WEBVTT - Surveillance: Banking Tremor with El-Erian 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Pharaoh and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.480 the Bloomberg Terminal, and the Bloomberg Business App. I'm pleased 0:00:30.480 --> 0:00:33.280 to say that alongside us here at the global headquarters 0:00:33.280 --> 0:00:36.720 of the International Monetary Fund in Washington, DC, Mohammed al Arion, 0:00:36.760 --> 0:00:40.640 Bloomberg opinion columnist and Queen's College Cambridge president Mohammed Mnick, 0:00:41.080 --> 0:00:43.720 Good morning. Can we stopped calling it a banking crisis? 0:00:43.760 --> 0:00:45.760 This was not a banking question. Tell me why this 0:00:45.840 --> 0:00:48.800 wasn't a banking crisis. A banking crisis is a crisis 0:00:48.800 --> 0:00:51.920 of the banking system. This was a banking tremor. A 0:00:52.040 --> 0:00:56.680 few banks that were caught offside and badly supervised went down. 0:00:57.280 --> 0:00:59.640 The big banks are just fine, and we're seeing that. 0:00:59.640 --> 0:01:02.160 In fact, the big banks are benefiting from this because 0:01:02.160 --> 0:01:04.880 they've got two things. Not only are they viewed as safe, 0:01:05.480 --> 0:01:09.039 but they've got diversified business models, and you saw what 0:01:09.080 --> 0:01:11.640 happened to fake you, so that suddenly it is the 0:01:11.760 --> 0:01:14.920 narrow bank that are riskies and it's the universal banks 0:01:14.959 --> 0:01:17.600 that are resilient. If it wasn't a crisis, why do 0:01:17.640 --> 0:01:20.440 you think the officials needed to use the systemic risk exception. 0:01:21.760 --> 0:01:24.880 I think it crept up on them and they just 0:01:25.840 --> 0:01:28.080 went a little bit too far. I understand why they 0:01:28.080 --> 0:01:29.679 did it. I suspect I would have done it too, 0:01:30.280 --> 0:01:34.600 but they post systemic risk. I think the deposit run 0:01:34.640 --> 0:01:37.200 and the speed of the deposit run at First Republic 0:01:37.520 --> 0:01:41.720 scared them a lot. But this was a failure of supervision. 0:01:42.280 --> 0:01:44.320 We have to understand that this was a failure of supervision. 0:01:44.319 --> 0:01:46.560 We have enough evidence now to show the extent to 0:01:46.600 --> 0:01:49.400 which the FED failed in the supervision of First Republic. 0:01:49.560 --> 0:01:52.320 So let's say absolutely, this is not a banking crisis. 0:01:52.600 --> 0:01:54.720 This didn't rise to some kind of two thousand and 0:01:54.720 --> 0:01:57.600 eight or even you know, potentially that's the nineteen eighties 0:01:57.640 --> 0:02:01.440 type scenario. But is it credit crunch that we're going 0:02:01.480 --> 0:02:05.400 to see evolve. Yeah, So we we're going through a 0:02:05.440 --> 0:02:09.880 major transition which has made some business models incredibly stressed, 0:02:10.320 --> 0:02:13.200 incredibly stressed and we're going to see that. We are 0:02:13.240 --> 0:02:15.399 now focusing on the banks. You just wait to see 0:02:15.400 --> 0:02:18.840 all the levet finance that has to refinance itself. We 0:02:18.919 --> 0:02:20.840 talked a little bit about commercial real estate, but it 0:02:20.880 --> 0:02:23.480 goes well beyond this. When you change to interest rate 0:02:23.480 --> 0:02:26.640 paradigm as quickly as we did, you will catch people offside, 0:02:27.200 --> 0:02:29.480 and some people will be able to get back on side. 0:02:29.600 --> 0:02:32.240 Other people have business models that doesn't allow to get 0:02:32.680 --> 0:02:35.119 back on side. Ground. Why am I saying this because 0:02:35.600 --> 0:02:39.639 the some of the smaller banks have that issue. They 0:02:39.680 --> 0:02:43.120 have higher funding costs, that deposits have become more flighty, 0:02:43.240 --> 0:02:45.120 and they're going to have to contract their loan books 0:02:45.639 --> 0:02:48.040 and they are making loans that the big banks will 0:02:48.080 --> 0:02:50.960 not make. So yes, we are going to have a 0:02:51.000 --> 0:02:53.440 reduction in credit contraction. We've got to talk about a 0:02:53.440 --> 0:02:55.799 Federal Reserve. Raga Raja and a good friend of yours. 