Transcript of the talk, from the video's captions. Auto-generated: speaker names in particular are unreliable.
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# Geoeconomic Fragmentation and the Future of Multilateralism

Authors: Shekhar Aiyar (presenting), with Jiaqian Chen, Christian Ebeke, Roberto Garcia-Saltos, Tryggvi Gudmundsson, Anna Ilyina, Alvar Kangur, Tansaya Kunaratskul, Sergio Rodriguez, Michele Ruta, Tatjana Schulze, Gabriel Soderberg and Juan Pedro Trevino  
Discussants: Michael Plummer (SAIS Europe, Johns Hopkins, online) and Susanne Weigelin-Schwiedrzik (Austrian Academy of Sciences); chair Birgit Niessner (OeNB). OeNB–SUERF session, Vienna, 22 February 2023. Names as best the captions allow.  
Video: https://www.youtube.com/watch?v=PzyYxyhmcO8&t=0s


## Talk (00:00:00 – 00:30:00)

[00:00:00] welcome everybody to this sunny afternoon at the premises of the Austrian Central Bank I just looked to the back row technically everything okay my name is birgit nisna I'm the director of the  
[00:00:14] economics analysis Department of the Austrian Central Bank and I have the pleasure to welcoming you to a rich session we have one hour and a half on a  
[00:00:25] paper which is an IMF staff note on a very timely issue and we have two discussions who will challenge the author One discussion is sitting in  
[00:00:37] bologna if I'm right it is I start maybe with the first discussion because you can already see the other two persons Mighty plumber is online he dials in from the bologna Institute of the John  
[00:00:51] Hopkins University he's the first discussant and he is an expert on trade agreements so talking about de-globalization he will give his comments from this perspective  
[00:01:04] my second discussion is Susana Weigel and schweirtzik she has a not an economist background she is a synologist you say in in English and so um she is  
[00:01:18] an academic person and will give us an Insight um on cooperation schemes which exist in Asia which we maybe don't have so much on the radar and now coming to  
[00:01:29] the main speaker I welcome sheikha ayar on my left side he is he started his career at the bank of England but he has since then run a long-standing career at the international monetary fund and of  
[00:01:44] course the paper has a lot to do also with the role of the IMF um he is on a not maybe not a Walter Padilla Europe to to promote the ideas of the paper which as I've understood is  
[00:01:57] of course teamwork and it is something which is I think of the on the mind of everybody and um now in January there was a very nice Economist Edition on the zero-sum game  
[00:02:10] of deglobalization and I just would like to quote one sentence which puts it in a nutshell Mutual benefit is out and National gain is in so we are living in a in a world of egocentric countries  
[00:02:24] pursuing their own national interests and what kind of world this might lead to and what we could do against this scenario we will hear from sheikha thank you for coming the floor is yours  
[00:02:39] foreign you know thanks to the Austrian Central Bank for inviting me here great pleasure to be here so  
[00:02:53] by the way how do I um can we the remote control over there so the name of this paper is  
[00:03:07] geo-economic fragmentation and the future of multilateralism and as you can see there's about a hundred authors who have collaborated on this paper from our research department and our strategy policy and review Department so what does the note do well first we  
[00:03:26] propose a working Definition of geo-economic fragmentation abbreviated to gef highlighting what it includes and what it doesn't we provide some early evidence of signs of gef  
[00:03:39] we discussed the transmission channels through which gef might impact the global economy and look at some recent quantitative estimates of that impact we discussed the implications for the international monetary system and then  
[00:03:52] finally we we lay out what we call a pragmatic approach which might preserve the benefits of globalization and multilateralism amid the developments that we are seeing today so  
[00:04:14] economic integration has been slowing since about the global financial crisis so if you look at the left-hand side chart it shows that flows of good services and finance cross-border flows which were increasing very rapidly after  
[00:04:28] World War II basically seem to have plateaued after the global financial crisis especially for goods and finance services are still growing but from a small base at the same time if you look  
[00:04:42] at the number of trade restrictions that countries are imposing upon each other there's been an exponential rise in recent times so in 2022 the number of trade restrictions imposed was Greater by a factor of seven compared to one  
[00:04:56] decade ago in 2012. um so all of this has also coincided with a general concern in policy and political circles  
[00:05:08] about National Security so at the IMF we have these annual reports on countries exchange rate uh Arrangements called rer reports and if you look at the mentions of National Security in these reports  
[00:05:22] you can see that they've been growing very very rapidly and moreover this predated the current war in Ukraine although no doubt it has increased even more as a result of that at the same  
[00:05:34] time if you look at the private sector and you you know this the the chart is a is a text binding exercise where we go into the data and we look at what companies have been saying in corporate  
[00:05:48] presentations and if you look at the frequency with which they use words like reshoring onshoring or near Shoring it has gone up from basically nothing about five years ago to being an extremely dominant concern so clearly in the  
[00:06:02] private sector influenced by the kind of geopolitical backdrop there's been a great worry about Global Supply chains so all of this leads us to a working Definition of geo-economic fragmentation  
[00:06:17] which we Define as a policy driven reversal of global economic integration often Guided by strategic considerations such as National Security sovereignty and autonomy so I should mention that we  
[00:06:30] explicitly do not want to include reversals which are due to autonomous changes uh for example think of shifts and preferences you could think of preferences changing away from Goods towards Services well Goods tend to be tradable Services tend to not be  
[00:06:45] tradable so that kind of change in preferences would lead to a a fall in global flows of trade but we would not call that geo-economic fragmentation because it's arising from a different Source similarly we do not want to include policies that are motivated  
[00:07:00] mainly by Prudential concerns so in the wake of the global financial crisis a lot of countries woke up to the fact that you need robust macro Prudential policies to guard against the fickle nature of certain types of capital flows  
[00:07:12] we would not want to include that in our in our policy driven reversal foreign how do we expect The Economic  
[00:07:26] Consequences of gef to be transmitted the obvious place to look is to look at the many decades of Greater Global integration that we had after World War II and look at all the channels through  
[00:07:39] which those impacts and benefits were transmitted uh most obviously trade technology diffusion migration Capital flows and then in addition to that a couple of perhaps more recent concerns  
[00:07:53] to do with the global public goods and then I'm also going to say something about uncertainty so the first and most obvious and most  
[00:08:04] dominant Channel obviously is trade so if you look at the note we compile ample evidence from the literature on the benefits that have been provided by the enormous expansion of trade uh in the  
[00:08:19] post-war era I'll just mention three main ones first as the chart shows there is a strong positive link between trade and GDP growth so International Trade has acted as a powerful vehicle of  
[00:08:32] income convergence catch up between low-income countries and advanced countries secondly and relatedly there is also a strong link between trade and poverty reduction so Global poverty has  
[00:08:46] declined by an unprecedented amount over the last few decades and this is at least associated with trade there's lots of literature which attempts to to sort of identify causality and I think it's fair to say that the balance of that  
[00:09:01] literature suggests that there is a causal connection between trade and poverty reduction third what about advanced economies well in advanced economies International Trade has led to lower consumer prices which is something that has disproportionately  
[00:09:15] benefited low-income consumers the kind of people who shop at Walmart so so these three extremely important long-run benefits from trade all stand at risk as a result of gef  
[00:09:29] more recently we have empirical evidence from the kind of frictions that have been going on for example with the U.S China trade disputes and although the literature there is scant compared to the previous literature I was talking  
[00:09:42] about what evidence we do have suggests that when tariffs for example were put in place uh to to help out certain industries the evidence suggests that they wound up raising prices for  
[00:09:54] consumers and for importers while imposing costs on growth especially export growth and employment so this is in line with suggesting that in the future also such protectionism would  
[00:10:07] tend to have unintended consequences and and raise prices and reduce efficiency looking ahead we have some model based estimates but I will Reserve that for a little bit later in the presentation the second Channel  
