something like, as you—as you point out, these are, you know, crossing many countries. You know, I think one of the—again, one of the issues is whether or not—since, you know, what already is under construction, I think you can, you know, with confidence, that one will be completed. Anything that’s not yet under construction—and again, the timeline, 2047, is way out there—a lot of—a lot of uncertainty as to what the status of those projects will be moving forward, for various reasons, in terms of making sure that the investments are there. Someone I know that studies pipelines, he says, you know, until the steel is in the ground, you don’t have the pipeline, and so until you know that you’ve got that, you know, you’ve got all the OKs, and you feel that kind of security of being able to build it, and being able to provide the resources to supply it and to move it. I think Algeria has been a really interesting case that hasn’t gotten enough attention, in terms of Algerian gas, that has—that has helped support Europe. Over the last years, we’ve seen an increase in Algerian gas going into Europe. Again, a lot of attention on U.S. LNG and the increase of liquefied natural gas exports into Europe, but also Algeria has been, you know, very important for helping to support European energy security, and make up for some of the losses of the—of the Russian gas. And I think we’ll see more attention on Algeria, and Algeria’s role as a—you know, as an important source of energy, especially, you know, gas, going into—going into Europe, moving forward. FASKIANOS: So, I’ll take the next written question from Vincent Brooks, who is at Harvard and Diamondback Energy board of directors: How do you view the purchasing of discounted Russian oil by India, in particular relative to the purchasing by China? How are they using the oil purchased? And are you seeing more internal usage or external profit-making sales in places like Africa? And what are the implications of all of this? KISSANE: Right, great. Great question. So, all of the above—(laughs)—in some ways, right? There is definitely sort of profits that are being made. You know, I was—I was talking about this last week with someone, and you know, if you sort of put your shoe—put yourself in the shoes of India, right, so, India is a—is a rapidly growing economy, 1.4 billion. You know, if you had—if you have very high energy inflation and high oil prices, that’s going to have ripples effects across the Indian economy. And so, you know, when you have a kind of opportunity to buy, you know, pretty steep discounted oil, which, you know, they had been able to buy from Russia, you know, for purposes of national security, they’ve been buying the oil. And one of the things that’s very interesting about India is that, actually, India has been building out its refining capacity. So, a lot of that oil is both for domestic, and some of it is being sort of re-exported. But I think what we’ve seen is that they’re using that oil to also sort of enhance their capacity and capabilities as a rapidly emerging, refining power in Asia. And we see that in some ways in China, too. So, China, even though oil demand was down in 2022, much of the oil that they were buying from Russia went into its strategic supplies, which, you know, they now have access to. And again, I think, you know, a big question is what we’re going to see moving forward around oil demand in China. Wood Mackenzie just published a really interesting piece, kind of very bullish, on the expectations for oil demand in China, so whether or not they’re going to continue to buy, you know, Russian oil—and again, sort of taking advantage of these lower prices, you know. And I think—I think one of the things that—it’s kind of an inconvenient truth, whereas a lot of this oil trading used to happen in Europe, so European trading houses were kind of the main—the main points of Russian oil trade. A lot of that has been moved out, so, you know, Russia has found ways to kind of bypass some of the sanctions, and have set up—in some cases, they’ve set up trading houses. And some of those trading houses have been sort of set up in places that, you know, that they can sort of, again, bypass the compliance to the sanctions. And you have some—you have some Russian oil traders that are making a lot of money—(laughs)—selling discounted oil, and then reselling it. A really interesting case, a couple of months ago, was out of Malaysia. Malaysia announced—or, in the, you know—that they were—that 1.5 million barrels were produced and sold, but only—Malaysia doesn’t produce that much. So, those were Russian barrels that were sort of being sold under, sort of, the Malaysian—under the Malaysian barrel. So, again, I think China and India have, you know, have taken advantage. Some of this has, again—as I said, has been re-exported. And some of it, you know, has been re-exported through petroleum products, because China and India, you know, both are building and have refining capacity. FASKIANOS: Thank you. I’m going to take the next question from Bhakti Mirchandani at Columbia University: What global trajectory do you see for nuclear? The Russia-Ukraine crisis has taken some of the refining capacity offline, and nuclear has the potential to change the geopolitics of energy. And so what steps can be taken to foster nuclear energy? KISSANE: Bhakti, thank you. And I was just at Columbia earlier today for the Center for Global Energy Policy’s conference. Yeah, nuclear is very interesting, right? So when we’re thinking about, you know, decarbonizing our energy systems, you know, nuclear plays a very important role, because it’s zero-emitting. So in certain parts of the world—China being one, Saudi Arabia—you know, you have a lot of new nuclear build. You know, in other parts of the world, you have a lot of contention about nuclear. We saw that even in Germany, which have, you know, three remaining nuclear power plants. And even in the midst of massive energy crisis over the last year, there was still sort of pushback about, no, those nuclear power plants need to be shut down, whereas you would think, OK, in light of energy insecurity, let’s keep them open. So, you know, France is an interesting country. France had planned to reduce its nuclear capacity by 50 percent. But this past year, they pivoted and they’ve said, no, we’re actually going to build out more nuclear, and we’re sort of—we’re totally scrapping that idea of reducing nuclear energy. And nuclear is very important for France’s electricity system. Sweden has also announced that they are going to build new nuclear, and they’re going to increase by, I think, almost 50 percent. Again, part of this is their—to meet their targets of net zero. We also see Japan. Japan, you know, the Fukushima disaster really turned Japanese—the Japanese public off of nuclear. Very, very deep opposition to restarting the nuclear power plants. But this past year, even though there’s still safety concerns on the part of the public, the public is also very concerned about energy insecurity and higher prices. So, nuclear being a domestic source of energy. So, I think when you look at, you know, net-zero pathways, I have not seen a net-zero pathway that does not include nuclear. So, here in the United States, the net-zero America project out of Princeton, very important place for nuclear. We just have a really hard time—(laughs)—building nuclear at cost, so it’s very expensive. Usually, it’s significant cost overruns. And of course, there is the—I think they have a really significant PR problem. People—there’s still a lot of concern about the safety of nuclear. So, I think to your point, it’s very, very important for decarbonizing energy systems, but you’re going to see, I think, very disjointed approaches. Some countries are going—are embracing nuclear, and other countries are sort of doubling down on their opposition, and are not going to allow nuclear to be part of the energy system. FASKIANOS: We have so many questions, and we are just not going to get to them all. So, I’m going to take the next question from Christian Bonfili, who’s at Torcuato di Tella University in Argentina. So, do you think, Carolyn, that the landscape resulting from the Ukraine invasion by Russia, vis-à-vis securitization of gas and energy between Europe and Russia, could accelerate energy transition toward greener energy? KISSANE: Great question. I think in Europe, it is. And I think, you know, many analysts would agree that—the IEA, for example—you know, you had the, you know—how