Looming recession without rescue and Europe’s Silicon slide Presented by

Looking for good news? Sorry! This week there isn’t a quiet front anywhere you look. You’ll have to make do with this Human Jetpack video where Vince Reffet launches himself 6,000 feet into the air.

This weekend as G20 finance ministers meet in Saudi Arabia. French finance minister Bruno Le Maire told Global Translations his plan is to push for “a digital tax and global minimum level of corporate taxation,” as part of France’s wider support for “green and inclusive growth.” The inevitable corridor talk will be about recession prospects though. While ministers are insisting in their draft declaration that growth has stabilized, every global top 10 economy is at risk of slow-down, and several face recession.

Putin Forever: Vladimir Putin marks 20 years in charge of Russia next month, and TASS has prepared a tsunami of Putin interviews .

Cyber David vs Russian Goliath: Putin’s anniversary makes it a good time to ask whether you trust Russia to come up with a global cybersecurity plan? A new U.N. process involving 193 governments and NGOs debating the issue was proposed by Russia, but little Estonia — a temporary member of the U.N. Security Council in 2020-21 and the first victim of a major Russian cyberattack ( in 2007 ) — is trying to turn the tables by making cybersecurity its top U.N. priority. The country’s chief cyber diplomat Heli Tiirmaa-Klaar told me Estonia’s mantra is “cyber stability,” focused on “regulating state behavior, not the weapon systems or its disarmament.” Tiirmaa-Klaar thinks traditional disarmament methods like treaties are “obsolete” because “you cannot go and verify all the laptops.” The Baltic nation is also part of a “coalition of the willing” that’s engaging in coordinated naming and shaming of cyberattackers, or “attribution” in diplo-speak. Western governments did that Thursday stating that Moscow’s military intelligence service GRU launched a “totally unacceptable” cyberattack on Georgia in October. Watch next: Swiss U.N. Ambassador Jürg Lauber is drafting a report on what could be part of a global cyber agreement.

This week, I welcomed Rachel Kyte, the new dean of the Fletcher School at Tufts University to POLITICO HQ for a climate chat. Kyte was the last person to work as Mike Bloomberg’s peer (they were U.N. envoys on sustainable energy and climate respectively), and she said “he asks really good questions, he cuts through things.” Pity Bloomberg isn’t so good at answering questions .

Kyte’s tip for meaningful climate action: Forget Jeff Bezos’ $10 billion Earth Fund and look to Brexit. She told me that to overcome the Trump administration leaving the Paris Climate deal, the U.K. must use its COP26 climate conference hosting duties to “rise above the knife fight that is Brexit” and elevate the EU into a “dance with China.” More in this week’s Sustainability Spotlight.

A message from Morgan Stanley: Could deal-making log another record run in 2020? Several crucial trends are likely to fuel M&A this year, according to Morgan Stanley bankers. Debt and equity markets are still supportive, there are more opportunities for cross-border activity, and there’s increased appetite among mid-capitalization corporations to scale up. Read more.

GLOBAL RECESSION WATCH: Finance ministers say everything is under control, but newbie UK Chancellor Rishi Sunak is skipping this weekend’s G20 meeting to put out domestic fires — so much for “Global Britain” — and so is China, because of coronavirus. Contradicting ministers, HSBC cut its 2020 global growth forecast from 2.5 percent to 2.3 percent, two-thirds of both manufacturing CEOs and shipping CEOs think a recession is likely in 2020, and MIT scientists say their model also points to recession . Apple isn’t the only big company that will miss its targets this quarter. “It’s been a wild ride. There was a boost in confidence when Trump de-escalated the trade war, and a few weeks later the Coronavirus has halted a sizable amount of manufacturing in China,” Rajesh Kalidindi, CEO of LevaData told me.

International Monetary Fund chief Kristalina Georgieva has suggested “synchronized or, even better, coordinated measures to protect the world economy.” Her latest rescue mission is to Lebanon, which had its worst day on record in bond markets this week. The context for all that is global debt, which is at its highest-ever levels: $253 trillion . Nothing to see here, folks!

