Speaker 1: Brought you by Bank of America Mary Lynch. Investing in
Speaker 1: local communities, economies and a sustainable future. That's the power
Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated
Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg. We have a special guest
Speaker 1: in London day Yes, Film Bowdery, the global chief economistic
Speaker 1: City Group, joins us from there. We miss having him
Speaker 1: here in our Bloomberg eleven three oh studios in New York,
Speaker 1: but great to have you with us from London. There
Speaker 1: is there is such symbolism to this moment when we
Speaker 1: see this letter being delivered to Donald Tusk, the the
Speaker 1: EU Council at present, what notionally changes as a result
Speaker 1: of this, and indeed we have the symbolism what what's
Speaker 1: going to change with regard to the economy When this
Speaker 1: letter is delivered, the clock starts sticking unless a miracle
Speaker 1: happens Britain will be out of the EU in two
Speaker 1: years time, and so the diual concentrate mind. And we'll
Speaker 1: see the opening bid of the British government in that letter,
Speaker 1: and we'll get I think, also quite publicly with dispect
Speaker 1: the initial response of the European Council and and the
Speaker 1: Commission and indeed European Parliament, which of course has to
Speaker 1: approve to hold you it really is a it's it's
Speaker 1: a defining moment, uh. And I think those who I
Speaker 1: hope it wouldn't happen or felt that it could happen
Speaker 1: uh smoothly and without um any material pain for the
Speaker 1: British economy, will, I think, have then those wrapped in
Speaker 1: the unpalatable facts as the weeks become months. How worried
Speaker 1: do you hear about the element of surprising that we've
Speaker 1: heard quite a bit from Prime Minister Theresa May since
Speaker 1: since this referendum she stuck to the timetable she set
Speaker 1: out several months ago. Are are you worried about a
Speaker 1: sort of surprise factor here in light of what we've
Speaker 1: seen in the UK economy thus far. No, I think
Speaker 1: the positions uh are pretty clear. The British government has
Speaker 1: UH I think UH waded back from its uh Conservative
Speaker 1: Party Conference rhetoric and it's embrace of the heart brekxhit.
Speaker 1: It's clearly trying to UH find a way of getting
Speaker 1: uh some interim agreement which phil have significant continuity for
Speaker 1: British business. So I think there's uh at disappoint a little. UH.
Speaker 1: I think I'm not surprised if you don't get an
Speaker 1: early agreement on uh the existing EU citizens in the
Speaker 1: UK and UK you on lordn Island and on the budget.
Speaker 1: That would be a surprise. If they we do this
Speaker 1: in two years, Professor Powder, it will be a century,
Speaker 1: one hundred years from the Paris peace conference associated with Versailles.
Speaker 1: I don't see David Lord, George of Vittorio Orlando, George
Speaker 1: Clemenceau or Woodward Wilson in sight. How do negotiations actually occur?
Speaker 1: I mean, what, how do you visualize negotiations? Have they
Speaker 1: done it? Ah? You know, look kinto hotel in Brussels
Speaker 1: or I mean, I mean, what's gonna be at the table.
Speaker 1: Where's the table gonna be? There's no president for exactly, uh,
Speaker 1: For all I know, they will be sitting in the
Speaker 1: will their spaniord on the ground plus in Brussels. But
Speaker 1: I think they'll probably UH meeting UH Commission premises or
Speaker 1: something like that. It's doubt why they would assist on
Speaker 1: on neutral territory sort of a demilitarized zone in the
Speaker 1: middle of Brussels. Um the logistics are actually not going
Speaker 1: to be that important. It's really uh the mandates the
Speaker 1: negotiators will start with and be especially interesting to see
Speaker 1: what the you know, the Commission and the Council come
Speaker 1: up with in terms of guidelines and sort of opening positions.
