 Thank you all very much for coming it's a great pleasure and honor to be here with a very distinguished panel I would also note that my cameras are here for my show so I'm sure that on the subject of the international economy there will not be huge outbursts of spontaneous applause or booing but where you do have such an inclination I would appreciate it if you would not do it because the cameras will catch it and it will not work so well for the television show so don't stand up and cheer or boo and please turn your cell phones off those are the only constraints within which we're operating we will take your questions after we got get through a initial period of a conversation amongst ourselves what I want to do is begin by just quickly not really introducing but reminding people of who are on the panel here Kristalina Georgieva who is of course the managing director of the IMF Ray Dalio who founded what is the world's largest hedge fund and has written a really extraordinary book that charts four or five hundred years of economic history and draws conclusions and establishes patterns and draws conclusions from it Andre Plankovich the Prime Minister of Croatia and Valdez Trombovsky the European vice president for an economy that works for people this is a new title at least as best I know but better known as the EU commissioner for trade which is a very powerful position because people often talk about how Europeans are not united well on one issue they are very united which is trade and they operate like a superpower in that in that arena and so the world is really on trade issues a tripolar world the United States the European Union and China what I thought we do is get a sense from this extraordinary and distinguished panel first just where are we in terms of the challenges before the global economy right now I can think of really no one better to do it than Kristalina who has run a country come out of you know has had the experience of coming out of a communist economy the the emerging reality of capitalism and democracy now has been running the man at the IMF with extraordinary skill and integrity I may say so Kristalina tell us what do you think is going on we are faced with a crisis upon a crisis in a very short period of time two shocks that are exogenous to the countries that are experiencing so even countries with strong fundamentals can be brought on the NE to the NEs as a result what we face today is the realization that our interdependence is so high demonstrably a virus in Wuhan forced us to press the pause button of the global economy for two years and the unthinkable a war in Ukraine is causing hunger in Africa we have downgraded our projections for growth in a short period of time twice in January why because Omicron cost tremendous disruptions of supply and then in April because of the impact of Russia's invasion of Ukraine the sanctions that were imposed as a result and since we downgrade it the forecast from originally 4.9 to now 3.6 percent three things happened tightening of financial conditions appreciations of the dollar and further slow down of China as a result of lockdowns so further downgrades are not out of question but I want to immediately say what worries us more is not the fact that we had these downgrades because from 3.6 percent to get into negative territory for the world economy that is a long way to go what worries us more is the risk that we are going to walk into a world of more fragmentation with trade blocks and currency blocks separating what was up to now still a integrated world economy and here is the paradox what did the two crisis teachers they taught us that we actually need each other and we saw it with the vaccines though the only reason we are here is because we have a global vaccination program they taught us that we have to find a pathway to work together and yet the trend of fragmentation is strong I lived on the other side of the iron curtain I hated it and I can tell you it scares me that maybe we're sleepwalking after the hot war into another cold war what is reality today for it reality is that we also learn from these two shocks that we need to pay more attention to security of supplies because more shocks will come in the future and therefore the old concept of economic efficiency only based on costs is no more valid we do have to integrate security of supplies in that concept but this need not take us to making our future one of more division and inability to sort out problems for which we need to be together take changes just one example and in our view for it what it would take is to actually be relentless in identifying what are the areas where we must and we can and we should continue to work together so read you tell us what you think how this fits in to the historical patterns that you've been studying so carefully okay just so everybody knows I'm a global macro investor so all the liquid markets in the world I've been doing that for about 50 years and I am just a that makes me not ideological as much as just sort of practical how does the machine work and I learned in and that's politics as well as economics because the two tied together and I learned that many of the things that surprised me were were things that didn't happen in my lifetime but happened before my lifetime and that everything that it's coming to me is new that hasn't happened into my lifetime I have to study and that's by studying the Great Depression we were able to anticipate the 2008 financial crisis so there's a mechanistic reason there are cause-effect relationships