Don’t expect central banks to ride to the rescue: Today’s central banks are not like those of a decade ago. There’s not a lot of ammunition or trust left after tactics like negative interest rates, and 49 banks cutting rates in 2019 but managing to boost growth by only half a percentage point. Tim Adams, president and CEO of the International Institute of Finance, which is meeting in Saudi Arabia today, told me that while he has “absolute confidence” in central bankers like Jerome (Jay) Powell and Christine Lagarde, “we will need to look towards fiscal policy to fill the gap,” if widespread recession hits. “It’s unlikely they (central bankers) can do it on their own”.

Here’s a run-down of the economies at a recession and slow-down tipping points:

CHINA: China’s overall debt was at 310 percent of GDP, before coronavirus struck and growth will likely fall below 5 percent in 2020. China’s central bank already cut its medium-term lending rate. China car sales were down 92 percent in the first half of February.

Who matters: China’s debt-laden companies.

What’s their baggage: Coronavirus.

UNITED STATES: Consumer confidence is holding up , but industrial output declined in four of the last five months and consumers are close to maxed out: half of Americans have less than $1,000 in accessible savings, but much more student or credit card debt. The trillion-dollar U.S. budget deficit leaves little room for stimulus and if growth doesn’t hold up to the White House’s prediction of 2.5 percent in 2020.

Who matters: Jerome Powell (interest rates) and President Trump (trade wars)

What’s their baggage: The shadow of the 2020 presidential election, coronavirus and Boeing’s 737-MAX problem.

JAPAN: Japan’s economy tanked in Q4 2019 after a delayed sales tax increase from 8 to 10 percent was finally implemented.

Who matters: Prime Minister Shinzo Abe, who has ordered an $82 billion stimulus package

What’s their baggage: The West’s biggest debt burden, central bank out of ammunition, and an inexorably shrinking and aging population

GERMANY: Germany’s latest reported GDP figure is zero growth (Q4 2019), but the government somehow revised its growth forecast up this week to 1.1 percent. European Central Bank supremo Chrsitine Lagarde has begged Berlin to spend more.

Who matters: Angela Merkel’s Social Democrat governing partners

What’s their baggage: Allergy to stimulus spending (a constitutional rule all but forces a budget surplus) and threat of Trump auto tariffs

INDIA: The risk is a persistent “a severe growth slowdown,” according to International Institute of Finance’s Sergi Lanau. Read his full piece.

Who matters: Finance minister Nirmala Sitharaman

What’s their baggage: High public debt and stressed shadow banks

U.K.: Europe is facing its lowest growth since 2013, and Brexit is its big risk factor, in particular for the U.K. Half of British firms expect recession .

Who matters: New U.K. chancellor Rishi Sunak, a hedge fund whiz

What’s their baggage: Brexit

ITALY: When is Italy not on the brink of recession? The economy is smaller than it was in 2010 and average growth in the last two years is zero.

Who matters: Center-left Finance Minister Roberto Gualtieri (managing $2.3 trillion in public debt) and fragile Italian banks.

What’s their baggage: No room for fiscal stimulus and the banks have too much bad debt, neither of which the EU can afford to bail out.

THIS WEEK’S CORONAVIRUS RED FLAGS: The latest hotspot keeps shifting: now South Korea. At the virus epicenter, China has twice this week changed its coronavirus diagnosis definition, causing infection numbers to drop. Yet the Beijing district that’s home to Chinese government’s central headquarters, has increased its movement restrictions and virus testing: hmmm.

February is job-changing season in China, but this year companies are struggling to fill jobs, often because people can’t turn up to fill them, including commuters from Hong Kong to southern China. The International Institute of Finance points out that coronavirus has spread further than SARS, and while China is a much larger economy today and is more integrated into supply chains. How President Xi is using the crisis to shore up his internal power .

GEOTECH — EU’S NEW DIGITAL VISION TOO SMALL TO SOLVE ITS PROBLEMS: The EU’s latest bid to beat American and Chinese tech is a five-year blueprint for “human-centric” and “trustworthy” AI and big data systems, but the bloc doesn’t have a plan to join forces with allies on this, and doesn’t plan to massively boost funding to make it happen. That leaves Silicon Valley with better defense research and venture capital, and Beijing going for “military-civil fusion” with bottomless pockets and few ethical guardrails. The EU’s pitch to ensure a new data portability right, a pool of public health data, and carbon neutral data centers is not enough to change its strategic position in global digital debate. At best it will struggle to hold onto it’s role of top digital police force: I dive into the gap between rhetoric and reality here: Europe’s big tech vision fizzles to life .

