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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim

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Speaker 1: Fox along with my co host Lisa Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg P M

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: We are getting some information about trade talks between the

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Speaker 1: US and China, with US Trump US Trump administration saying

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Speaker 1: that China is willing to buy more American goods joining us.

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Speaker 1: Here in our Bloomberg Interactive Broker Studios is Mike McDonough,

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Speaker 1: chief economists for Financial Products for Bloomberg LP. Mike, what

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Speaker 1: have we actually learned? What are the facts that are

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Speaker 1: coming out of these trade negotiations that are being heralded?

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Speaker 1: Is making great progress? Well, Um, they're they're basically agreeing

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Speaker 1: that they're going to talk again, which I think was

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Speaker 1: a really good baseline scenario. Right there, They're showing some

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Speaker 1: signs that will were on the same page at least

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Speaker 1: during these talks. Um, there's going to be higher level

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Speaker 1: talks a month. There's there's not anything to really give

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Speaker 1: anyone pause. And I think that that is a welcome

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Speaker 1: based on the results of some of the past talks

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Speaker 1: uh and and what we heard after them, I think

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Speaker 1: that's a fairly good sign for markets. I don't think

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Speaker 1: anyone thought we'd get a deal following these talks, but

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Speaker 1: I think this is the best case scenario. Who needs

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Speaker 1: a deal more China or the United States? It's a

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Speaker 1: good question. So I think you know, a lot of

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Speaker 1: people are saying, oh, well, growth is slowing in China,

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Speaker 1: are they more likely to make a deal now? I

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Speaker 1: think more has changed in the US than it has China.

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Speaker 1: I think China has always needed a deal, but I

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Speaker 1: think the Trump administration needs a deal now more than

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Speaker 1: they did when they first started having these conversations. Uh. And.

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Speaker 1: I think that President Trump himself has realized some of

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Speaker 1: the valid hility we're seeing in markets now is a

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Speaker 1: result of the uncertainty uh surrounding trade. All one. You're

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Speaker 1: saying that that the US needs to a deal more

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Speaker 1: now than than before. Is that because of the stock

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Speaker 1: market volatility entirely? Well, it's it's due to the stock

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Speaker 1: market volatility in and of itself isn't so meaningful, but

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Speaker 1: it's a symptom of something, and I think in this case,

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Speaker 1: it's a symptom of you had a period of time

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Speaker 1: where generally speaking, the markets were quite optimistic about the

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Speaker 1: Trump agenda. You had this return of animal spirits, let's say.

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Speaker 1: And it wasn't just the markets that were optimistic, it

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Speaker 1: was business owners, it was consumers. So you started seeing

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Speaker 1: a surprise surprisingly strong heart economic data. Heard economic data

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Speaker 1: had been lagging the survey data. The survey data was

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Speaker 1: off the charts. Going back to sev heard economic data

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Speaker 1: was disappointing, and then suddenly the hard economic data started

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Speaker 1: catching up with the survey data. This was because he

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Speaker 1: had this blind optimism was back in the market. All

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Speaker 1: of a sudden, the market had to say, wait a second, Um,

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Speaker 1: maybe we we we shouldn't have as much optimism. Maybe

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Speaker 1: things aren't as certain, Maybe this China thing could spiral

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Speaker 1: out of control. Uh. And I think that is not

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Speaker 1: only pushing markets down, I think that could risk bringing

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Speaker 1: growth down because you don't have that optimism that's causing

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Speaker 1: people to make decisions that grow the economy. All right,

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Speaker 1: this is a sort of multiple choice question for you, Mike,

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Speaker 1: Stephen Manuchin Wilbur Ross, Robert Lydheiser, Peter Navarro, which one

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Speaker 1: is in charge of trade for the United States? Donald

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Speaker 1: Trump is the answer? Uh? You know, I think I

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Speaker 1: think that's a question that the Chinese themselves are asking,

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Speaker 1: you know, who can they trust, who can they can

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Speaker 1: who can they make a deal with that they will

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Speaker 1: follow through with? And I think, like I said, I

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Speaker 1: do think the bar has come down to the deal

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Speaker 1: that the Trump administration would accept. Um, I think some

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Speaker 1: people might be disappointed when you when you actually look

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Speaker 1: at what tangibly comes from a deal that is reached,

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Speaker 1: it's not going to be what people thought would have

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Speaker 1: been achieved. This is where I on to go with this,

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Speaker 1: right because there are sort of different aspects here. Are

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Speaker 1: we talking about soybeans or are we talking about intellectual property?

