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Europe's 2023 energy scarcity will drive green transition, says IMF chief
With soaring energy prices, Europe is headed toward a dark winter. But next year could be even worse.
If Vladimir Putin continues to weaponize natural gas supplies, IMF Managing Director Kristalina Georgieva believes 2023 will be an even tougher winter for the Europeans, she tells Ian Bremmer on GZERO World.
Still, there's a silver lining. Kicking its Russian gas habit will make it easier for Europe to make its green energy transition a reality.
Watch the GZERO World episode: Can the world avoid a global recession?
- The EU's natural gas troubles won't end after ditching Russia ... ›
- Can the world avoid a global recession? - GZERO Media ›
- 3 reasons risk of global recession in 2023 has increased - GZERO ... ›
- The tentacles of a global energy crisis - GZERO Media ›
- The Graphic Truth: The European Union's energy mix - GZERO Media ›
- Unpacking Lithuania's energy independence strategy - GZERO Media ›
3 reasons risk of global recession in 2023 has increased
A global recession is looming in 2023. But why?
Speaking to Ian Bremmer on GZERO World, IMF Managing Director Kristalina Georgieva offers three reasons.
First, all the big economies — the US, China, and the Eurozone — are slowing down at the same time.
Second, inflation shows no signs of abating.
Third, the world is becoming more fragmented, which Georgieva says makes it harder to find solutions to common problems.
Watch the GZERO World episode: Can the world avoid a global recession?
- Can the world avoid a global recession? - GZERO Media ›
- Is the world on the brink of another global recession? - GZERO Media ›
- The Graphic Truth: Is the US economy in a recession? - GZERO Media ›
- Podcast: Making sense of global inflation, looming recession ... ›
- Europe's 2023 energy scarcity will drive green transition, says IMF chief - GZERO Media ›
Can the world avoid a global recession?
This year, the annual fall meetings of the World Bank and the IMF are all about global economic doom and gloom.
How bad will it get? Are we headed toward a worldwide recession? And who will bear the brunt of the pain?
To get some answers, GZERO World with Ian Bremmer has two very special guests: World Bank President David Malpass and IMF Managing Director Kristalina Georgieva.
Malpass tackles the elephant in the room: whether he's a climate denier. His odds of a global recession? 50/50. But the World Bank chief is more worried about the poorest countries going backwards on their development goals.
For her part, Georgieva explains the three drivers that'll likely trigger a worldwide economic slowdown next year. She also predicts that the coming winter will be bad for Europe — but the next one will be worse.
- Is the world on the brink of another global recession? - GZERO Media ›
- Will stagflation make a comeback? - GZERO Media ›
- David Malpass: I'm not a climate denier - GZERO Media ›
- Is the global debt apocalypse here? - GZERO Media ›
- Europe's 2023 energy scarcity will drive green transition, says IMF chief - GZERO Media ›
- The state of the global economy is … not good - GZERO Media ›
- World faces "lost decade" of economic growth, says World Bank economist - GZERO Media ›
Podcast: Winter is coming. Global recession, too?
Listen: Inflation is on the rise, at a rate we haven't seen in through in decades. Is a global recession inevitable? Ian Bremmer speaks to Kristina Georgieva, Managing Director of the International Monetary Fund and David Malpass, President of the World Bank, on the GZERO World podcast. Both guests are leading global efforts to get inflation under control, lift millions out of extreme poverty and prevent the next global recession. Whether they’ll succeed is very much an open question.
Malpass says the chances of a global recession in 2023 are 50/50, though he is more worried that the middle-income and poorest countries are moving backward in education, health, food insecurity, and capital flows. He also clarifies his views on climate change.
Georgieva says the risk of a global recession has gone up due to three major reasons: the big global economies are slowing down, inflation is speeding up, and the world’s global order is fragmenting. She also explains how Europe should brace itself for a dark winter, even though the next one will be even harder. The silver lining, however, is that Europe is going to accelerate its green transition.
Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.- The Graphic Truth: Is the US economy in a recession? - GZERO Media ›
- Are we in a recession? - GZERO Media ›
- Is the world on the brink of another global recession? - GZERO Media ›
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Will stagflation make a comeback?
America’s fashionistas are super excited these days about 1990s crop tops, baggy outfits, and tattoo chokers, but economists are freaking out over a specter from a different decade: the ’70s. That’s when the US economy sputtered into what's known as “stagflation.”
Stagflation, very simply explained, is the double whammy of a stagnant economy coupled with double-digit inflation. In the mid-’70s it was caused by two oil crises, which doubled the price of crude and triggered recessions in many Western countries well into the early ’80s.
Why now? Six months ago, when COVID-related supply chain disruptions first started pushing up global inflation, there was a heated debate among economists about whether stagflation was looming. The skeptics argued that prices would stop rising when the pandemic ended and things “got back to normal.”
