Islands in the scheme: a Britain-EU deal

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The Economist.

Hello and welcome to the Intelligence from the Economist. I'm Rosie Blore.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

We talk a lot about millennials, Gen Z, even baby boomers. But one cohort that gets less of a look in is Generation X, those born between 1965 and 1980. And apparently they're having a tough time of it.

And Nvidia had a very lucky break. It did great work in graphics cards for video games, which turned out to be really good at doing AI. But its latest generation of cards aimed specifically at gamers. Not their finest work, But first, After a nasty breakup, it takes a long time before you can sit down and have a productive conversation with your ex. In Britain's case, five years.

This is the first UK EU summit.

It marks a new era in our relationship.

The heads of the European Commission and the European Council joined Prime Minister Sir Keir Starmer in London yesterday for what was billed as a reset. The resulting deal covers all kinds of ground high level defense cooperation and whether Brits can use electronic passport gates in the euro. Predictably, those with Brexit regrets welcomed closer ties and clearer terms. And the Brexit faithful accused the government of betraying the country. The whole question of EU relations can still stir spirits, but Britain's had better get used to confronting it.

It's an important deal. It's a major landmark in relations between Britain and the eu, much damaged by Brexit, but now perhaps on a new trajectory.

Daniel Franklin is our executive editor and senior editor for Britain.

It's the beginning of a very long process, perhaps almost a never ending process of negotiations.

And let's start with the defence end of things, which is I suppose, front of mind on both sides. What exactly was agreed?

So defense, you have to remember the context that the security situation in Europe is shaped by Russia's invasion of Ukraine, America's coolness towards NATO under Donald Trump and demands that Europe spend more on defence. So that's a major imperative. The EU and Britain have agreed that in principle, Britain can take part in the 150 billion euro defence fund that the European Union is setting up. Britain will have to make some contributions to that and the details need to be sorted out. But it makes no sense for such an important defence player as Britain to be excluded from the European effort at building up up a more credible defence capability, given the threats that Europe now faces.

And apart from the defence parts of the deal, what else is in there?

Well, there's a whole range of agreements that try to smooth the rougher edges of Brexit on trade, so particularly aligning food standards, which will allow easier trade in food and fish products with the eu. Reducing intrusive border checks between Britain and Northern Ireland. There's also on both sides, an agreement to link carbon adjustment methods and work towards joint electricity markets, market. And on the more consumer end of things, they're going to work towards a youth mobility agreement so that young people can move more easily and to study work across borders and something that will mean a lot more for ordinary travelers. Britons will be allowed to use border E gates at most EU airports to make travel smoother. And all these things together means that some of the rougher edges of very hard Brexit that we have will be smoothed over. The most contentious issue is on fisheries, and that is where the loudest opposition back in Britain is coming.

What do you mean by that? What are the critics of the deal saying on fisheries?

So what they've agreed is that the existing agreement on fisheries, the post Brexit agreement, is rolled over for 12 years and that gives EU countries, in particular, this matters to France, access to British waters. And the fisheries industry in Britain dislikes this. Kemi Badenoch, the leader of the opposition, in an interview with the times and Reform UK's Richard Tice on GB News, grumbled mostly about the fisheries deal. I am gobsmacked that Keir Starmer has signed this deal.

This is a sellout, certainly on fishing.

We want to get back proper control of our fishing waters. But it seems that Keir Starmer is just happy to sacrifice that on the altar of trying to cozy up to the bungling bureaucrats in Brussels. And there are complaints about other things as well. In particular, that Britain is choosing to align itself with EU rules that it has no say in drawing up. And also that the youth mobility scheme will mean More immigration, that's a particularly sensitive topic. And both the Tories and Reform have vowed that they'll get rid of these if they get into power.

And so what's your take on that notion that these negotiations in particular are some kind of betrayal of Brexit?

