What role should the state play in this environment?

The state stepped in in times of need. Now it should gradually withdraw where private investment activity is taking hold again. State bridging is no longer needed to the same extent.

Private finances have recovered after many years of saving. That creates the conditions for a new long-term growth cycle. In Washington, this changed starting point does not seem to have fully sunk in yet. But the surveys show that concern about the budget deficit is once again a relevant factor for the population.

What does that mean for monetary policy?

The private investment engine is once again responding to financing costs. With high mortgage rates, for example, the US housing market is being held back. If those rates fall significantly, private demand can quickly pick up again.

"Europe does not simply need to produce the next Meta or Alphabet."

At the same time, the state, AI, defense, and infrastructure are competing for capital. That is why the idea that interest rates now have to fall very sharply right away is too simple. We are in a different environment than during the period when central banks cut rates and the private sector nevertheless hardly reacted.

The US is setting the pace in technology. Has Europe fallen behind?

Europe has fallen behind in important technological developments. At the same time, its existing export model is under pressure. The cheap supply of raw materials disappeared with the war in Ukraine. In addition, Chinese economic policy is weighing on Europe: China is trying to export its way out of its difficulties.

Europe therefore needs to find itself more strongly. An economy of around 450 million people should in principle be able to support itself more. The decisive factor is the will to reform.

What makes you confident that things will move this time?

The pressure is great. That is also what distinguishes this from the euro crisis. Back then, it was mainly the countries on the periphery that were in focus. Today, Germany and France, the two driving forces of the European project, are both in considerable difficulty.

That creates a window for reform. Geopolitical challenges and willingness to invest can help trigger change. But this window will not remain open indefinitely.

Where does Europe have strengths?

Europe does not simply need to produce the next Meta or Alphabet. In industry, it still has leading products, for example in aviation. There are also major ambitions in space.

Then there are the unfinished European projects. A more integrated services market or progress on the banking union could make a big difference. There are a number of levers to make better use of existing potential.

Does that require the approval of all EU member states?

Not necessarily for every step. The discussion about a two-speed Europe shows that integration could also be advanced more quickly with a group of countries.

There are ways to overcome institutional blockages. The key question is whether Germany and France move forward together.

There is a very pessimistic tone especially around Germany. Do you share that assessment?

The perception is in some cases so negative that it is hardly possible to talk about Germany with German clients anymore. At the same time, the data do not consistently paint such a bad picture. Admittedly, the reform backlog is large.

Cyclically, for example, a lower oil price would act like a tax cut for the European economy. Such relief should not be underestimated. The question is whether that can develop into something sustainable.

Are state spending programs enough for that?

It is not enough simply to open the purse strings. If one looks only at state-funded stimulus, the development is not sustainable.

But there can be second- and third-round effects: an initial impulse can trigger new technologies and activities on which further developments build. That can create a self-sustaining momentum. However, that also requires additional reforms. At the moment, not enough has been done.

Germany is showing initial signs of recovery. France seems far from that. How do you assess the situation?

France used low interest rates to finance itself over the long term. That gives the country some room to maneuver. Even so, it is a dance on the volcano, and bond markets are already reacting impatiently.

Behind that lies a fundamental problem that also affects other Western countries: promises have been made on social benefits and pensions. France is not alone in this.

The next presidential elections could bring new momentum and also open up new possibilities for the European project. The decisive question will be whether Germany and France, as its driving forces, move forward together.

Do you also expect progress on joint European financing?

I believe that joint borrowing and centralized financing will gain importance in the long term. Some problems can hardly be solved otherwise in the long run.

An Eurobond is politically contentious. Even so, I assume that it will come eventually.

What role can technology and defense investments play?

A technology fund, like the one Mario Draghi calls for, can get things moving. The modern defense industry in particular offers corresponding opportunities with technologies that can be used both militarily and civilianly.

"With MiFID, private engagement was restricted, and now people complain about a lack of investment willingness."

In Europe's current situation, it is right for the state to act as a player - quite unlike in the US. European policy must act countercyclically. However, the infrastructure and defense stimulus must now be followed by institutional changes.

Europe has substantial savings. Why is too little of it being invested?

There is a certain irony in that. With MiFID and other regulations, private engagement has been restricted, and now people complain about a lack of investment willingness.

There is a large pool of savings. This capital would need to be mobilized more strongly for investment in Europe. With reforms at the European level, there are ways to make that easier. At the very least, additional regulation should not be allowed to deepen the paralysis further.

Let us turn to Switzerland. How do you assess its starting point?

Switzerland follows a niche strategy. The limits of this model have become much more visible recently. However, such difficulties are nothing new; Switzerland has repeatedly had to overcome them in different forms.

"From the Swiss niche perspective, it has always been worthwhile to renew oneself."

First and foremost, it is about redefining the political parameters with the country's biggest partner, Europe. This does not show up directly in a single growth figure. But it can influence the willingness to invest in the background.

Where do you see the biggest economic challenges?

The strong franc is driving a tough structural transformation. Switzerland now has a heavy concentration in just a few pillars with pharmaceuticals and chemicals. That is a challenge if something goes wrong there.

From the Swiss niche perspective, it has always been worthwhile to renew oneself. If Europe does its homework and thereby becomes economically stronger, that could also ease some of the pressure on the franc and give Switzerland a breather.

What prospects does the Swiss financial center have?

First, one has to wait for the solution around UBS. It is such a large player that the future of the Swiss financial industry can hardly be viewed without it.

In principle, however, there is still strong demand for Swiss financial services as well as for the stability of the currency and the financial center. That is good news.

At the same time, banks are also facing the question of how strongly AI will change their business. This technological uncertainty affects the industry worldwide.

What would a rejection of the new agreements with the EU mean?

The immediate consequences are difficult to estimate. These are tectonic shifts that occur very slowly and whose effects are not easy to observe.

Many companies are likely to appreciate clear conditions, however. It is also possible to invest under difficult circumstances. But a clear direction would make planning easier.

Is Switzerland also suffering from a reform backlog?

I do not see the Swiss political system as particularly stuck. Through direct democracy, the population strongly determines which issues need to be addressed.

Europe, migration, or congestion pressures come onto the political agenda through concrete proposals. That leads to repeated adjustments. The system allows corrections, even if the big leap remains difficult. If Switzerland manages to settle its relationship with Europe reasonably well, much will already have been achieved.

Does adaptability therefore remain a central strength of Switzerland?

Yes. However, adaptation rarely happens voluntarily. Economically, Switzerland has only limited bargaining power and must adjust to changed conditions.

That can be painful. As a capital goods analyst, I experienced how even very efficient companies relocated jobs and activities abroad. In retrospect, some of those steps turned out to be forward-looking. For those affected, such changes still hurt.

Christian Gattiker is Global Head of Research and Chief Strategist Switzerland at Julius Baer.