and three big things that are happening in our lifetime that haven't happened before I needed to examine and those three things I think if we focus on them they pretty much encompass most those three things are first an enormous amount of debt creation which is debt that's monetized that has to do with the value of money in throughout history it's been very much the case in all cases throughout history that when there's not enough money there is the then the creation of money Rome they had gold coins and they put other metals in it and they depreciated and so on so so we have something that is going on with money credit and inflation that's due to the fact that we don't have enough real money okay that's that's one fine the second is internal conflict my measures I like to have measures and so there are lots of measures in this book we have populism of the left and populism of the right that are irreconcilable differences history shows that when the causes that people are behind are more important to them than the system the system is in jeopardy and so if you look at populism or you look at the size of the wealth gaps or the values gaps they're the largest since the 1930 to 45 period and it's understandable and the third is the great power comp conflict we began our world order in 1945 and the pattern repeats all the time there's a war the winners of the war determine the world order the rules of the game that's why the United Nations is in New York and the IMF in then World Bank or in Washington and then you have the world order and the dominant power the United States had 80% of the world's money money was gold and it had half the world's economy and it had a monopoly on military power and as that power changes then you have great power conflict and so you're having these three things happen again for the basically the same mechanistic reasons and if you go back through history you see that they repeat over so they have this cause effect so I think that when we look at the future and we calculate for just year by year we're now in 2022 we're in the part of they always do it the same way you have a downturn and they print money and credit because that's the way that you stimulate the economy and so on it produces inflation they tighten monetary policy there's a trade off and that and there we are now then you take that forward and you look at 2022 there's a political thing going on we're gonna have midterm elections in the United States we're going to have a changing government the 20th People's Congress in China and so on there's a political thing going on and then you take 19 20 2023 and 2024 and with this populism you're going to have possibly irreconcilable differences in other words it's entirely possible that neither side accepts losing in the domestic and so when you have that going on you need the historical context so mechanistically that very much looks the same that's fascinating Ray and both you and Kristalina talked about this issue of governments being forced to act and the principle way in which they've done it particularly for the COVID crisis but increasingly they're going to have to do it with the supply shocks and energy problems is through providing subsidies of various kinds Prime Minister your Croatia is seen as a great free market country you are seen that way how do you feel about all this free money being given to other people and this debt accumulation thank you Farid it's coming from the youngest EU member country which is just about to attain the final criteria in order to join the Eurozone as of 1st of January 2023 and I think while this has been helping us to navigate to a series of criteria in that respect and also country just about to join Schengen I have to admit that this situation that we are all facing in last two and a half years has entirely altered the global agenda this was supposed to be the decade of digital revolution or evolution and the decade of green transition towards the global climate change goals what did we do since last Davos we were in pandemic crisis management for two years as soon as it was trying to eclipse a little bit from our attention we have the Russian aggression on Ukraine violating everything that we know about international law and international system as we know it attacking brutally a member state of the United Nations causing three fold crisis one greatest tragedy for the Ukrainian people and the incredible humanitarian refugee crisis second leading to a spike of energy prices that in turn leads us into a situation where we are all due to the fact that the raw materials prices have risen due to the fact that the construction materials have risen prices due to the fact that food prices are rising we are all facing inflation pressures why am I saying this is an introduction I come from a centerite party EPP we are supposed to be pre-market economy social market economy liberty of entrepreneurship responsibility of an individual this is the triangle of our political philosophy and then I look at my own track record what did I do in last two and a half years I never stopped intervening my my critical task was to avoid the social fracture and we were facing the most incredible social fracture we as a government insured salaries bear in mind with a country of all a little bit less than four million people we paid salaries to 700,000 people in private sector and we sustained it it never happened before it was unimaginable before we pardoned all possible levies and taxes to our businesses in order to help them bridge the crisis now