0:02:55.840 --> 0:02:58.120 I know it was fantastic yesterday and I wish we 0:02:58.120 --> 0:03:00.679 were alongside him. He was talking about some of the 0:03:00.720 --> 0:03:03.120 blame lining at the fee of the Federal Reserve and 0:03:03.160 --> 0:03:06.120 the unwitningness of this institution that we're sitting in this 0:03:06.200 --> 0:03:09.640 morning to call out monetary policy officials for their role 0:03:10.000 --> 0:03:12.040 in some of the instability. What would you stand on 0:03:12.080 --> 0:03:14.840 that now, Mohammad, So, I think it's very important to 0:03:14.919 --> 0:03:19.720 keep our central banks accountable. They are very important. As 0:03:19.720 --> 0:03:21.920 you know. I'm a huge fan of central banks, and 0:03:21.960 --> 0:03:23.920 when I criticize the FED, it really hurts me. But 0:03:23.960 --> 0:03:27.440 it's important to have some accountability in the system. Why 0:03:27.919 --> 0:03:32.160 because that is the basis of political independence, and no 0:03:32.200 --> 0:03:35.880 one wants to erode the political independence of central banks. 0:03:36.400 --> 0:03:39.600 But central banks have to own their mistakes and have 0:03:39.680 --> 0:03:42.600 to learn from their mistakes to continue to enjoy something 0:03:42.640 --> 0:03:45.640 that is very precious and very important for the system 0:03:45.680 --> 0:03:49.040 as a whole, which is the ability to make policy 0:03:49.160 --> 0:03:52.560 without having to go to Congress. One FED official this week, 0:03:52.640 --> 0:03:55.200 in the last week at least, said the move from 0:03:55.280 --> 0:03:58.240 zero to close to five percent in about twelve months 0:03:58.640 --> 0:04:01.560 wasn't the problem with the banking system. You've talked about 0:04:01.560 --> 0:04:03.800 a failure of bank management. Do you think that has 0:04:03.800 --> 0:04:06.480 anything to do with it? A decade of zero interest 0:04:06.560 --> 0:04:09.400 rates and then going from zero to five like that. 0:04:10.000 --> 0:04:13.720 So we've had three stages of this tragedy. Stage one 0:04:14.040 --> 0:04:18.560 was too loose for too long. Remember in March when 0:04:18.560 --> 0:04:20.599 the inflation print was seven and a half percent. The 0:04:20.640 --> 0:04:22.840 FED was still injecting liquid it into the economy. That's 0:04:22.880 --> 0:04:25.840 much of last year. We should have started tightening policy 0:04:25.920 --> 0:04:31.719 significantly a year ago. The second problem is that after 0:04:31.800 --> 0:04:36.120 this whole long period, the FED mischaracterized inflation, so we 0:04:36.240 --> 0:04:42.040 lost nine months of possible policy adjustments. When you start late, 0:04:42.480 --> 0:04:45.080 you end up going higher and staying there for longer. 0:04:45.320 --> 0:04:48.679 That is the logic. That is why timely policy responses 0:04:48.720 --> 0:04:52.039 are so important. So, of course this interest rate cycle 0:04:52.080 --> 0:04:54.480 has been mishandled. Of course it has had an impact 0:04:54.839 --> 0:04:57.919 on what we are seeing in terms of not only 0:04:58.000 --> 0:05:00.719 financial turbulence, but all so what we're going to see 0:05:00.720 --> 0:05:04.760 in terms of economic turbulence. Your cambridge there is a 0:05:04.839 --> 0:05:10.160 spectacular stained glass window of a ven diagram. It is 0:05:10.200 --> 0:05:13.839 just a remarkable stained glass window. There are forty two 0:05:13.880 --> 0:05:17.440 circles here at the IMF, and they're trying to find 0:05:17.600 --> 0:05:22.880 a ven diagram of politics economics debate. That gets to 0:05:23.000 --> 0:05:26.760 a common theme. I can't find the common theme this 0:05:26.920 --> 0:05:29.400 time around? What is it? So I was surprised when 0:05:29.400 --> 0:05:31.440 in the six o'clock hour you said, there's all these 0:05:31.440 --> 0:05:34.720 issues and there's no common theme. That's absolutely a common theme, 0:05:35.160 --> 0:05:38.320 and the common theme is a world of deficient aggregate supply. 