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Speaker 1: Are we talking about tech? Are we talking about the

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Speaker 1: entire relationship between the two biggest economies in the world.

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Speaker 1: And it sounds like that bigger kind of picture is

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Speaker 1: way too big to bite off right now. So if

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Speaker 1: there is some kind of trade deal reached by March one,

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Speaker 1: it would be okay, you buy a little more soybeans

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Speaker 1: and then we can brush this unto the rug for

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Speaker 1: another I'm looking at a headline right now by our

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Speaker 1: own Andrew Mayeta who says US says China willing to

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Speaker 1: buy more American as trade talks, and yeah, of course

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Speaker 1: that's going to be the deal. Uh, They're going to

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Speaker 1: agree to buy more soybean, They're going to agree to

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Speaker 1: buy um more automobiles through reducing tariffs, and this is

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Speaker 1: this is the sort of tangible thing we'll get in

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Speaker 1: the near term. I do think the one area where

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Speaker 1: President Trump has been a bit behind on his agenda

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Speaker 1: has been the opioid epidemic. So if you recall from

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Speaker 1: the dinner he had with President she that was mentioned

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Speaker 1: of um banning or somehow this erupting fentanyl exports from

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Speaker 1: China to the US. I think that could play a

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Speaker 1: large part in this as well. That'll be something allowed

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Speaker 1: it as a win for President Trump on fighting that

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Speaker 1: opioid epidemic. So I think you'll have some fentanyl, uh

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Speaker 1: will be a part of this. Soy agriculture will be

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Speaker 1: a part of it. Cars will be a part of it.

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Speaker 1: And then some sort of promise that maybe some fringe

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Speaker 1: giveaways on the intellectual property side the business side, but

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Speaker 1: ping isn't isn't fighting back against trying to prevent fentanyl

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Speaker 1: shipments to the US. That's not the front of the

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Speaker 1: front of the disagreement here, is it. I mean, this

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Speaker 1: isn't like peripheral, right, I mean, this hasn't been part

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Speaker 1: of it. Am I wrong? No? I mean it's preferable.

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Speaker 1: But at the end of the day, I mean, if

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Speaker 1: you look at the deal that was the Neon AFTA,

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Speaker 1: U S m c A or whatever the acronym is,

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Speaker 1: if you look at the trade deal that was agreed

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Speaker 1: with the you everything like you know, they there's basically

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Speaker 1: something that the Trump administration has been able to turn

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Speaker 1: around and claim is a big victory. Even though it

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Speaker 1: was probably a very eluded version of what people expected

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Speaker 1: he was attempting to achieve. It was fun as a

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Speaker 1: big victory. And I think the Fentyl thing is something

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Speaker 1: you would the Trump administration would be able to spin

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Speaker 1: as a big victory along with soy, along with autos,

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Speaker 1: and the Fentyl thing is an area, like I said,

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Speaker 1: where the Trump administration has been behind. So that's something

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Speaker 1: he could potentially hang his ad on and and and say,

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Speaker 1: look at we've this is a great deal for America.

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Speaker 1: Even if it's not what people thought it would be.

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Speaker 1: Mike mcdonnoh, you spent a lot of time traveling around

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Speaker 1: the world meeting with various officials and central banks and

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Speaker 1: other types of investors. What is their take on the

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Speaker 1: US China trade dispute. I think a lot of people

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Speaker 1: are nervous and don't know what to expect. I mean,

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Speaker 1: it's the same question when you ask your multiple choice question,

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Speaker 1: who's in charge? I think a lot of people have

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Speaker 1: that question, and and they're concerned about what the impact

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Speaker 1: of this can be on their economies, Like, for example,

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Speaker 1: uh in Europe, if the US were to really escalate

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Speaker 1: this trade war, if they were to put more tariffs

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Speaker 1: on Chinese goods, might very cheap Chinese goods start finding

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Speaker 1: their way to Europe as the CBS trying, you know,

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Speaker 1: and that the economy is hoping that, you know, start

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Speaker 1: lifting rates, start seeing a bit more inflation. What what

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Speaker 1: is the impact going to be there? And if that

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Speaker 1: does happen, how do the governments in Europe begin to react?

