This is an audio transcript of the FT News Briefing podcast episode: ‘Defending Europe without the US’
Marc Filippino
Good morning from the Financial Times. Today is Friday, February 21st, and this is your FT News Briefing. EU debt markets could be in for a shake-up and Walmart is dusting the dirt off its shoulder. Plus, Donald Trump doesn’t want to be responsible for defending Europe, and that’s forced the EU to move quickly.
John Paul Rathbone
The alarm bell’s gone off several times and the snooze button has been pressed, but that’s no longer an option.
Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.
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Investors want the European Union to revamp rules around debt securitisation. Just a quick refresher: debt securitisation is when things like risky corporate loans or mortgages are packed up into one chunk that banks then sell off to investors. These kinds of securities are now heavily regulated because of their key role in the global 2008 financial crisis. But bond giant Pimco and Italian insurer Generali told the EU that those safeguards are now strangling the market. They’re hoping that reforms would kick-start sectors in the EU and UK. For what it’s worth, Brussels is investigating ways to revive the debt market, the idea being that a thriving market could attract more financing for businesses and households.
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About a decade ago, Walmart was staring down a big threat to its dominance. Amazon overtook its market capitalisation and made its big box stores look outdated. But now Walmart has come roaring back. Here to tell us how Walmart did it. As the FT’s consumer editor, Greg Meyer. Hi, Greg.
Gregory Meyer
Hi, Marc.
Marc Filippino
All right. So give us a sense of scale. Just how big has Walmart’s glow-up been since it hit a low point a few years ago?
Gregory Meyer
Well, Walmart has been the world’s largest retailer for a long time now. But about a decade ago, it was facing a very serious threat from Amazon. Amazon overtook it in market capitalisation in 2015. Amazon bought Whole Foods in 2017, which added brick-and-mortar stores to its empire. And investors were beginning to question Walmart’s potential for future growth. Since then, Walmart has shown that it can survive and genuinely compete with Amazon. So yesterday Walmart reported its latest annual results and they brought in $680bn in annual revenue. That’s a new high for them. It’s by far higher sales than any other company on the planet.
Marc Filippino
So tell me a little bit about how they did it. What caused this turnaround?
Gregory Meyer
There’s a lot going on at Walmart. To start with, there are big macro factors that have been beneficial. The US and many other economies went through a major surge of inflation in the past few years, and as customers were trying to save money, many of them increasingly sought out lower cost retailers such as Walmart. In addition, Walmart has invested heavily in its ecommerce offering, which includes ordering online and then you can pick up what you ordered in store. You can get it delivered at your house. They’ve built a third-party marketplace that has other non-Walmart merchants who list their products for sale on walmart.com, similar to Amazon. That now includes more than, I think, 700mn individual products.
Marc Filippino
OK, so inflation has been good for Walmart and its focus on ecommerce has also helped it bounce back. But I’m wondering, Greg, what kind of risks does it face?
Gregory Meyer
Well, I mean, one risk, as with any company, is just execution risk that, I mean, they’re running a big, complicated company. There’s the continued competitive threat from Amazon and others. And then there are big macro risks, including tariffs as the Trump administration looks to impose tariffs on any number of US trading partners. And that could, in theory, at least, could raise prices. Another risk is just you know, Walmart is so big, it’s hard to grow a very big company, even bigger. So Walmart’s shares actually fell sharply yesterday because even as it reported record sales, it offered a more cautious sales outlook for this year. I mean, I think executives are saying they’re really being prudent, but it may not be able to grow at the same pace that Wall Street has been accustomed to in recent months.
Marc Filippino
That’s the FT’s Greg Meyer. Thanks so much, Greg.
Gregory Meyer
Thank you.
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Marc Filippino
Alibaba has some wind in its sales. Yesterday, the Chinese ecommerce giant reported earnings. The company saw an 8 per cent rise in revenues last quarter. That’s its fastest revenue growth in over a year. Investors sent the stock price up as much as 12.5 per cent after the news dropped. And Alibaba’s CEO Eddie Wu has a plan for all this momentum. He wants to aggressively invest in more cloud and AI infrastructure. In fact, Wu said Alibaba will spend more on those things over the next three years than it had over the past decade. But he declined to say exactly how much Alibaba wants to invest.