0:05:39.240 --> 0:05:41.600 We have gone from a world of deficient aggregate demand 0:05:41.760 --> 0:05:43.800 that was a story out there the global financial crisis 0:05:44.200 --> 0:05:47.760 to a world of deficient aggregate supply. You get inflation, 0:05:48.720 --> 0:05:54.400 you get interstate hikes, you get more inequality both nationally 0:05:54.480 --> 0:05:58.000 and globally. And I could go down the list, and 0:05:58.360 --> 0:06:02.240 if you under response, if you're underreact to that shift, 0:06:03.000 --> 0:06:05.480 then you start digging all sorts of issues. Brilliant, But 0:06:05.640 --> 0:06:08.679 the heart of the matter is Ambrose Evans Priture absolutely 0:06:08.800 --> 0:06:12.160 nails this with the Neo Viccellian essay today in the Telegraph. 0:06:12.200 --> 0:06:15.400 The bottom line is there's too much money out there 0:06:15.440 --> 0:06:20.600 and not enough investable opportunities on a global basis. We've 0:06:20.640 --> 0:06:23.160 been this way for a while. Is it a generational 0:06:23.240 --> 0:06:26.159 issue where we're never going to escape this trap of 0:06:26.279 --> 0:06:31.280 just too much money chasing not enough constructive ideas. So 0:06:31.279 --> 0:06:35.360 we certainly have too much money. What I would love 0:06:35.440 --> 0:06:37.560 to discuss with him, is it notion that we don't 0:06:37.600 --> 0:06:41.120 have enough investment opportunities. We are going through major transition, 0:06:41.160 --> 0:06:45.160 the energy transition is a major investment opportunity. Let's talk 0:06:45.200 --> 0:06:48.400 about the market failures that mean that we haven't been 0:06:48.440 --> 0:06:52.960 able to take advantage of this important window in terms 0:06:53.000 --> 0:06:56.279 of investments. And we can have a long discussion about 0:06:56.760 --> 0:06:58.680 what the US has done, and I know it upsets 0:06:58.680 --> 0:07:01.080 the EU appearance, but they're white. They're trying to address 0:07:01.160 --> 0:07:04.560 market failures in order to have more private public partnerships 0:07:04.760 --> 0:07:07.760 to invest in an area that is critically underinvested. A 0:07:07.800 --> 0:07:12.960 brilliant idea, can he run the port authority look funnel? 0:07:13.120 --> 0:07:16.000 Mohammed is raised in a really really important issue. This 0:07:16.080 --> 0:07:17.960 is not with the benefit of hindsight. We set it 0:07:18.000 --> 0:07:21.400 at the time. Germany and the European countries, who had 0:07:21.440 --> 0:07:25.480 the luxury of incredibly acceptionally low interest rates didn't make 0:07:25.480 --> 0:07:28.320 the move to invest in a way that they should 0:07:28.320 --> 0:07:30.520 have done well the way I would in Davos. It's simple. 0:07:30.560 --> 0:07:34.120 There's all these fancy plagards and marketing ideas of infrastructure 0:07:34.160 --> 0:07:37.840 and you know McKinsey like eighty page documents and development 0:07:37.840 --> 0:07:39.920 and it just hasn't He don't remember when Wolfgang Schober 0:07:40.120 --> 0:07:43.040 left the German finance ministry and they all stood outside 0:07:43.040 --> 0:07:45.080 and did that black zero as if it was something 0:07:45.080 --> 0:07:48.040 to celebrate. It was a total failure. Of policy over 0:07:48.080 --> 0:07:50.040 the last ten years. Well, this is this word austerity 0:07:51.400 --> 0:07:53.440 and economic policy as well. Are we going to see 0:07:53.440 --> 0:07:55.720 austerity in Britain again? I mean within the sharks that 0:07:55.760 --> 0:07:59.560 we see now there's Britain is so comfortable with austerity, 0:07:59.560 --> 0:08:03.200 aren't there? No, Unfortunately, Britain has become comfortable with low growth. 0:08:03.840 --> 0:08:06.840 That's a problem. You know. We have three issues and 0:08:07.720 --> 0:08:10.040 with my friends people you know very well, Michael Spence 0:08:10.080 --> 0:08:11.960 and Gordon Brown, we've been working on this for a while. 0:08:12.000 --> 0:08:15.160 We have three issues. One is we have inadequate growth models. 0:08:15.720 --> 0:08:18.200 Growth models we have to we think how we grow. 0:08:18.640 --> 0:08:23.040 Two we have inadequate domestic policy implementation, and three we 0:08:23.120 --> 0:08:27.200 have inadequate global policy coordination. Those are the three big areas. 