But earlier this year came two unexpected shocks. The first was Russia's war in Ukraine, which has driven the cost of energy, food, and other commodities through the roof. The second was China's zero-COVID policy, which has snarled supply chains even more.
It’s the war, stupid. TIGER — a global index tracking the global economic recovery set up by the Brookings Institution and the Financial Times — warned in its Sunday update that stagflation might affect most economies this year as the war in Ukraine exacerbates a slowdown in the global post-pandemic recovery.
What’s more, on Tuesday the International Monetary Fund will lower its growth forecasts for 143 of the world’s economies, representing a staggering 86% of global GDP.
Barely six months ago, IMF chief Kristalina Georgieva dismissed talk of stagflation when prices were beginning to rise mainly due to pandemic-induced supply chain disruptions. Now, she says that the Russian invasion is a “massive setback for the global recovery” from COVID and admits that “for the first time in many years, inflation has become a clear and present danger.”
How big of a deal is this? Stagflation has often been described as pretty much the worst thing that can happen to an economy outside of a war, a natural disaster or, obviously, a pandemic. If GDP doesn’t grow enough for wages to keep pace with inflation, everyone feels the pinch: purchasing power declines, people lose their jobs, credit and investment dry up, and poverty increases.
Also, recessions tend to have political consequences. US President Joe Biden surely knows that his predecessor Jimmy Carter blames losing his job in part on America’s economic “malaise” at the end of his term. Wherever stagflation hits, expect incumbents to feel the heat from populist insurgents who claim to have the secret sauce for making economic woes go away (spoiler: they likely won’t).
So, should we be worried? As always, economists disagree.
On the one hand, the war and zero-COVID have thrown a wrench into a global recovery that was already limping. The longer the war drags on and the longer Xi Jinping doubles down on his policy to contain the pandemic in China, the more prices will continue to rise and the more supply chains will be impacted by Chinese lockdowns.
Xi might be able to keep China’s economy chugging along with more stimulus spending, but other countries won’t because COVID left their coffers empty. Also, the world’s economy is a lot more interconnected than it was in the ’70s, and since inflation is a global phenomenon, all nations will take a big hit.
On the other hand, it might be too early to determine whether the current economic slowdown will be enough to trigger stagflation in many parts of the world. For instance, the US economy is still doing well and unemployment remains low despite recession fears. (The traditional definition includes high unemployment, but most economists now believe economic stagnation and high inflation are enough.)
"While global inflation is now very high — above 7% in the US, the EU, and the UK — it is still forecasted to lower in the next few months," says Eurasia Group analyst Robert Habib. "For one thing, spending will cool in part because central banks will raise interests rates across the board. For another, supply chain issues will ease as cargo traffic starts to pick up."
Whatever happens, people are definitely curious about stagflation nowadays. Last month, Google searches for the term far exceeded those during the 2008 global financial crisis.
What's your take? Let us know here.IMF Managing Director Kristalina Georgieva talks to Chinese Premier Li Keqiang before a news conference following the "1+6" Roundtable meeting at the Diaoyutai state guesthouse in Beijing, China November 21, 2019.
Should China get more IMF power?
The annual meeting of the International Monetary Fund normally gets little attention beyond economists and policy wonks. But this time all eyes were on the fate of Managing Director Kristalina Georgieva, widely praised for the IMF's swift action to avoid a pandemic-fueled global depression and recently caught in the latest crossfire between the US and China.
Georgieva finally kept her job after being confirmed by the IMF board late on Monday despite strong objections from the Americans and the Japanese, the Fund's two biggest shareholders. But what was all the fuss about?
The US and Japan reportedly wanted Georgieva out over allegations that when she was CEO at the World Bank, Georgieva intervened to paint China as more business-friendly in two flagship reports right at the time the Bank wanted to raise more capital from Beijing.
The wider IMF board, however, wanted her to stay. That included the Europeans — who see eye-to-eye with the managing director on many issues and believe Georgieva was being scapegoated due to anti-China sentiment in the US — as well as most developing countries, and of course China. Georgieva previously denied any wrongdoing.
Still, the scandal may cast a cloud of doubt over the IMF. The credibility of the Fund's business rankings — and potentially other key decisions — could take a hit if people came to believe that they were consistently rigged or affected by countries' contributions.
The IMF, whose main task is to keep the world safe from financial and monetary turmoil, has survived other internal crises, including the messy departure of two of its managing directors in the past 15 years. But the controversy surrounding Georgieva takes place in the wider context of China wanting a bigger seat at the table.
In recent years, China has tried to become a bigger player in global institutions as its economic and political clout have risen. But this ambition has been almost always met with strong pushback from the US (which has long dominated the same bodies, most of them established when China was poor and economically isolated).