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This week has been dominated by talks to end the war in Ukraine, and President Donald Trump has been clear he wants the US to pull back its military presence in Europe, which means the continent will have to fend for itself. The FT’s John Paul Rathbone has been thinking about how the EU will do that. And he’s here with me now to talk about it. Hi JP.
John Paul Rathbone
Hi, Marc.
Marc Filippino
So I guess the first thing we should know is how much of a military presence does the US have in Europe right now? What would Europe be missing without the US?
John Paul Rathbone
I think the best way to look at it is what kind of military presence the US has in Europe. And the bit that counts are the stuff that makes military operations possible. That includes intelligence, satellite technology, giant transport of planes, planes that can do mid-air refuelling, that kind of stuff. There are also roughly 90,000 troops stationed across Europe; 20,000 of them were brought in by Biden immediately after the full-scale invasion of Ukraine. The main issue is that the US is still essentially the arsenal of democracy. It has these production lines which were never mothballed in the same way they were in Europe after the fall of the Berlin Wall. You can’t push a button when there’s nothing at the other end of it, and for it to magically appear.
Marc Filippino
OK. So then what can Europe do to get prepared?
John Paul Rathbone
So it’s wrong to think of Europe as entirely defenceless. It’s not. And, you know, Europe was involved in missions in Afghanistan and Iraq and is still involved in missions in Bosnia and so on and so forth. So if the main problems are one, equipment, you can’t press a button magically, so that means you can buy it from the United States instead. Second point on personnel. There are over well over a million troops full time in Europe. The problem is they’re not always ready. They’re in various states of readiness. And that’s true of all armies everywhere. But they need to be made more ready. And for that they need ammunition. So that takes you back to the equipment point.
Marc Filippino
OK. So how does Europe square both points? I mean, how concerned should European countries be about their defence capabilities?
John Paul Rathbone
I think there’s a lot of talk at the moment is figuring out, A, how can Europe support Ukraine? And there are lots of plans that are being detailed about that. And B, what does that mean for the defence of Europe per se? And the two things are quite distinct and there’s no reason to think that Nato countries in Europe are unprotected because there’s still, you know, air power. We haven’t seen any role played by western air power in the conflict in Ukraine, and that is one area where the west has got a distinctive and complete advantage over the Russians. So if there was an attack on Europe, you’d have air power coming into play, which we haven’t seen so far.
Marc Filippino
So, JP, we’ve been talking about what Europe needs to do to defend itself, but will it actually do it?
John Paul Rathbone
Well, the European approach or the western approach, until now you could categorise it as peace through strength, but terms and conditions apply. And those terms and conditions applied include US backing. So it’s now peace through strength, but under terms and conditions that are no longer applicable. And it comes down to what’s feasible. Earlier this week, you saw Denmark all of a sudden ramp up its projected defence spending to 3 per cent. And that’s what Mark Rutte of the secretary-general of Nato said that everyone needs to do. I think a lot of Europe, and especially the countries that have any kind of proximity to a Russian border, are waking up very fast. The alarm bell’s gone off several times and the snooze button has been pressed, but that’s no longer an option. And this kind of freeriding that a lot of Europe has done for a long time is no longer possible. It’s worth bearing in mind that Trump is not the first president to complain about European free-ridings. JF Kennedy did it. Even Eisenhower did it, and he was the one who was sort of partly responsible for setting up Nato. So this is not a new situation, but it is definitely a very big wake-up call.
Marc Filippino
John Paul Rathbone is the FT’s security and defence correspondent. Thanks so much, JP.
John Paul Rathbone
Thank you.
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Marc Filippino
Before we go, don’t forget you can get 40 per cent off on annual digital subscription to the FT right now. Just go to FT.com/briefingsale. That’s FT.com/briefingsale. We’ll have a link to that in the show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon, Lulu Smyth, Ethan Plotkin, Kasia Broussalian and me, Marc Filippino. Our engineer is Joseph Salcedo. We had help this week from Josh Gabert-Doyon, Pesis Love, Michela Tindera, David Da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.