0:08:27.240 --> 0:08:30.000 Now there are solutions to all three. That's a good news, 0:08:30.400 --> 0:08:32.439 but we've got to focus the discussion. How it to 0:08:32.520 --> 0:08:34.760 have said and thanks for being so generous with your time. 0:08:34.920 --> 0:08:38.040 Thank you, fantastic has always Thank you, Sir Mohammad our Arian. 0:08:42.400 --> 0:08:44.400 Joining us now is ken Ley On, the director of 0:08:44.440 --> 0:08:47.880 Equity Research at cf R. Ken You've had about ten 0:08:47.960 --> 0:08:49.680 twenty minutes to go through some of these numbers. What 0:08:49.760 --> 0:08:53.880 stands out for you? These banks are not only resilient, 0:08:53.920 --> 0:08:57.240 but they're making money. So we did see in particularly 0:08:57.240 --> 0:09:01.400 in the consumer areas strengthen, the private in the wealth 0:09:01.520 --> 0:09:06.280 management credit card with flat capital markets are strong. And 0:09:06.320 --> 0:09:09.840 I think maybe the conversation has been missing this is 0:09:09.880 --> 0:09:13.439 that we're going to see these banks do better ahead 0:09:13.559 --> 0:09:17.280 we hit the trough. So I would say the worries 0:09:17.320 --> 0:09:20.960 about the large banks is over. They're resilient. And even 0:09:21.000 --> 0:09:24.320 if this is the first time too deposits are down 0:09:24.360 --> 0:09:28.000 but loans are up, that's really the first time that 0:09:28.120 --> 0:09:32.080 metric changed, and maybe six quarters, perhaps that's a good thing. 0:09:32.640 --> 0:09:37.400 And quietly JP Morgan is offering you John a five 0:09:37.480 --> 0:09:41.000 percent one year CD rate, So either if the deposits 0:09:41.000 --> 0:09:46.280 go out, they're quietly taking money from smaller banksy Ken, 0:09:46.280 --> 0:09:49.480 you've been following this for decades in the chone changes. 0:09:49.520 --> 0:09:52.079 You can go back and look from annual report letters 0:09:52.160 --> 0:09:55.240 from fifteen years ago that are embarrassing in their vogue. 0:09:55.679 --> 0:09:58.319 Is the vogue now for these banks to talk down 0:09:58.360 --> 0:10:01.520 their scope and scale. I look at the revenue pop 0:10:01.520 --> 0:10:05.679 and JP Morgan and I would suggest as government affairs 0:10:05.760 --> 0:10:09.680 people are telling mister Diamond, don't let anyone know. Are 0:10:09.679 --> 0:10:14.800 they almost too successful. You're spot on, and the issue 0:10:14.840 --> 0:10:18.280 here is really the messaging and that it's not that 0:10:18.360 --> 0:10:21.959 we have too much capital and we're restricted because there's 0:10:21.960 --> 0:10:26.680 going to be regulatory costs and more regulation as relates 0:10:26.720 --> 0:10:32.000 to holding capitalised, especially exiting Basle three end game. So 0:10:32.600 --> 0:10:37.520 the story here really is making sure investors are comfortable 0:10:37.559 --> 0:10:41.319 that they can get dividend growth and buybacks at levels 0:10:41.360 --> 0:10:44.400 commensurate with the last two or three years. And that's 0:10:44.400 --> 0:10:47.160 going to be really the debate they have behind closed 0:10:47.160 --> 0:10:50.920 doors with Michael Barr and the bank super advisors on 0:10:50.960 --> 0:10:54.600 the stress test, not this year but next year. So 0:10:54.840 --> 0:10:58.360 that's the important thing for investors is knowing that these 0:10:58.360 --> 0:11:01.800 banks are not only resilient and profitable, but they can 0:11:01.840 --> 0:11:06.600 get a total return on their investment. Ken I want 0:11:06.600 --> 0:11:08.960 to build him what Thomas saying, because he's absolutely right. 0:11:09.000 --> 0:11:11.600 We're talking about credit crises and the potential for some 0:11:11.640 --> 0:11:14.840 sort of fragility, and we're talking about JP Morgan expecting 0:11:14.840 --> 0:11:17.160 to bring an eighty one billion dollars of net interest 0:11:17.240 --> 0:11:20.359 income this year, which is far above what people were expecting. 