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Speaker 1: So I guess they're they're they're worried a bit about

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Speaker 1: the second order effects and the ramifications for the governments

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Speaker 1: in their own countries. Just three seconds here, I'm wondering, Mike,

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Speaker 1: do you think that markets are under pricing or overpricing

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Speaker 1: the decline in China's economy. So I think that, Um,

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Speaker 1: I may not necessarily have a direct answer for that question,

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Speaker 1: but I will say that, come on, but I think

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Speaker 1: they're probably properly pricing in the risk for China's economy

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Speaker 1: in the near term because China will do a lot

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Speaker 1: to make sure they maintain that growth rate. Um. You know,

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Speaker 1: the de leveraging agenda was what really is weighing on

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Speaker 1: growth at the moment. It really wasn't trade trades now

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Speaker 1: starting to become a factor. Uh the government. I saw

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Speaker 1: a great tweet. It wasn't by me. Somebody said it

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Speaker 1: looks like China is back on the juice, meaning, uh,

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Speaker 1: there again depending on borrowing to stoke growth. So I

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Speaker 1: think that that makes in the longer term, that makes

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Speaker 1: China's problem worse, but in the near future they're able

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Speaker 1: to manage that. So I think that, you know, probably

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Speaker 1: properly pricing risk at the moment. Thanks very much for

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Speaker 1: being with us. Always a pleasure to have you. Mike McDonald,

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Speaker 1: Chief Economist Financial Products for Bloomberg LP talking about US

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Speaker 1: China trade relations, the dollar weakening today against the Canadian

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Speaker 1: Luney trades at one thirty two forty, Japanese yen strengthening.

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Speaker 1: It's at one oh eight nineteen. You're listening to Bloomberg

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Speaker 1: markets right now. The US is facing a really problematic profile.

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Speaker 1: We have a deepening deficit here. Uh more debt sales

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Speaker 1: coming up and investors are showing less appetite to buy

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Speaker 1: the securities. Joining us now to talk about that. Jim Vogel,

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Speaker 1: interestrate strategist for FTN Financial, coming to us from Memphis, Tennessee. Jim,

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Speaker 1: thank you so much for joining us. Always love talking

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Speaker 1: with you. There was a story today talking about how

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Speaker 1: demand for US treasuries, as measured to the bid to

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Speaker 1: ask ratio, has fallen to the lowest levels in a decade.

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Speaker 1: Is this concerning to you? For the three year yesterday? UM,

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Speaker 1: it was a test of what was happening at the

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Speaker 1: short end of the curve. Will be paying particular attention

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Speaker 1: to the tenure that is held up actually better than

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Speaker 1: some of the short sales or the short maturities where

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Speaker 1: the increases have been the largest in terms of treasury issuance,

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Speaker 1: But is it troubling to you? Not yet. No, we

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Speaker 1: saw a very similar decline in the five year auction

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Speaker 1: at the end of December, and then it rebounded the

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Speaker 1: very next day with an excellent seven year auction. So

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Speaker 1: people are getting choosier where they want to be in

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Speaker 1: terms of treasuries. So it'll be concerning if they start

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Speaker 1: to choose uh to stop buying or stop participating across

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Speaker 1: the maturity curve. So, so far do you view the

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Speaker 1: bid to ask ratio is a good measure to indicate

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Speaker 1: investor demand or should we really just look at price

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Speaker 1: and yields and sort of those measures instead. It's an

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Speaker 1: excellent long term measure from auction to auction. You also

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Speaker 1: need to take into account the fact that yesterday was

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Speaker 1: the lowest three year yield at auction in months, and

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Speaker 1: that tends to keep people away as well from an