what we are doing when the energy crisis has hit us again a package which was up to 1% of our GDP two months ago in order to ensure that people who are vulnerable have social transfers to subsidize their bills for electricity and gas to people who are elderly we made in one of huge investment for pensioners putting down the VAT and other taxes helping farmers helping helping agricultural sector helping households and micro smaller and medium-sized businesses because otherwise for them it would be untenable and in that perspective I think that we have all found ourselves this was not only thanks to the Croatian funds but or budget it was also in the synergy of the European efforts and I think that what what my morale what my message was that we had a big problem with covid and we had a big answer at the European level joint I think the EU next generation is a unique joint effort to help the citizens and the member states now with the repower EU we are doing almost a like exercise of a smaller magnitude but still with the objective that the state or the Union at European level serves its purpose now the citizens can feel why the state exists in crisis and why the European Union is good and profitable actually for our citizens when they needed the most commissioner don't love this how should we think about the economic crisis that the Ukraine war has created Kristine and I talked about the dual crisis and the most recent one of course is this economic credit it is the war the crisis of the war itself but then the economic crisis created throughout the world by this war what is the best strategy to deal with that economic crisis well first of all we need to deal with root causes of the problem and root cause of the problem is Russia's aggression against Ukraine that's why EU was so determined to provide all necessary support for Ukraine to defend itself to win this war that's why we are putting lots of pressure on Russia already five sanctions packages are agreed and six sanctions packages being negotiation because the faster we stop the war among other things the faster we stop the economic implications of the war because there is a risk of this war we're getting boss protracted if Russia manages so to say entrenched itself it currently occupied territories or there is a risk also of this war to spread because Russian politicians Russian propaganda are making no secret of willingness to invade also other neighboring countries so from both point of view it's important to contain Russia and that's important from security point of view but that's important also from economic point of view second what was already said one of the channels how economic crisis is affecting as a you and indeed other countries is high energy prices and there in case of EU well we have a dependency on Russian fossil fuels and we need to get rid of this dependency well we already have prohibited imports of Russian coal as part of the sanctions we are currently discussing oil embargo but I would say sanctions or not we anyway need to move fast away from Russian fossil fuels and for this European Commission has presented a plan a repower EU plan which outlines how to deal with this if we go beyond specifically Russian fossil fuels we see that in any case fossil fuel prices are high globally so it makes sense for us to move faster on the goals of the European Green Deal facing out fossil fuel so together moving to renewables investing more in energy efficiency in other measures which actually reduce our dependence on fossil fuels and volatility of prices of fossil fuels so part of our strategy repower EU strategy is to accelerate this roll out of renewables and accelerate the rollout of European Green Deal in between obviously we need to mitigate the negative consequences and then Prime Minister Plank which other colleagues will be spoke how it's done well from the EU side that's why we provide EU member states with flux flexibility both concerning EU fiscal and state aid rules so that EU member states how this room of maneuver to respond to the crisis and to support vulnerable households to support companies there however I wanted to sound a note of caution already now we see that budget deficits and debt levels are elevated in EU member states debt interest rates are gradually growing so this era of very easy money seems to be coming to the end so also there will need to strike the right balance so when you look at the scale of the problem Kristalina you know you just signed a forty four billion dollar package for Argentina to a little Argentina and you think about the global food crisis that is being precipitated by this the war and really by as you say Russia's aggression and then Russia's blockading of the Black Sea and of Odessa you're going to have crises in Pakistan in Egypt and you know in all these places you're going to have hunger and poverty and migration then there's the cost of rebuilding Ukraine which is being destroyed on a scale that we have not seen since the Second World War whole cities are literally being destroyed I mean you're going to need hundreds and hundreds of billions of dollars and as I guess a question that people often ask the IMF but it really feels do you really have that kind of money well to put everybody here as it is we have deployed about 300 billion out of our 1 trillion dollars war chest we still have 700 billion there but we did something very important last year and that was to issue a new allocation of special drawing rights 650 billion dollars for Ukraine for example that meant a 2.7 billion