00:00Hey, you're watching live images from the White House, Donald Trump convening what he calls a cabinet meeting, a cabinet meeting where he speaks to the press and was surrounded by all his secretaries.
00:14We're with Douglas Herbert. This is a format we've regularly seen since January the 20th.
00:20Yeah, it's the weave, right? He goes from topic to topic. There's a little bit of a non sequitur going on here, but the basic thread is the same. And what is it?
00:28But it's talking up his own agenda. Now, it's a little bit if you are looking at it from the Europe perspective or almost anywhere else in the world, it's a parallel universe here because a lot of the world is right now looking and worried about tariffs, worried about the trade wars, worried about the possible economic ripple effect, global impact.
00:44Donald Trump, his portrait in those comments is of factories, you know, firing on all four cylinders, American military products, equipment, you know, producing patriots, all other types of weapons.
00:57And on the economic front, the price of groceries going down. He spent a lot of time on his campaign signature theme, eggs, eggs going down, energy going down, meaning the price of gas at the pump, which is obviously for Americans, a major, major banner issue.
01:12And basically just trying to flag up his agenda so far as firing on all cylinders and being successful just about wherever you look.
01:21Yeah, our cabinet meetings here in France, they take this behind closed doors, but it's a different kind of format.
01:26What the press is eagerly awaiting and markets are awaiting is this announcement that he was making, that he was firing the first ever black member of the Board of Governors of the U.S. Federal Reserve,
01:41Lisa Cook, whose lawyers this Tuesday say they're going to fight it in the courts that he doesn't have the jurisdiction to do so.
01:47This is the question that legal experts, scholars, and not just are asking. Can he do this? Is it justified?
01:52Federal Reserve is an agency of the government, but it's an independent agency.
01:56And traditionally, both Congress and Supreme Court decisions by their precedents have basically tried to create a situation in which if a president were going to fire an official, he could do so, but would have to find what's called just cause.
02:12That means translated shorthand, gross misconduct, some sort of malfeasance.
02:18Let's be very clear here. In the case of Lisa Cook, the first black governor on the Federal Reserve appointed by Biden in 2022, she has never been convicted of a crime.
02:28She has never been actually charged with wrongdoing.
02:30What we're talking here are about allegations of maybe, maybe falsified documents when she was trying to get a mortgage.
02:41This is a personal matter on a house that she had. She had two condos in Alabama and Michigan.
02:47So they're talking about allegations which have never, ever been proven in court, for which she's never been charged of any wrongdoing.
02:53She calls it a personal matter. It has absolutely nothing to do with her role or function as a Federal Reserve government.
03:00And I'll just note she is, as a Federal Reserve governor, seven-person board.
03:04She sits on the monetary committee that sets interest rates.
03:07But this is seen by a lot of legal experts as simply a distraction, a diversion from Trump's real escalating fight against the Federal Reserve and his determination, as they see it,
03:17to exert more control over it, and to essentially have the governors on that board do his bidding, his bidding being to bring down interest rates.
03:24All right. And for more on that, we can cross to Jens van Klooster, associate professor of political economy at the University of Amsterdam.
03:34The U.S. president perhaps trying it on, perhaps not.
03:39Markets are, right now, they're showing a muted reaction to this.
03:43Are you taking a distanced view, or should investors worry?
03:52Yeah, this, of course, stands in a range of actions that the administration has already taken,
03:58threatening to fire the chairman of the Federal Reserve, Jerome Powell,
04:04also recently firing the head of the labor statistics,
04:10and now finally really firing one member of the Fed board.
04:16Also, in a broader context of U.S. institutions that look very shaky,
04:22where norms are currently shifting,
04:24and where the administration is constantly surprising everybody with its new actions.
04:30So in that regard, I'm not surprised that this specific move doesn't really move the markets so much.
04:38But if you look at the dollar, for example, that's moved down about 10% since Trump assumed office.
04:46So there is overall quite a strong market reaction to this administration.
04:53And you see that also in other indicators.
04:55Is the U.S. dollar's status as the currency of reference in doubt in any way?
05:03Well, that's a status that the currency has because it's used worldwide.
05:09Also, companies invoice in dollars.
05:12They have all their inputs in dollars.