[00:10:24] is technological fragmentation and of course there are no lack of examples I'm sure we're going to hear from some of the discussions as well uh that there is this move to try to make sure that technology can no longer be transmitted  
[00:10:37] as freely as it has been in the past now when we look at the past few decades technology diffusion has been a very important source of knowledge transfers and improved productivity in countries that are not at the technological  
[00:10:51] Frontier there is evidence that it's improved technology adoption it's increased the skill base of the workforce and it's created Innovation spillovers notably in the area of mitigating climate change where often  
[00:11:04] domestic Innovations on Green Technology in low-income countries can can diffuse as a result of technological transfers from the frontier again all of this would be put at risk with gef and the more recent data that  
[00:11:19] we have in the era where these frictions have already been there uh suggests that indeed fragmentation has created costs through Market distortions from strategic subsidies the evidence suggests that these strategic subsidies  
[00:11:34] are negatively associated with firm productivity and have created excess capacity in some sectors so again looking ahead extrapolating from what's happened in the past technological decoupling could result in less  
[00:11:47] Innovation reduced productivity spillovers and at least in the short to medium run during the adjustment period it could also lead to supply shortages and higher prices let's turn to movements of Labor across  
[00:12:05] borders I mean this is something that's always been controversial especially in advanced economies but especially so so now uh because of the kind of geopolitical backdrop that we have again um the evidence suggests that barriers  
[00:12:19] to migration could reduce knowledge diffusion and risk sharing often people who come as migrants are an important conduit for transmission transmitting ideas and Technology across borders in  
[00:12:32] both directions as we all know remittances can be a very important source of income in low-income countries and in particular they can also act as a macroeconomic stabilizer because remittances tend not to be correlated  
[00:12:46] with the local business cycle and so all of that would be put at risk Capital flows now perhaps one should distinguish between different types of capital Flows at least the stable types of capital flows  
[00:13:00] like foreign direct investment the evidence suggests that they've been very important in terms of diffusing Technology creating firm to firm links through through Global value chains and and improving the the knowledge base and  
[00:13:14] the productivity of local firms they've also led to a deepening of financial markets in many countries so all those benefits again would be put at risk and there would be Capital misallocation as  
[00:13:26] well associated with such fragmentation um a couple of additional points first I think it's fair to say that the  
[00:13:39] concern about climate change has has never been more urgent than it is now and clearly climate change is one of those global public goods which cannot be provided uh without multilateral  
[00:13:52] effort so Raghu Rajan who used to be the chief Economist of the IMF recently gave a public lecture in Washington DC where he was talking about how difficult it is to imagine that countries will be  
[00:14:05] hostile and separate into blocks and fight with each other about everything but then miraculously cooperate on climate change it it seems difficult to imagine that kind of thing happening so again this important Global public good  
[00:14:19] could be put at risk another one which we've all been living through for the past three years is pandemic preparedness this is again something that needs to be done at a global level unless everybody in the world is vaccinated uh the risk of of something  
[00:14:33] coming up and transmitting all over the world again will be ever present so there are these important areas where multilateralism is absolutely crucial and gef puts that at risk and some uncertainty nobody really knows  
[00:14:47] what the steady state of global economic fragmentation is going to look like everybody can make guesses but there is a great deal of perhaps what I might term as nighty and uncertainty about the  
[00:15:00] final steady state of gef and that uncertainty itself the literature shows can exercise an important negative impact on growth and productivity this can happen through firms which delay crucial investment decisions it can  
[00:15:14] happen through households which increase their precautionary savings and and you know reduce growth in in that way so those are the channels um perhaps they are not comprehensive but even even the channels that I've  
[00:15:29] laid out I think are are fairly worrisome now geo-economic fragmentation is in its infancy the quantitative study because it it's it's it's a relatively new  
[00:15:41] phenomenon in our paper we review four recent contributions to the literature um and I should I should kind of give you a health warning before going into the details every single study makes  
[00:15:54] different assumptions about what is meant by fragmentation they have different types of blocks that they imagine in the study they differ in terms of whether you have non-aligned countries or whether every country is supposed to join in a block they make different assumptions about the  
[00:16:09] elasticity of substitution between suppliers so the studies are really apples and oranges so you know you cannot compare the quantitative estimates to each other in in a strict way that said there are some common  
[00:16:21] themes that emerge and and let me just mention a few of them first the deeper the fragmentation the larger the estimated losses this might seem like an obvious point but but let me put it in  
[00:16:34] in in in the following terms there are studies in which you have non-aligned countries you know you have two blocks let's say the U.S block and the China block and then you have a bunch of non-aligned countries which are allowed to trade with either of them sometimes  
[00:16:48] under some scenarios you find that the non-aligned countries can actually benefit from trade diversion however if you have a deeper fragmentation in which all the non-aligned countries are forced into one block or the other then in fact  
[00:17:01] the output losses are much greater so in that sense the deeper the fragmentation the greater the output losses secondly those studies that also look at technological decoupling on top of trade  
[00:17:14] fragmentation uh find bigger GDP loss estimates in the particular diagram that you're looking at those are the two studies on the right with with higher estimates for losses compared to the two studies on the left third the estimates  
[00:17:27] vary very widely across countries and emerging markets and low-income countries generally stand to lose more than Advanced econ economies this is a fairly obvious point because they are further away from the technology Frontier so if technological diffusion  
[00:17:41] and the free flow of ideas across borders is halted then these countries stand to lose disproportionately more and then finally short-term elasticities of substitution are likely to be smaller than long-run  
[00:17:55] elasticities which is just a fancy way of saying that it takes a long time to reconfigure a global supply chain so you may be able to do it in the long run but in the short run it's extremely difficult and extremely costly all the  
[00:18:09] numbers that you see in this histogram are long run estimates the short run cost could be even greater because of that transition I should also say that that all these studies are looking at at one or at most  
[00:18:24] two channels that is trade and Technology none of these studies is looking at migration none of these studies is looking at Capital flows uncertainty Global public goods so these numbers large as they may be are very  
[00:18:39] far from being an upper bound on the kind of cost that we might find for the global economy okay let me turn now to the  
[00:18:51] international monetary system what do we mean by the IMs we think of the IMs as having four pillars the first is that that it should have an efficient and robust Plumbing  
[00:19:06] that is the global payment system uh for transactions across borders which can be made safely and efficiently second there should be a stable Global Reserve currency configuration I'll come back to that in a minute there should be robust  
[00:19:20] mechanisms for preventing crises and when they occur to mitigate them and to resolve them and then finally one should have a robust Global Financial safety net these are you know the stylized pillars of what we call the  
[00:19:35] international monetary system and of course each of them in different ways is going to be affected by gef the key risks First Financial globalization is likely to be replaced by Financial  
[00:19:48] regionalization where where the risks and benefits of cross-border capital flows migrate from being International to being within block um this could you know lead obviously to  
[00:20:01] a more fragmented International payment system we are already seeing that in in in many respects uh some countries might have greater incentives to create new and parallel Payment Systems perhaps to  
[00:20:14] avoid sanctions or to avoid confiscation of of Reserve assets more generally even on the demand side if you get trade fragmentation then it's likely that there will be a greater  