dollars injection that does not add to that because special drawing rights are this magic thing when we use the strength of all our 190 members to put forward reserves that is at no cost to anyone but we did one more thing and it matters in this crisis we turn to our members some are here that are with strong position and we said you're getting these reserves but do you really need it why don't you lend through us to those who really need it at least a part of those and we got so far over 60 billion dollars of which 40 billion we put in a very special thing to help address climate change called resilient and sustainability trust and I'm using this audience to say hey talk to your if you are from a rich country not necessarily only advanced economy maybe emerging market economy in strong position ask your parliament and government to do more to reinforce the fighting power of an institution like the IMF and we will need it we are faced with a very heterogeneous world one of the huge implications of this dual crisis is a growing and very dangerous divergence between those who have the capacity to deal with problems and those who don't for it for three decades we have been converging poorer countries catching up with the better offs this is now gone we are diverging and when you look at the economic situation of countries it is so different in terms of their growth prospects inflation burden that burden where they're headed what changes prospects one how strong you are to begin with like you know with the COVID if you have a strong immune system you do fine if you are weak you're vulnerable to how close you are to the epicenter of the Ukrainian war the closer you are if you're Moldova if you are a country right there you're at high risk three how much an impact this increasing in fuel prices and especially in food prices has on your Europe there is more vulnerable because it is more dependent but think if you are in Africa or in if you are Egypt or Lebanon or any of the subsequent African countries your poor people spent before this shocks 40% on food prices of food double and triple that virtually means people go to bed hungry and a family is not out of question so not only we need to step up but we need grants to tackle some of the vulnerabilities of the poorest countries and this is where the SDR so good because they are not adding to to to death is it possible for the world to stand up to these challenges yeah we produce more food than we collectively can consume are we doing it and the set answer is no but we must yeah I think the food crisis is one that really would there is a way to achieve a certain kind of collective action create a humanitarian corridor move ships out of out of Odessa and feed the world I mean that would be the the argument Christina is right ray that that the IMF has this magic capacity most countries do not and what we are seeing is very high debt burdens I'm sure you remember in your days as an investor the moment when Japan hit debt to GDP ratio of 75% which was then the highest of any country in the advanced industrial world and everyone said oh my god this is you know this is crazy numbers are now this seems to be the low end of the of the norm what is going to happen to all this debt I think it's so really simple and also if we look at history so there's a mechanical there's money money has is now fiat money so you can produce money and credit so naturally everyone is in a position that they needed more money where do they get the money from if there was limited money they'd have to get it from someplace else but what they do is produce money so central banks produce money where's the money come from you could have it from taxes and take it from somewhere else but that's difficult because people want to hold on to it they don't want to give it up but nobody asks where do we get the do we have enough money so but we need more money everybody agrees we need more money to spend but if there was a limited amount of money we would say where do we get it from and we'd have constraints but we're not like that so what happens is naturally you're in the positions that you need more money and so the central banks print more money and then through all of this credit everybody says we need more money we got more money but then we devalue money it becomes less valuable and surprise we get inflation okay shouldn't be a surprise so when we are looking at the circumstances we're now in a new era you know we wish that there's coordination we've lived in an era where we were global and the way resources were allocated was where was it more cost efficient so if it was cost efficient here you'd send the capital you'd build it there and that would raise employment and so on and that's what we've come to believe is a is a fair system but that's only because we've gotten used to that but if you go back and look at history and today many people would believe that's not a fair system so here we are in the fragmented world that we're in and so the resource allocation system is no longer economic the resource allocation is political and ideological so when we ask ourselves and we wish for cooperation it's understandable that we won't get cooperation because there is a risk there is conflicts there's an internal conflict of civil war so how do we distribute the wealth within our country so we'll have it within the country well there's a hell of a fight over that right and so there's the willingness to fight over that and then the same is true internationally so what is you know America first or what