U.K. treasury chief urges U.S.-Europe unity after France calls for break

He signaled that the U.K. isn’t interested in breaking with the U.S. on geopolitics — days after French President Emmanuel Macron called for Europe to bolster its autonomy from Washington. He also said he doesn’t plan to get into a subsidy war with the U.S. in response to President Joe Biden’s Inflation Reduction Act, which is rattling Europe with incentives for green energy companies to operate in the States. He also defended the U.K.‘s decision to waive a core banking regulation to let HSBC acquire the U.K. business of Silicon Valley Bank after the California-based lender failed last month.

On divergent global economic forecasts, with the IMF seeing “anemic” growth and U.S. Treasury Secretary Janet Yellen pushing an outlook that’s “reasonably bright.”

We are in a much stronger position than we thought we would be in the autumn. And I would say that I’m not the only finance minister who is a bit more optimistic than the IMF.

It’s a cautious optimism. That’s probably the mood I would describe it as. I think people have seen banking turbulence in Switzerland and California. There’s obviously high inflation … and that’s a destabilizing factor.

So I think there is caution alongside the optimism, but I think that most people think that this is a set of challenges that the world economy can weather.

On whether Britain set a bad precedent by waiving rules designed to separate retail and investment banking when it permitted HSBC to buy the U.K. operations of Silicon Valley Bank.

In any situation like the one that the United States authorities faced with the parent branch [of SVB] or Swiss authorities faced with Credit Suisse, you have to show some flexibility at the margins without compromising core principles.

And in this case, the ring-fencing waiver was actually a very, very small thing in the grander scheme of the ring-fencing protections that we have in the U.K.

We’re not going to do anything to unlearn the lessons of 2008.

On the stability of the U.K. banking industry, after rising interest rates triggered the downfall of SVB.

Are there lessons that we can learn from seeing the speed at which that issue happened? Of course there are.

But do I think the U.K. banking system can withstand a period of higher interest rates? Yes, I think it can.

On whether he agrees with former U.K. Prime Minister Liz Truss that Britain should take a harder line with China and the suggestion that Macron was weak for visiting Beijing to help resolve the Ukraine conflict.

We are all talking in the finance minister world about making sure that we don’t have [economic] dependencies in key areas.

My message to my colleagues is, there’s two ways we can do this.

We can either revert into saying we’re all going to try and solve this by ourselves, which is essentially protectionism, which will mean that the world will go back to the Dark Ages when we didn’t have free trade, or we can try and resolve this issue together, which actually is a more resilient solution because there will be more options. It’ll be cheaper, we’ll get there more quickly.

Of course, we need to make sure when it comes to China, that we don’t have dependencies when it comes to key technologies. And that work is continuing apace.

You can say things out of office that you can’t necessarily say in office. But I would say that if you’re saying is there a big difference between my approach and [French finance minister] Bruno Le Maire’s approach when it comes to making sure that we have economic resilience, that we are de-risking supply chains, I don’t think there is a big difference.

I think we both recognize that we need to learn lessons from what happened in Ukraine.

On Macron’s idea that Europe needs to band together and break away from U.S. leadership.

Ukraine stands free and independent today because of leadership by the United States.

And I would say also, that contrary to what Putin wanted, there has been complete unity in Europe, standing foursquare behind the Ukrainians.

That says to me one very simple thing: That when Europe and the United States stand together, we can successfully defend democracy and freedom around the world.

And that to me is not just the big lesson of the last year, but it’s actually the big lesson of the last 100 years as well.

I see the need for Europe to invest more in its own defense. I don’t think it’s sustainable in the long run for Europe to say that we’re going to depend on American taxpayers to fund a third to a half of our defense needs in Europe. Absolutely not.

And so we need to contribute more to our own defense. But we need to do so in a way that is working hand in glove with other countries that share our democratic values — and the leading one of those is the United States.

On the extent to which the U.K.’s response to the Inflation Reduction Act will amount to more subsidies for green industries.

Although we have concerns about elements of the Inflation Reduction Act ending up being protectionist, which we think would be a bad thing for the United States and for the rest of the world, we don’t think of it as a bad thing.

We think that the world is more likely to get to net zero [greenhouse gas emissions] because of the Inflation Reduction Act because it’s going to provoke a huge amount of additional investment in clean energy.

And we think the world, not just the United States, will get to net zero more cheaply as a result of the Inflation Reduction Act because of the technology advances that will happen, which will end up going well beyond the shores of the U.S.

We’re not going to get involved in a subsidy race. But we will have a comprehensive response to the Inflation Reduction Act.

We’ve waited because we wanted to see what the EU response was going to be. We think we’ve got an idea of what that’s going to be. And I’ve committed to coming forward with the U.K. response in my autumn statement later on in the year.