More reading: Guntram Wolff, who runs Brussels’ most prestigious economic think tank, on why it’s not enough for Europe to be a digital referee . Plus more on the power grab by France and Germany, for the European Commission’s strongest policy weapon: competition law.

MUNICH SECURITY CONFERENCE WRAP. From Germany hosting the world’s most prestigious security conference while its own armed forces are an empty shell even, through to the conference being a place for internal U.S. political venom to spill out , it was a conference full of irony. Jeremy Shapiro says you can’t capture a conference’s mood anyway, in this hilarious take-down: “ Land of the lost .” POLITICO’s EU Confidential podcast attempts it anyway.

LAST WEEK’S TRIVIA WINNER: Ari Eger-Beyeler, a research analyst at O’Riordan Bethel Law Firm was the first to answer that 27 additional MEPs took up their seats in the European Parliament this month, following Brexit. Shoutout also to Pelayo Irving who also got the correct answer.

THIS WEEK’S TRIVIA QUESTION: Which modern head of state or government was in office for the shortest period of time (we’re counting 1900 to 2020 only)? Send your replies to globaltranslations@politico.com


BORIS JOHNSON’S TOP ADVISER TRIES TO SMASH HIS PUBLIC SERVICE: Britain invented the modern independent, merit-based public service in the 1850s. Now, Dominic Cummings, the Prime Minister’s key wrangler, wants to mix things up. Rachel Sylvester explains for The Times: “He has dismissed the permanent civil service as ‘an idea for the history books.’" She adds: “This is more about power than policy,” with the BBC, courts, military, universities and parliament “all on his hit list.”

VENEZUELA-RUSSIA SANCTIONS: The Trump administration on Tuesday announced new sanctions on Russian oil company Rosneft for helping Venezuela skirt sanctions on oil exports meant to pressure the Maduro regime. Now the U.S. will pressure the EU to follow suit.

RIVAL GOVERNMENTS IN AFGHANISTAN: Five months after Afghanistan’s presidential election both the main candidates are claiming victory , putting into question how the U.S. could seal a peace deal with the Taliban, which the U.S. had hoped to announce last weekend . Here’s Taliban deputy leader Sirajuddin Haqqani on what his organization wants.

SUDAN’S CLEAN SLATE: The country’s new prime minister wants court trials for “a nyone who committed atrocities” — including brutal dictator Omar al-Bashir — and will compensate the families of victims of the 2000 U.S.S. Cole attack, and is even prioritizing relations with Israel. Why? It wants off the U.S. list of state sponsors of terrorism.

IRAN’S STACKED PARLIAMENT ELECTION THIS WEEKEND: Voters will this weekend choose between candidates for Parliament who will confront the West and those who want to stick with the fraying Iran nuclear containment deal. Thousands of moderate candidates have been kept off the ballot, CNN reported, so expect hardliners to triumph overall. More in Times of London.



Rachel Kyte, the former U.N. sustainable energy envoy, now at Tufts University was characteristically blunt in assessing global responses to climate change. She told me a lot hinges on the “U.K. being able to rise about the knife fight that is Brexit” in order to elevate the EU and encourage it to “dance with China” while serving as organizers of November’s COP26 climate conference. The IMF’s Kristalina Georgieva will need to force a new global conversation on debt and green infrastructure, because too many countries have too much debt to fund their green transition under current domestic pressures and international bank lending rules. With an example like that serving to underline that Jeff Bezos’ $10 billion Earth Fund is nice, but inefficient as a way to ensure climate action (because the world’s billionaires aren’t rich enough to fund all the necessary action). More in this week’s Sustainability Spotlight.

FIVE PEOPLE GREENING FINANCE: Green and sustainable finance is all the rage. As the European Commission prepares an EU standard for green bonds, a sustainability label for retail investment products and a revision of corporate disclosure duties, my colleagues in Brussels looked at five people and organizations greening money flows, including familiar faces such as Mark Carney, and names you may not know, including Sirpa Pietikäinen, Finland’s conservative former environment minister, and Bas Eickhout a Dutch green politician.