Speaker 1: That's the great uncertainty to be at this point. I
Speaker 1: feel one of the soft data telling us now about
Speaker 1: the UK economy, how is sentiment in the United Kingdom
Speaker 1: about the Brexit and need what may follow after Well,
Speaker 1: sentiment has been remarkably robust until quite recently. There is
Speaker 1: some indication now that especially among Samese and very recently
Speaker 1: also among uh major corporations Japanese among them making a
Speaker 1: capital expands in FDI decisions, that they are looking at
Speaker 1: ways of reducing the exposure to to Britain. But but
Speaker 1: until now, consumer sentiment has been remarkably robust, and UH
Speaker 1: as has a corporate sentiment the only place where we've
Speaker 1: seen concern expressed and the anticipation of pain has been
Speaker 1: the exchange rate, and ironically that is of cause helped
Speaker 1: the rest of the economy. There's no question about that.
Speaker 1: Let's come back with Villan Bouder in our London studios
Speaker 1: and as most history outside of David, it was something
Speaker 1: that the Prime Minister migrate by jaguar from ten Downing
Speaker 1: Street over to Parliament. I mean there's that, you know,
Speaker 1: for even for us from a distance, it's happening and
Speaker 1: the se see the footage that are calling. Matt Miller
Speaker 1: tweeted out as well of the the Ambassador to the
Speaker 1: EU arriving in the jaguar as well, with that letter
Speaker 1: in a briefcase soon to be delivered to the President
Speaker 1: of the EU Council. Yeah, I mean I would have
Speaker 1: gone in a range over land Rover Defender hic with
Speaker 1: the Hunter boots looking very queenly out in the tundra.
Speaker 1: David Gern Time Keena New York in our London studios,
Speaker 1: Villain Powder of City, Professor Powder, help me here with
Speaker 1: your great call on slower economic growth, on a global
Speaker 1: slow down. What's gonna take for you to move your
Speaker 1: vector I don't mean to get the gloom right, but
Speaker 1: how do you get more optimistic? What do you need
Speaker 1: to observe in the global economy that would get you
Speaker 1: more optimistic about economic growth? Well, uh, from a sustained,
Speaker 1: longer run active we would need UM structural reforms, UM,
Speaker 1: more capital expenditure broadly defined, including infrastructure, human capital, and
Speaker 1: I think an elimination of trade barriers and barriers of
Speaker 1: mobility of laboring capital. So all these things. Uh, we're
Speaker 1: moving into opposite direction. So that's unlikely to happen from
Speaker 1: a short run cychnical perspective, but we uh, anything that
Speaker 1: looks like a fiscal stimulus UM implemented or anticipated will
Speaker 1: boost the level of activity. That's happened in the US
Speaker 1: a certain extent or there was growing doubt about the
Speaker 1: ability of administration to deliver the meaning for fiscal stimulus.
Speaker 1: I think that particular source of animal spirits may be
Speaker 1: wearing thin um and likewise less fiscal restraint in the
Speaker 1: r Area Party as a result of a number of
Speaker 1: key elections taking place. All that I think boosts economic
Speaker 1: activity and the cycnical UH. In the cytical manner um,
Speaker 1: that's not sustainable, of course, but it's nice. But at
Speaker 1: last you mentioned that growing doubt, and I wonder what's
Speaker 1: changed about your outlook here over the last week in
Speaker 1: light of what we saw in Washington on Friday's we
Speaker 1: saw that healthcare build being pulled off, the pulled off
Speaker 1: the Congress's floor. It was just the ability to deliver right. Um,
Speaker 1: we really has to look at the at Washington as
Speaker 1: not having the Republicans in charge of the White House
Speaker 1: and both Houses of Congress, but being you know, in
Speaker 1: charge of both houses of Congress with an independent in
Speaker 1: UH in the White House, and it's become clear that
Speaker 1: the ability of the President and the Congress to deliver
Speaker 1: key reforms is very questionable. And even within the Republicans
Speaker 1: in the House and the Senate, there are these very
Speaker 1: sharp divisions now. But have under mind speak of Ryan's
Speaker 1: position is credibility. UH. The and the Freedom Caucus and
Speaker 1: other tea parties are I think orthogonal both to Ryan
Speaker 1: and and to Trump. So it just looks like a
Speaker 1: bit of it is organized. Mess help us with this
Speaker 1: strange word eurosclerosis. I mentioned it the other day and
Speaker 1: got a nasty note from someone saying, oh, you're so gloomy.