[00:20:27] demand for fragmented within block payment systems and there is a question about whether those Payment Systems will have interoperability and um you know that there would obviously be efficiency losses and and higher  
[00:20:41] Financial costs associated with that as well um what about crises well it's it's okay so I know that the bullet points has more severe crises I'm not sure about that because of course you know you could have an otaki where there are no International  
[00:20:56] crises at all because you don't trade with anyone and you don't get any Capital flows but of course the efficiency losses there would be so great that even the non-crisis times uh seem seem like a walk in the park  
[00:21:08] compared to to a more integrated system but regardless of whether the crises become more severe or more frequent I think what we can say with some confidence is that there will be more challenging to resolve uh firstly  
[00:21:22] because the regional block will have fewer financial resources than than the global system and secondly because creditors at least in the transition are likely to be very fragmented if you look at the the pie charts here there's a  
[00:21:36] comparison of of creditors for low-income countries in 1996 and 2020 the yellow bit is Paris Club which is the official creditors the official bilateral creditors that is the  
[00:21:50] traditional vehicle through which you know debt restructuring has taken place and because the Paris Club has been around for a long time it's all sort of government to government it's relatively easy to get people around the table and agree on mechanisms to do the debt  
[00:22:04] restructuring now the Paris Club segment has shrunk to 12 percent um there's a much wider variety of both private sector as well as Government actors and you know so already it is more difficult to come up with with debt  
[00:22:19] restructuring and debt resolution in a fragmented World obviously that would pose even greater challenges there could also be abrupt ships in FX reserves configuration and weaker and more fragmented gfsn which I will come  
[00:22:33] to in my next couple of slides this slide shows um the the current structure of international con currency configurations it'll be no surprise to anyone that the dollar is third is the dominant currency which arguably it's  
[00:22:48] been since the Bretton Woods era if you look at the left hand side chart it is by far the dominant currency for most categories of international transactions with the exception of Swift where where the euro is almost at par with the dollar  
[00:23:02] this may change because of geo-economic fragmentation arguably that's no bad thing um you know in a multi-polar world why shouldn't we have multiple sources of currency and all that is true but in the  
[00:23:16] transition there could be a lot of instability there could be losses of stores of value and I think we are you know it's early days yet but there are some signs if you see on the right hand side there has been a recent sharp  
[00:23:29] increase in Central Bank holdings of gold that's the that's the blue histograms and if you look at the yellow line in the middle that shows Chinese Holdings of U.S treasuries and you can see that recently there's been a substantial drop in those Chinese  
[00:23:44] Holdings of U.S treasury so these are straws in the Wind this chart shows the current composition or layers of what we call the Global Financial safety net  
[00:23:58] the red line shows shows you know Central Bank currency reserves which are which are still dominant um in in in terms of of risk sharing we have Regional Financial arrangements and  
[00:24:12] bilateral swap lines between central banks these have been growing in importance there's also the IMF which is the layer at the bottom the IMF is the is the only truly International layer of  
[00:24:24] the jfsn now the danger is that with gef there would be greater self-insurance at the country level this would be costly compared to International Arrangements um and it could it could engender  
[00:24:36] greater crises over time there is also the danger and you know I say this is somebody on the staff of the IMF that International institutions will stand to lose credibility as a result of  
[00:24:49] gef if they are seen to be dominated in terms of shareholding by a particular block then it is quite possible that members of other blocks will not view these International institutions as an  
[00:25:03] honest Arbiter and an honest broker on the the other hand if you have very balanced representation from all the blocks there is the converse risk of paralysis and an inability to agree on any course of action at all so gef does  
[00:25:18] not look good um you know for financial for international multilateral institutions on on many levels okay so let's go to the future of  
[00:25:33] multilateralism this is very Blue Sky Thinking so you know this is this is more a bunch of ideas that we've put down on paper for discussion uh rather than than something that that we think  
[00:25:46] is is particularly uh um strong so it's it's clear that many countries in the world because of geopolitical tensions are going to have a lot of problems aligning on various issues so  
[00:26:01] what we suggest is let's at least demarcate those issues where globally coordinated action is absolutely essential and perhaps feasible because preferences are aligned I've already mentioned two examples of that which are  
[00:26:14] climate change and pandemic preparedness so on issues like that it is essential to have multilateral open and inclusive engagement the second pillar is issues where preferences are not aligned and globally  
[00:26:29] coordinated action is more difficult here we can see plurilateral initiatives provided that the plurilateral initiatives have safeguards so um you know we're thinking of fewer  
[00:26:42] countries getting together and choosing to do less but hopefully doing it in an open and non-discriminatory way leaving the door open for other countries to join in future and I'll go through some examples of that in a minute and then  
[00:26:57] the third is unilateral actions these are obviously to be avoided wherever possible but if they have to be done then we would suggest that there should be consultations and guard rails to minimize systemic damage especially to  
[00:27:11] innocent bystanders so let me let me take a couple of the first example of of this three pillar approach is strengthening the global trade system now recently at the WTO in July uh there was a package agreed which  
[00:27:25] we think nicely illustrates the power of multilateral Engagement there was an agreement on issues like fisheries and on intellectual property exemptions for covid-19 vaccines so so those are  
[00:27:38] examples where all the countries in the world got together had multilateral engagement and and went forward the second is is is uh plurilateral engagements here there are a number of plural lateral agreements which have  
[00:27:51] been taking place at the WTO among select groups of countries these typically have safeguards built in so that they they try to avoid discriminating against other countries as far as possible and often they they  
[00:28:06] tackle deep behind the Border trade distortions industrial subsidies green technologies things like that a third unilateral actions we would urge that there be a consultation framework on  
[00:28:20] issues like subsidies and safeguards like safe corridors for food and medicine as we saw recently during the Ukraine war with food and with covid-19 for medicine I won't go through this in detail but  
[00:28:35] similarly you can take a three pillar approach to the international monetary system on multilateral on the multilateral side you could consider a global platform to Foster consensus on debt restructuring which is an urgent need in many many countries in the world today  
[00:28:50] on the plural lateral engagement side we could think of cross-border payment systems which which are being developed if there was plural lateral engagement then at least we could have interoperability between those different  
[00:29:03] systems even if they were developed by groups of countries and third we could consider guard rails in the design of these cross-border Payment Systems to make sure that innocent bystanders are not harmed and then finally this slide  
[00:29:18] suggests that the IMF could have a couple of important roles in this process first through our surveillance and analytics we could try to examine spillovers when there are plural lateral engagements or unilateral actions and  
[00:29:32] try to bring to our membership and Analysis of of perhaps the unintended consequences of those actions and secondly we could have a convening role to bring countries together to discuss issues of common interest and to develop  
[00:29:46] common approaches but in order to do this the fund must remain representative of its Global membership it must be viewed as even-handed and impartial and it must of course be adequately resourced let me stop there thank you  

## Discussion (00:30:00 – 01:03:57)

[00:30:00] very much [Applause] thank you very much shekhar you walked us clearly through the different layers  
[00:30:13] of geo-economic fragmentation it is very costly does not affect everybody in an equal manner and especially this approach is a nice differentiation between multilateral plurilateral and unilateral which is of  
[00:30:28] course the least preferable let's see what is now the reaction of the two discussions Michael may I call upon you and the floor is yours okay uh  
[00:30:43] thanks very much um I uh very much enjoyed uh reading this paper uh which I had actually seen uh earlier and um it is uh you know  