does Europe continue—you know, to enhance and achieve energy security without the dependence on Russia gas? And a lot of that is through renewable energy. You also have a lot of new attention on hydrogen, and the role that hydrogen will play. I think—I think Europe is being cautious, and so they are not saying that they are going to completely move away from gas, so as earlier questions, are they getting gas from Algeria, or are they getting gas from Norway? Are they getting more gas from the United States in the form of liquefied natural gas? And then also an uncomfortable truth is they continue to get liquefied natural gas from Russia. So, we’ve seen an increase in LNG from Russia going into Europe. That said, I think all in, you are seeing that, you know, countries across Europe are saying, OK, you know, how can we enhance our energy security? How do we build more sort of domestic energy sources? Solar, wind, we’re seeing, you know, more rapid deployment. You’ve got a lot of questions about supply chains and things like that, but I think—overall, I think the answer would be that it’s quickening the energy transition. FASKIANOS: So, I will take the moderator prerogative to just ask the final question for you to close on. And just to give us your top three—what are the major challenges for the geopolitics of oil, as you look out over the next five- to ten-year horizon, that you would leave us with, to be looking for? KISSANE: OK. You know, so I think what we saw, right, tensions between Saudi Arabia and the United States. We also have a, you know, a hot war, cold war, depending on, you know, the term you want to use, between the United States and China, and lots of sort of questions as to what that’s going to look like. I think there’s—you know, I think there’s concern that, you know, we’re not reducing demands, but we’re seeing tightening supply. And so that’s going to have, you know, very significant impacts for economies, especially economies that are already very fragile, economically fragile, politically fragile. So that concerns me a lot, in terms of, you know, what happens when, you know, economies don’t have adequate access to energy to make sure that their industries, that their—that consumers, you know, are able—that the lights can stay on, and you can get—you know, if you’re dependent on cars, you’re depending on trucks, like, all these kinds of things are really, really critical. So, I think we have to be very cautious moving forward, that we don’t take more out of the system before we have adequately set up the system to be resilient, and to be able to sort of meet the energy security demands that are not—are not—they’re not decreasing. I think they are increasing and becoming even more complex. So, I think there’s a lot of concerns and a lot of uncertainty. And you know, this definitely is going to be an area to watch in the years ahead. FASKIANOS: Carolyn Kissane—Kissane, excuse me—thank you very much for shaping and sharing this discussion, for sharing your terrific insights with us, and to all of you for your questions and comments. I’m really sorry that we could not get to them all. But we only have an hour. (Laughs.) KISSANE: Thank you. FASKIANOS: You can follow Carolyn on Twitter at @carolynkissane, and we will be announcing the fall Academic Webinar lineup in the CFR Academic Bulletin. If you’ve not already subscribed, you can email us to subscribe. Send us an email, [email protected]. Again, I encourage you to share with your students our CFR paid internships announcement. We also have fellowships for professors. You and they can go to CFR.org/careers, follow us at @CFR_Academic, and visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for research and analysis on global issues. Thank you all again. Good luck with your finals. Carolyn Kissane, thank you so much. KISSANE: Thank you. It was a pleasure. Great. FASKIANOS: And we look forward to your continued participation in this series. KISSANE: Thank you very much. Appreciate everyone’s questions. Bye. (END)

Panelists discuss the current state of identity politics and populism in Europe, including the complex interaction between economic and cultural factors, and how they affect the state of democracy across the continent. This meeting is part of the Diamonstein-Spielvogel Project on the Future of Democracy.

Panelists discuss the history and legacy of the Helsinki Accords, the 1975 agreement that concluded the Conference on Security and Cooperation in Europe, and human rights concerns today.

Experts discuss the U.S. policy options available in Ukraine and how the current military situation on the ground affects what the United States should do next to achieve its goal in the region. 

Following the resignation of Liz Truss and selection of Prime Minister Rishi Sunak, panelists discuss the economic and political challenges facing the United Kingdom (UK), including calls for a general election, the soaring costs of living, and broader relations with Europe.    TREVELYAN: Thank you very much. Good morning, everyone. Thank you all for joining us for what I hope will be a fascinating discussion about “The Prime Minister’s Inbox: The United Kingdom and the Challenges Ahead.” And challenges indeed there are. I’m delighted to introduce our two distinguished panelists today. We have with us Sebastian Mallaby, the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations; and also Matthias Matthijs, senior fellow for Europe at the CFR and associate professor of international political economy at Johns Hopkins University. So, without further ado, I would like to ask our panelists—we have half an hour with them and then I’ll turn it over to you, the audience, for questions. But I’d like to ask both of them to briefly, if they could, outline the challenges. Of course, Rishi Sunak is the 57th prime minister of Britain, but he is the third prime minister in four months. He’s come to the job at a time when his predecessor, Liz Truss, lasted about forty-five days after her radical economic plan to borrow more money and to cut taxes on the highest earners was greeted with an enormous raspberry by the financial markets. It now costs much more for Britain to borrow and the value of the pound has fallen somewhat. So, Sebastian, economics is your area. If you could just outline this challenging landscape for Rishi Sunak before we get to the detail of it, please. MALLABY: Sure. Well, you did that a little bit yourself, Laura. The good news is that the markets have actually greeted both the appointment of the prime minister, Rishi Sunak, but also before that the new chancellor of the exchequer, or finance minister, Jeremy Hunt, and between the two of them they’ve kind of replaced what used to be known as the “moron premium” where, you know, Britain was paying a premium to borrow money because the people in charge were perceived as being M’s—the “moron premium” now having been displaced by the “dullness dividend,” where you have the steady hands—particularly Jeremy Hunt—who won’t do anything non-grownup, as it were. And therefore, in fact, the pound has gone back to kind of where it was at the beginning of the month and the borrowing costs not all the way back, but a good part of the way back. TREVELYAN: Very good. And so, Matthias, it was so interesting to see that after Liz Truss resigned European leaders greeted her resignation with a plea for stability—Britain, this beacon of stability, and now it’s being compared to Italy. Could you just give us your overview of the challenges facing Rishi Sunak, particularly when it comes to relations with Europe? He, of course, was a Brexiteer, but now he must make Brexit work. MATTHIJS: You summarize it very well, Laura. Rishi Sunak is actually the fifth Tory prime minister since 2016, but probably the first and only committed Brexiteer, right? Boris Johnson could be in the Brexit basket if you want, but let’s not forget he wrote two columns the night before he decided that he was going to be a Leaver rather than a Remainer. And I think many of us know, or as far as I understand, this was more about Boris Johnson’s political career. Rishi Sunak’s very different. He’s a committed Brexiteer. He believed in it from the beginning. He’s ideologically committed to it. And so the two things that I think he’ll be facing very soon are the two bills that are now making their way to the Houses of Parliament. The first one is the Retained EU Law bill, and that’s this commitment which he made last summer, as well, that basically the U.K. would get