Speaker 1: Hi, and welcome back to Bloomberg Benchmark, a show about
Speaker 1: the global economy. It's Friday June. I'm Daniel Moss, Executive
Speaker 1: editor for Global Economics at Bloomberg and New York, and
Speaker 1: I'm joined on the line from London by my colleague
Speaker 1: Paul Gordon. Paul is responsible for Western European central banks,
Speaker 1: the news on the central banks. So Paul, what kind
Speaker 1: of night have you had? A long one, for certain,
Speaker 1: I was in at about four o'clock in the morning.
Speaker 1: I got up about four o'clock morning to get out
Speaker 1: the hotel and head over to the office and severally
Speaker 1: bemused handful of people on the street at that time.
Speaker 1: A little later on, my colleague was down at Canary Wharf,
Speaker 1: obviously a big financial district in London, and there people
Speaker 1: were looking at their phones, looking at the headlines. There
Speaker 1: was a lot of swearing, i can tell you, and
Speaker 1: a lot of the muse face. And there's a good
Speaker 1: reason for that, because these are the people who have
Speaker 1: been hit most of all. Initially, the markets have been plunging,
Speaker 1: as you're aware, and it is the bankers he may
Speaker 1: well be fearing for their jobs in some areas following
Speaker 1: a brexcept and Britain's vote to leave the EU wasn't
Speaker 1: really even that close, was it. Well, in the end,
Speaker 1: pretty much cent so no, nowhere near as close as
Speaker 1: some of the opinion polls had been in the run
Speaker 1: up to the vote, and nowhere near as close. Quite
Speaker 1: the reverse in fact of what the first opinion poll
Speaker 1: said once the polls closed yesterday. So a lot of
Speaker 1: people went to bed last night thinking, right, the Leave
Speaker 1: campaign has lost, Remain will win, And when they got
Speaker 1: up this morning they found it was a very different story.
Speaker 1: And the country is not just divided on whether to
Speaker 1: stay or whether to go. The results and where the
Speaker 1: results have come from indicate a nation divided economically some
Speaker 1: pretty stark ways. Talk about that, yes, I mean one
Speaker 1: of the key divisions that you seen is on age.
Speaker 1: The young have been supporters and the elderly much less.
Speaker 1: So There's been division on wealth as well, the wealthier
Speaker 1: people have wanted to stay and the poorer have not.
Speaker 1: And also geographically, with the North in many cases voting
Speaker 1: out and the South and particularly London voting in the
Speaker 1: other exceptions there are though, that Scotland and Northern Ireland
Speaker 1: voted to stay, and that does make the question of
Speaker 1: the UK that union three year old union also gets
Speaker 1: called into question. So speaking of London, it is one
Speaker 1: of the great cities of the world. It is by
Speaker 1: far the most populous region of the country. When you
Speaker 1: go to the Starbucks around the corner from our office
Speaker 1: for a red Eye with an extra shot, do you
Speaker 1: expect to see people with their head in their hands?
Speaker 1: Oh my god, what have we done? Well, I'll tell
Speaker 1: you there's a good point to remember is that when
Speaker 1: you do go to your local Starbucks, the person serving
Speaker 1: you may well not be British. They may well have
Speaker 1: come from one of the Southern European countries or one
Speaker 1: of the Eastern European countries. One person I spoke to
Speaker 1: earlier this morning, he asked me if I knew what
Speaker 1: the result was, and I told him where it was headed,
Speaker 1: that Leave was winning. He said that's good, and I said, well,
Speaker 1: why is that? And he said that's going to be
Speaker 1: good for the Southern European economies. All I could say
Speaker 1: there was, don't be so sure at the point they're
Speaker 1: being that, we don't yet know quite what ramifications of
Speaker 1: this are going to be on a global scale. It's
Speaker 1: fairly clear what they're going to be, at least in
Speaker 1: the medium term on a national scale, but globally not
Speaker 1: so much. We'll get back to the barista in a second,
Speaker 1: because I think that's emblematic of something that we do
Speaker 1: need to discuss. But first of all, under the immediate stuff,
Speaker 1: now you're responsible for Western European central banks, the biggest
Speaker 1: of which is the ECB, which in itself is a
Speaker 1: product of the EU and was seen at the time
Speaker 1: of its establishment in the late nineties as a just
Speaker 1: a really natural thing, like dirt. We're more closely integrated.