[00:30:56] address the topic that is extremely relevant and uh you know as mentioned uh despite progress all the progress cited in the paper about globalization including in Asia alone over a billion  
[00:31:10] people brought out of poverty um the global financial crisis seemed to mark what was a a key in globalization after which um uh things seem to be stalling now  
[00:31:23] there's a lot of reasons for this um the IMF has done work on it including uh things that are a bit more innocuous like maturing of Supply chains and you know with the data there's a lot of  
[00:31:36] double counting uh when we have with the supply chains so when you've got a slow down the growth Supply chains it sort of becomes magnified uh but I think the paper makes it very clear that policy Trends  
[00:31:51] um some may be uh related to the global financial crisis others that were orthogonal um have contributed to this slowdown sometimes called slowbolization uh in um in economic global economic integration  
[00:32:06] and I think this paper does an excellent job of explaining these Trends and why uh stagnation of reverse of globalization is problematic um how emerging markets and low-income  
[00:32:20] economies are especially exposed and um uh also um underscores the importance of the you know the global Marketplace is at risk  
[00:32:32] uh when we have such pressing uh matters in global uh public goods like climate change Etc and it offers some uh thoughtful uh Way Forward  
[00:32:46] um and uh you know maybe Blue Sky Thinking but I think it's uh it's based on on Sound Logic and uh even though politically there may be obstacles it's useful to know which direction uh that we want to go in so  
[00:33:01] um I I really enjoy the paper a lot I used to be the editor-in-chief of the Journal of Asian economics so I'm used to being very picky and critical of papers and there's very little to be critical of in this paper but um I'll make a few comments on it um and  
[00:33:16] also add some recent work that I've done with my um co-author on looking at some of these uh these issues because um you know as was mentioned uh there's not a lot of um of  
[00:33:30] literature yet uh on this topic um so a few papers on the study um as I mentioned it's it's impressive and it's survey of the global uh economic the geoeconomic fragmentation  
[00:33:44] and looking at trade Capital flows and immigration and migration um and I think it's uh to the credit of the paper that it includes all of these uh variables that we need to focus on in  
[00:33:56] terms of uh when we look at and when we look at globalization because you know someone like myself that works more on trade we don't talk as much about Capital flows or migrations matter of fact the model I'll talk about uh in a moment  
[00:34:09] we've our macro closure excludes these things uh but it's very important to take them uh into account um it underscores how anti-globalization and policy conflict uh can undermine uh  
[00:34:24] these uh Global goals that we have on poverty reduction as well as as true inclusion in other words not looking inclusion as being something that's based on a region or a country uh or you know  
[00:34:37] a uh uh or even a hemisphere it's sort of looking at things globally um and it these this sort of conflict will slow uh efforts to fight climate change and pandemics and I think that  
[00:34:51] was very clearly presented just now um and also affects other diplomatic variables and non-economic goals I don't want to go into those it's not the goal of this uh this panel but I think it is a bit naive to think that what's going  
[00:35:05] on the economic realm uh doesn't have important uh bearing on what's going on uh in other areas if I may say for example when the United States pulls out it's pulled out of the trans-pacific partnership agreement um mostly in Asia uh people were very  
[00:35:20] concerned not so much with the foregone economic benefits of that agreement which would have been significant but more importantly had if it was related to the effect on U.S engagement in the region strategic interests and these  
[00:35:35] sorts of things that need to balance have more balance in the region and so separate rating the economics from uh those non-economic goals is is um it's problematic really when we're looking at uh these multi-disciplinary  
[00:35:48] uh problems um it makes a strong case for cooperation um I'm not going to argue in a moment that it would be useful to go uh Beyond just non-discriminatory multilaterals I I think that um certainly at the WTO context the  
[00:36:02] plural laterals are useful but I think also economic cooperation um at a the regional level can be uh useful as well um the leadership uh has become a major problem in the global system and this is  
[00:36:16] mentioned in the paper uh it's not just the U.S China uh conflict it's also um for example the U.S use of uh the section 232 which has to do with natural security  
[00:36:28] um at the WTO which is a uh it can be a very big problem uh and you know uh it's approach the WTO without the pellet body is becoming problematic so the what used to be the uh most  
[00:36:43] important leader of this uh of this multilateral system uh seems to be on the sidelines a bit um also the UK has given a lot of useful input over the years and and we've got the brexit phenomenon  
[00:36:58] um and then we have to ask ourselves the question um China which has increased its share of the global economy at such a rapid rate is it playing the region leadership role it needs to or is the EU playing uh the role that it needs to uh given the  
[00:37:12] fact that there's you know that what used to be a system led by the United States if that's uh running up against uh some obstacles so any event I think that we have a lot of these uh problems  
[00:37:25] and I'll argue in a moment that uh Mega regionals in Asia in particular is playing a bigger role so you are seeing some leadership uh in Asia briefly briefly a few more specific comments um just one thing point on foreign direct  
[00:37:38] investment it's really is an important variable and I believe it's noted um in the paper that FBI flows have been fairly flat since the global financial crisis when they had been booming before  
[00:37:52] it but interestingly if you look at what's going on in stocks um things are changing in a very different way globally according to uh the World investment report uh globally the stock of foreign direct investment 2009  
[00:38:06] so right after the crisis was 18 trillion dollars and by 2021 it Rose to 45 trillion dollars that's 150 increase compared to 59 rise in global GDP so so the question is that's one aspect of  
[00:38:21] globalization it seems very interesting are we seeing a different type of globalization uh from these Rising uh stocks in other words um it's taking place behind uh behind the borders already rather than uh being  
[00:38:34] fed by uh class cross-border uh FDI flows um I think it's important to look at you know the unequal benefits to labor which you mentioned the paper not just in an inter-country uh  
[00:38:48] uh level but also cross-country uh which is important uh often we hear in our developed countries uh that trade can negatively affect um the return to labor and that's often  
[00:39:01] blamed uh but you know what about Labor globally you know when we do analysis there what what what uh what does the analysis tell us it's very different I think this plays into this problem of of the popular narrative on  
[00:39:15] trade in the literature uh which tends to be very negative okay so any event um I think it's an excellent study there's a few comments I did want to mention this on empirical work that we've been doing on uh in this area on uh global  
[00:39:30] economic uh fragmentation cooperation in the terminology of the paper um what we were doing with this is uh we were looking at both these Trends towards greater fragmentation but also  
[00:39:42] transport towards the opening of markets uh that we see in the Asia Pacific we call it geopolitical restructuring uh because as was mentioned geo-economic um fragmentation sort of suggests that  
[00:39:57] it's it's coming from the economy yet it's driven by policy uh and so we chose the term geopolitical restructuring or fragmentation uh because of that focus on poverty sorry on policy so we've got that on the one hand  
[00:40:11] um and we've got economic cooperation uh on the other and in terms of you know we're using a one of these computable General equilibrium models uh as mentioned these things can vary uh quite a bit even though we're using an  
[00:40:24] adaptation of the Beckers uh WTO model um and what we try to do is look at the effects on income on trade on labor and especially on global value chains and um if you look at just give you somebody  
[00:40:37] what goes on WE it's pretty much uh effect on income the estimates would be mid-range from what we're surveyed in the paper um but in answer to the economist's  
[00:40:50] mutual benefit uh is out and natural gain is in uh most of these miles will say that the uh there is no national game in other words it's not Zero Sum uh you know some of the countries that are  
[00:41:04] engaging in this Geo political fragmentation actually lose a matter of fact the vast majority of them did okay and that's on one hand the other hand we look at what economic cooperation can do as many of you know  
[00:41:15] as of July of uh of last year uh the regional comprehensive economic partnership took place that's 15 countries uh in East Asia the comprehensive Progressive trans-pacific  
[00:41:29] partnership um has been in place since December of 2018.  