rid of any leftover EU legislation from its time as members by the end of 2023. And there’s a sunset clause in this legislation that that that’s the big discussion item. But that, of course, means a tremendous amount of work for mandarins and bureaucrats in Whitehall, and it—I mean, most experts agree here that this is completely unworkable. So how he’s going to thread that needle—because this is a very important bill for the Spartan Brexiteers, if you want, the European Research Group in the Tory party. Second bill that’s making its way through the Lords right now is the Northern Ireland Protocol bill, right, where basically the U.K. has decided to unilaterally be able to overrule some of the legislation there that was agreed with the European Union. And that’s, of course, even more pressing right now, since we know that Northern Ireland will have to have new elections now that, after six months from the previous elections, it’s clear that they can’t form a new—a new government. So these things are in his inbox right now. There’s a bit of pressure because the hope always was to sort the Northern Ireland Protocol issue by the 25th anniversary next spring of the Good Friday Agreement, and it looks very hard to do. That said, there is hope in Paris, in Berlin, and in Brussels that Rishi Sunak, given the budgetary pressures he has and given that he is a former chancellor, won’t, you know, start an all-out trade war with the EU. TREVELYAN: Indeed. Well, we will see. Sebastian, the new prime minister has been very honest about the scale of the economic challenge that faces him and he’s said that he won’t go to the U.N. climate conference that’s upcoming because he needs to concentrate on the domestic situation. But how would you describe, as an economics expert, exactly the situation that the British economy is in right now, where the government’s made a commitment to try and help people with their high energy bills and roll back these tax cuts? MALLABY: Yeah. He’s caught between on the one hand the fact that inflation in the U.K. is running very high, kind of like it is in the U.S. but a touch worse, and that’s giving rise to this talk of a cost-of-living crisis. And so to fight that inflation you need to kind of rein in demand. There’s too much money chasing too few goods. And so the Bank of England is going to be raising interest rates and the government can’t afford to run a big government budget deficit because, you know, that’s exactly what Liz Truss tried to do and that blew up. So inflation forces some austerity, but at the same time austerity is miserable and, you know, you want to protect the poorest segments of society from the effects of that. And so you’ve got to kind of both cushion the economy but do the opposite and fight inflation, and it’s how you balance those two objectives which is particularly tricky. TREVELYAN: But as a former chancellor, is Rishi Sunak well-placed to try and do it, do you think, Sebastian? MALLABY: Yeah. I mean, I think he’s pretty well-placed. I think Jeremy Hunt, although not a former chancellor before this round, knows what he’s doing as well. I think the two of them, you know, have completely done a U-turn in terms of the way in which technocrati experts are regarded. Famously, you know, Kwasi Kwarteng, when he came in as Liz Truss’ chancellor of the exchequer, the first thing he did was get rid of the top civil servant in the treasury, Tom Scholar. And now, you know, you have their kind of top civil servants being re-enthroned as the real arbiters of what you can do budgetwise. So I think Rishi Sunak, you know, knows what he’s doing. He’s going to empower the people on the staff who know what they’re doing. But you can’t escape the basic logic of an economy that is, you know, facing very tough times. And you know, some of what is happening here is the backwash from Brexit, which is pulling down, you know, both trade opportunities and just general dynamism in Britain; constraining immigration, which is another source of growth. And so, to some extent, just as Rishi Sunak on the Northern Ireland Protocol or on the sunsetting of EU regulations, those two laws that—or those two bills that Matthias was talking about, that is in a way the Brexit legacy catching up with a pro-Brexit prime minister, Rishi Sunak, so in the same way the problems in the economy are the Brexit legacy catching up with a Brexit supporter, Rishi Sunak. TREVELYAN: Interesting. Matthias, is there some hope in Europe that there could be a slightly less confrontational relationship with Britain’s new prime minister? Because since Brexit things have just been so fraught, haven’t they? MATTHIJS: Yeah. I mean, there’s always hope, right? Every new prime minister gets a bit of a honeymoon period even though, like, I think we know Rishi Sunak’s honeymoon will be—will be mercilessly short. There’s—I mean, I think often—and that’s true for Americans and Brits—they often forget that, you know, the rest of the world speak English and reads the newspapers, right? So in the EU they are very well aware that, as much as Rishi Sunak is pushing this government of all the talents, that he doesn’t have the full support of this parliamentary party, right? There’s only about thirty-nine, forty MPs that have to basically balk at something or refuse to support something and it doesn’t go through. And what is problematic—and here that’s also problematic with Rishi Sunak—he’s more willing to admit that there was a tradeoff when it came to Brexit, right? The only other real Brexiteer—Lord Frost, David Frost—occasionally does admit, you know, Brexit was about so much more than, you know, trade or economic opportunities. It was about sovereignty and taking our—you know, the fate of our country in our own hands sort of thing and other trade deals in the rest of the world. But that—as long as the Northern Ireland Protocol bill goes through Parliament and Sunak has to commit to this, that’s a nonstarter for Brussels, for EU officials, who want to see this—you know, this bill implemented, right? Sorry, not this bill implemented, but this protocol implemented the way it was agreed, you know, at the end of 2020. And there remains, you know, real worry, right, that Sunak, just like his predecessors, will be beholden to these kind of Spartan Brexiteers. TREVELYAN: The interesting thing about Northern Ireland—and I covered the Good Friday Agreement twenty-five years ago, and I remember the euphoria that night when it was signed at Stormont—Sebastian, Northern Ireland’s economy is actually doing the best, I read, out of any bit of—(laughs)—Britain currently. Is there—because, of course, it’s part of the single market still; it hasn’t made it more difficult to trade with the rest of Europe. How does Britain’s new prime minister square this circle of Northern Ireland’s relatively good economic performance and what that means? MALLABY: Yeah. I’m not sure. I haven’t looked at the growth numbers specifically in Ireland, but I do know there’s a Northern Irish budget problem, right, you know, because their power-sharing Executive has fallen apart or couldn’t even be formed. They haven’t got a budget. They, therefore, need to be covered by a Westminster budget. There’s some uncertainty around the mechanics of that. So I think you’re right that in a sort of structural way there’s still—you know, they have access to EU markets for the moment and that’s an advantage. I don’t know, but I doubt that they are escaping the general economic downturn which, after all, affects both the EU and Britain—I mean, high energy prices, high inflation, as a consequence higher interest rates. Whether you’re talking about the Bank of England or the European Central Bank, they’re both tightening. And so I think it’s a pretty grim outlook economically all over Europe. TREVELYAN: And, Sebastian, how does Rishi Sunak embrace what he’s called the opportunity and the promise of Brexit? What does that mean specifically? And will he get any of these trade agreements done, particularly the one with the U.S. which hasn’t happened thus far? MALLABY: Well, I don’t think there’s much prospect of a trade agreement with the U.S. I mean, the U.S. is not in the mode politically where it’s going to be doing a lot of trade deals. And if it were to change its mind and do a trade deal, I don’t think it would prioritize a middle-sized country like the—you know, like Britain. I mean, a deal with the EU would be far more attractive to the U.S. So don’t hold your breath on that one. I think there are other things