0:11:20.559 --> 0:11:23.960 They are minting money. At what point are we expecting 0:11:24.080 --> 0:11:26.640 Some of the discussion from the C suite to be 0:11:26.720 --> 0:11:30.440 gloomier than perhaps it really is, to perhaps divert a 0:11:30.440 --> 0:11:32.400 little bit of attention from what's going on in the 0:11:32.400 --> 0:11:35.760 bottom line. The bottom line speaks for itself, and that's 0:11:35.760 --> 0:11:39.680 what moves markets. Gerard was correct that we may have 0:11:39.760 --> 0:11:44.440 hit peak net interest margins, but looking back over the 0:11:44.520 --> 0:11:48.000 last five years of the large banks, only JP Morgan 0:11:48.160 --> 0:11:51.920 was able to grow net interest income from twenty seventeen, 0:11:52.440 --> 0:11:56.199 mostly because they expanded their loan activity and their book 0:11:57.160 --> 0:12:00.400 But overall the picture is good, and that was our 0:12:00.480 --> 0:12:04.240 point in the middle of March, is that obviously there 0:12:04.360 --> 0:12:08.920 was tremendous concerns about financial stability, but it was a 0:12:08.960 --> 0:12:11.920 great time as some of the large banks have sold 0:12:11.960 --> 0:12:15.400 off and we took advantage. And I think the capital 0:12:15.480 --> 0:12:18.560 markets still can give you a strong punch in the 0:12:18.600 --> 0:12:21.920 second half of the year because right now we're at 0:12:21.960 --> 0:12:26.880 the trough in terms of underwriting and also mergers and acquisitions. 0:12:28.080 --> 0:12:30.120 You know, Ken Leon's dead on and Lisa, I think 0:12:30.120 --> 0:12:32.920 this is so important. Max Abelson tearing this apart for 0:12:33.040 --> 0:12:36.160 Top Live right now, this is a surreal conversation. And 0:12:36.280 --> 0:12:39.440 mister Leon and Cassidy touch upon this. Their return on 0:12:39.520 --> 0:12:45.880 equity is eighteen percent they are minting money don't look okay. 0:12:46.240 --> 0:12:48.280 So how much is this a JP Morgan story and 0:12:48.360 --> 0:12:50.600 how much is this a BROADERCT banking story and can 0:12:50.640 --> 0:12:53.080 that really will ultimately be the question through the rest 0:12:53.120 --> 0:12:56.720 of this year as perhaps people parse the differential between 0:12:56.720 --> 0:12:58.960 the JP Morgans of the world and all of the 0:12:59.080 --> 0:13:01.439 I don't want to say Silicon Valleys of the world, 0:13:01.480 --> 0:13:05.480 but perhaps the first republic banks of the world. There's 0:13:05.480 --> 0:13:08.800 two iterations here. The first one is if you're diversified 0:13:08.840 --> 0:13:13.360 and you have large capital markets businesses, you're going to outperform. 0:13:13.480 --> 0:13:16.880 The second part of this is really related as you 0:13:16.960 --> 0:13:20.920 look at not only the superregionals, but smaller banks, they 0:13:21.000 --> 0:13:25.520 have a narrower tell asset mix, a higher percentage of 0:13:25.600 --> 0:13:30.400 commercial real estate loans and commercial loans, and the consumer 0:13:30.520 --> 0:13:32.800 will probably slow down a bit in the second half 0:13:32.840 --> 0:13:35.320 of the year. We saw that in the JP Morgan 0:13:35.400 --> 0:13:40.240 results on credit card revenue Ken this was wonderful, wonderful 0:13:40.280 --> 0:13:52.960 to half of mc kenny on that FCFI. Right what 0:13:53.040 --> 0:13:54.920 we're gonna do here is moved to the bank and earnings. 0:13:54.960 --> 0:13:58.640 But right now stay in a very delicate discussion. This 0:13:58.760 --> 0:14:00.760 is a byelat that's what we call it down there. 0:14:00.800 --> 0:14:03.040 We're going to have a bilatto right now, that sort 0:14:03.080 --> 0:14:05.520 of two parties that really don't want to talk to 0:14:05.559 --> 0:14:07.800 each other talk to each other. We're going to do 0:14:07.840 --> 0:14:12.680 that with Waldst Nembrowski, European Commission Executive Vice President, the 0:14:12.760 --> 0:14:17.040 former Prime Minister of his Latvia, the bilot you go 0:14:17.080 --> 0:14:22.800 into now across the Atlantic Ocean with select American officials. 0:14:23.520 --> 0:14:27.080 Is the tension normal back to your prime ministership with 0:14:27.200 --> 0:14:30.440 Latvia in the heart of the GFC, or is there 0:14:30.520 --> 0:14:37.200 something new this time about trans atlantic bilat tension? Good morning. Well, 0:14:37.240 --> 0:14:40.080 first of all, I would highlights that there is a 0:14:40.200 --> 0:14:45.600 very strong transatlantic cooperation. We are strategic allies, and especially 0:14:45.720 --> 0:14:49.600 in times like Zis where we aren't confronted by Russia's 0:14:49.600 --> 0:14:55.200 aggression against Ukraine by war on European soil, we need 0:14:55.280 --> 0:14:59.600 to work together with US and with the entire democratic world. 