FIGHT FOR EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT LEADERSHIP: London-based EBRD — locked in a tussle with the EU-owned European Investment Bank over who should do what in Europe’s neighboring regions — needs a new president. Why it matters: EBRD is one of the few fora left where the U.S. and Europe still cooperate without acrimony. Britain’s Suma Chakrabarti is standing down in the spring, but the EU (which holds 54 percent of shareholder votes) hasn’t decided on a single candidate. Of the three possible EU candidates, EBRD insiders told Global Translations that France’s Odile Renaud-Basso is their best bet (they want Emmanuel Macron’s backing), while former Italian Finance Minister Pier Carlo Padoan is seen as most qualified. The outside contender is Polish Finance Minister Tadeusz Koscinski. More candidates could emerge: five bid for the role last time it came up.

U.S.-CHINA SPAT ENSNARES U.N. AGENCY: Earlier this month, we showed you the ways China’s rivals are taking advantage of coronavirus and Huawei to bump China aside from their global perch. But these efforts work both ways. President Donald Trump’s aversion to multilateralism is also handing leadership of U.N. agencies to China on a platter. The next battlefront is the World Intellectual Property Organization

LOYALTY TRUMPS ALL: Trump has named Richard Grenell, ambassador to Germany, as acting director of national intelligence. Grenell would take over from Joseph Maguire and oversee 17 U.S. intelligence agencies. The move had Washington insiders either scratching their heads or fuming. Don’t overthink it: Grenell is super-loyal and super-aggressive on behalf of Trump, something Trump wants in an election year. It helps that Grenell doesn’t need to be loved ( POLITICO’s profile here ). The last time Global Translations saw him in action (November 2018), he yelled at a friendly crowd of American-German businesspeople at an AmCham conference in Berlin , in response to mild questions about Trump’s political style. The subtext: even allies must be kept permanently on their toes in Trumpland.

A message from Morgan Stanley: As the cost of climate change-related natural catastrophes grows, for the first time bondholders are pressing their portfolio companies about risks and other environmental, social and governance topics. Until recently, stockholders with voting rights were the investors empowered to engage their portfolio companies and advocate for change. Now managers of bond portfolios, heeding their socially conscious investors—pensions, endowments and non-profits—are pressing companies on sustainability issues, notably climate change topics ranging from risk modeling to carbon emissions exposure. In 2019, Morgan Stanley Investment Management’s Global Fixed Income team, which manages $88 billion in assets, began proactively asking corporations in which they’re bondholders about ESG topics, and at the fore are conversations with property and casualty insurers about their management of climate change threats. Read the story.
Grenell stays on as Ambassador to Germany. Grenell’s job is to hold Germany’s feet to the fire on Nordstream gas pipeline (Russia), Huawei (China), and defense (under threat of auto tariffs). As POLITICO’s reporting about former Canada (and now U.N.) Ambassador Kelly Craft has shown, Trump doesn’t much care how much time an ambassador spends on the ground.


BCW international adviser Shaila Manyam — formerly at the State Department — recommends “ Agent Running in the Field (John le Carré), and if you’re visiting the Louvre in Paris for its Leonardo da Vinci retrospective, Walter Isaacson’s biography. Next on her list is Kim Ghattas’ new book Black Wave . “I will probably not admit on the record to loving Demi Moore’s autobiography , but it is fascinating,” she adds. Send your reading recommendation to: globaltranslations@politico.com

Also, try The Great Influenza and Swiping right in the alt-right dating world (Julia Ebner, Sydney Morning Herald).

Since Thursday was World Social Justice Day, give meritocracy a thought via the writing of Daniel Markovits: He offers The Meritocracy Trap (Book) and How McKinsey Destroyed the Middle Class (The Atlantic).

THANKS to editor John Yearwood and Nahal Toosi, Luiza Ch. Savage, Cristina Gonzalez, Zack Colman, Matt Kaminski, Paola Tamma, Matei Rosca, Matt Woelfel, and Josh Rogin.

Follow us on Twitter Ryan Heath @PoliticoRyan