05:13They're competing with other firms that are pricing in dollars.
05:16So for all of that to move very quickly, I think that that will certainly take time.
05:21And I don't think anything is on the horizon.
05:24In particular, this would really require a concerted strategy from an alternative currency.
05:32China is putting something together as a sort of alternative with the BRICS countries.
05:36That is currently still really in its infant states.
05:40And also, the EU has really not developed any meaningful strategy on this topic at this point.
05:49I think for the EU at the moment, it's particularly important to realize how vulnerable we currently are to all sorts of interference from the U.S., being so dependent on the dollar.
06:04So U.S. payment providers, for example, are really at the core of how payments currently work in Europe.
06:11Any payment from one member state to another goes via Visa or MasterCard.
06:17And also, companies really, really use a lot of the dollars as a consequence of that.
06:22Around 20 percent of European banks' bank deposits are denominated in dollars.
06:28So we're really basically part of this big dollar system.
06:32And now we see the current administration making all sorts of moves really driven by their own national interests, also commercial interests of members of the administration.
06:43And I think it's really time for the European Union to position itself much more clearly and think much more how do we want to be positioned in an international financial system that's very rapidly changing, right?
06:57Very rapidly changing. Jens van Klooster, if I understand you correctly, the euro would have the means, with a few changes, to be a rival currency of reference.
07:10But they're afraid of retribution?
07:12I think overall, I think the past decades, no concentrated strategy has emerged in the EU on a number of fronts, right?
07:23So finance, for example, also tech, under the assumption you don't want to go so directly against the U.S. interest.
07:32I think for to actually develop such a strategy, that is a lot of work, right?
07:37If you look at the way the dollar acquired its current dominant status, that story goes back to the very founding of the Federal Reserve in 1913.
07:46Then also in the 1970s, a lot of pressure on countries in the Middle East to price oil in dollars.
07:53So to actually move forward to have a more prominent role of the euro, yes, that would involve a lot of political capital.
08:02And that's not a foregone conclusion at all at this point.
08:06Yeah. Douglas Herbert.
08:08No, I wanted to underscore, getting back to the Fed issue, one of the reasons why this move, this firing of this governor, could potentially really give markets a big fright.
08:21Is that the Federal Reserve has been treated with a reason as a sort of special agency of the United States, an independent agency.
08:27It's been treated differently than, say, the Federal Trade Commission or other agencies where Trump has in the past been given sort of broad leeway to fire the heads of those agencies.
08:37The reason why both Congress courts have been more reticent in granting the president of the U.S. authority to fire is because of what the Fed does.
08:45Its remit is to set the monetary policy of what is essentially the world's central bank, the largest central bank in the world, and the arbiter of a lot of the way the global economy works, for better or for worse.
08:58It sets the interest rates, which determine – and also its remit is to keep employment, inflation under, you know, tight sort of constraints and make sure they don't spiral out of control.
09:08So when there is even the whiff of not just impropriety but the whiff of a lack of independence or the rug of independence being snatched away from the Federal Reserve by a chief executive who is seen as wanting to just do his own political will, that scares markets.
09:26It scares people in other economies who are looking at the U.S. who want to vest their trust in the Fed as an independent institution whose monetary policy is not governed by the whims of, as they see it, a capricious and arbitrary man in the White House.
09:41Yeah, again, we said at the outset, Yen Van Kloster, a muted reaction this Tuesday on currency markets.
09:48But as you pointed out, the dollar has lost 10% of its value compared to the euro since the start of the year.
09:55Where's that money gone?
09:56Has it gone to Europe?
09:57Where has it gone?
10:00Yeah, there's just a lot of rebalancing going on at any point in time, right?
10:04There's also money flowing into the U.S., but there's a number of institutional investors who have had a very large part of their portfolio in U.S. assets, also because of the size of the U.S. stock market, right?
10:19It also grew a lot in the past years, who have then started rebalancing in light of the current situation.
10:27I must really say that just because the price of the dollar goes down, that does not at all automatically result in a less prominent use of the dollar internationally, right?
10:38That won't mean that suddenly firms stop using that currency for payments.
10:43That won't mean that it immediately loses its standing international system.
10:48But, and I think that's really the crucial point, the U.S. is incredibly unreliable as the core of the European financial system.