[00:41:35] um the two final uh big countries uh ratified at the end of last year uh and they're studying enlargements so you have um uh the UK uh enlargement is being assessed and China will be assessed as  
[00:41:49] well so you have several countries that are um planning on joining and and we've got uh two enlargements here one when the UK joins with with South Korea and then um  
[00:42:01] a a second enlargement where Indonesia Thailand and the Philippines joins these Regional uh countries uh in in asean join and then finally we have an estimate of what we call a global reach this is kind of a globalization  
[00:42:15] Benchmark um and if we're looking at Blue Skies thinking the idea here is okay what if you had a much more major agreement what if you had not only China joining the cptpp but you had the United States you had the European Union you had Taiwan on  
[00:42:29] the one hand uh and then we have India that would join ourselves so this isn't necessarily a uh certainly not in the medium term uh politically viable thing but just to give us a benchmark of where things could go  
[00:42:43] um and just give you a view and I'll go through this quickly because I know I'm out of time um first of all it's interesting to point out what's happening in the in the world economy this should be consistent think with an analysis of this paper is that if you look at these groupings  
[00:42:57] um and you know the red here we've got GDP Lewis population and uh red is the trade share and this look is changes over 2021 to 35 period you see very clearly that from the GDP point of view  
[00:43:12] um these Asian countries are having a much bigger share um and NATO countries uh or the oecd if you might say are having a big drop having said that um it is still true that by 2035  
[00:43:26] um the OC countries continue to have constitute a slight majority of the global economy so uh from the method of moments you see the uh levels uh you know the rate of change is against what's going the oecd but the levels  
[00:43:40] will still be relatively High um now in terms of these um geopolitical fragmentation scenarios we've got three we look at one is reshoring uh where you've got these six different  
[00:43:55] blocks that sort of put up barriers um one is near Shoring where you uh group together with a region and then you erect barriers on other groups uh and one is friend Shoring which was something proposed by Janet  
[00:44:09] um Yellen in 2021 where uh you trade you have these different blocks where you trade uh with your friends and the others are excluded and I thought it was interesting we've got nuclear we've got with the friends showing we've got a U.S  
[00:44:23] led Group which includes Europe Etc uh in Japan then there's a china-led group which doesn't include a lot of countries and then we have neutral countries but as neutral countries we assume that they will be slightly discriminated against  
[00:44:35] so when we raise barriers on trade with between the blocks we have half the barriers that go on with the um with the neutral countries and if you look at this you get um negative effects on income  
[00:44:49] essentially across the board which would be considered consistent with the literature um there are very few exceptions there's a very very small increase in income in the case of the United States for example with reassuring but it's like point zero zero  
[00:45:02] two percent of GDP um and it has a negative effect on these other uh fragmentation scenarios so this is very consistent with what the paper was saying um I didn't see the trade effects in uh summarizing the paper but  
[00:45:16] if you look at the trade effects they're two to three times worse than the income effect which often happens with these models uh and so you see trade really getting clobbered like if you're an open region like asean small open economies  
[00:45:30] that have been liberal and trying to gauge the international economy you know some a policy that we you know uh we economists the IMF World Bank everybody's been supporting you see that in these scenarios a region like asean  
[00:45:43] gets hit badly like 17.5 contraction in exports on a permanent basis so when we talk about these scenarios we have to look at the general equilibrium effects and I think this is something that the the paper does this sort of  
[00:45:57] adds a bit the literature um on it and I think that this is just starting but um it'll be interesting to see where the literature goes in terms of cooperation uh very briefly uh we see that very positive effects  
[00:46:11] um that you get from cooperation uh the the biggest line there that Brown Line has to do with that that futuristic if you will global reach scenario which is very big uh increases uh in real income for a group like asean  
[00:46:26] um from the other scenarios a bit less but impressive but I think it's important to underscore that we can't think even though these this greater cooperation um this Regional cooperation can compensate in part uh for what's going  
[00:46:41] on with geopolitical fragmentation it is only part of it um it is it you know uh closing off the global economy is going to be on the whole very negative for these countries um and the same is true for exports as I  
[00:46:55] mentioned usually exports three to two to three times when income effects would be so they're very part uh positive with cooperation um and just as a last Point um with respect to the effects on global  
[00:47:08] value chains um in these two uh charts you see on the left uh the effects of globe globalization on say China the United States Vietnam which is very open country country and the world  
[00:47:22] um you see the effects on GVC uh participation is uh sure it hits China very badly but it hits the United States as well in fact it Global value chain participation Falls by more for the  
[00:47:36] United States than it does even for China um and you know the world gets hit badly and in terms of cooperation um you see generally positive effects you see uh under the some of the CPT BPP enlargements  
[00:47:51] um you see the United States for example is negative affected that's because it's not part of the region uh and It suffers from trade diversion uh but when you include it in general cooperation it's positive so in effect um these sort of uh this additional  
[00:48:06] piece of literature kind of confirms a lot of things that went in the um that were articulated in the paper so I'll just stop there thank you very much Mikey thank you for it's always difficult to do online  
[00:48:19] moderation but thank you I hope you heard your applause thanks for coining another term about the same problem geopolitical restructuring  
[00:48:32] and with your words that Asia is on the rise I would like to hand directly over to Susana the second discussant yeah thank you very much for giving me the opportunity to cast a few comments  
[00:48:47] on this very very interesting um paper of published by the IMF and also on what my pre-speaker just said about the situation I I would like to um draw your attention to the fact that  
[00:49:00] I'm not an economist and that I have a training in political science and in contemporary history and my focus has been on China for 50 years and so I'm going to talk about the elephant in the room  
[00:49:15] and the elephant in the room is not only the fact that what we have been listening to up to now is not an economy induced uh fragmentation but it's a  
[00:49:29] policy induced fragmentation so I'm going to talk about geopolitics but the elephant of the elephants or the elephant among the elephants in this room is of course China and maybe this  
[00:49:43] is the reason why I was invited to come here and give a few comments I can very well understand that the IMF not really wants to talk about the elephant in the room but maybe for us to understand why we need to talk about the geo-economic  
[00:49:58] fragmentation the reason why we have to talk about this is because there is a geopolitical fragmentation restructuring going on in  
[00:50:10] this world and China is at the very center of this and China is not only at the very center of this because it is a big country with the second largest economy in the world but because it's a country that is maybe  
[00:50:25] at the very Forefront of resisting against this geo-economic fragmentation because as we just heard China has been benefiting enormously from globalization  
[00:50:38] and of course China is very much afraid of losing this momentum in a situation when the internal economic development in China is not so positive as Mr Xi  
[00:50:50] Jinping had anticipated a while ago during the 20th party Congress so my first argument would be if China is the actor among all our International  
[00:51:05] actors to resist against geo-economic fragmentation so why is this so and I think from my perspective we need to understand that the reason why China  
[00:51:19] is resisting against this is not only because China needs the world but also because we need China and um just let me give you a little bit of an historical perspective on this um  
[00:51:32] if we look at the cold war in the 1950s maybe you can remember or maybe you know that during the 1950s China was closely aligned with the Soviet Union and this was one of the reasons why  
[00:51:47] during the 1950s the Cold War didn't turn hot because despite the fact that the United United States at the time was militarily in a much better position than the  
[00:52:00] Soviet Union it was not in a position to go to war against Russia and China so while we look at the Cold War as a binary setting  
[00:52:13] we really have to understand that this binary setting worked for a very long time because there was a hidden third actor and this hidden third actor is China and just  
[00:52:27] remember how weak China was at the time and how isolated China was at the time seemingly I mean if you look at newspapers in the west nobody would say anything about China it was by the Korean war in China's participation in the Korean War that  
[00:52:42] suddenly China was on the world stage again but I don't want to go too much into detail but I think you know if we sort of try to understand the Cold War not only as a binary setting but as a  