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Speaker 1: individual auction, but the trend is definitely important. Well, So, Jim,

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Speaker 1: I guess I'm wondering at what point will bond investors

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Speaker 1: start to push back and say to the US, you know,

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Speaker 1: your your government isn't working, it's not even open right now,

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Speaker 1: and we don't even know when when you know, parts

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Speaker 1: of the government are going to reopen the debt ceiling

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Speaker 1: is a big US mark. Fitch is actually considering removing

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Speaker 1: the Triple A rating from the US as a result

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Speaker 1: of the gridlock. We don't want your debt. At what

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Speaker 1: point are they gonna the bond vigilante is going to

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Speaker 1: come back? In our calendar for the year, we're looking

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Speaker 1: in particular at the third quarter. UH. Investors have remarkable

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Speaker 1: patients with the US as it goes through UH. Some

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Speaker 1: of these fits from time to time, and it the

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Speaker 1: patients tend generally tends to run thinner after about three

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Speaker 1: to four months, and we're in the second month at

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Speaker 1: this point, Well, at what point then does the investor

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Speaker 1: leave and not come back. We've seen that happen with stocks,

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Speaker 1: and is it possible that we could see that happen

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Speaker 1: with bonds, because are they really being compensated for the

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Speaker 1: risk that you describe might be out there? Last year

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Speaker 1: there was sort of a not a boy time of

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Speaker 1: treasury bonds, but they were out of favor for nine months. Unfortunately,

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Speaker 1: some of the things that causes problems at the government

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Speaker 1: level then drives investors away from other asset classes and

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Speaker 1: ironically back to treasuries. I think we can see that

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Speaker 1: pattern continue, but you cannot count on it, so you

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Speaker 1: have to watch constantly to see just how it's going

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Speaker 1: from quarter to quarter. So there was a story today

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Speaker 1: that President Trump would like to have a trade deal

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Speaker 1: with China in order to boost the US equity markets.

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Speaker 1: Do you think that that would come with a commensurate

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Speaker 1: decline in treasuries in terms of price, Yes, it would

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Speaker 1: meaning higher yields, right correct? So how high could yields

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Speaker 1: go on the tenure and how much would this go

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Speaker 1: against where the market is positioned right now? The market

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Speaker 1: is positioned for rates not to go much above to eighty.

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Speaker 1: So that's a big warning point in terms of the tenure.

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Speaker 1: UH today's tenure auction needs to come under to seventy

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Speaker 1: in order to maintain that sort of um to eight

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Speaker 1: thresholds level. If we move past that, I think you

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Speaker 1: could get back to so. But I guess what I'm

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Speaker 1: wondering is if equities do start to rally on some

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Speaker 1: sort of trade agreement, if stocks start to rally on

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Speaker 1: some sort of trade agreement, could you could we get

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Speaker 1: to that point real quick in treasury yields? I don't

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Speaker 1: think we will get them real quickly because we still

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Speaker 1: have UM an important f O m C meeting at

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Speaker 1: the end of January where the group will speak as

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Speaker 1: a whole as opposed to the individual messages, even though

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Speaker 1: they've come from Chairman Powell ums. So we need to

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Speaker 1: wait for the January meeting before we go too far

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Speaker 1: in terms of selling UH fixed income investments at this point,

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Speaker 1: what do you make of what has happened or not

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Speaker 1: happened in the high yield market? The lack of interest

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Speaker 1: from investors UM that has been serious, but it's kept

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Speaker 1: the primary thing that's happened so far as it's kept

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Speaker 1: supply from the market. So in terms of the high

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Speaker 1: yield bond market as opposed to leverage loans, we've not

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Speaker 1: seen a lot of growth in that market over the

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Speaker 1: last six months. But is that lack of growth because

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Speaker 1: investors won't buy it. They've already had enough of those

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Speaker 1: bonds and as a result, it's not because companies don't

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Speaker 1: want to issue. It is because they know that there's

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Speaker 1: no one going to buy it. The bigger risk is

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Speaker 1: not necessarily in terms of buying new debt, It is

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Speaker 1: refinancing existing debt, and that is again something to look

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Speaker 1: very carefully at in the second half of the year.