Well, that of course makes sense politically for Reform and Conservatives to complain loudly about that. It's pretty inevitable that they would and the elements of the tabloid press would echo that very loudly. But in fact it's really nonsense because what we have now, even after this deal is still what would have been called, when the Brexit negotiations were happening, a very hard Brexit. The so called red lines that Keir Starmer put in place. No rejoining of the Customs Union, no rejoining of the single market, those remain firmly in place even under a Labour government with a thumping majority. So in a sense this is actually a reaffirmation of a rather hard form of Brexit, albeit with its rougher edges shaved off. And you could see that actually as a triumph for the Brexit campaigners for a hard Brexit. This ensures that it continues to exist for many years to come.

We've talked a lot about the sort of economic effects of Brexit on the show before, during and since. How much real effect on the economy either side do you think this deal will have?

It can't undo the damage of Brexit, which has been considerable estimate of perhaps 4% of GDP that it's cost, but it does nibble away at that. And at a time when besides defence economic growth is a really major priority, finding various ways of boosting the British economy, this all helps. It's in the right direction.

And about those red lines that Sir Keir Starmer has respected about the Customs Union, about the single market, are those set in stone? Is he sensible to keep those red lines where they are?

Many people would have argued that that was a foolish commitment to make and an unnecessary one, that he would have won the election anyway and that in particular the Customs Union, Britain could rejoin and it might actually be broadly popular. Overall support for Brexit has dwindled since Britain actually left the EU. 55% of people also now say they think it was wrong for Britain to leave. Only 30% think it was right. So there is some political leeway for going further and faster in relations with the eu. But as we've seen from the reaction, it's treacherous territory. And I think Sikhir Starmer is very nervous about how momentum can build up among the more nationalistic voices in the British political spectrum, and he wants to keep that under control. I think he's struck a pretty good balance with this deal.

But you hinted earlier that this is probably just the start of something longer. It's just a matter of being patient, Softly, softly. Doing the political calculations along the way.

Absolutely. I mean, this deal paves the way for further negotiations on things like the Youth Mobility Scheme, possibly on other areas of industry beyond farming and electricity. Overall, this is just how it works with relations with the eu, countries that are close to it. If you look at countries like Norway and in particular Switzerland, it's been negotiating deals for 30 years and it's got a new one just now that's waiting still to be approved. So this is what I think Britain can look forward to outside the EU as a constant process of negotiating, trying to get closer. And the EU isn't a stationary target. It's developing, evolving the whole time. So welcome to the new world of British EU relations.

Daniel, thanks very much for your time. My pleasure.

Thanks, Jason.

Generation X. The term was popularized in a 1991.

Novel by Douglas Copeland, Generation X, or the X Generation. It is, I suppose you call it.

A splinter generation from the baby boom at large.

It was supposed to be the generation that worked hard, played hard, and thought it could have it all. But look closer and it may end up being the real loser generation.

Generation X describes people who are born between roughly 1965 and 1980.

Callum Williams is our senior economics writer.

What I've noticed is that every generation seems to think that they are the cursed generation. So, for example, Gen Z will say, our childhood has been ruined by social media and smartphones. Millennials will say, we can't buy a house. Baby boomers will say, our retirement is very uncertain. But what I've discovered is that really, the true losers in the generational war are Generation X.

Tell me what it is that makes Generation X really so unusual.

So one thing that's unusual about Generation X is that no one is really that interested in them. So if you look, for example, at the number of books that have been written about Generation X, or even things like the number of times that people search for Generation X online compared with, say, searching for baby boomers, they're just much less popular, basically. They're also much less likely than any other generation to know that they are themselves part of Generation X. And so there's this weird thing where they've kind of vanished from public consciousness.

So why should we be thinking about them?

Gen X are at a tricky age at the moment, there's this theory called the U bend of life theory, which actually has quite a lot of academic support. And basically what this says is that you're pretty happy when you're young and you're pretty happy when you're old, but you're pretty miserable when you're in middle age. So there was a recent poll by Ipsos which found that roughly a third of Gen Xers are either not very happy or not happy at all. Now the question is, why does this happen? There's a few reasons. One is that some chronic health issues begin to emerge in middle age. People come to realise that they're not going to achieve what they want to achieve in their career. And also they're at this tricky stage where often they have to look after both children and parents. So it's not surprising that people find those years to be particularly difficult.

