WEBVTT - Invesco's Das: UK Remaining in EU Strengthens Germany (Audio)

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<v Speaker 1>The Brexit vote on Bloomberg Radio, continuing coverage of the

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<v Speaker 1>vote in the United Kingdom. Polling has ended and the

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<v Speaker 1>count continues in the United Kingdom over the referendum to

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<v Speaker 1>remain or to leave the European Union. Here to help

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<v Speaker 1>us understand more is arenab Doss. He is head of

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<v Speaker 1>Emerging Markets macro for invest Goo Fixed Income and he

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<v Speaker 1>joins us from London area. Thanks very much for being

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<v Speaker 1>with us. Tell us a little bit about your day

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<v Speaker 1>and what did you see during the voting process. UM. Well,

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<v Speaker 1>you know, it's like all the news stories are saying

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<v Speaker 1>there's there's been a raining, cats and dogs and problems

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<v Speaker 1>with the with the transport system, so there was concern

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<v Speaker 1>about turnout. UM. The Nigel Farage quote UM to Sky

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<v Speaker 1>News makes the very important point. I think that turnout

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<v Speaker 1>was extremely high. There's some estimates that turnout was perhaps

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<v Speaker 1>UM despite the despite the problems with the weather and

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<v Speaker 1>the transport system, which indicates that UM, probably the Remain

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<v Speaker 1>camp was successful in getting the vote out. UM. And

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<v Speaker 1>by all accounts a high turnout would be would point

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<v Speaker 1>to a Remain success. So I think that's that's where

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<v Speaker 1>it's going. It's quite early to be sure yet, but

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<v Speaker 1>that's the direction that we're headed. I think, so if

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<v Speaker 1>we're heading that direction, let's let's just look as sort

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<v Speaker 1>of emerging markets broadly, because it seems that you can

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<v Speaker 1>slice a possible Brexit vote which apparently is not passing

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<v Speaker 1>a lot of different ways from a lot of different countries.

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<v Speaker 1>But the one big factor has been uncertainty, right right,

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<v Speaker 1>I think the uncertainty would have been very well and

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<v Speaker 1>if it is the case that there is still a

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<v Speaker 1>vote for Brexit, the uncertainty will be very magnified. The

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<v Speaker 1>market has effectively priced out the risk of Brexit UM

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<v Speaker 1>in UK assets, European assets, and generally in risky assets. UM.

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<v Speaker 1>There's probably some more upside because there is residual uncertainty.

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<v Speaker 1>But I think if you know the danger now is

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<v Speaker 1>that if UM, if the vote count goes the other way,

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<v Speaker 1>that there's significant downside, right because it's all been pricing

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<v Speaker 1>towards the Brexit out sorry towards the Bromain outcome. UM.

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<v Speaker 1>I think if if that's the outcome that we get

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<v Speaker 1>Bermaine UM, then we're more likely to see continued UM

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<v Speaker 1>calming down in the markets. Right because a major event

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<v Speaker 1>risk and a major source of political contagion in Europe,

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<v Speaker 1>copycat eggs at referendums and so on, as well as

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<v Speaker 1>the political crisis within the UK that Professor Blanchflower mentioned.

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<v Speaker 1>All these things would be much less of an event

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<v Speaker 1>risk and so I think we would have continued buying

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<v Speaker 1>of of risky assets UM, including emerging markets, because liquidity

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<v Speaker 1>conditions in the world remain very high, inflation is very low,

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<v Speaker 1>yields are very low everywhere. UM. So I think you

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<v Speaker 1>know that it would be a kind of a bit

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<v Speaker 1>of a green light. It wouldn't really solve anything fundamental,

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<v Speaker 1>but it wouldn't open a kind of worms either. But

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<v Speaker 1>I'm wondering if you could tell us about what the

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<v Speaker 1>European Union would do or respond no matter which way

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<v Speaker 1>the vote goes. It's likely to be very close. The

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<v Speaker 1>fact that you have so many people in a major

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<v Speaker 1>European Union country who would like to leave this particular club.