that could be done to sort of do smarter regulation in Britain. You know, the whole series of constraints on what you can build has become totally ridiculous, both on the residential side—you know, there was this famous story where one mulberry tree attracted such a following in East London that a plan to build 291 flats in a derelict hospital—convert the hospital to useful dwelling—was blocked because of this tree. I mean, this is just—you know, I’m all for some environmental safeguards, but this is just taking it too far. You know, NIMBYism—not in my backyard—has given way to BANANA—build absolutely nothing anywhere near anything. And you know, you need—there’s been no nuclear power plants built, no reservoirs for the water system, very little, you know, fresh transport or roads. Everything’s kind of griding to a halt because the permitting system is so complex. So I think, you know, a deregulatory-minded prime minister, if willing to kind of break through the logjam and step on some toes, you know, that’s where there is some upside. And when you have stagflation—which is what we’ve got now in Britain, both stagnant economy and inflation—the only things you can do to boost growth are to do with smarter regulation, allowing more immigration, and that’s about it, right? And so I think they need to pull both of those levers, immigration and better regulation. TREVELYAN: We’ll talk about that, immigration, in just a second. But, Matthias, when it comes to the war in Ukraine, what do you think the elevation of Rishi Sunak to the prime ministership, what is—how is that going to affect the dynamic in Europe? As it seems that there are splits over the continuing costs of the war in Ukraine. MATTHIJS: Yeah. It’s a good question. I mean, this was always the main worry, I think, among political elites in Western capitals, including Washington, D.C., is that as much as there is stanch commitment to Ukraine and Ukraine’s right, and to push back Russia out of their country, there was always a worry that the public support was much more flimsy, right, was much less strong. You see this in the United States, both on the Republican and the Democratic side. But this is also the case in Western Europe. And so I think the fear is that Rishi Sunak’s treasury view on foreign policy is a much more austere view of what Britain can do in the rest of the world, right? It basically means that, you know, more sanctions would be an extra hit to the British economy. It also means that more aid, military and humanitarian, also costs more money. And at a time where the latest reports are talking about fifty billion pounds in savings either through tax cuts or spending cuts, usually defense and foreign aid are easier to do because it doesn’t affect the day-to-day population, right, in the United Kingdom. That said, he did keep Ben Wallace, the very highly respected defense secretary who’s stanchly committed to the Ukraine war effort. But what he notably did not commit to is the rise in defense spending in the U.K. towards the 3 percent mark of GDP. Because I think, honestly, there is just no budgetary room for maneuver there. So if you’re Zelensky you’ve got to start worrying, right? This is not going in the right direction. And interestingly enough, I think when it comes to Ukraine unlike when it comes to Brexit and the things that still need to be sorted out, Sunak is probably closer to the views in Paris of Emmanuel Macron and of Olaf Scholz in Berlin that, you know, without stating it openly—you usually catch them off guard—but, you know, they are starting to talk about, OK, how does this end? At some point, when do we sit down? And what will this peace look like, right? And I think that is something that a Prime Minister Sunak will now have to start thinking about as well. TREVELYAN: And, Sebastian, how does Britain’s prime minister afford the continuing cost of the war in Ukraine? Boris Johnson and Liz Truss were fervent in their support of Kyiv. Britain has supplied numerous missiles. But what is the cost? And how does he continue with it? MALLABY: Well, you know, obviously he has to make tough choices. There are lots of ways you can raise tax or cut your spending. None of them are delightful. And it’s just going to be a question of whether Sunak, out of some combination of moral commitment to Ukraine perhaps or just maybe political self-interest, he may view staunch support for Ukraine as a device to keep his party united. And I think that’s the sort of sliver of hope maybe in Matthias’s somewhat downbeat analysis, you know, in terms of Ukrainian interests, at least. I mean, the thing that might make Sunak stick to supporting Ukraine is a sense that all of his party supports it. And that’s one thing he can hang onto. And you know, if he wanted to do that, he would just need to cut a bit more spending on the domestic front and raise a bit more revenue. There are things he could do. I believe, for example, that a windfall energy tax makes eminent sense. You know, Shell just reported record earnings. These are earnings that it didn’t expect to make but it—you know, the Ukraine war pushed up energy prices, and so Shell, you know, is able to increase its dividend to its shareholders by 15 percent. Why did the shareholders really deserve that? I mean, they didn’t do anything. And nor did they even buy the shares in the expectation of getting a higher dividend, because they didn’t predict the war. I mean, it feels like you’re not hurting investment incentives if you say to Shell, you got this by mistake because of the Ukraine war. We actually need the money for the Ukraine war. So we’re going to tax you and use the money to sustain our support for Zelensky. It seems totally reasonable to me. TREVELYAN: Interesting point. And, Matthias, when it comes to President Macron in particular, who always has a grand vision for Europe, how do you think he might use the youth, the appeal of Britain’s new prime minister, the first prime minister of Indian descent, perhaps someone who’s a bit less encumbered with some of the ideology of Brexit, in a way—how could he use that to enhance his vision of the different tiers of Europe, do you think? MATTHIJS: Yeah, it’s an excellent question. Let me just briefly come back to what Sebastian said earlier. And it reminded me of Robert Shrimsley in the Financial Times who said that— TREVELYAN: An excellent writer. MATTHIJS: Hmm? Excellent, yeah. He said: Rishi Sunak is offering Johnsonian but without Johnson and without money, right? And so there’s a lot less appeal to that in many ways, because that’s really what kept the party together, and the different factions, and so on. So when it comes to Macron, I mean, it is interesting, right? I mean, they’re very close in age, in that sort of early to mid-’40s. And honestly, I mean, the biggest problem on the domestic side, on the immigration side, for Rishi Sunak is, you know, the illegal travels of migrants from France to the U.K. So it’s not that hard to come up with some sort of deal there that then allows the border patrol in France and the Coast Guard to kind of basically bring back many of those, you know, boats that may be very perilous journeys across the English Channel. And that’s something I think both can agree on. I mean, in the end, there needs to be a modus vivendi between France and Britain. I mean, I think it’s too early to tell. Macron’s vision of this kind of European political community, which basically is, you know, something between membership and non-membership, but at least it’s understood that this would include countries like Turkey, Ukraine, definitely, but also the U.K. So, Norway. Countries that aren’t members of the EU but have, you know, common foreign policy interests. That—I think this is something clearly—Truss showed up for the first meeting, which was already a big diplomatic coup for Paris. But I don’t see why someone like Sunak wouldn’t want to continue this, right? This kind of much more positive engagement on foreign policy with the EU, where there are clear common values, right, to uphold. TREVELYAN: And, Sebastian, Matthias mentioned there this idea of maybe kind of deal with the French on immigration. You talked about the importance of Britain having more immigration, just because of the state of the workforce. How do you see the new prime minister charting a course her? Immigration having been such a fraught issue since Brexit? MALLABY: Well, I mean, what they seem to want to do and what’s been going on even before Sunak came in is—open immigration