0:15:00.280 --> 0:15:03.880 And I would say that this corporation, both in terms 0:15:03.920 --> 0:15:09.000 of supporting Ukraine and putting sanctions against Russia is is 0:15:09.480 --> 0:15:15.000 very strong and very good. On a trade side, obviously, 0:15:15.560 --> 0:15:18.680 we are also having very extensive agendas. This was a 0:15:18.880 --> 0:15:23.360 subject of some of my meetings also yesterday and there 0:15:23.400 --> 0:15:26.280 we're still working, for example, on some of the discrimintary 0:15:26.320 --> 0:15:30.320 aspects of the US Inflation Reduction Act. But once again 0:15:30.360 --> 0:15:34.720 we are constructedly engaged with authorities and hope to the 0:15:34.720 --> 0:15:39.640 extent possible solciose issues from Latvia up to Estonia over 0:15:39.720 --> 0:15:42.880 to Finland in your world, in all of our worlds 0:15:42.880 --> 0:15:45.920 have changed here with Finland joining NATO. To me, it 0:15:46.000 --> 0:15:49.720 was just a lifetime shock to see that. How did 0:15:49.720 --> 0:15:54.360 the political dialogues you're in everyday change given a shock 0:15:54.480 --> 0:15:59.120 of this war in Finland simply joining moving from its 0:15:59.120 --> 0:16:04.160 independence in Europe? Well, I think as regards Finland, it 0:16:04.200 --> 0:16:07.440 obviously was a logical choice. If you live next to 0:16:07.480 --> 0:16:12.520 the aggressive empire, you need to seek a stronger protection, 0:16:12.560 --> 0:16:16.600 and that's what Finland did always joining NATO, and hopefully 0:16:16.880 --> 0:16:19.880 Sweden will be able to join soon as well, and 0:16:20.040 --> 0:16:24.720 it definitely strengthens the security in entire Baltic Sea Region. Commissioner, 0:16:24.760 --> 0:16:27.000 you're always diplomatic. I always suggest that you've had to 0:16:27.000 --> 0:16:30.400 spend a week putting up fires, fires started from by 0:16:30.480 --> 0:16:33.320 someone else. I would like to understand how the Europeans 0:16:33.360 --> 0:16:36.520 would respond if the US administration turned around and said 0:16:36.520 --> 0:16:38.240 that they don't want to get caught up in crises 0:16:38.480 --> 0:16:42.960 that aren't ours. What would you say back to that? Well, 0:16:43.000 --> 0:16:46.520 as I was saying at the beginning of interview, when 0:16:46.560 --> 0:16:49.920 we are confronted with major challenges, we are better off 0:16:50.000 --> 0:16:53.480 if we work together as EU US, that we strengthen 0:16:53.560 --> 0:16:58.160 our transatlantic alliance. If it's of the French president there, well, 0:16:59.600 --> 0:17:03.280 clearly is a position of the EU is very clear 0:17:03.400 --> 0:17:07.399 on this. As I said, EU and US are strategic 0:17:07.480 --> 0:17:11.760 allies and we especially in current confrontation or geopolitical situation, 0:17:12.440 --> 0:17:15.320 we need to work together. I get the feeling, and 0:17:15.359 --> 0:17:17.239 this is my assessment, and you can correct me. By 0:17:17.240 --> 0:17:21.880 all means that you're all underplaying the tension between the 0:17:21.920 --> 0:17:25.359 European Union and the US right now publicly. Whenever I 0:17:25.359 --> 0:17:28.639 speak to someone from the US administration or the European Union, 0:17:28.960 --> 0:17:31.400 I get the same story. We all need to work together. 0:17:31.920 --> 0:17:35.320 What I actually see as an observer is a race 0:17:35.800 --> 0:17:40.359 for subsidies in the United States, the European Union racing 0:17:40.359 --> 0:17:42.480 to get its act together to do the same thing. 0:17:42.520 --> 0:17:44.919 It's a real tension starting to emerge. How are you 0:17:44.920 --> 0:17:47.520 going to resolve that? How do you actually truly work together? 0:17:47.760 --> 0:17:49.720 When the US is spending a lot of time saying, 0:17:49.920 --> 0:17:53.560 let's build an America, make America, and then buy America. 