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Speaker 1: We don't have that many majorities coming up where refinancing

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Speaker 1: is going to be a critical issue for the companies

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Speaker 1: that depend on the high yield market. All right, thanks

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Speaker 1: very much for being with us. Jim Vogel is interest

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Speaker 1: rate strategist for ft N Financial, joining us from Memphis, Tennessee.

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Speaker 1: Right now, the thirty year trades just one thirty second

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Speaker 1: lower at three point one percent, the tenure at two

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Speaker 1: point seven two. Coming up on the Bloomberg Markets, We're

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Speaker 1: going to investigate is it better for our company to

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Speaker 1: buy or build in order to grow? If you're listening

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Speaker 1: to Bloomberg Markets, I'm pim Fox along with Lisa Abramowitz,

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Speaker 1: President Donald Trump and Route to the border between the

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Speaker 1: United States and Mexico following a speech from the Oval

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Speaker 1: Office looking for congressional funding for a border wall. Here

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Speaker 1: to tell us more, Remesh Puru. He is a senior

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Speaker 1: editor at National Review and a Bloomberg opinion columnist. Remesh

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Speaker 1: tell us your reaction to the President's speech. Well, I

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Speaker 1: don't think that the President really did a lot to

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Speaker 1: move the needle last night. Um he uh, you know,

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Speaker 1: was he laid out his case. Um, but he didn't

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Speaker 1: really give any reason for the Democrats to relent and

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Speaker 1: cooperate with him. Um. They know his arguments, they're not

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Speaker 1: persuaded by them. Um. There doesn't seem to be any

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Speaker 1: public opinion data that is really going to push them

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Speaker 1: to give him the wall. Um. They are blaming the

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Speaker 1: government shutdown on the president. The polls suggests most people

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Speaker 1: agree they're against building a wall. The polls again suggest

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Speaker 1: most people agree, So there's just not a lot of

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Speaker 1: reason for them to compromise. And say, you're left with

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Speaker 1: the situation where Trump doesn't seem to have a strategy

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Speaker 1: to either win or exit from the shutdown. What do

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Speaker 1: you want to happen with the wall? Well, I think

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Speaker 1: that there is a case for increasing, um, the use

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Speaker 1: of physical structures as barriers. Maybe not a wall all

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Speaker 1: along the border. I think that's uh, that's unnecessary and unrealistic. Um.

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Speaker 1: But I think frankly that there are more important things

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Speaker 1: that we could do to reduce illegal immigration, um, such

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Speaker 1: as putting sanctions on employers who hire illegal immigrants, that

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Speaker 1: it seems to me, ought to be the focus of

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Speaker 1: people who really want secure borders and immigration control. So Remesh.

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Speaker 1: As President Trump harps on the wall and does hold

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Speaker 1: out negotiations or at least a resolution to the partial

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Speaker 1: government shutdown in order to get funding for it, does

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Speaker 1: that reduce your enthusiasm for him as a president? I

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Speaker 1: think that it is. It is reducing a lot of

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Speaker 1: people's enthusiasm UM for President Trump. I do think that

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Speaker 1: the way he has conducted himself and the sort of

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Speaker 1: erratic behavior he's shown, UM is a mark against his presidency. UM.

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Speaker 1: You know, he first was going ahead with allowing the

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Speaker 1: government to community be funded, and then, after getting criticized, UM,

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Speaker 1: basically turned on a dime and uh decided to shut

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Speaker 1: down the government. He said he was going to take

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Speaker 1: full responsibility for this, and then he has spent the

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Speaker 1: last few weeks doing everything can to evade responsibility for it.

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Speaker 1: So I don't see how anybody can look at this

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Speaker 1: performance as a whole and say that, um, all in all,

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Speaker 1: it reflects what a president ought to be doing. Remes.

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Speaker 1: There are currently more than six d and fifty miles

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Speaker 1: of actual physical barriers between the United States and Mexico.