from other EU states has been stopped. But a point system, where you bring in skilled people from other countries, is very much, you know, going ahead. And so people are immigrating to Britain from India and from other countries outside. You know, I think India and Nigeria may be the two top suppliers of immigrant workers into the U.K. at the moment. And you can dial that up. And somehow, the polling evidence I’ve seen suggests that U.K. public opinion, which had been rather anti-immigration before Brexit, and I think it was a big driver of the Brexit vote, seems to be more OK with the point system-based immigration policy that brings in people from India, Nigeria, and so forth. TREVELYAN: Now, before we move to the Q&A, I have to ask you both this question that people ask me in the street all the time, as a Brit. Which is, you know, really what has happened to Britain since 2016? And how this reputation for political instability which we’ve acquired over the last few months, how that—has that caused reputational damage to this country that was synonymous with the oak tree, somewhere that would bend but not break, and has come perilously close to seeming unstable? So, Matthias, I have to ask you, how is Britain viewed these days in European capitals? And what does Rishi Sunak have to do to stabilize the reputation? MATTHIJS: Yeah. I mean, this is the inevitable consequence of a very narrow Brexit vote, right? I mean, we don’t have to revisit this, but let’s not forget 60 percent of London didn’t vote for this. You know, the Scots didn’t vote, the Northern Irish didn’t vote for this. It was a very English nationalist vote, in the end. And then the path dependence of different decisions that were made. The hardest of Brexit that was decided on because it was the only internally logical solution. But I think also what worries many people in European capitals is that because of Boris Johnson’s 2019 victory, this really was a kind of cleansing of the Tory party, right? I mean, many kind of centrist Tories basically left the party then, because they didn’t want to sign the pledge—the Brexit pledge that everybody had to, in 2019. So I think the Conservative Party lost a lot of—lost a lot of talent. Also, I mean, what Sebastian mentioned, the fact that investment hasn’t recovered since 2016, the trade, I mean, this is also—I mean, international investors think twice about this as well, right? I mean, the appeal of the U.K. was a relatively low-tax country, somewhere in between the U.S. and Europe, that had direct access to the European market. That spoke English, that had common law, that had rule of law, and things like this. So that, I think, is something that will take years to recover, right? I mean, it was never going to be as bad as people predicted, but it definitely matters. I mean, there’s a reason why the U.K. is the only G-7 country that hasn’t fully recovered from the pandemic, for example. I mean, other European countries have. And I think this is something that, you know, is going to stay with us for a while, unfortunately. Laura, you’re on mute. You’re on mute. TREVELYAN: Thank you for that. And, Sebastian, Boris Johnson, the prime minister before the last one, famously said “hasta la vista” when he left. He hopes to be back. He almost ran again but didn’t quite because he didn’t feel he had enough support. The fact that he’s waiting in the wings. He’s talking about coming to Washington on a tour to support Ukraine and shore up support for Ukraine. Is there a political instability that affects the economics and complicates the job of the new prime minister? MALLABY: I mean, it’s sort of nightmarish, isn’t it? You’ve got this person in the wings who, you know, in the statement he issued when he decided not to run for prime minister this time says, well, I might do it later. And if I’d run this time, maybe I would have run. Anyway, I can probably win in the future. I mean, he couldn’t have made it worse for Rishi Sunak, the way he phrased all that. And then to show up in Washington afterwards compounds the issue. And so I think we have to hope that people will gradually figure out that, you know, Boris Johnson is a talented man, whose talents lie in being a TV personality, a Telegraph columnist, and an amusing speaker for after dinner purposes, not for PMQs, Prime Minister’s Questions. And so, you know, and that bit by bit people in Britain come to accept— TREVELYAN: Oops. Sorry. We just—we just lost Sebastian there. This is one of the perils of Zoom. But we are just coming to the end of our chat. And I would like now to thank both Sebastian and Matthias for that, what they had to say there. And I’d like to open it up to the participants that we have here for this corporate program virtual meeting, The Prime Minister’s Inbox: The United Kingdom and the Challenges Ahead. Just a reminder that this roundtable is on the record. So if you have any questions please come forward. And if I could just ask you to say who you are, and if you’re directing your question towards one of our speakers, do do that as well. So may we have the first question, please? And I hope that Sebastian is able to rejoin us. (Laughs.) OPERATOR: We will take our first question from Jim Winship from Diplomatic Connections. What is the future of the commonwealth? Will there be an effort to keep members of the commonwealth, even if they cease to recognize Charles III and his successors as their head of state? Is there any possibility that the commonwealth could play a role as a trade zone that might pick up some of the slack created by the U.K.’s exit from the EU? TREVELYAN: Well, that is an excellent question, as a number of commonwealth countries have announced that they’re going to be holding referenda on whether or not to keep the king as head of state, since the death of the queen. Sebastian, are you back with us? Are you able to answer this question about the future of the commonwealth, and perhaps it’s role economically? OPERATOR: Sebastian has not yet reconnected. TREVELYAN: OK. Matthias, I’m guessing that the commonwealth may not be a question for you, but if you have some— MATTHIJS: No, no, no. I’ve been studying the U.K. for twenty years. Happy to— (Cross talk.) MATTHIJS: —to some extent. It’s a good question, right? The problem with trade deals all over the world—with India, with, you know, New Zealand, Australia, the U.S., is I’m not so sure that this is something that has a broad support framework in the U.K. overall, right? I mean, if you take the United States for example, what is the U.S. going to want out of a trade deal from the U.K.? We’re going to want access to financial services in the city of London. They’re going to want to pharmaceuticals to be able to play a role in the National Health Service. They’re going to want agricultural access, right? I mean, then chlorinated chickens and genetically modified organisms and things like this come into the discussion. This is not something that even pro-Tory tabloids are waiting for. So I think there’s this kind of huge misunderstanding that somehow what you give up in the EU you can just replace in other commonwealth countries, right? I mean, there was this excellent Financial Times video on the costs of Brexit. It was about a half an hour, which everybody should watch. TREVELYAN: Yeah, I saw that. It’s got over two million views, and I would thoroughly recommend it if one hasn’t seen it. MATTHIJS: Yeah. And what you see there are all these small business owners who had made their whole business model based on, like, exports to the single market, and how quick it was, because it was only two days shipping and things like this, and no paperwork. And they’re now saying this takes much longer. And so to replace that market with another market much further away is just very hard to do. And then of course, politically, yeah, I think as the question already implies, right, I mean, King Charles III has much less appeal than his mother did, Elizabeth II, as this kind of symbol of stability, right? And so that, Laura, to your earlier question of Britain as this kind of temperate—you know, this kind of good temperament of a country, and this stable government. And part of this was the queen, right? It was this symbol of continuity. And it’s not clear that her son of the same caliber. TREVELYAN: Well, the commonwealth countries certainly are holding referenda, a number of them, especially in the Caribbean. Let me just see, is Sebastian back with us? MALLABY: I hope so. Can you hear me? TREVELYAN: