Chief economist BNP Paribas: 'The European sustainability policy was mainly a stick. While we know that a carrot works much better '

Instantly amazed, economists around the world look at how the international economic order in which they grew up is completely turned upside down by US President Donald Trump. « It is a huge shock for the system to see that the United States, an important architect and driver of the globalization that we know today, suddenly say: we no longer want this. And actively undermine the system, « says Isabelle Mateos Y Lago. Since September last year she has been the chief economist of BNP Paribas, one of the largest banks in Europe.

Because of her previous positions, she has a huge network among economists around the world. Fifteen years the Française worked at the International Monetary Fund (IMF). She was then head of investment strategy at BlackRock, the largest asset manager in the world for nine years. « I not only hear from European policy makers and business people, but also from Asia, Canada and Latin America many sounds of people say: » No, no, no, we have to continue with globalization! « . The world will have to invent new forms of cooperation. What we see now is to withdraw the US than a collapse of globalization. « 

Mateos Y Lago therefore argues that the European Union the economic actions of Donald Trump – the rates he wants to unleash, should not see the emphasis on bilateral 'deals' instead of broad international trade treaties – and should not crawl into its shell. According to her, there is a huge opportunity for Europe. Trump's policy can be a catalyst for a stronger Europe, makes them clear in a video call from her office in Paris.

« One of the strengths of the European Union is that it has always been stable. Some people will call it sleepy. Or too stable. But what do you prefer if you have the choice between policy stability, legal and clarity of processes on the European side and on the other hand – as is now in the US – policy that is very unpredictable or is gradually invented? That seems clear to me. Certainly if you as a company have to make important investment decisions. « 

The estimates of a chief economist from BNP Paribas matter. BNP is one of the few European banks that, since the 2008 financial crisis, has been in competition with the largest American banks. And the scenarios that her team make have, for example, influence the bank's credit facilities: how much money must be put aside if loans are not repaid? The scenarios also influence the risk management of the bank, and thus on how much capital the bank must maintain as a safety buffer if the loans provided.

Thanks to Trump rather 'draghi'

According to Mateos Y Lago, there is currently a certain sense of her team Back to the Futurebecause of the experiences during the previous presidential period of Donald Trump four years ago. Just like then, the day starts reading and processing all tweets and measures that are announced from one day to the next from Washington. « But we also learned something in that previous round: it is useful to take a step back and filter out the noise: you have to form a kind of central scenario. The most likely scenario, and build on it. « 

The uncertainty in the US is in no time for the economy there, Mateos Y Lago foresees. « When do the rates go in? What is the effect of Mr. Musk's Doge measures? What happens to the government budget? This is on top of already acidifying consumer confidence, people who lag behind credit card payments and the postponement of investment decisions by companies. In our expectation, the growth in the US will flatten this year. « 

For Europe, BNP Paribas provides a revival with the economy, and even faster than before. « It is precisely because of the realization that Europe should be on its own that things will be arranged faster. Everything that happens in the US reinforces the need for Europe to do its own homework. Make your own economy stronger and competitive. Go to trade more with each other. ”

The Econome expects that the proposals from the Draghi report published last summer now have a much greater chance of being introduced than six months ago. In his report, the former president of the European Central Bank Mario Draghi made 170 recommendations to get Europe more competitive.

Stick and carrot

But Mateos Y Lago is not just positive about Europe. When asked whether the competitive compass, which the new European Commission presented as a policy agenda as a result of the Draghi report, is enough, she says: “Well enough, at the moment it is no more than words on paper. Yes, everything is present. Proposals about deepening the capital market. About growth and competitiveness. The agenda is there, but now we have to see action. « 

What kind of action does the French economist want to see? This conversation took place at the beginning of this week, a day before the European Commission came up with proposals for one Clean Industrial Act To stimulate the greening of industry and with an omnibus law that must simplify the far -reaching European rules on sustainability reports and investments. The proposals had already leaked out at the time of the interview.

Mateos Y Lago welcomes the adjustment of the sustainability rules. « I think there is a consensus that, although the goal (of the legislation) is good and we are not allowed to give it up, the reality is that they have created huge reports. Without achieving anything terribly meaningful. ”

In recent weeks, large multinationals such as Unilever, Nestlé and Signify have warned about weakening the sustainability rules. According to them, that would slow down the economy more sustainable and ensure an uneven playing field for companies that have already invested a lot in it. « They are right that we have to be alert, » says Mateos Y Lago. « You don't have to throw the child away with the bath water. But you also have to seriously ask yourself what you really do for the planet when you fill in forms and produce reports. ”

According to her, you need both a stick and a root in the green policy. In other words, strict rules to force companies to change, in addition to positive stimulation through the provision of subsidies. « Until now, the European approach was predominantly the stick. While the policy of the previous US government, the Inflation Reduction Act of Joe Biden, was more root. And we have seen how well that worked out in the US. Grants are expensive, but they work. And always that stick? Well, if you already have a growth and competitive problem, that's not such a great idea. ”

The EU has even more homework according to Mateos Y Lago. According to her, the fact that there are far too many differences between the Member States in national regulations, a huge brake on the economy. There is too much room to add extras to European regulations yourself. An example: “If you want to sell a bag of breakfast cereals throughout the EU, you must have a different label on that bag in almost every country. That is crazy, it only adds a lot of costs. « 

Her point is not so much that everything must necessarily be harmonized, but that at least each other's rules must be recognized: a bag with a German label must also be able to be sold in the Netherlands – something that Dutch supermarkets have recently also argued.

The Economate also looks critically at the fact that Europe continues on « its own » with the further introduction of stricter banking rules. After the credit crisis, agreed with, among others, the United States and the United Kingdom that the so-called Basel rules, which contains requirements about how much capital a bank should maintain would become stricter. However, the US and the UK have recently postponed the further introduction thereof, part of the rules has already been introduced in Europe.

« Nobody asks not to introduce those rules at all. The question is at what pace you implement them. If two large, competing jurisdictions decide, then it is really counterproductive when Europe ignores it. Because if you just continue with introduction, it is inevitable that banks from those countries eat the cheese from our bread. ”

Mateos Y Lago points out that the banks are very important for the European economy. Unlike in the US, where companies can pick up growth financing with bonds on the capital market, companies lean mainly on bank financing here. « Yes, there is now talk about widening the European capital market. But as long as that is not yet going, banks are the most important financier of many companies. ”

That does not exclude that Europe should strive for a capital market union in the coming years. But according to the Française, it encounters a lot of distrust within the EU member states. « One sees the risks in opening up the savings market and the capital market. While in reality it is about giving opportunities to their own citizens to invest more diversified. Opening gives companies a broader range of financing. « 

If you want to invest in small and medium-sized businesses in the EU, then she is only possible per country. « That investment would be a lot safer if you had baskets with SME financing from different European countries. »

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