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Speaker 1: It stretches through deserts, through towns, It even ends in

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Speaker 1: the sea in the Pacific. Is there any evidence to

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Speaker 1: suggest that the issue will be solved, the issue of

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Speaker 1: illegal in the graction into the United States will actually

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Speaker 1: be solved by a physical barrier. Well, no, I don't

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Speaker 1: think that there is. I mean, for one thing, Well,

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Speaker 1: so a couple of things. First of all, there as

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Speaker 1: I suggested, there are other things that are higher priorities

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Speaker 1: ought to be higher priorities for controlling illegal immigration. So

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Speaker 1: something like two fifths to two thirds of illegal immigrants

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Speaker 1: in this country are people who came here legally and

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Speaker 1: then overstayed their visas, and obviously a wall isn't going

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Speaker 1: to do anything to stop that. Now, that doesn't mean

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Speaker 1: that there are places where having increased structural barriers could

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Speaker 1: reduce illegal immigration. So there are reports, for example, that

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Speaker 1: human Arizona has has had some success in reducing illegal

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Speaker 1: immigration um through physical structures. So I just think that

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Speaker 1: the problem here is that we can't sort of be

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Speaker 1: all or nothing about this, and the President, I'm afraid,

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Speaker 1: has tended to make this into the key the thing

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Speaker 1: that has to be done um to show serious not

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Speaker 1: on illegal immigration. Uh. And on the other hand, some

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Speaker 1: of his opponents have made it sound as though, you know, barriers,

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Speaker 1: walls are just sort of never useful. Um. And I

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Speaker 1: don't think that's true either. Mention, I'm wondering what you're

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Speaker 1: hearing from Republican leaders because Mitch McConnell has come out

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Speaker 1: seems to be supporting President Trump, but it has been

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Speaker 1: pretty quiet from a lot of a lot of the

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Speaker 1: Republican representatives. What are your conversations with them, Like, Well,

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Speaker 1: you don't get the impression that there are a lot

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Speaker 1: of congressional Republicans who think that this is a wise strategy. Um.

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Speaker 1: I think there are a lot of them who are

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Speaker 1: keeping their heads down because they don't want to cross

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Speaker 1: the president. Um, and because they've just decided, you know,

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Speaker 1: this is this is his thing. He's shouldering to blame

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Speaker 1: for it, and uh, you know, they don't have another

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Speaker 1: election for a while. Um. But I do think that

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Speaker 1: patients with the shutdown own is going to wear thin

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Speaker 1: in less than a month. We're going to have problems

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Speaker 1: with food stamps if the shutdown continues. That's a lot

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Speaker 1: of people. That's more than forty million Americans, includes a

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Speaker 1: lot of people who voted for Congression. Republicans included include

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Speaker 1: a lot of people who voted for Donald Trump. UM.

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Speaker 1: At that point, I think, UH that the pressure starts

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Speaker 1: to increase on Republicans to end this. Are there any

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Speaker 1: governors that you have heard on the issue of the

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Speaker 1: wall from the border states of Texas, Arizona, New Mexico,

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Speaker 1: even California. None of them I've heard call specifically for

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Speaker 1: a wall or a barrier in addition to what they

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Speaker 1: already have. I'm not sure what Governor Abbott has been saying,

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Speaker 1: but it's certainly true that people on the border, including UH,

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Speaker 1: including Republicans, have not been um enthusiastic about this. So

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Speaker 1: Will heard is a recently re elected m Republican UH

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Speaker 1: a border district in Texas, and he ran against the wall,

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Speaker 1: and he credits his winning with his opposition to the wall. UM.

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Speaker 1: So the politics of this are are pretty complicated going forward.

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Speaker 1: How much does this reduce President Trump's negotiating power and

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Speaker 1: other issues? Well, I think that if you pick a

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Speaker 1: fight and then lose it, um, which is what I

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Speaker 1: think he is on track to doing, UM, he will

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Speaker 1: merge weaker on the other end. UM. That said, it's

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Speaker 1: not as though the President has previously had enormous success

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Speaker 1: negotiating with Congressional Democrats. So it may not be um,

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Speaker 1: you know that damaging in a sense that maybe there

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Speaker 1: weren't all that many deals that were possible in the

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Speaker 1: first place. Thank you so much for being with us

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Speaker 1: from Ash. We always really appreciate your insights from Entrepreneurs.