Speaker 1: Let's have a central bank that institution. Yes, well, there
Speaker 1: were plenty of calls you'll remember yourself at the time,
Speaker 1: to say, look, this doesn't actually make a lot of
Speaker 1: sense to have a monitory union when you don't have
Speaker 1: a proper fiscal union. But the push was there too
Speaker 1: deep in European integration, and Monsher Union was seen as
Speaker 1: one way of doing that. There is now some strain.
Speaker 1: There has been a lot of strain within the EU
Speaker 1: area for quite some time. What may happen now is
Speaker 1: that because of the success of the lead campaign in
Speaker 1: the UK, you get stronger calls for anti euro parties
Speaker 1: in countries like Spain, countries like Italy, and that makes
Speaker 1: the European central banks job far harder, and the European
Speaker 1: Central Bank is struggling. That undermines the khesive myths of
Speaker 1: the European Union in the eyes of some people. Wouldn't
Speaker 1: it be ironic if it was Britain, which never really
Speaker 1: wanted to join the euro system over which the ECB presides,
Speaker 1: was the thing that not the e c B the greatest,
Speaker 1: not Portugal, not Greece, not Italy, not Spain. That's entirely feasible.
Speaker 1: The ECB has was quite slow, i have to say,
Speaker 1: to respond today getting a state with out well behind
Speaker 1: the Bank of England and the Bank of Japan and
Speaker 1: some of the other banks that were open at that time.
Speaker 1: It's been it had some tense discussions, we understand, and
Speaker 1: that has highlighted some of the struggles within the European
Speaker 1: Central Bank that you are made up in nineteen countries,
Speaker 1: the nineteen central bank governors all with a slightly different
Speaker 1: views there. But ultimately this is quite a strain on
Speaker 1: the European central banks ability to operate. And you're right,
Speaker 1: it's coming from a non new country Britain. This lead
Speaker 1: vote is being characterized, at least in part as a
Speaker 1: rejection of the liberal economic establishment, which has by and
Speaker 1: large flourished since nineteen and the idea here was again
Speaker 1: seemingly inexorable, seemingly inevitable, free flow of goods, services, capital,
Speaker 1: and people. And the European Central Bank is about as
Speaker 1: polyglot as you can get. The Bank think of England
Speaker 1: is headed by a Canadian and you and me, Paul,
Speaker 1: were products of that system. Now I first met you
Speaker 1: when you were in Hong Kong. You were born in Britain,
Speaker 1: and your wife is from where and you now live
Speaker 1: in Frankfort, right. My wife is German, and my children,
Speaker 1: who knows where they come from. They were born in
Speaker 1: Hong Kong. They live in Germany, but they've got British
Speaker 1: grandparents and great grandparents. So there is this generation coming
Speaker 1: through that has an international feel to it, but it's
Speaker 1: not really the majority of the population. And that's really
Speaker 1: key for European politicians to think about Netlork. Not everybody
Speaker 1: benefits from globalization, or if they are benefiting from globalization,
Speaker 1: they don't realize it. They feel that they're suffering somehow.
Speaker 1: That others are benefiting more, and that's what's caused this backlash.
Speaker 1: That's dangerous for the European Union, for the European project,
Speaker 1: is dangerous for the as you know, the supposedly inexorable
Speaker 1: rise towards globalism, which is not really inexorable. It's been
Speaker 1: a sort of been a lot of politicians sort of haggling,
Speaker 1: sorting out deals between themselves, and there have been has
Speaker 1: been a jump start, start and stop progress over more
Speaker 1: than more than a hundred years. So I was not
Speaker 1: born in the United States. I was born in Australia.
Speaker 1: I've lived and worked around the world thanks to our employer,
Speaker 1: Bloomberg News. My son was born in the UK, my
Speaker 1: daughter was born here. Our colleagues, our producer Magnus born
Speaker 1: in Sweden. Our colleague Alec, who does a lot to
Speaker 1: make the podcasts get to air, lived for many, many
Speaker 1: years in Hong Kong. I mean, are we being rejected here?