[00:52:56] setting that has a third hidden actor and that this hidden actor actually was enormously important to prevent hot Wars from emerging maybe we can also understand that the beginning of the end  
[00:53:10] of the Cold War was actually also closely related to China in 1971 the People's Republic of China was admitted to the United Nations and this was part  
[00:53:23] and parcel of a repositioning of the People's Republic of China in the international order if we look at this incident from 1971 in a long-term perspective 20 years later  
[00:53:36] the Soviet Union fell into pieces the beginning of this process and this implies the beginning of the end of the Cold War is the rapprochement between  
[00:53:47] China and the U.S which started in 1971 and had its final really important outcome in 1991. very interestingly when you listen to Mr Kissinger's interviews  
[00:54:01] on YouTube you will see that he Now talks about this issue openly whereas back in the 70s and even in the 1980s he would never say anything openly about this because in one of his books he writes you know when you play with a  
[00:54:16] third actor you better don't talk about it and for a long time he didn't talk about this so maybe if we look at this from a historical perspective we can see how this third hidden actor is a very  
[00:54:29] important issue for our world not to be derailed into a hot War on the other hand just let me say a few words about China needing the world to become rich and strong because this has  
[00:54:44] been on China's agenda for more than 150 years and China has been coming closer and closer to its final aim to become rich and strong and I think it is very important to see  
[00:54:57] that everything we see in China today as a major achievement is an achievement that China achieved together with other countries in collaboration with other countries  
[00:55:10] this implies to say things openly that if we cut Co-op collaboration we can actually hurt this country enormously and if we want block building and if we want to exclude the third  
[00:55:25] actor what we need to do is actually to stop any kind of collaboration with China China will run into enormous problems if we stop collaboration with China and the U.S of course knows this  
[00:55:38] very clearly and that's why the U.S as part of its geopolitical strategy is actually thinking about decoupling and about isolating China as much as  
[00:55:51] possible from the International System so um for example in terms of Technology many people look at China and say you know oh my gosh so everything is possible in terms of technology in China  
[00:56:05] a lot is possible in terms of technology in China but interestingly if you look very closely none of these technological developments including airspace including military everything is the  
[00:56:20] product of a Chinese collaboration with some other country and that's why China needs the world and I think this is very important to know because we don't need to be as  
[00:56:33] afraid as some of us are of China if we understand how much China needs us not only do we need China China also needs us and I think it is not correct to say  
[00:56:46] that we are dependent on China is as a matter of fact we are highly entangled and China is highly entangled with us and to get this entanglement  
[00:56:59] disrupted will be really really difficult so why is it that there are quite a lot of countries outside what we call the West  
[00:57:13] who actually support China's claim that we should resist block building and actually go for a more collaborative approach we see for example that in the U.N the  
[00:57:27] majority of member states do not support the so-called Western sanctions against Russia but we see also that the majority of member states in the U.N  
[00:57:39] have costed their vote their votes against the war of Russia in Ukraine so it's very interesting to see that the majority of countries in the U.N don't  
[00:57:51] take a definite stand neither on this side or on that side and this is something we really have to keep in mind and we shouldn't be too sure about us westerners being in a dominant position  
[00:58:06] around the world for example if you look at India India is in a military conflict with China but at the same time India is one of  
[00:58:19] those countries that actually try to design a new Global Order it is one among those countries that together with China is actually working  
[00:58:30] on a peace uh a suggestion for how to to come to a certain uh stop in the war over Ukraine  
[00:58:42] so it's very interesting to see that even though there are major conflicts between China and India India still thinks that it needs China so why does India think that it needs  
[00:58:57] China and you see many countries in the indo-pacific world that actually sort of talk about strategic autonomy on the one hand side they get very very close to the U.S and they want to collaborate  
[00:59:09] militarily with the U.S on the other hand they say you know we need strategic autonomy in handling China so why do they need this and I think it is very interesting to understand this  
[00:59:23] if you have a two block system by not being a major actor in one of the two blocks you are in a very bad position because you don't have any bargaining power  
[00:59:37] you can either go with this block or with that block and you have your position in the hierarchy of either this block or that block but if you have a third actor then you  
[00:59:50] can start bargaining on the terms of trade of your participation in this or that situation in this or that block which implies that you know referring to the IMF  
[01:00:04] publication for those countries that are emerging from property poverty for those countries that have already sort of gained a certain level of um Economic Development  
[01:00:19] who are a member of an either or constellation it is not as good as having a third actor that you can relate to to show these other two blocks that there is no  
[01:00:34] absolute necessity to agree to their terms of trade and I think this is the reason why these countries actually hesitate to support either of the two blocks  
[01:00:48] and I think it is um looked at it from this perspective it's quite understandable why they would do so and if you look for example at the a cold war situation historically you  
[01:01:03] will see that there were always a number of countries trying to break out of this block situation in order to gain for themselves a better position in a bargaining situation this implies  
[01:01:17] that if you want China as the biggest among these countries in the most advanced among these countries to develop a third actor position in this  
[01:01:29] overall tendency to break the world into two blocks then you don't do this because you love China you don't do this because you want to emulate China's political system  
[01:01:43] you do this because it is good for you and it's good for you in a sense that you know that China needs you in order to be successful and I think this is something we should  
[01:01:57] have in mind especially as we in the west um seem to be a little bit arrogant towards all these funny countries that cannot decide to be either or  
[01:02:12] and the reason why we tend to be arrogant is because we view ourselves as the winner of the Cold War and in this very very delicate and and  
[01:02:24] difficult highly complex situation in which we are in at this moment we tend to simplify the situation for us and think that the Cold War was actually  
[01:02:35] a situation with less uncertainty a situation in which we could understand the respective actor more clearly than we do at this moment  
[01:02:47] and we fall into this habitus of sort of building two blocks in this world because we think we are safe when we do this and why do we think we are safe because we think we are the winners we  
[01:03:01] think we won the Cold War but you know if you look at the Cold War from an Asian perspective you don't really know whether it ever ended and who should be the winner of the Cold  
[01:03:16] War in Asia very difficult to answer so in order to come to an end I would like to underline that the situation we are in is a situation  
[01:03:28] in which geopolitics is in command and unfortunately we cannot analyze the world in economic terms without looking at the geopolitical constellation thank  
[01:03:42] you very much foreign you're absolutely right we invited you because you would talk from a completely different perspective thank you for that  

## Q&A (01:03:57 – 01:30:26)

[01:03:57] Shaker it's a challenge but it's your chance Now to respond to the two discussions and then I'll ask for questions from the audience uh thanks I thought those were both like really fascinating  
[01:04:11] discussions I don't really have much to sort of respond to but let me just say that starting with Susanna I really enjoyed the kind of historical perspective especially the idea that you know there's a there was a three body  
[01:04:24] problem rather than a two-body problem when you look at the Cold War in historical perspective and I guess things changed when Nixon went to China and uh I mean to me one of the interesting questions and and maybe you'll come back to this sort of later  
[01:04:39] in today's discussion is whether China itself has changed over time so there is a sense that lots of China Watchers have that undershi Jim ping China is abandoning the kind of development model  
[01:04:52] which was uh which was kind of started by Deng Xiaoping and is moving towards a Greater brand of political authoritarianism and even economic centralization which is very different from the more globalist perspective that prevailed earlier  
[01:05:07] um Michael thanks a lot for for your very generous comments uh I look forward to reading your your paper with with Peter Petri um you had talked about FDI I should Flack to you that actually at the IMF uh  
[01:05:21] for our next World economic Outlook we are going to be looking special especially at FTI and doing you know the the paper I presented today is an umbrella paper rather than analytical work however we are doing analytical  