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Speaker 1: Senior editor for the National Review, also a Bloomberg opinion columnist,

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Speaker 1: coming to us from Washington, d C. Our topic now

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Speaker 1: is Italy and pledges that were made by Italy's populoust government. Well,

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Speaker 1: they seem to have come up against economic reality. Here

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Speaker 1: to help us understand the situation is Ferdinando Giuliano. He

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Speaker 1: is the Bloomberg opinion columnist. He is also an economic

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Speaker 1: columnist for Republica. Well, for Denando, maybe you can explain

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Speaker 1: this turn of events when the Five Star Movement, which

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Speaker 1: is supposed to be part of this revolution when it

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Speaker 1: comes to Italian fiscal stability and governance, seems to have

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Speaker 1: done a u turn. Tell us the story. Well, that's right.

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Speaker 1: So what we had this week was a pretty amazing

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Speaker 1: decision by the Side Star movement to essentially pre commit

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Speaker 1: to bail out a bank troubled mid sized lender called

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Speaker 1: the Carriage, which really seems to have found it enabled

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Speaker 1: to sorry to be not able to find a private

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Speaker 1: solution to strengthen its capital base, and at the moment,

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Speaker 1: one possibility is a bank bailout by the government. Now,

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Speaker 1: the Italian government is made up of the Five Star

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Speaker 1: Movement and the Northern League to populist parties, and the

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Speaker 1: Five Star Movement in particular, over the past few years

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Speaker 1: have been blasting its political opponents, especially of the center left,

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Speaker 1: for bailing out banks, saying that they only had money

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Speaker 1: for the banks and not for ordinary citizens. And now

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Speaker 1: when they're in government, what they seem to have done

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Speaker 1: it themselves. Here's from struggling. If you have if you

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Speaker 1: have a government that seems to contradict itself UH and

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Speaker 1: its pledges so frequently, how can the European Commission negotiate

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Speaker 1: with them as they have about their budget and UH

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Speaker 1: and sort of some of the issues that they're dealing

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Speaker 1: with fiscally. That's right, So it's not the first time

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Speaker 1: they break their pledge. Remember, Italy's budget, which has just

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Speaker 1: been passed now targets a two percent budget deficit for

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Speaker 1: next year. Initially, their economic pledges were for spending of

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Speaker 1: over one billion dollars. I mean, it's it's the U

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Speaker 1: turn has been amazing there too. I mean in terms

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Speaker 1: of budget, I think the Commission was pretty content to

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Speaker 1: make sure that they faced economic reality. The bond market

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Speaker 1: really turned against them in the autumn and they had

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Speaker 1: to climb down, and obviously the Commission capt in a

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Speaker 1: little bit as well. But in the end they found

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Speaker 1: a compromise which was more on the side of what

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Speaker 1: Brussels had imagined. And now on the banks, it's still

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Speaker 1: very preliminary. It's at the moment. Lets remember that the

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Speaker 1: government hasn't bailed out any bank yet. It just said

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Speaker 1: it's prepared to do it, and there are questions of

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Speaker 1: whether the European Commission will actually let them do it,

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Speaker 1: because Carriage, after all, is rather small bank and the

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Speaker 1: exception to the rule that government should not bail out

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Speaker 1: banks anymore only exists for the bigger banks when there

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Speaker 1: are systemic issues, which that drops the mistake. So I

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Speaker 1: think this battle is one which is still all to

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Speaker 1: be fought and one which is very much worth watching

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Speaker 1: because you could bring to a new fight, as I said,

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Speaker 1: between Italy and the Commission, it wouldn't been the first

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Speaker 1: one fer Dinando. Does it bring a smile to some

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Speaker 1: in the opposition that the bank you're talking about, CAIJ

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Speaker 1: Bank CAIJ is based in Genoa, which is also the

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Speaker 1: home of Bepel Grilla, who is the sort of face

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Speaker 1: of the not Five Star movement, but of the sort

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Speaker 1: of unnamed movement to reform Italian politics. Well, indeed, you

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Speaker 1: pointed to one of the many contradictions of this story.