Speaker 1: The nominal GDP that City Group looks for for the
Speaker 1: United States of America. Is it unique, separate and discreet
Speaker 1: or is it just plain old simple eurosclerosis And you
Speaker 1: mean the the low growth in the United States. Yes,
Speaker 1: it's UH, partly, of course, reflection of of eighteen of demographics.
Speaker 1: But on top of that, I think there is forty
Speaker 1: years of progressive over regulation increasingly distortionary, and I think
Speaker 1: UM UH distribution early and desirable taxation UM a legal
Speaker 1: system that has made lawsuits so easy that the whole
Speaker 1: ranges of human activity, including health care, are slowed down
Speaker 1: and burdened with enormous costs. So the US is indeed
Speaker 1: a country that is in deep seated supply side trouble
Speaker 1: and needs UH both widespread deregulation and UM active tax
Speaker 1: reforms and selective boosts in public expenditure on health, education
Speaker 1: and infrastructure. So the country really has all its work
Speaker 1: cut out for us for it. So Villain Batter thank
Speaker 1: you so much, with City greatly appreciate particularly UH David
Speaker 1: and I Agan, thank you for your work. The day
Speaker 1: of the Netherlands election. That was really a special moment
Speaker 1: brought to you by Bank of America Mary Lynch dedicated
Speaker 1: to bringing our clients insights and solutions to meet the
Speaker 1: challenges of a transforming world. That's the power of global connections.
Speaker 1: Mary Lynch, Pierce, Fenner and Smith Incorporated, Member s I
Speaker 1: p C. On this historic day for the United Kingdom,
Speaker 1: Daniel Jurgen, Professor Jurgen, Dr Jurgen Rather The Commanding Heights
Speaker 1: is the iconic book on the ascent of the United Kingdom.
Speaker 1: This is not a United Kingdom. Clement at Lee would
Speaker 1: know at the end of World War to the Prime
Speaker 1: Minister gave a rousing speech today, what is the perspective
Speaker 1: you can give on how these negotiations will go? For
Speaker 1: Prime Minister May, given the sprawl from nineteen fifty two,
Speaker 1: all of the trade discussions of you the Union, what
Speaker 1: is the perspective today forward? I think that the good
Speaker 1: Morning Tom. I think that the phony war that's going
Speaker 1: on for the last ten months about Brexit, of course
Speaker 1: it's now the real war has begun, and I think
Speaker 1: it's going to be a big and tough struggle. No
Speaker 1: one really knows how it's going to go. The EU
Speaker 1: is proposing a sixty uh dollar bill to UH to Britain,
Speaker 1: and I think it's what's at stake, of course, is
Speaker 1: not only for Britain, but is for the EU, which
Speaker 1: is dealing with the stresses that come from the common
Speaker 1: having a common currency that isn't backed up by common institutions,
Speaker 1: the euro, and compounded by the open borders. So I
Speaker 1: mean for for the EU as much as Britain. This
Speaker 1: incogation so essential because it's also about the future of
Speaker 1: the EU. Where is the commanding heights of Europe? Is
Speaker 1: it a Chancellor Miracle's desk? At this point it has been.
Speaker 1: Germany has been really the political and economic engine that
Speaker 1: has kept the whole thing together. Her position thought have
Speaker 1: been weakened by the influx of million migrants, but the
Speaker 1: Germans did well in the most recent UH elections her party,
Speaker 1: So she is the you know, she is the kind
Speaker 1: of personification of Europe right now, particularly with this potential
Speaker 1: disarray in France. M hm. There was a remarkable moment
Speaker 1: in the speech, I thought when Prime Minister Theresa May said,
Speaker 1: perhaps more than ever, the world needs the democratic, liberal
Speaker 1: values of Europe. And you heard the jeering and the
Speaker 1: laughter from the backbenches in parliament. What did you make
Speaker 1: of that line? What did you make of the overtures
Speaker 1: that the Prime Minister made to the greater European community
Speaker 1: in the speech today, Well, I think she's uh, you know,
Speaker 1: she has to play a very complex hand here in
Speaker 1: terms of what what part of Europe or europe connections
Speaker 1: will remain, and so uh, you know, that's an olive
Speaker 1: branch in a way to the uh, to the Europeans. Uh.