[01:05:34] work on on uh FDI fragmentation and just to preview some of the results you know you mentioned that the stocks are flat even if the flows are are in Decline what we do in that paper is to develop what we call what political scientists  
[01:05:48] call the ideal Point distance so you can go to United Nations voting records and make a make an ideal Point distance between each country pair depending on how far they are from each other in terms of U.N votes so so these are these  
[01:06:03] are bilateral measures of geopolitical distance as it were and you can use that to see how well it correlates with bilateral FDI and when you do that over time you find  
[01:06:15] not only does ideal Point distance influence bilateral FDI but the coefficient has been increasing quite dramatically in recent times so that if you will is some preliminary evidence  
[01:06:29] that that FDI fragmentation may be taking place and if you put it in a horse race with other variables like physical distance you find that not only is the coefficient larger but it's been  
[01:06:42] increasing more steeply in recent times so so that that work will be coming out in April but there's obviously a lot of interesting ground to cover thanks very much to both discussions let me let me stop there  
[01:06:57] I think you Shaker do you want to get back to this one point whether China is still China as of 30 years ago yes thank you very much for that question and of course um you know we cannot speak about China  
[01:07:11] as if China were not a very concrete place and um I've been very skeptical of the development in China under the leadership of Xi Jinping right from the very beginning when the New York Times  
[01:07:24] was still um applauding um to this decision by the Communist Party of China too elect Mr Xi Jinping as its leader um I think the interesting situation is  
[01:07:38] that China is preparing for war and this implies that of course China is also decoupling China is trying to regain  
[01:07:51] otaki in certain aspects of its economy and so China is not only sort of being decoupled it is also decoupling and I think we can see this very clearly  
[01:08:04] but at the same time as I said um you know China cannot live without the world also Mr Xi Jinping is realizing that his ideas about Chinese politics  
[01:08:17] have to take China's very delicate International position into account so for example during the 20th party Congress he threw out all time alternative voices from his cabinet  
[01:08:32] and some people say now his entourage is his War cabinet um to a certain degree this is right because he was trying to convince people that China is in such a dangerous situation at this moment both internally  
[01:08:46] and externally that he cannot have any alternative voices around him because they have to take decisions very very quickly and for that reason everything has to be concentrated on himself and  
[01:09:00] everybody has to be his best friend in his Entourage but I think he made a really really big mistake because China is going to be less stable in the next years to come because people don't see  
[01:09:13] any hope in this Entourage around Mr Xi Jinping for their Divergent interests and hopes and so they only they can only take to the streets to actually show their anger and show their their their  
[01:09:27] demands and I think we saw this at the end of the zero covet policy in China that people were really eager to take to the streets to voice the discontent in a way that is not normal in China  
[01:09:41] so with other words I think that they are actually trying to convince the people that they need an even more authoritarian regime than they have had for the last few years because they are preparing for war and  
[01:09:56] if I say this and I know that this is you know a very very harsh way of putting this but I think we have to realize this it does not mean that China wants to go to war  
[01:10:10] it does not exclude the possibility that it is going to go to war and I think this is also something we need to include into our economic  
[01:10:23] considerations the thing okay that was a really frightening answer yeah thank you thank you Susana I would like to ask okay I have one online question already coming in  
[01:10:36] Andreas if you read it out yeah thank you I've got here a question from Isabella linkner and she prefers that I would speak it out here it's uh particularly to to miss vegan she did  
[01:10:51] it's it's what does your argument mean for Germany which is a minor major player in the U.S block and whose economy is very much entangled with  
[01:11:04] China Let Me Maybe see other other yeah I'll collect three questions and then is it also two professor thank you uh it I have two questions one  
[01:11:18] two uh professor wagling and the other one today also uh the one on China because you mentioned that China was uh um uh somehow the the one actor that hindered the code were to be coming to  
[01:11:32] become a hot War do you see a role of China now also uh in the de-escalation of the present War because clearly China sees himself in that when the foreign  
[01:11:46] minister talked at the security conference and my question to Mr Aya is you talked about the dangers to the international monetary system uh you did not mention at all I mean I'm I'm not an  
[01:11:59] economist but uh is the IMF at all considering what the consequences for the international monetary system would be with all these private privatization  
[01:12:12] like cryptocurrencies private banks that are not thanks anymore but apps and things like that so thank you if you could go with them yes please  
[01:12:28] yeah this is now a personal question to chica um the I mean you pointed out that that a lot of developments uh  
[01:12:39] we're moving away from from an international or more Cooperative system to the to a more conflictive or whatever system but the question I would like to know is whether  
[01:12:54] this might have to do with imperfections in the in the in the existing or in the pre uh in the pre-existing system or so far as it has developed right now uh if you think of for example  
[01:13:08] um disproportional representation of countries in in diverse uh fora including the IMF but not only of course uh including also this Paris Club and whatsoever so there have  
[01:13:23] been a lot of shortcomings in these institutions too shouldn't it be I mean quite the crisis of this system shouldn't be thank you  
[01:13:39] um I think Jacob you go first and then please Susanna okay thanks and Andres so let me start with you also I fully agree with you um you know a lot of the multilateral  
[01:13:52] world order was kind of evolved in the wake of of World War II and it bore the imprint of the victors of World War II and I think the world has changed considerably since then so when you look at the representation or  
[01:14:06] you know the nature of the dialogue that takes place there there is there is a need for updating the representation I mean one very parochial instance of that is what in IMF we call quota reform  
[01:14:18] because you know votes in the IMF are allocated according to the capital share of of of of countries and that the formula was kind of set back in history when Global GDP looked very different  
[01:14:31] from what it does today so one of the things that the staff of the IMF is pushing for is to have quota reform which more adequately represents the current world as opposed to what the world used to look like some time ago but you know it's difficult it's it's  
[01:14:46] something that requires consensus among the existing shareholders so it's it's a slow-moving process but at the very least we think that this is a process that should move forward rather than backward and global economic fragmentation seems to be going in the  
[01:15:01] opposite direction where instead of making progress with reforming the multilateral world order we just split into regions and blocks which don't trust each other and are hostile to each other um there was another question about uh  
[01:15:14] you know what about what about the developments in the private sector things like cryptocurrencies or sort of you know what you could call more broadly non-bank Finance um yeah this is like a huge evolving  
[01:15:28] area I think it's a very exciting area but also very dangerous area because we don't have good data the regulatory framework is not very well developed so at least at the IMF we've been pushing consistently for both of those things to  
[01:15:42] be remedied so for data to be much better available so we know what's happening in the non-bank sector and for regulation to be evolved so that you know crypto and and digital currencies and things like that  
[01:15:56] can be brought under the regulatory system just as the banking system is but it's very new so there's a lot that needs to be done could you please help me and repeat  
[01:16:11] which country was actually the first question about Germany okay okay I thought so I was a little bit hesitant because I thought maybe it's Japan I didn't hear it but the situation  
[01:16:24] of Germany and Japan is very similar actually um let me start with the de-escalation question I think um much in contrast to what we read in  
[01:16:37] our daily media China has been trying to de-escalate this war from the first day on and much in contrast to what we hear from Mr blinken China has been trying  
[01:16:50] desperately not to be aligned with Russia in this war and this is of course a very um much in line with what I tried to explain that China actually tries to  
[01:17:03] define a third actor in this overall geopolitical system and for that reason um China has always you know given signals both uh to Ukraine as well as to  
[01:17:17] Russia that China can be friend with both friends with both and um as a matter of fact I mean most people in our countries don't know that China has a a partnership a strategic  
[01:17:30] partnership with Ukraine and China has a treaty with Ukraine which actually forces China to intervene on behalf of Ukraine in case of a nuclear attack on Ukraine  