So those are the age dependent things, but you're also talking about a slightly different cohort effect, right?

Yes. So there's age effects, which is where Gen X are right now, and then there's cohort effects, which is the people who are in Gen X are themselves cursed in some way. And that's the kind of second plank of the argument, which is that, yes, Gen X are uniquely challenged. So one way of looking at this is by looking at their incomes. One historical pattern that has endured for a long time is that the current generation earns more than the previous generation. That was true of the baby boomers. That's also true of Gen Z and of the millennials. Gen X have done better than the previous generation, the boomers, but by the smallest amount of any generation. So in that sense, their income growth has been pretty weak. Now the question is, why is that? One factor is to do with cultural preferences. There's this idea that goes around that certainly in comparison to the baby boomers, Generation X are less keen on being corporate drones. And so that might mean that they just put less effort in at work. But the other thing that's going on is that if you look at when people's earnings start to really take off, it's in their 30s and early 40s now. For generation X, this coincided with the aftermath of the financial crisis of 2008, where wage growth across the world was very, very weak. So they were hit at just the moment when they were really going to see a takeoff in their earnings.

Callum, this all sounds a bit bogus to me. I mean, it's a 25 year cohort, millions and millions of people. Is there really such A thing as Generation X or any other?

Well, this is a very good question. I think there is a lot of fluff that is written about the generations. People love to read about the generations for some reason, and there's a lot of nonsense that goes along with it. But I think there's actually a lot of pretty robust historical and economic and sociological evidence that people of a certain cohort really do think about the world in different ways. So the classic example would be if you look at people who grew up during Weimar Germany, they became much, much more averse to inflation than other Germans of different age. Or if you look at Americans who are accumulating wealth during the Great Depression, those people continued to be very skeptical of the stock market. So I think you have to be careful about how you use this generational analysis, but I think it would be wrong to throw it out entirely.

But haven't Generation X done pretty well in terms of wealth accumulation and tending to own their own homes?

Well, that's what I thought, but when I looked into the data, I discovered that that wasn't the case. So there's often two big components of someone's net wealth. One is to do with savings, so often savings that are in retirement accounts that are in the stock market. And the other is to do with if they own a home or not on the stock market. Again, Generation X had a tough time in the sense that the period during which they would be expected to accumulate most stock market wealth was a decade in which stock markets did really badly. That was the 2000s. They did particularly badly in the US actually, where the US market really underperformed the global market. But global stock markets as a whole did pretty badly, partly because of the dot com crash and partly because of the financial crisis. So they actually weren't really able to accumulate as much wealth as either previous or following generations. And the other thing about homeownership is also, if you look at the older millennials, they're actually more likely to own a home than Generation X were of the same age. And again, the long shadow of the financial crisis is to blame here because what you had in 2008-2011 was a large number of foreclosures and so on, particularly in the US and the people who got hit hardest by that were Generation X. So as a result, they've not been able to get on the housing ladder to anywhere near the same degree as the baby boomers.

So is there any hope on the horizon for Generation X? When are they going to come out of the U bend of life into the happier decades.

So the U bend will be left behind in 10 to 15 years and then it will be the millennials turn to become unhappy. So in that sense, that's optimistic. The future though, for Generation X might not be that rosy either. A lot of them are going to retire just at the point when pension systems really hit a crunch. So for example, in the US 2033 is seen by many people as the crucial date at which the Social Security trust Fund starts to run out of money. And that will be just as some Generation Xs start to retire. The other thing that's going on is that an inheritance bonanza is coming as the baby boomers die off. But what's really going to happen is that money is going to be passed not to Generation X, but to millennials and Gen Z. So I'm afraid to say that the outlook for Generation X is not that good.

Callum, thank you so much for talking to me.