0:17:53.880 --> 0:17:56.680 How are you going to resolve that? Well? On ZIS 0:17:56.800 --> 0:17:59.760 and if we are to discuss specifically US Inflation Induction Act, 0:18:00.000 --> 0:18:03.040 who has been very clear since the very beginning. So 0:18:03.280 --> 0:18:07.920 we definitely welcome the climate ambition of the Inflation Induction 0:18:07.960 --> 0:18:13.680 Act and is also working on these goals. But at 0:18:13.680 --> 0:18:17.280 the same time, we have serious concerns about discriminatory aspects 0:18:17.280 --> 0:18:21.280 in Inflation Induction Act. We have set up the dedicated 0:18:21.359 --> 0:18:24.600 EU US Task Force to work on those issues, and 0:18:24.640 --> 0:18:30.520 indeed we are raising these issues also bilaterally with US 0:18:30.680 --> 0:18:34.399 administration and trying to solve them. The previous administration is 0:18:34.400 --> 0:18:37.600 heavily criticized for its approach to trade. Everybody would come 0:18:37.600 --> 0:18:40.440 on TV publicly they had no problem saying getting criticized 0:18:40.440 --> 0:18:44.120 in the Trump administration. Is there any difference any daylight 0:18:44.200 --> 0:18:48.600 whatsoever between this administration and the last one on trade? 0:18:49.040 --> 0:18:52.439 Can you identify one specific piece of daylight difference between 0:18:52.440 --> 0:18:55.840 what this administration is doing and what the last one did. Well, 0:18:56.080 --> 0:18:58.840 First of all, with this administration, we were able to 0:18:59.560 --> 0:19:03.600 park several long standing disputes like RBS Boing dispute, like 0:19:04.640 --> 0:19:08.080 dispute related to steel and aluminium tariffs. Right now we 0:19:08.119 --> 0:19:12.920 are working on the global steel and aluminiumsranges of that Commissioner. Well, 0:19:13.280 --> 0:19:16.760 just yesterday I was discussing this with US trade representative 0:19:17.200 --> 0:19:23.240 Ambassador Thai and there is a very intensive, very constructive 0:19:23.320 --> 0:19:26.280 engagement and we are working with a deadline of October 0:19:26.440 --> 0:19:29.560 this year. In mind, we talk a lot about the 0:19:29.720 --> 0:19:32.200 relationship between the US and Europe, both when it comes 0:19:32.200 --> 0:19:36.120 to trade, but also when it comes to military. We've 0:19:36.119 --> 0:19:38.520 been talking about these leagues that are very sensitive from 0:19:38.520 --> 0:19:42.600 the national security of the United States. Does that change 0:19:42.800 --> 0:19:46.840 your relationship at all with sharing information or doing business 0:19:46.880 --> 0:19:50.800 with the US? Well, once again I must emphasize that 0:19:52.000 --> 0:19:59.920 in a situation where we see aggressive policy of rush, 0:20:00.080 --> 0:20:04.440 I would say increased ambitions of alter attended regimes, it's 0:20:04.440 --> 0:20:08.840 important that democratic world works together. So yes, our problems 0:20:08.880 --> 0:20:12.240 are difficulties, but we need to be able to to 0:20:13.040 --> 0:20:17.320 discuss overcomes them and find a joint solutions as a 0:20:17.359 --> 0:20:20.760 response to current job political situation. But as you're very 0:20:20.840 --> 0:20:22.280 kind to give us so much your time, thank you 0:20:22.280 --> 0:20:25.040 for paying with this commission, we appreciate it. Bariston Browskiste 0:20:25.280 --> 0:20:32.840 of the European Commission, this is always a joy joining 0:20:32.880 --> 0:20:35.439 us now Loop and ram and with PIMCO, head of 0:20:35.480 --> 0:20:38.160 the EM of course, your service to the International Monetary 0:20:38.200 --> 0:20:42.080 Fund for years, and far more importantly a student of 0:20:42.119 --> 0:20:45.280 the ramifications of the central banker to the world, Jerome 0:20:45.320 --> 0:20:49.440 Powell in EM sovereign debt. How big of an influence 0:20:49.760 --> 0:20:54.159 is mister Powell? Right now, I'm Bolivia, I'm Ghana in 0:20:54.200 --> 0:20:58.000 the news today and frankly on other larger, more successful 0:20:58.080 --> 0:21:03.760 EM economies. Well, the FED cycle is extremely important for 0:21:04.000 --> 0:21:06.960 major emerging markets, particularly those in the investment grade portion 0:21:06.960 --> 0:21:09.399 of the asset class. But you correctly point out that 0:21:09.440 --> 0:21:13.960 for the frontier markets that are really facing credit stresses, relatively, 0:21:14.560 --> 0:21:17.040 you know, the impact of the FED is relatively a 0:21:17.040 --> 0:21:21.800 lot smaller than you would expect. It's smaller than you'd expect. 