Speaker 1: Is our model of the economy and the way we
Speaker 1: see ourselves when we travel, when we buy things, when
Speaker 1: we think about our aspirations for the future, we being rejected.
Speaker 1: There's a great question, and I don't suppose we have
Speaker 1: the answer to that. At this point. Again, this is
Speaker 1: something politicians going to have to sit back and think about,
Speaker 1: what are the economic benefits and how are those benefits
Speaker 1: being distributed, and if they're not being distributed fairly, you
Speaker 1: do get a political backlash, the political backlast that we've
Speaker 1: been seeing, and that may make the whole model as
Speaker 1: as you say, rejected, and that would be rather worrisome
Speaker 1: for our generation. But not everybody sees it that way.
Speaker 1: So the barista you mentioned in Starbucks, he or she
Speaker 1: doesn't have to go home tomorrow. What's going to happen
Speaker 1: for the next couple of years. This is going to
Speaker 1: be a rather sort of torturous back and forth process,
Speaker 1: but they will have to leave correct well. Interestingly, there
Speaker 1: was a survey done amongst the German investors that concluded
Speaker 1: only yesterday and of those respondents said they did not
Speaker 1: think of Brexit would ultimately result in the UK leaving
Speaker 1: the EUN and that goes against everything that the politicians
Speaker 1: on both sides of the British debate have said. But
Speaker 1: I did hear the argument made again today that maybe
Speaker 1: the European Union will come back with such a generous
Speaker 1: offer that Britain rethinks its stance. The most likely outcome, though,
Speaker 1: is s over the next two years, the British exit
Speaker 1: from the EU is negotiated without Britain taking partners negotiations,
Speaker 1: a deal is struck by which it has some kind
Speaker 1: of links to the EU. What they are remains completely
Speaker 1: unknown at the moment. There are models Norway as one,
Speaker 1: Switzerland is another, but they may not be suitable for
Speaker 1: the UK, and that means two years of quite a
Speaker 1: lot of uncertainty. The global economy just can't seem to
Speaker 1: find blue water at the moment, can it. You're right,
Speaker 1: you have this issue where you've got the rise of
Speaker 1: nations like China for a while, you have the rise
Speaker 1: of nations like Brazil, which is obviously going through a
Speaker 1: very tough time at the moment. And when you get
Speaker 1: those rapid periods of economic growth amongst sizeable or becomes
Speaker 1: sizable economies and then they slow down, there are international repercussions,
Speaker 1: and again you've got that anger amongst some groups of
Speaker 1: people built up as they've seen their manufacturing jobs outsourced
Speaker 1: in their view, and now things are slowing down and
Speaker 1: they're not really in a position to benefit one way
Speaker 1: or the other. And we could be in for some
Speaker 1: years of fairly tough times on a global scale, just
Speaker 1: when it looks like the global economy has dodged a bullet,
Speaker 1: for example, in January, there are all sorts of dire
Speaker 1: predictions about China and the market tumult that accompanied and
Speaker 1: that abated, and we moved forward. People thought Greece would
Speaker 1: blow up the euroregion. Okay, we survived that, We moved forward,
Speaker 1: and I guess we'll struggle along or drift along with
Speaker 1: global growth somewhere around two or three percent. But that's
Speaker 1: not great, Paul, is it? It's not great. There are
Speaker 1: many arguments out there that say that this may be
Speaker 1: the way it remains for a long while. The arguments
Speaker 1: sometimes sent on the demographics. There's just a relatively large
Speaker 1: supply of labor, which keeps prices down and keeps productivity low.