is that in terms of that and so I think we have to understand we have to keep in mind that when we say we're going to cooperate or should in a world where self-sufficiency because we could go to war becomes important the efficiencies are no longer the most important things survival is the most important things the possibility of a war is important thing and it changes behaviors in ways that are logical but maybe undesirable for those of us who are in a perspective that we believe that we should be in this together and how do we work together so I think it's all understandable okay so that depreciates the value of money we are going to have more conflict we're going to have more inflation inflation causes domestic political conflict so it'll be a big issue in the 2022 elections in the 2024 elections that's just how the machine works and in the meantime we have and the war in the Ukraine and Russia and with China is a is understandable in terms of a big you know the big powers conflicts and so we see the world if you read history and you see this happen over and over again you see the world is now breaking up into sides it's like their allied powers and their access powers and their neutral powers and those ideologies become the dominant consideration so it's entirely possible for example that we could see in and in China and so on that it's no longer desirable or politically acceptable to do business in China and it may may not be now you think about how intertwined the world economy is 22% of American manufactured goods imports come from China so not just imagine the implications for inflation and the inefficiencies that's just mechanistically what's going on so as a mechanic who was looking at next year in the year after and where we are in that thing I'm just saying it's it's undesirable and the unimaginable is becoming increasingly probable all right we're going to open it up to two questions ma'am in the front there if you can tell us who you are and you know just if I may say the question can be a question and not a statement that would be wonderful I have a question for Ray looking at historical precedent what do you think the likelihood of a civil war in the United States is I think that I'll first define that civil war I think that it's reasonably probable that no side will accept losing and now what is that probability I don't know you could maybe it's 50% maybe it's even more than that I don't know that I think it's probable or there's uncomfortably high probability that directions from the central government rule of law in constitution won't be won't may not be followed Supreme Court rulings may not be followed because individual states say that I'm not going to do that it's like sanctuary cities they say I will not follow I think what's happening now is that there is a movement from one state to another with due to changing values and changing that's producing a hollowing out in some states and when that happens because the rich move someplace or the ideologies are the same it produces a hollowing out in other locations you're seeing that in New York and Chicago San Francisco and other places that exacerbates the gap it exacerbates not only the wealth gap but it exacerbates the ideological gap and then when you get to that rule of law and respect and compromise don't exist then you deal with power and it becomes a power decision and I think we're seeing this or more like Disney's issue with the state of Florida you know in a in the world mostly that I grew up in it would be that there would respect different views and you respect it it becomes a power thing state of connect a state of Texas might not have city bank of issue the bonds and so on and it becomes more and more of that kind of conflict so it becomes a power thing I think that's developing in that kind of a movement in that direction that's a very scary thing because when you don't have rule of law or you start to have fighting it's a different world I think you you there are signs of that and history is shown history is shown through times that when there are these populism of left and populism of the right a populist is an individual who will fight for you and so for each of the sides and when they say I'm going to fight for you they want fight to win and there's no compromise and so when you have that there's history shows us that there's a loss of the middle you can't be in the middle you have to pick a side and fight on that side so you could see in the French Revolution and Russian Revolution and Cuban and the Chinese and so many others they lose the middle because you have to pick aside and the way it's resolved is that there's a conflict of war and who has the power so I think that these things are emerging all right can we get somebody else have a question thank you let me ask the commissioner do you think that the Europeans can enact another round of sanctions that will really be tough enough given the gaping loophole of oil and natural gas Putin is getting 350 billion dollars of oil and natural gas revenues what can you do if you're going to keep that exception surely everything else becomes a little bit of window dressing well that's exactly the problem if you look at the trade structure between EU and Russia so pre-war 62% of Russia's imports were hydrocarbons so we already have prohibited import of Russian coal part of the and I would say central part of the six sanctions package is oil embargo member states are currently discussing hopefully it's possible to arrive at the conclusion on this because indeed otherwise