0:21:21.840 --> 0:21:26.720 But the fact is there's a multidimensional crisis in EM. 0:21:26.720 --> 0:21:30.760 Now in your study of history at LLC of how 0:21:30.920 --> 0:21:35.400 is this distress, this tension different than what we've seen 0:21:35.880 --> 0:21:39.440 back to nineteen ninety two and frankly back before that, Well, 0:21:39.480 --> 0:21:41.679 I take a slightly different view. I actually think the 0:21:41.720 --> 0:21:44.920 crisis is more in developed markets than emerging markets. For 0:21:45.320 --> 0:21:48.040 the first time in a long time in EM, you 0:21:48.080 --> 0:21:52.919 have inflation coming down, you have growth essentially, Companion Emerging 0:21:53.000 --> 0:21:57.560 career got out front with radio increases, absolutely Career, Brazil, Chile, 0:21:57.880 --> 0:22:00.760 the list is endless, and not only that they've avoided 0:22:00.800 --> 0:22:04.240 deep recessions, whereas we have the kind of soft landing 0:22:04.320 --> 0:22:07.720 versus hard landing debate in in developed markets. I think 0:22:07.760 --> 0:22:10.679 that you know, when we're thinking about crises in EM, 0:22:10.760 --> 0:22:14.640 it really is a select number of frontier markets that 0:22:14.680 --> 0:22:18.439 don't form the aggregate part of emerging markets that we 0:22:18.520 --> 0:22:21.800 actually invest in. And it's important to bear that in mind. 0:22:22.640 --> 0:22:27.360 For countries like Mexico, like Brazil, like South Africa, like Indonesia, 0:22:27.680 --> 0:22:33.680 we're extremely constructive this UH, this new phase within their economies, 0:22:34.040 --> 0:22:38.000 particularly as they're trying to come out of this tightening cycle, 0:22:38.160 --> 0:22:41.080 is going to be very constructive for EM investors. Lupin, 0:22:41.119 --> 0:22:43.400 you said, this is one of the most exciting IMF 0:22:43.480 --> 0:22:46.560 meetings you've ever been at. Why, Well, this is the 0:22:46.600 --> 0:22:49.440 first time we really have a lot of discussions on 0:22:49.560 --> 0:22:53.960 debt restructurings and importantly the role of the multi development 0:22:54.440 --> 0:22:58.320 banks and the and China in debt restructurings, and so 0:22:58.920 --> 0:23:01.320 this time around, you know, we're seeing a lot of 0:23:01.359 --> 0:23:05.040 debate and discussion some pushback from China. It's the first 0:23:05.040 --> 0:23:09.920 time we're really seeing negotiations related to the MDB's senior 0:23:10.040 --> 0:23:14.760 status in debt restructurings, and the recent global workshop that 0:23:14.800 --> 0:23:19.600 the IMF held last week essentially highlighted that the MDBs 0:23:19.640 --> 0:23:23.480 will be committing more grant financing for some of these 0:23:23.720 --> 0:23:26.400 debt restructuring countries. How much is what you were first 0:23:26.400 --> 0:23:29.240 talking about connected to this very deeply that right now 0:23:29.280 --> 0:23:31.600 the crisis is not in the developing world as much 0:23:31.760 --> 0:23:33.840 when it comes to the rates picture, it's much more 0:23:34.119 --> 0:23:37.199 in the developed world and frankly, US, which is the 0:23:37.240 --> 0:23:40.240 biggest market for a lot of these debt instruments. How 0:23:40.320 --> 0:23:43.240 much is that coloring the conversation and the willingness to 0:23:43.320 --> 0:23:46.560 sort of allow things to sort of just go on 0:23:46.720 --> 0:23:50.159 and losses to gather at a time that's somewhat fraught 0:23:50.200 --> 0:23:52.800 for the developed world. So I think that, you know, 0:23:53.600 --> 0:23:59.320 the impact that high inflation in the developed economies has 0:23:59.359 --> 0:24:02.920 on these discuss is important, but it really isn't the 0:24:02.920 --> 0:24:05.639 front and center when it comes to the debt negotiations. 0:24:05.720 --> 0:24:11.000 The debt restructuring issues are long term. It really strikes 0:24:11.000 --> 0:24:14.760 at the heart of how the Paris Club, China, India, 0:24:15.160 --> 0:24:19.239 the GCC Saudi Arabia are going to work together in 0:24:19.440 --> 0:24:23.840