Speaker 1: There is, of course, the techno pessimism argument, which says
Speaker 1: that inventions from eighteen seventy through nine seventy were one off,
Speaker 1: they're not going to be repeated. That gave a vast
Speaker 1: boost to growth in the developed world and ultimately the
Speaker 1: rest of the world, and they can't be repeated. So
Speaker 1: those arguments come in. If you do want to see
Speaker 1: growth pick up, You've got to find some kind of
Speaker 1: a source, something which is going to push us along,
Speaker 1: and clearly, by its very nature that's as yet unknown
Speaker 1: and as shocking as it is. The central banks have
Speaker 1: made it known that they have prepared for this event,
Speaker 1: even though it wasn't the result they wanted. Let's talk
Speaker 1: about the person that's really in the hot seat. Bank
Speaker 1: of England Governor Mark Karney himself a product of the
Speaker 1: free flow of global goods, services, capital and people. Yes,
Speaker 1: he is part of the free flow people from Canada
Speaker 1: to the UK, and he's quite a few people. During
Speaker 1: this whole Brexit debate, the Bank of England has put
Speaker 1: out a numerous statements pointing to the downside risks of
Speaker 1: a Brexit, and some have taken that as seeing the
Speaker 1: Bank of England intervening in a political debate instead of
Speaker 1: staying out of it. To the Mark Karney's defense has
Speaker 1: been that nobody knows his personal view, that these were
Speaker 1: all economic statements of probability which may or may not
Speaker 1: come to fruition now we're seeing them being tested. But
Speaker 1: certainly the market slump was something that was predicted. The
Speaker 1: drop in the pound it was something that was predicted,
Speaker 1: but because he is identified with that, with the remain stance,
Speaker 1: through no fault of his own, he would say there's
Speaker 1: a question mark over his future. Now Now, Governor Carney
Speaker 1: made a televised address in addition to the statement that
Speaker 1: the Bank of England put out, and if I'm interpreting
Speaker 1: it that correctly, the first line of defense is liquidity operations.
Speaker 1: Just throw as much liquidity at British lenders as possible,
Speaker 1: and the second line monetary policy, well will get to
Speaker 1: that in a few weeks. Is that the right interpretation,
Speaker 1: It might be he wasn't quite that specific, certainly on
Speaker 1: the liquidity, there's no doubt about that. The Bank of
Speaker 1: England has two fifty billion pounds which it can throw
Speaker 1: at banks should they need it. Banks can also access
Speaker 1: swap clients with major banks around the world, including the FED,
Speaker 1: the e CV, the Bank of Japan, the Swiss national banks,
Speaker 1: and liquidity really shouldn't be an issue here. The key thing,
Speaker 1: as you say, is what happens next if there needs
Speaker 1: to be some kind of response to deal with the economy,
Speaker 1: and that's difficult one to say. The slump in the
Speaker 1: pound could push up inflation, which reduces the room for
Speaker 1: the Bank of England to cut interest rates if it
Speaker 1: needs to do so. But rates are at zero point
Speaker 1: five the ECB as rates zero. It shows you can
Speaker 1: take them that low, and some economists have said that's
Speaker 1: precisely what the Bank of England is going to have
Speaker 1: to do. And does Governor Carnee have some work to
Speaker 1: do in terms of repairing relations with the out camp?
Speaker 1: Who now, of course are the in camp? Depends who's
Speaker 1: going to have to deal with I guess I mean
Speaker 1: at the moment, of course, we still have the pre
Speaker 1: existing government. David Cameron will step down. It remains to
Speaker 1: be seeing what happens with the rest of his colleagues,
Speaker 1: but their positions are obviously not very strong. Whoever is
Speaker 1: coming in is at least initially almost certainly going to
Speaker 1: have to deal with Mark Kearney, and Mark Conny is
Speaker 1: going to have to handle that quite sensitively. He probably
Speaker 1: has the skill to do so. Questions whether he chooses to,
Speaker 1: and that remains to be seen. Well, we better let
Speaker 1: you go and get that red eye with an extra shot.
Speaker 1: But first I'm just wondering when you come home to
Speaker 1: Frankfort tonight and you walk in the door and you
Speaker 1: see your polyglot family, What on earth are you going
Speaker 1: to say to them? Sorry, honey, we shrunk the union. Seriously.
Speaker 1: I did text my wife to say, you know, she
Speaker 1: asked how things were going, and I said, it's madness
Speaker 1: at the moment, and she replied, it's sadness. And that's
Speaker 1: the response I'm going to get when I go home. Well, Paul,
Speaker 1: thanks for joining us. Benchmark will be back next week
Speaker 1: and until then, you can find us on the Bloomberg
Speaker 1: Terminal and Bloomberg dot com, as well as on iTunes,
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Speaker 1: to rate and review the show so more listeners can
Speaker 1: find us. You can talk to and follow us on
Speaker 1: Twitter at Dan almost DC and Paul you are p
Speaker 1: Gordon sixty six on Twitter. See you next week. M. M.