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<v Speaker 1>What will the European Union's response be. Well, I think

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<v Speaker 1>in the in the remains scenario, UM, I think we're

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<v Speaker 1>likely to get a kind of um validation of the

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<v Speaker 1>deal that Prime Minister Cameron UM achieved with the with

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<v Speaker 1>the European Union back in February, which essentially paves the

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<v Speaker 1>way towards a kind of full fledged two track Europe

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<v Speaker 1>where the Eurozone heads for deeper integration, however slowly towards

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<v Speaker 1>some sort of federalization, hopefully along the American model. But

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<v Speaker 1>that's by no means assured UM and the rest of

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<v Speaker 1>the European Union UM is in a different track to

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<v Speaker 1>a different destination. Right that the UK then has an

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<v Speaker 1>opt out from this idea of ever deeper union, which

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<v Speaker 1>is one of the fundamental tenets of the European Union

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<v Speaker 1>and of course of the euro itself, so that I

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<v Speaker 1>think it's in and of itself, will be an important change,

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<v Speaker 1>almost regardless of the um of the outcome for Prime

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<v Speaker 1>Minister Cameron himself, and that will create room for Europe

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<v Speaker 1>as a whole to hold together UM with countries that

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<v Speaker 1>are Euroskeptic but not members of the euro UM and

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<v Speaker 1>stay in the in the European unions, such as Denmark.

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<v Speaker 1>Does this put UM? I just wonder what is it does?

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<v Speaker 1>What does it say for Germany? You know, Nigel Farrage,

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<v Speaker 1>who's one of the big leaders, the biggest voices in

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<v Speaker 1>favor of Brexit, critical, very critical of Germany and how

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<v Speaker 1>they become so UM dittorial right or the EU. If

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<v Speaker 1>I can sum up the tone of what he has said,

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<v Speaker 1>does Germany rethink its position? Does Germany say, well, I'm glad,

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<v Speaker 1>breathe a sigh of relief that this didn't pass, but

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<v Speaker 1>take somewhat different tact in its relations with some EU countries. UM, well,

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<v Speaker 1>I think you know. The first thing for Germany is

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<v Speaker 1>that having the UK UM stay in the European Union

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<v Speaker 1>strengthens Germany's hand for a more economically liberal and open

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<v Speaker 1>European Union and Eurozone right. So Germany is always UM

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<v Speaker 1>in a position of UM, supported I would say, or

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<v Speaker 1>even lead in some respects by the United Kingdom UM

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<v Speaker 1>in opposing the UH greater degree of labor market rigidities,

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<v Speaker 1>difficulties and hiring and firing difficulties in UM, in the budgets,

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<v Speaker 1>difficulties in the welfare state UM, and the protection for

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<v Speaker 1>labor that is more present, let's say, in southern Europe

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<v Speaker 1>and in the Mediterranean countries and also in France. So

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<v Speaker 1>I think, for for you know, for starters UM, Germany's

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<v Speaker 1>view and preference for a more open European system economic

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<v Speaker 1>system would be supported UM. On the issue of UM,

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<v Speaker 1>the the idea of what ultimately needs to take place,

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<v Speaker 1>a kind of federalization UM in which there's political union

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<v Speaker 1>ultimately fiscal union UM and a much stronger banking union UM.

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<v Speaker 1>I think the the continuance of the UK in the

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<v Speaker 1>EU makes that a little bit less easy to accomplish.

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<v Speaker 1>If there were shocks, it would be perhaps faster, but

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<v Speaker 1>in this scenario probably be slower and may not get

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<v Speaker 1>there until the next shock. Aarn Abdas, thank you so

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<v Speaker 1>much for joining us head of Emerging Markets MACO for

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<v Speaker 1>invest Go fixed Income, taking a look at the Brexit vote,

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<v Speaker 1>taking stock Bloomberg Radio