Excellent. Hello. Sebastian, I don’t know if you heard the question, but it was an excellent one. It was about the commonwealth, and what relations will be economically, and whether this could be—what the new prime minister—how he will handle this slightly tricky moment, really, after the death of the queen with commonwealth countries reconsidering their relationship with the British monarchy, and with Britain itself. MALLABY: Well, I mean, I take Matthias’ point that, you know, King Charles is not quite as attractive a figure as his mother. And that’s probably going to have some impact on the commonwealth. I suppose against that, it’s good that Britain has its first, you know, person of color as a prime minister and that, you know, if you look back at the Conservative Party contest to take over from Boris Johnson, in fact, there were eight candidates. Four were white, four were not white. So I think there’s something to be celebrated there in the multiracial composition of a British leadership which, if you are a member of the commonwealth, might slightly increase the appeal of Britain. TREVELYAN: Thank you very much, both of you, for answering that question, and to Jim for the question. Could we take the next question, please? OPERATOR: We’ll take our next question from Dov Zakheim. Q: Thank you. It’s Dov Zakheim. You were close. My question is about defense and the U.K. Sunak seems to have pushed back on really serious defense growth that Johnson pushed and that Truss pushed, and that Ben Wallace pushed. And, you know, Ben Wallace almost walked away from the job this week because of that. What is your sense of where Sunak really stands on defense spending in Britain? Because that’s one of the Britain’s probably strongest hands vis a vis Europe, given its defense spending levels. Thank you. TREVELYAN: Yeah. Thanks for that question. And, Sebastian, you talked about this a little bit earlier, but perhaps you’d like to elaborate on Britain and defense spending. MALLABY: Yeah. I’m sort of guessing a bit. But, I mean, if you look at, you know, who Sunak is, what his background is, right? He’s somebody who spent time at two different hedge funds, went to Stanford Business School, joined the government where he had portfolios that were notably in the Treasury, where he served in both the junior minister job and the senior one, and one other domestically oriented job, as far as I recall. He is really not a foreign policy or defense policy kind of person. And insofar as he’s an international person, he’s international finance not international defense. And as somebody who myself spends a lot of time speaking to people in international finance but works at the Council on Foreign Relations, I’m very aware of the sort of tribal difference between people who think about defense and people who think about finance. And the finance types often just speak a different language and have a whole different set of priorities. So I think it’s a fair supposition. And you look at the way that, you know, Sunak has blown off the idea of going to the COP summit, which, you know, I think prime ministers ought to be able to do some multitasking. And just because you go to a COP summit doesn’t mean you’re not focused on figuring out your domestic budget priorities. But if you—I think—I think somebody more seasoned in international relations would not have made that call of just not going. So I think, you know, you look at Sunak, not somebody who’s obviously going to be committed to the British tradition of military—sort of military prioritization. You look at James Cleverly, who’s the foreign minister and relatively, you know, new to that, and Ben Wallace remains the sort of standout individual who’s got some experience in what he’s doing as the defense minister, and some clout. Because both this time in the leadership contest and the previous time, before the contest really go underway Ben Wallace was spoken of as a natural successor. And both times, he decided not to run for his own reasons. But he has that standing in the party. And I think Sunak couldn’t afford to have him leave the Cabinet. He’s got enough trouble in terms of party unity. So Sunak’s—you know, when Wallace makes a threat to resign, that’s a pretty powerful threat. Sunak has to listen. So what I’m sort of hoping is that you look at the constellation of people and essentially, you know, Wallace is going to be driving foreign policy and defense policy. And that’s probably good news in terms of the prospects for Britain’s continued serious engagement in the world. TREVELYAN: And, Matthias, what do you think it means for EU leaders, the fact that Britain’s new prime minister perhaps has a slightly less hawkish stance on defense? What will that mean? How will that be interpreted in the European capitals, do you think? MATTHIJS: Yeah, no, I think Sebastian summed it up quite nicely, right? I mean, you have Ben Wallace, who he can’t afford to lose, who has a strong support and backing in the party. That said, he does have a real budgetary problem on this hands. So you’re not going to see the kind of increases that Boris Johnson promised a few years at a time when there was—when there was money, right? So I don’t think the support for Ukraine will stop or even weaker in the short term, but the commitments won’t increase, right? And that’s probably what Ukraine needs right now. When Sunak was running again, for the second time, to become leader, I think that was the worry amongst the foreign policy hands of the Tory party, right? That he was completely inexperienced in foreign policy, and that this was—this was not the moment, right, to give Putin, if you want, those chances. That said, I mean, like, you know, he seems to be—it’s not that his foreign policy instincts are out of the mainstream either, right? It just happens to be the case that he comes at this from a financial point of view. But it does seem that he is closer to European leaders on many foreign policy issues than maybe his predecessors were. TREVELYAN: Thank you both for answering that question and thank you to Dov for the question. And I would urge all those that are sitting in on the meeting or are participants, thank you for being here. And please do ask some more questions. I don’t think that we have any in the queue right at this moment, so I’ll ask a few more of my own. And, Sebastian, just tell us, how do you think Rishi Sunak’s background—his MBA from Stanford, the fact that he was the chancellor, his views on London as a financial center—how is he going to square the circle after Brexit and try to make London realize the opportunity of Brexit as a financial center, despite some of the inherent issues in having left the EU in doing that? MALLABY: Well, I mean, I think one strength that Matthias mentioned in passing but really has not been undermined by Brexit is the common law system. And you know, the ability—you know, in a common law system, commercial lawyers can write contracts as they wish, and unless it’s proven that they are illegal they are OK. In the continental European system, you have to affirmatively be told they’re legal before they’re OK. So there’s a lot more innovation and sort of kind of business-friendly contract writing that can go on in London. In that sense, it’s like the U.S. And so for the Anglo-Saxon world, this is a system that is pro-business and it’s familiar. And I think that is an enduring strength of Britain as a financial center which I wouldn’t write off despite Brexit. And I think that the English language—the sheer fact that, you know, a very large number of people who are responsible for allocating capital in the world speak English, feel comfortable in London, understand how Britain works even when it’s not working terribly well, that can be an advantage for Britain in terms of being a financial center. We have to remember that over the last pretty much hundred years there’s really been just two serious global financial centers, only two, and these are New York and London. There’s amazing sort of stability in that fact. And after Brexit was voted, all the big banks did, you know, careful exercises about how they could hedge against London being less attractive because of Brexit and it was very hard to find an alternative, and in fact there isn’t one. You can move bits of your operations into Dublin, but Dublin is small and you can’t fit too many people in the offices there; just aren’t enough—not enough real estate. You can go to France, but there’s problematic labor law in Paris. You can go