there is this problem that with one hand we are providing massive support to Ukraine with other hand we are paying a Putin for its war so clearly we need to address it but as I said already before sanctions or not strategic decision to move away from Russian hydrocarbons is already taken and we already working on this and we also outlined plans for example how already this year we can reduce our dependence from Russian natural gas by two thirds by diversifying the supplies and faster rolling out some other measures Prime Minister you have any thoughts on this I think that the idea to gradually phase out from the Russian-based fossil fuels is a far-reaching political move I think that we have all witnessed that the Russia's aggression on Ukraine has made the European Union NATO more unified more solid more coherent even appealing to for countries to join faster you see interest of some for the EU and interest for some some others on the NATO side because of the collective security of the article 5 my firm belief is that the actual topic of this decade is energy 99.5% of everything that any of us of humanity does around the world comes from some sort of energy source and what we are witnessing now in the context of all the crisis everything we have mentioned that we need to substitute the supply chain of different energy sources which have held their usual pipelines for decades and what we have done as a as a country who is happy to have the Adriatic Sea we were a little bit farsighted last year and we opened an LNG terminal at the island of Kirk which has in terms of supply of gas altered our entire margin margin of maneuver in this context not only for ourselves but also for central Europe I have the impression that specific situation of some countries and some are fully dependent on Russian gas some of them very much an oil is an element that requires time for the alternative supply chains to be fully in function the whole grid and fully functional but we should not take out from the equation the element of price this is the key of this game now and we are of course supportive as a country and this is this is our line all along and I have to conclude that we are facing a very polarized world not only authoritarian regimes against democracies but also huge polarization within democratic societies and this has been exacerbated by internet who was originally conceived to bring to global citizens the best of humanity knowledge for free in an unregulated world it sometimes from an individual takes out the worst and this is the issue we will have to address with education with very intelligent and dedicated way to avoid the negative sides of global connectedness where anybody can say anything on anyone including the organized harassment including the misinformation thus creating a new generation of young people who are I would say lacking filters and are prone to manipulation this I see as a general threat to our societies in an altered world that we have entered now I want to ask you Christina to close on that on that theme which is you're somebody who came out of the iron curtain out of a you saw this new birth of freedom for your country for yourself do you worry that we are moving backwards that we are moving towards illiberalism protectionism fragmentation yes I do what we face are very very starking different pathways ahead of us one in which we manage to stick together as a world and then we have a chance for the better standards to be seen by all and desired by all as we did on the other side of the iron curtain or a world in which we close ranks within our little bubble and as a result two things happen we are poorer just technological decoupling would cost us five percent of GDP at least and we bring down the standard of liberty and freedom for hundreds of millions of people we should be very careful which pathway we choose also because we have a looming climate crisis that we cannot possibly resolve one block at a time so my plea is for us to think of these choices as companies as countries as organizations very carefully because the unintended consequences can be quite green you tell us we are we are done we are on the pathway of separation I'm an optimist I don't know yeah okay I don't mean to interact no please do no I think it's all on how we are with each other we have the highest amount of GDP we have the greatest longevity we have technologies the ability to be productive and so on no I agree with you I think you're at a juncture and the juncture is how we are with each other it's that's totally comes down to how we are with each other so we have a choice I think you're in a sense saying the same thing there are structural pressures and you're saying but there is still room for human action well what I'm trying to say they're not short-term pressures they're big you need a restructuring but you need a in a sense a total restructuring and a dealing with that of the debt and the social and so on so the capacity exists within us to work well together it does exist the probability of us the probability of us working well together for the common good and working that out is low that's all I'm saying but we have the power to do it we need you we need you for it we need the media to amplify the voices of reason and also the fact that majority of people are good maybe not perfect but good there is this minority that are hateful and evil but it is their voices that dominate today so please amplify this voice of reason and goodness and care for our future thank you all this is a great honor thank you