Today's China is the world's second-largest economy, and already bigger than America's in terms of the purchasing power of its citizens. It's the top trading partner of more countries than the US. Yet, for all of its economic power, Beijing has only one-third of Washington's voting power — and no veto — at the IMF.
China has often cast itself as an alternative to IMF lending for highly-indebted countries that have nowhere else to turn and don't want political strings attached in parts of Africa, Asia, and Latin America. Now, though, Beijing would rather spend that money on managing the looming collapse of its real estate sector from too much borrowing.
Meanwhile, US-China squabbles are making it harder for other international institutions to be effective. The World Trade Organization hasn't been able to review appeals for its rulings since December 2019 because Washington has yet to allow the appointment of new judges to its dispute resolution body, which the Trump administration regarded as biased in favor of China.
In 2020, Donald Trump pulled the US out of the World Health Organization over claims that its China-backed boss had downplayed the severity of the initial COVID outbreak in Wuhan. Joe Biden immediately rejoined, but the Americans still believe the WHO gave the Chinese a pass on investigating the origins of the virus, and the probe has become so polarized we'll probably never know what actually happened.
The controversy comes at the worst possible time for the Fund. On Tuesday, the IMF is expected to lower its global economic growth forecast due to the uneven post-pandemic recovery in wealthy and developing nations, many of which took on extra IMF debt due to COVID. What's more, the last thing the Fund wants is for its impartiality to be questioned when it'll soon have to make very political calls on further lending to countries in financial distress, including those already deep in the red like Argentina or Tunisia.
Regardless, as the US and China continue to battle for influence within the IMF, expect the Fund to continue doing its job — and it has a lot of work to do.
Trouble at the IMF
Ian Bremmer's Quick Take:
Hi, everybody, Ian Bremmer here, and a happy Monday to you. A Quick Take on the scandal surrounding the IMF (International Monetary Fund) and its Managing Director, Kristalina Georgieva. Disclosure, full disclosure, she's someone I know very well and am very friendly with actually and have been since well before she got the IMF post. She used to be number two at the World Bank, and that is the origin of the crisis.
A "Doing Business" report, something the World Bank comes out with every year. It is used by investors to assess competitiveness of different governments around the world. And as one might imagine, there's a lot of jockeying and lobbying behind the scenes by these governments to try to show that they're doing a great job. And as a consequence, their rankings should be high.
Now, there's a lot of methodology that goes into this report. There's also judgment into the weightings of the methodology. Anyone that's ever dealt with an index understands how that works out. At Eurasia Group, we've had political risk indices for decades. And it's very clear that although it's quantitative, it's qualitative too, right?
But in this case, the numbers that were expected by the Chinese government, they were ranked number 78 in the 2017 report. They thought that they were doing better, and it turned out that the ranking was going to go down. It was going to be number 85. The Chinese government was quite surprised about this. The World Bank management was quite surprised about this. Chinese government came back and said, what the hell's going on? And according to Kristalina and Jim Kim, and again this was under Jim Kim at the time, they said, okay, go back, take a serious look and make sure that you didn't make any mistakes.
So far, so good. The Chinese ranking eventually came back to number 78, the same as it was the previous year. In other words, after the complaints, the ranking went up seven points.
Now, was there a methodology problem? Was there undue pressure being placed on the analysts? That's the result of an investigation that was ordered by the World Bank under David Malpass, the new leader of that institution. And Jim Kim is gone, but Kristalina Georgieva has gone on to bigger and better things, now running the IMF.
Now, a couple of interesting things about this report. First of all, when the law firm WilmerHale originally went to the IMF, to Georgieva, and this was, I guess, back in July, and wanted to interview her about the report, they explicitly said in the letter they sent her that she was not a subject of investigation, she was just being called in as a witness. And what I find interesting about all of that is Kristalina wasn't worried about her own role at all. She didn't bring in any lawyers. She didn't take any legal advice. She just went and spoke to them immediately, and later became subject of the investigation. And when the report came out, it's blaming her for involvement.
I think the fact that she chose to simply chat with them, number one implies she's not enormously politically savvy in a way that I think that Christine Lagarde, the former head of the IMF, would've been much more careful and cautious. But it also does show motive that she really didn't believe that there was anything she was personally involved in that would be a problem, and so why wouldn't she just answer their questions? In other words, she had no reason to think that this was going to be a problem for her own job or her own tenure.
Second point, this is a report that I would argue normally wouldn't have an awful lot of international impact, except China is massively politicized. Anything having to do with China these days, influence over the World Health Organization, that's nominally why President Trump then decided to leave the WHO in the middle of a pandemic. I mean, any potential sniff that the United States and an appointee in an institution, a multilateral institution where the US has the most votes, the IMF, was helping the Chinese, they're going to run in the other direction.