to Frankfurt, but it’s quite hard to persuade your sort of senior staff that they want to live in Germany, and specifically in Frankfurt. So there are all these issues. And I know lots of people at banks who were in charge of running these exercises and they kind of tore their hair out because it was so hard to figure out an alternative to London. So I think, you know, roughly kind of pro-business environment from a Conservative leader is sort of all you need to keep London relatively healthy as a financial center. TREVELYAN: All right, good. And we have a question, actually, in the chat from Meredith—thank you, Meredith—which says: Can you update us on how the Labour Party is approaching the new prime minister? What is Labour’s position on pursuing a trade agreement with the United States in the event the Biden administration would become more interested? And, Sebastian, I’ll just go back to you on that one. Perhaps you could answer it. MALLABY: Well, I mean, Labour’s position has been that they’re calling for a general election. They think that, you know, for the Conservative Party to have a selection process, not even an election process, this time and install somebody who doesn’t have a popular mandate is unacceptable, and therefore, they’ve been saying, you know, we need to have another general election. The fact is the Conservatives will just ignore that. There’s nothing that forces them to listen to what Labour wants. So Labour can say that—and probably secretly they actually would be quite happy not to have a general election, in a sense, because the next year or two are going to be horrible because of the stagflation that we talked about earlier, and so allowing the Conservatives to, you know, manage the mess may be a smart move for Labour. So I think for now they are just going to be a determined opposition. What their views are on a trade deal with the U.S. I’m not sure, but it’s irrelevant because I know what the U.S. view is, which is that the U.S. isn’t particularly interested. So, you know, that’s how I would leave it. TREVELYAN: And, Matthias, how is all this viewed in Europe, you know, Britain scrabbling around, trying to get these new trade deals having decided to make it more difficult to trade with their nearest neighbor? MATTHIJS: Well, on the Labour question, I mean, it is clear that Keir Starmer’s view of Brexit is to make it work better, right, is to basically improve on the trade deal—the very thin trade deal that Boris Johnson concluded around Christmas 2020. And so, I mean, for many, you know, small businesses, for services sector, there’s a lot of things that you could improve. Actually, even when it comes to the Northern Ireland Protocol, you know, signing up to the kind of SPS sytophanitary (sic; phytosanitary) and—you know, kind of regulations that the EU has would solve a great deal of trade that goes between Great Britain and Northern Ireland. It would simplify this whole thing, right? So what they—what Labour hasn’t come up with—where they’re not going, that’s in the end to the big—the omerta, if you want, the promise of silence. It’s that—you know, and they’re not really talking about that it was a mistake, right, or that there are real costs to this, that there were massive tradeoffs to this. But they don’t really want to suggest, you know, some sort of single market arrangement or some sort of customs union arrangement, even though it probably would solve a lot of economic problems. But it would go against the idea of sovereignty. They also have an issue on immigration, right, where they’re moved away from the kind of harder line under Jeremy Corbyn. But you know, here again—so it’s—there’s no good options, it seems to me, to Labour right now, and so I think Sebastian is absolutely right. I think they’re very happy that there won’t realistically be a general election any time soon because, you know, a Labour government that can’t spend and has to do different kinds of austerity and maybe more tax increases, this is not a greatly appealing prospect. That said, Labour does look more now than it did three years ago or five years ago like a government in waiting. And that—if you look at the polls, if you look at how they’re perceived by financial market participants, it’s clear that people have a certain kind of trust in Keir Starmer that they didn’t have in his predecessor, Jeremy Corbyn. TREVELYAN: Yes, and although it may well be two years before there’s actually a general election in Britain, at least. We do have a question. I’d like to hear the next questioner, please. Thanks so much. OPERATOR: We’ll take our next question from Doug Rediker. Q: Hey, Sebastian. Hey, Matthias, Laura. Just a question for you on Macron’s political—European Political Community initiative—and the U.K. actually participated—whether you think that Sunak and any subsequent government might continue along the lines of trying to dip their toe into some broader definition of Europe and Macron’s vision or whether you think that’s just a Truss initiative under the moment and the U.K. is not going to pursue that even if it does go ahead under Macron’s guidance. TREVELYAN: Sebastian, we’ll go to you first. MALLABY: Well, I mean, Matthias sort of laid out the view that, you know, why would Rishi Sunak not show up at the next meeting of this sort of, you know, nonmember but associate whatever it’s called. That makes sense to me. I think we should remember about Sunak, although Matthias is quite right that, you know, he was a—more of a real Brexiteer than Boris Johnson, and in that sense it’s the first time arguably that we’ve got a committed Brexiteer as prime minister, it’s also true to say that there may well have been some political calculation in Rishi Sunak’s position on Brexit; you know, he wanted to—he could see that, you know, that was the tide of the party, and he wanted to rise in the party. And furthermore, we should remember that he voted in favor of the more pro-trade sort of closer-integrated option that Theresa May negotiated when she was prime minister, so he favored a softer Brexit than the one we’ve actually got now. So, therefore, I would expect that, you know, he would do the sensible thing, which is, you know, explore ways of making the relationship with Europe work better, you know, even in the context of, you know, Brexit has happened and we’re not going to revisit that. TREVELYAN: Matthias, you said a little bit earlier about Macron and the European Political Community initiative. Do you have anything to add on it? MATTHIJS: Yeah. I mean, it was—the Prague summit was seen as a success because, first of all, it happened, and it was a French initiative, and a lot of people showed up, and I think a lot of EU leaders and non-EU leaders—broadly speaking, European leaders—thought it incredibly helpful, especially from a bilateral point of view, right? So it may not be the best forum where you’re around 50, you know, heads of government and state around the table, where they all go around and give an opening statement, and then they all go around and give a response or something. But the bilaterals were incredibly useful. So, I mean, even from a kind of—a pure cost-benefit analysis point of view—and you know, Sunak is, you know, good at finance, right—this seems like a very efficient use of time because there are all these kind of bilateral issues that the U.K. may have with, you know, Baltic countries that are much easier solved in that sort of context. Of course, I don’t see neither Truss nor any successor is going to go very enthusiastically in this, in the end, French view of a European Political Community, right? I mean, it would be one thing if Britain was co-leading it. And that will be interesting to see. I mean, there was talk about whether it could be in the U.K. next, it could be held in London and Sunak could be the host of it. I mean, that’s not going to happen tomorrow, but you know, you could see this happen down the line where then you could claim, well, you know, Britain is leading again in Europe and so on. But, yeah, it’s unclear, right? We’re in the very beginning of this. For Balkan countries and for, like, Ukraine, this is a very halfway house. They really want full EU membership, so they don’t like it for that reason. But countries like Turkey and the U.K., who have no plans of joining the EU any time soon—at least not under the current leadership—this may well be a much more, you know, constructive exercise of engaging in kind of, you know, things, you know, common interests that can be