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Speaker 1: I mean, yesterday Twitter was, uh, you know, you had

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Speaker 1: videos playing of five Star movement politicians, you know, vowing

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Speaker 1: that they would never bail out the banks, and you

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00:27:07,920 --> 00:27:11,320
Speaker 1: know they they looked really quite funny, to be honest.

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Speaker 1: But yes, the Grill law connection is another one that

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00:27:15,040 --> 00:27:18,680
Speaker 1: the comedian has been very quiet on this story. Um

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Speaker 1: and you know, some say because it's very close to

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Speaker 1: his hometown, very close to his city. But let's remember

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Speaker 1: the Genoi is also a very you know, at the moment,

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00:27:28,560 --> 00:27:30,840
Speaker 1: is a very symbolic city in Italy, also because of

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Speaker 1: a motorway bridge which collapsed in the summer, killing many drivers.

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Speaker 1: So it's you know, it's it's a city which has

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Speaker 1: a particular political meaning. And I suspect that's one of

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Speaker 1: the reason why the government didn't want to let down

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Speaker 1: the bank as it would be perceived, and is prepared

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00:27:50,080 --> 00:27:53,119
Speaker 1: to step in. So it's an economic story, but with

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Speaker 1: a lot of political with a strong political dimension as well. Fernando,

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Speaker 1: do you think that the issues at abound courage and

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Speaker 1: the fact that the Italian government is willing to even

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Speaker 1: make this move indicates much broader stress right now in

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Speaker 1: the Italian financial system that's not being focused on as

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Speaker 1: much for the moment. Well, I think you know, this

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Speaker 1: is part of a tale of banks which have been

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Speaker 1: suffering for the past five six years. The consequences of

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00:28:21,320 --> 00:28:24,960
Speaker 1: Italy is double the precession, the two thousand and eight

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Speaker 1: crisis and then the Eurozone sovereign debt crisis. Um So

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Speaker 1: in a way you could see these as a legacy

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Speaker 1: of the past, much like Monte de Pasquidiciena or the

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Speaker 1: two Venetto banks which were liquidated a year and a

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Speaker 1: half ago. But you're absolutely right, there is stress at

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Speaker 1: the moment for the banking sector. The Italian economy is

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Speaker 1: not doing well. It's part partly the Eurozone slowdown, partly

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Speaker 1: some self inflicted ones with a collapse of confidence for

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Speaker 1: companies in the country and partly because of what happened

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Speaker 1: to the sovereign debt market in twenty eighteen, big jump

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Speaker 1: in here yields and still now you know, they haven't

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Speaker 1: fully normalized yet. Funding costs are going up. Economic activities

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Speaker 1: lowing this is, I think, is pointing to some trouble ahead,

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Speaker 1: which is certainly not making it easier for banks in

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Speaker 1: difficulties such as Caregia to get out of their problems,

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Speaker 1: and who knows, could create some new problems for other

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Speaker 1: banks as well in the future. Having said that, the

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Speaker 1: banking Italian banking system is certainly in a better shape

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Speaker 1: than it was just four years ago, but you know,

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Speaker 1: as you rightly say, challenges remain. Fernando Giuliano, thank you

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Speaker 1: so much for joining us. Fernando Giuliano is the Bloomberg

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Speaker 1: opinion columnist focused on European economics, talking about the Italian

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Speaker 1: government and it's flipping and flopping and Lisa Abroma. It's

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Speaker 1: along with Pim Fox and this is Bloomberg. Thanks for

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00:29:54,360 --> 00:29:57,040
Speaker 1: listening to the Bloomberg P and L podcast. You can

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00:29:57,040 --> 00:30:00,880
Speaker 1: subscribe and listen to interviews that Apple Podcasts, SoundCloud or

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00:30:00,920 --> 00:30:04,400
Speaker 1: whatever podcast platform you prefer. I'm Pim Fox. I'm on

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00:30:04,440 --> 00:30:08,560
Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramowits

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Speaker 1: one before the podcast. You can always catch us worldwide

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00:30:11,680 --> 00:30:12,600
Speaker 1: on Blueberg Radio