Speaker 1: You know, I'm sure that line was very carefully crafted
Speaker 1: as they begin these really tough negotiations for which there's
Speaker 1: no precedent. What's the best case scenario here for a deal?
Speaker 1: I imagine the best cases one that's concluded or agreed
Speaker 1: upon within this two year period. But what are you
Speaker 1: looking for when when when you think of what a
Speaker 1: good deal for for the UK and the EU might
Speaker 1: be Well, for the UK, I think it would be
Speaker 1: a way to continue to be active in almost in
Speaker 1: a free trade like way with the EU, sort of
Speaker 1: going back to what the European Community was a trading group,
Speaker 1: and to maintain the financial position of London as a
Speaker 1: as a as as the basis for Europe. I think
Speaker 1: for the EU, the stakes really are to make sure
Speaker 1: that this is not the first as many uh, and
Speaker 1: that this doesn't seed populism. And I'll tell you, uh,
Speaker 1: you know, the French elections will be so so critical
Speaker 1: uh to what happens next on oil, And of course
Speaker 1: everybody wants to know what, Daniel, you're going to think oil.
Speaker 1: Let's bring the two together. Oil in Scotland. The North
Speaker 1: Sea isn't the North Sea of the Commanding Heights, is it? No,
Speaker 1: it's quite different. You know, when they had the Scottish referendum,
Speaker 1: which was very close of two years ago, it was
Speaker 1: when oil was still a hundred dollars a barrel. I've
Speaker 1: often wondered how that vote would have gone when oil
Speaker 1: was forty or fifty dollars a barrel, because part of
Speaker 1: Scottish nationalism has always been well it's our oil and
Speaker 1: we'll get the oil. And uh, but in a lower
Speaker 1: price range Scotland, you know that it doesn't have that
Speaker 1: fiscal advantage that comes from higher priced oil. So um, uh,
Speaker 1: you know it's a question of the Scottish Parliament may
Speaker 1: vote that they want a referendum, but that doesn't mean
Speaker 1: that they'll necessarily be a referendum. I should say so
Speaker 1: for Theresa May, this is really a two front War
Speaker 1: one is one of Brussels and the others with Edinburgh.
Speaker 1: I'm putting, are these e I A data will get
Speaker 1: today at three Wall Street times and putting will never
Speaker 1: come on the show. And yet and folded into the
Speaker 1: conversation that was dominant. I didn't say which data? Did
Speaker 1: you say the data the ID and folded into the
Speaker 1: conversation You hadn't to a couple of weeks back at
Speaker 1: your your Sarah conference that you know what we heard
Speaker 1: from the Saudio oil ministry there. Well, it was very
Speaker 1: interesting because of course, Uh, when we began the conference,
Speaker 1: the oil price was up from what had been when
Speaker 1: we helped sire a week the year earlier. By the
Speaker 1: end of the week the oil price was down ten percent.
Speaker 1: Not connected to the conference, I think to to UH,
Speaker 1: because we have the Saudi minister, the Russian minister, UH,
Speaker 1: the Secretary General of OPEC, the head of i A there,
Speaker 1: and you know the message was that this OPAC not
Speaker 1: OPE agreement is really going to going to hold. But UH,
Speaker 1: as you point to inventories, you know that they said
Speaker 1: the key metric if that they'll be looking at is inventories,
Speaker 1: and inventories remain high. I think that. Um. What was
Speaker 1: already clear in Houston is that the next key day
Speaker 1: is May when OPEC meets, and I think coming out
Speaker 1: of this meeting this weekend, Wait, they're signaling that, Uh
Speaker 1: they really if if they don't extend their six months agreements,
Speaker 1: six months goes by quickly. Uh, that would put a
Speaker 1: new pressure on the oil price, particularly, I should say,
Speaker 1: with the amount that US producers have been able to
Speaker 1: hedge their production forward. Dr. You're gonna honor to have
Speaker 1: you on with this, for this historic to have United
Speaker 1: Kingdom folks, I'll put out on Twitter, Yurgens. The Commanding
Speaker 1: Heights can't say enough about it. We are in the
Speaker 1: edge of April, and April in any in all cases
Speaker 1: means the meetings of the International Monetary Fund will of
Speaker 1: course give you complete coverage of that. We begin today
Speaker 1: with the publication of Fiscal Politics and are honor to
Speaker 1: bring you Vito gas Bar with the International Monetary UH Fund.