solved together. TREVELYAN: Thank you, Matthias and Sebastian. And thank you, Doug, for that question. We have a written question now from Chris Wall, who says: There have been reports that the proposed budget would have 10 to 15 percent cuts across all areas, while others have argued that certain areas should be prioritized. What, in your view, would be the most palatable and politically feasible program for reducing expenditures in the next budget? Sebastian, over to you. MALLABY: Well, I think if you start from the principle that you’ve got to shrink the deficit but you don’t want to inflict undue hardship on the poor sections of society, the main point to start with is it’s better to raise taxes than it is to cut spending. The fact is, in the U.K. we already went through a round of austerity after the 2008 financial crisis, and you know, public expenditure was squeezed. And the results are that, you know, public services suffered. And the National Health Service already has a record-low waiting list. There’s, you know, threats of a strike by NHS workers because they’re so fed up. And it isn’t actually a good way of saving money to squeeze these public services further, such that doctors and nurses quit and then you have to rebuild the service at greater expense later on. And in the same way, public expenditure on infrastructure, if you don’t do it, you don’t do the maintenance, it ends up costing you more to fix it later. If you don’t, you know, spend money on something like, you know, climate retrofits of buildings—in other words, better insulation—you’re not going to be saving energy and that’ll cost you as well. So there are a lot of types of cuts to expenditure which would be, you know, penny wise and pound foolish, as the Brits like to say, just false savings. And it’s way better, I think, to look at fixing the problem on the revenue side. Now, revenue side I mentioned already one idea, which is a windfall tax on energy companies, which I really don’t think damages incentives for future development of energy projects. I mean there may be some marginal impact, but there are no easy choices here. So that is a choice I would emphatically make. I also think that in an ideal world you would have a higher property tax in the U.K. Relative to the U.S., U.K., you know, taxes on property owners are extraordinarily low, and that doesn’t make sense. There are a lot of people—it’s a good way of doing a wealth tax. And I think if you’re worried about some inequality and you don’t want to damage incentive too much by raising interest rates—I mean, sorry, raising income tax—then I think doing it on the wealth tax side would make sense. TREVELYAN: Very interesting, this idea of the tax on the energy windfalls. We have another question in the queue. Let’s hear the next question, please. OPERATOR: We will take our next question from Jimmy Kolker. Q: Thanks very much. And talking about budget cuts, one of the areas in which the U.K. has fallen behind some of its comparable nations is on foreign aid and international development leadership. And Matthias talked about not meeting the 3 percent target on defense for budget constraints, but the foreign aid target has been shrinking from 0.7 to 0.5 and now maybe further. Do you think that the prime minister’s origins—with a(n) Indian background, his parents growing up in East Africa—will put that in a protected category of something in which he’d take a personal interest? Or is Britain’s foreign aid and former DFID shrinkage likely to continue? TREVELYAN: Interesting question. Matthias, what do you think? MATTHIJS: Yeah. This was definitely the number-one target under the previous Truss-Kwarteng government, when they were still in power and they were looking for savings after their, you know, non-funded tax cuts, that foreign aid was going to be, you know, reduced further. I mean, there is a constituency among the Tory party that feels very strongly about, you know, keeping it where it is and even increasing it. Yeah, there are reasons to believe that Sunak sees this as important enough to keep. That said, you look at some of the statements they made—the eye-wateringly difficult decisions that Jeremy Hunt talked about; you know, the severe economic crisis that Sunak talked about. I mean, they are going to be looking for savings, right? I mean, Sebastian’s absolutely right. You can’t cut all departments by 10 to 15 percent if they’re already bare-bon. So, I mean, if you read some of the reports of the state of the NHS, of hospitals, of education, there’s not that much more there to cut. So I think it’s fair to assume that it’s not going to be increasing back to 0.7 percent, but there’s probably some optimism warranted that it won’t be cut that much further. It’s also not the kind of thing where you can save a tremendous amount of money on either, right? I mean, yeah, you could just do it by some tax increases. That said, I mean, why was Rishi Sunak so unpopular amongst the right wing of his own party? Because his instincts were to raise revenue, right? Martin Sandbu of the Financial Times—sorry to keep mentioning Financial Times; I’ve been reading a lot of it recently—but he calls it the Nike strategy, just pay it. If you have a shortfall in spending, just raise the extra tax of it. And he thinks that that would be much easier to do and much easier economically to do than it probably would be politically. TREVELYAN: Thank you for that. And, Sebastian, what are your thoughts about the foreign aid budget in Britain, and how Rishi Sunak will handle that, and whether he’ll prioritize it because of his origins? MALLABY: You know, I don’t know how much his origins really are going to play into this. I mean, you know, yes, you know, there was an East African-Indian immigrant story, you know, two generations back, but we’re talking about a man who has, you know, been known to show up at political meetings in a helicopter; you know, whose family net worth is in excess of 700 million pounds; who went to Stanford Business School. I suspect, you know, his immediate environs may matter a little bit more to him than sort of where his grandparents came from. And if anything, you know, he has talked rather movingly about what it meant to his grandfather when he, Rishi, became a member of Parliament, and that this was sort of, you know, breaking—you know, this is the upwardly-mobile immigrant story. It’s that kind of part of the immigrant experience and the ethnic minority experience that seems to play with him, more than the sense that he’s got some sort of rootedness in East Africa or in India. So I don’t know how much that plays. You know, a friend of mine who was involved in development aid in the U.K. government a few years ago used to joke that the question was how you—how you turn British people into Denmark—into Danish people. They seem to be happy in Scandinavia to maintain 0.7 percent of GDP commitments, kind of insisting that over different governments. There was a bit of an anomaly, I think, in the new Labour years where Britain became Danish, and now it’s kind of reverting to type. And I’m not sure that’s going to change. TREVELYAN: Well, thank you so much, Sebastian, for that, and also to Matthias for your contributions. And thank you to everybody who has joined us for this session on “The Prime Minister’s Inbox: The United Kingdom and the Challenges Ahead”—numerous challenges, as we heard outlined there by our panelists. But thank you to everybody for participating and thank you to the Council on Foreign Relations for organizing. And I hope you all have a wonderful weekend. Thanks so much. Bye-bye. MATTHIJS: Thank you. MALLABY: Bye-bye. (END)  

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In early 1947, Harry Truman announced that the United States would give assistance to countries under threat from authoritarian forces. Later that year, George C. Marshall addressed Harvard University on the urgent need to help European recovery. In the year that followed the Marshall plan was enacted. Please join our panelists as they discuss the legacy of the Marshall Plan and Truman Doctrine seventy-five years later and the lessons to be learned for U.S. foreign policy today. The Lessons From History Series uses historical analysis as a critical tool for understanding modern foreign policy challenges by hearing from practitioners who played an important role in a consequential historical event or from experts and historians. This series is made possible through the generous support of David M. Rubenstein.