Thank you, Raisie.

And if you're interested in business and finance, check out our weekly show Money Talks. You'll need to be a subscriber to listen. Search Economist Podcast plus.

The first gaming PC that I ever built with all the money I saved up from a bar job was some kind of original Pentium I can't even remember. The graphics card was a 3Dfx Voodoo Banshee, which I used to play with my friends, the original version of Corporate. So if anyone else is as old and as nerdy as me, they might know what that means. But I suspect most people won't.

Tim Cross is a senior science writer for the Economist.

Gaming and gaming companies have come a long way since then. Nvidia's new GeForce RTX 5060 graphics card is several thousand times more powerful than the first graphics card I bought. And of course, these days they aren't just used for graphics. Nvidia's become the darling of the AI sector because the chips it makes that can make video games look better also power the world's AI models. But Nvidia, which was once adored by gamers for making their games work and making them look better, its reputation's now fallen a bit, and some of those old customers are feeling a bit grumpy and unloved.

Tim not all of us are gamers, so just explain what a graphics card is.

It's a special kind of computer processor. So your computer will be powered by something called a cpu, and that has to be reasonably good at any kind of mathematical task you can give it. But if you want to Play something like a modern game which is very, very demanding. You need specialist hardware that's designed to be very good at a small and specific bit of mathematics, the sort that are to do with displaying whizzy graphics in high resolution. So the easiest way to think about it is it's a special piece of hardware that you buy and you plug into your PC and you need it to power the impressive graphics that you see in modern games.

So are gamers crossed because Nvidia's moved on to AI then?

I think that's what a lot of them worry about. We've seen several of its new cards be poorly received. So if you look online, there's a whole scene of YouTube channels and websites that review these things. And one influential YouTuber called one of Nvidia's recent cards a piece of crap. Others have complained about overstated performance, they've complained about price. A lot of the most recent gaming cards have been in short supply and Nvidia will set a recommended price. But that really doesn't bear any relation these days to what you actually pay for one. So just to give an example, the 5060 is designed to replace something called the 4060. The 4060 has a recommended price of US$299. But if you look around online, it's hard to find one for much less than about $400. If you're really flash and you're really into your gaming, you could buy the 5090, which is Nvidia's highest performing gaming card. That's supposed to go for $1,999. But again, if you look online and to buy one, you'll often end up spending two and a half, three grand.

They really need to come up with some better names for these cards. Tim, is Nvidia worried about this or has it really moved on to AI and those customers?

It's hard to know. I think a lot of the gamers worry that it has moved on because it isn't just price. You've also seen some rather embarrassing quality control slip ups. These things require so much electricity that you have to plug special cables into them. And we've had reports of those cables melting or burning in use. And we had the same problem with its predecessor, the 4090. They've also shipped out a batch of of cards recently which had some electronic components just completely missing that. They did offer refunds for that. And yeah, so it's all kind of added up to a sense, I think that gaming's a bit yesterday's news, no one really cares anymore. All the attention is on this sort of cool new AI thing. And if you look at the company's results, it's sort of easy to see why. So, as recently as very early 2023, gaming was the biggest single chunk of Nvidia's revenue. But since then, it's been completely overtaken by AI. So their most recent results, which came out in February, the data center part of the business, which includes the AI spend, brought in more than $35 billion in a single quarter. And that's more than 90% of the money that Nvidia made. And it's up 10 times on the same period, just kind of two years ago. So are the gamers right to say that Nvidia just doesn't care anymore? Maybe that's putting it a bit too strongly. I mean, it's hard to know what individual Nvidia engineers think. I'm sure they're keen to put out decent products, but at the same time, if you look at this absolute fountain of AI money that's been gushing over the last couple of years, I think it's fair to say that this won't be putting a huge amount of pressure on either its shareholders or its board.

Time to bring back Space Invaders, I think. Tim, thank you so much for your time.

Thanks, Rosie.

That's all for this episode of the Intelligence. We'll see you back here tomorrow. Sam.