Speaker 1: Dr gaspar good morning, going within your wonder document and
Speaker 1: thoughtful two plus excuse me, four hundred plus pages. Uh,
Speaker 1: could you please tell me what you learned about austerity?
Speaker 1: You know, I look at the history being made by
Speaker 1: Prime Minister made today, I look at the challenges of
Speaker 1: Europe and that word from three or four years ago
Speaker 1: was austerity. How does austerity fold into our political fiscal
Speaker 1: or our fiscal politics? So, Tom, Uh, the UH political
Speaker 1: economy aspects. The link between politics and economics was a
Speaker 1: tradition UH in economics up to the beginning of the
Speaker 1: twentieth century. That tradition has been a little bit lost recently,
Speaker 1: and about two years ago, UH we decided at the
Speaker 1: Fiscal Affairs Department of the International Monetary Fund that looking
Speaker 1: at the relation between polit tics and economics in general,
Speaker 1: and especially the relation between politics and fiscal policy was key,
Speaker 1: and so we launched this project that is now come
Speaker 1: to the presentation of this book that includes three parts
Speaker 1: and nineteen chapters on a very wide variety of topics
Speaker 1: on fiscal policy and politics. Unfortunately, we don't have a
Speaker 1: special focus on austerity, but we do have quite a
Speaker 1: lot on how one should think about the political conditions
Speaker 1: that allow governments to UH follow sound countersyclical fiscal policies,
Speaker 1: which is a key priority today. I hope Tom that
Speaker 1: given that we launched this program, this project two years ago,
Speaker 1: you will concede to us that we got our timing
Speaker 1: more or less right. No, Tom Hm. One of the
Speaker 1: chapters of the nineteen that stood out to me is
Speaker 1: one that you authored here on lessons that the European
Speaker 1: Union can learn from early American history. Give us the
Speaker 1: crisis of that what what? What lessons are there to
Speaker 1: be learned from what happened in this country when it
Speaker 1: comes to supernational fiscal policy. Oh, that experience is absolutely fascinating.
Speaker 1: So if you go to the beginning of the US
Speaker 1: administration with Alexander Hamilton's so in a seventeen seventeen eighty
Speaker 1: nine Hamilton's already benefited from the US Constitution. One of
Speaker 1: the innovations from the US Constitution was that the federal
Speaker 1: government was given the power to tax. Since that power
Speaker 1: was no longer disputed, the federal government had the ability
Speaker 1: to generate the revenues necessary to service and repay the
Speaker 1: very large debts that had been accumulated during the War
Speaker 1: of Independence. And Alexander Hamilton's was extremely systematic in building
Speaker 1: the new US federal administration that, of course did not
Speaker 1: exist before. He built up the US tax capacity at
Speaker 1: the federal level completely from scratch, and one of the
Speaker 1: aspects that I developed more in this paper is that
Speaker 1: he set up the conditions UH that allow US Treasury
Speaker 1: bonds to become the ultimate safe asset in the US
Speaker 1: and a cord or stone of the US financial system.
Speaker 1: And that is the part which I believe is more
Speaker 1: relevant for European integration. Today, we're gonna we have breaking news, sir,
Speaker 1: so we're gonna have to leave it short. But Vitur
Speaker 1: Gaspar congratulations on this work from the International Monetary Fund.
Speaker 1: Fiscal politics really beginning to kick off the view of
Speaker 1: international economics that focuses on the World Bank and i
Speaker 1: m F meetings here in the end of April. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm out on Twitter at Tom Keene. David Gura is
Speaker 1: at David Gura. Before the podcast, you can always catch
Speaker 1: us worldwide. I'm Bloomberg Radio, brought you by Bank of America,
Speaker 1: Mary Lynch, dedicated to bringing our clients insights and solutions
Speaker 1: to meet the challenges of a transforming world. That's the
Speaker 1: power of global connections. Mary Lynch, Pierce Feeder and Smith Incorporated,
Speaker 1: member s I p C,