[01:17:45] so you understand why China says we tell the Russians that they shouldn't use nuclear weapons against Ukraine because in that situation China would be forced by its contract to actually  
[01:17:58] support Ukraine and give up this middle position between Ukraine and China which Ukraine and Russia which China has been building up for such a long time so I always said China is going to come  
[01:18:12] up with a peace suggestion only if China knows that it will be successful and it sounds really strange that Mr Wang e now tells us that this is going  
[01:18:24] to happen on the 24th because I don't think that the situation looks as if China could be really successful in coming up with this suggestion but it's also interesting to see that China is sort of trying to line up with a  
[01:18:39] number of countries among those that don't want the block building we had just been talking about and trying to come up with a suggestion that is not China's suggestion but one that was actually sort of negotiated  
[01:18:52] with a number of countries including Russia so we'll have to wait and see but I think from a Chinese perspective if China could act as a third actor in  
[01:19:05] moderating the situation between Russia and the Ukraine that would mean for China that China would raise its level of attention and recognition in the international word as a major Global  
[01:19:20] player and for that reason they are definitely working into this direction and I actually expect them to become quite active in this sense so for a country like Germany of course the situation is very very difficult because  
[01:19:35] obviously our big friend the USA is trying to talk us into a situation where we should decouple simultaneously with Russia and with China and I think for a country like Germany as well as for a  
[01:19:49] country like Japan by the way this would mean that the economy would have to undergo a major restructuring as restructuring which I  
[01:20:02] as a non-economist think would take many many bitter years for Germany's economy and Germany's population and I would hope  
[01:20:16] that Germany actually realizes that for the U.S to achieve its goal it needs Europe and for Europe to be important for the U.S  
[01:20:30] Germany needs to be really strong and on the other hand for China to be able to resist against the U.S it also needs Europe  
[01:20:43] and it needs Europe with a strong Germany so it is really interesting to see how Europe and Germany is in this very awkward position at this moment and they don't really know how to move and  
[01:20:57] in which direction to move and the reason why they don't know is because they either do not understand that they are so important for both the  
[01:21:09] US and China or they understand and they are afraid of this abilities are uh are realistic but uh I'm not close enough to the German Elite  
[01:21:23] to tell you which of the two options are the right and maybe it's a mixture of both and I think it is time for us to really understand that Europe is so crucial in this geopolitical situation that we  
[01:21:37] should actually undertake independent action and I always say that um playing the role of a moderator between the U.S and China  
[01:21:50] with regard to Taiwan would be a wonderful platform for the EU to redefine its position in the international setting  
[01:22:03] thank you Susanna um Michael I I will ask for whether there is still one question left from the audience but I also would like to give again the word to you you were a little bit virtually left out of the discussion  
[01:22:18] do you want to come in again Michael before I close the overall session no no it's fine I'm enjoying uh listen to the uh this in the discussion and I look forward to the uh to uh to Dr Ayers  
[01:22:32] uh IMF uh paper it sounds very interesting what you're trying to do but I think that I'm sure you've got people working out that no DFI flows but the FDI flows but um the point I'm trying to make is that  
[01:22:46] it's not just what's crossing the border it's what's a change in the stocks are if you've got you know in the 1980s for example if you have the uh Japanese to get over uh U.S imposed barriers uh  
[01:23:01] start investing in the United States and you know Honda starts making all of its its automobiles in the US and all of these um profits and everything I reinvested there that the reinvestments from year  
[01:23:15] after year after year don't show up in the online DFI flows but it is type A type of economic integration is it so I'm wondering if maybe they're doing it but instead of just looking at uh annual flows of of FDI maybe to do a first  
[01:23:29] difference of changing in stocks and to see if that makes a difference obviously the numbers are very different but you know you probably have people working out that know a lot more about uh the details of some of these clothes than I do so I look forward to seeing it to Ernest  
[01:23:51] thank you for this really enlightening and Brilliant panel I notice uh that one approach of grouping the various interventions is  
[01:24:05] between normative analysis and sort of forecasting or scenario analysis and the normative analysis which I would  
[01:24:17] associate with the imf's paper I mean first you analyze and then you propose Avenues forward so you make a normative recommendation whereas  
[01:24:32] with your presentation I sort of had the impression that you analyzed the situation should try to understand what's happening and draw scenarios some of which were quite Bleak now I I was  
[01:24:46] wondering um how that to bridge these two perspectives the relevant question is how does one influence the various how can one influence the various scenarios  
[01:24:59] that you would drawing and and it seems to me that it comes out from this discussion that it's not possible at the economic level but you need to do it at the political level at the geopolitical level and you need to understand the geopolitical interests of the various  
[01:25:14] players in order to then arrive at possibilities to reap the economic benefits from avoiding declobalization and so on and the big question that seems to me uh  
[01:25:28] there is who would be the intermediator in such processes so the IMF has has done a good job over the past 50 years as for  
[01:25:40] you know mediating in economic terms but this is geopolitical problem so he which is the organization the IMF is not the right body for that the UN is too weak it seems to me or too inefficient of whatever so how can such  
[01:25:55] a thing be solved in sort of a prisoner's dilemma so you need maybe Game Theory or something like this in order to understand all this thank you foreign was a wonderful statement of Two Worlds  
[01:26:12] I'm sitting in between the two words but do you want to have the last word checker no I I don't have any answer um I mean one could think of other bodies like the G20 or or asean but I  
[01:26:27] mean every everybody has its own weaknesses so I would actually defer to to Susanna to see if she's got some brilliant political suggestions a very very interesting question  
[01:26:42] um I am a very realistic and pragmatic person maybe I learned this from trying to decipher China for more than 50 years and for that reason I would say we shouldn't start with the big questions  
[01:26:56] we should start question by question by question right so that is for example why I just refer to the Taiwan question which is really really a very very important question I think we shouldn't  
[01:27:10] underestimate this and when I said you know China is preparing for war of course it's preparing for war in that region and um you know it's very clear that if the Taiwan government is going to declare independence then China is going to go  
[01:27:24] to war against Taiwan very very clear and and it's going to be a terrible War and it's going to be a war in which the us is going to be involved and that's going to be a war in which we will end  
[01:27:39] up being in a world war I'm sure about this so um I think for example we need to do everything to prevent this from happening we are not doing anything right  
[01:27:51] so one little delegation flying to Taipei in the next little delegation flying to Taipei you know and what's the use of this it's making things even more complicated do we want  
[01:28:04] this maybe we should come up with you know Jack in the Box idea that nobody has thought about to just disturb the situation that is sort of building up in terms of tension at this moment and find maybe a little  
[01:28:18] bit of a solution for something that can be so enormously dangerous that we really need to find a solution the same is of course true for Ukraine we cannot  
[01:28:30] just let this war go on and on and on yeah maybe we should just have someone intervene and say you know why don't we do this or that and I think there is a group of countries trying to intervene  
[01:28:43] and solve this problem so that's why I'm talking about you know solving problems by step by step by step because then we see um countries aligning in order to solve  
[01:28:55] problems we see how trust is being built up maybe yes or not and then we can step by step sort of imagine how this is going to develop but I think I'm very normative in one sense  
[01:29:10] and maybe I'm really old-fashioned about this I was born in the 1950s and I was raised with the idea that war is not a solution to political problems  
[01:29:24] and I was born and raised with the idea that we in Europe learned from the second world war that we don't want war to be our instrument  
[01:29:36] in politics and I think for Europe to really play a role in international politics is to stick to that principle and to say you know we don't want this  
[01:29:49] against all players who at this moment obviously think that there is only one way of solving political problems which is using weapons think we should stop this thank you very much  
[01:30:07] very clear words at the end thank you for everybody participating online or here and of course the people here have the advantage that they can still address the authors over a coffee thank you Michael goodbye to Bologna ciao  
[01:30:22] bye-bye [Applause]