So it is problematic because it's China. And it's interesting in this regard, that the economic policy makers in the Biden administration like Georgieva, they think that her policies and her tenure so far have been strong, and they're generally supportive of her. But the political types in the White House think that they should run away, because they do not want any ability of opponents to be able to say you guys supported someone who's in the pocket of the Chinese, how dare you.
And again, in these days where there's zero trust between the United States and China, and it's only politically beneficial to be seen as more of a hawk, whether you're a Democrat or a Republican, you understand why they're doing that. Having said all of that, the Europeans have been supportive of Georgieva, continue to be so after a board meeting where they brought in both WilmerHale, as well as the Managing Director. And certainly if there were a smoking gun, if there were email evidence or other witnesses that were directly involved, and knew that Kristalina had directly and unduly pressured them, that would have come out, and the Europeans wouldn't be supporting her at this point. It's not like they're in her pocket.
So the Americans are backing off of her. The Japanese are with the Americans. It's a new Japanese government. They don't particularly have a dog in the fight, and they tend to line up with the Americans when things are important to the US. That being the case, I would say it's damaging to her tenure, but she sticks it out. I don't think she's going anywhere.
And so that's where I think we are in a nutshell, presently. It's going to be harder for the United States to be as aligned with her going forward. Very interesting thing, under Trump, despite the fact that Lagarde was seen as a multilateralist, and she's a European, she's French, the Trump administration never had a hard time with the IMF. In fact, the relations between Christine and Trump, and particularly former Secretary of the Treasury, Mnuchin, were actually very strong. And the reason for that was because there was a very warm and personal relationship between Ivanka, Trump's daughter, and Christine Lagarde.
And Ivanka went to the White House and basically said don't do anything to this organization, they're important, they're useful. He didn't really care so he left it alone. So it wasn't politicized under Trump. It's getting a little politicized under Biden because of the China issue, who would've expected that? But that's where we are, that's what I think, and that's your Quick Take today. Everyone be good, I'll talk to y'all real soon.
GZERO event highlights: IMF chief, G7 vaccine pledges, global health security
For IMF Managing Director Kristalina Georgieva (above), a two-track pandemic means a two-track recovery that'll hurt the entire world in the long run. That's why she anticipates G7 leaders meeting this week will commit to sending about one billion doses of COVID vaccines to the developing world by the end of the year in new financing and shots unused by wealthy nations. Georgieva hopes it'll be a summit that gives all countries "a fair short in the arm, a fair shot at the future."
Georgieva was one of many experts who joined this week's two-part livestream discussion about post-pandemic health security hosted by GZERO Media in partnership with Flagship Pioneering, Beyond the Pandemic: A Radical New Approach to Health Security, presented in partnership with Flagship Pioneering.
This year's G7 meeting comes at the right time for its members to start thinking together about how to prevent the next pandemic, says UK Secretary of State for Health and Social Care Matt Hancock. Part of that conversation, in his view, should focus on how to reform the World Health Organization so it can quickly — and independently — act when the next new pathogen emerges.
G7 Comes at Right Time To Start Talking WHO Reform | UK Health Secretary Matt Hancock | GZERO Mediayoutu.be
Why has the much-touted COVAX global facility failed to deliver on its promise of equitable distribution of COVID vaccines despite big pledges from rich nations and multilateral organizations like the IMF? "Don't commit to what you cannot achieve," says Agnes Binagwaho, Vice Chancellor at the University of Global Health Equity, who calls out top Western donors for often not walking the talk on commitments — unlike China and India.
“Don't Commit to What You Cannot Achieve" — How the West Hurts COVAX | Agnes Binagwaho | GZERO Mediayoutu.be
When will we need COVID vaccine boosters against new variants? Probably before the fall, according to Moderna CEO Stéphane Bancel. And what about IP waivers? He says they are not the solution, and could have negative unintended consequences like stifling future investment in innovative technologies that allowed vaccines to be developed in record time.
Moderna CEO on Vaccine Boosters Timeline, IP Waivers | Stephane Bancel | GZERO Mediayoutu.be
Why is the US not investing huge amounts in health security for Americans and the rest of the world? For Ian Bremmer, the government sees value in spending big on national security or tech to counter China, but less so in bolstering our defenses against public health threats. If this continues, he warns, America will be as ill-prepared for the next pandemic as it was for COVID.
Why Doesn't the US Invest More in Health Security? | Ian Bremmer | GZERO Mediayoutu.be
Watch key moments from the first part of this series on June 8, "Beyond the Pandemic: A Radical New Approach to Health Security,"
This live event series is produced by GZERO Media in partnership with Flagship Pioneering. We thank our event partners, Partnership for a Healthier America and Medtronic.
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