10:59So, I don't think we can expect the market reaction itself to result in a less dependence on the dollar.
11:07I think you will really need a much more concerted strategy on the EU level to reduce the vulnerability to interference from the U.S.
11:15To give one example, secondary sanctions, right?
11:19So, the U.S. has at the moment sanctioned the International Criminal Court in The Hague.
11:27That means that its employees, for example, find it hard to find a bank account, right?
11:33The ability of the U.S. to use its power now to influence European citizens, European states, that's something we want to get rid of.
11:42But this market reaction, that will pass and these prices will also revert back to earlier levels at some point.
11:49What you're describing, is it possible in today's world when you see a credit card company like Visa, which is an American company and has so much prominence,
12:00when you see the international bank transfer system, SWIFT, which works in U.S. dollars,
12:06is what you're saying possible when it comes to, for instance, the case of those people at the ICC who can't open a bank account right now?
12:15Yeah, no, well, I think it is possible.
12:21And I think you see that China is currently already working in that direction, right?
12:26So, with the other BRICS countries, they are trying to create interlocking central bank digital currencies.
12:33So, national currencies issued digitally on blockchain can be converted into the currencies of other countries.
12:41And that would be the start of a payment system with no dependence on the U.S.
12:46As things stand, currently, most international payments go via New York.
12:50And I think, moving forward, it's very likely that other states will also want to be less dependent on this.
12:58Less dependent on it.
13:00Jens van Klooster, when you take a look at how the recent trade negotiations happened between the United States and the European Union,
13:11what does that tell you about any decoupling when it comes to currency?
13:15Yeah, no, I think clearly in that negotiation, the aim of the EU has been to maintain the current trade as much as possible.
13:25And I think there are really good reasons for that in the short run.
13:28Just the shock of losing that whole export market all of a sudden.
13:34That would, of course, be an immense cost for the EU.
13:37At the same time, and I think in the medium term, you do have to reorient your strategy to be less dependent on what are, frankly, extortionate strategies from the U.S.
13:48Extortionate.
13:49And that's extortionate, right?
13:52So, they're using this threat of sanctions, not just to change the trade flows.
13:58But, for example, now also trying to threaten the EU in abandoning its efforts to regulate tech companies in the EU, right?
14:06So, not how the U.S. regulates its tech companies in the U.S., trying to force the EU to regulate tech companies as they operate in the EU.
14:16I think that's really an issue of sovereignty, and that's a threat that the EU should resist.
14:22Jens van Kloster, one final question for you.
14:24I know you co-authored a paper on how the EU can bolster its global ambitions with the euro.
14:33Have you done a headcount at all to see who's spearheading the efforts to have a stronger euro on the global scene, and who is resisting that within the bloc?
14:44Yeah, so, it's a great paper, Journal of European Public Policy, where we set out a whole strategy in which you could develop a more international euro.
14:55I think the core issue is that we're fighting so much amongst ourselves in the EU, right?
15:00So, immediately, when you talk about an international currency, you also get an issue of sovereign debt, which debts will be used, how do you do the monetary policy?
15:11And then, very quickly, a lot of the bickering between the member states overrules the attempts to find a common strategy.
15:20And I think this is really an issue where you need a common strategy, right?
15:23So, if you want to persist in a world where you have the U.S. going on its own, where you have China developing a strategy, the EU really needs a strategy, and currently it doesn't have it.
15:33Yeah, but you're sitting in the Netherlands, where it's considered one of those frugal four.
15:39Yeah.
15:39Are the Dutch and the Germans, and are you going to be among those who push for what you're prescribing here?
15:46I also think here that people are changing their minds on some of these topics, right?
15:52Seeing how much the EU needs to stick together in the face of these geopolitical threats.
15:59Maybe also seeing that, for example, due to some of that bickering, you have what's currently the largest trading bloc, the EU, with a currency that has a much smaller role than it potentially has.
16:11That are real costs, and that there might be real benefits in acting together and developing a common strategy.
16:17I think people are changing their minds on this, but there are still some steps to make.
16:21Jens van Kluster, so many thanks for joining us from Amsterdam.
16:27And I want to thank as well Douglas Herbert from our International Affairs Desk.
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