Speaker 1: Well, joining us to talk monetary pals, inflation, everything in
Speaker 1: between for an exclusive conversation Lorenzo Binismagive Cross Chairman Association Hallo,
Speaker 1: former executive member, board member of the European Central Bankroad
Speaker 1: as always, thank you so much for joining us. And
Speaker 1: there's a lot going on. The markets are really pricing
Speaker 1: in cuts, not cuts. They're a little bit all over
Speaker 1: the place. Is it because sticky inflation could surprise us?
Speaker 1: Or is there a risk of a recession even in
Speaker 1: the US.
Speaker 2: Well, there are many concerns. I think the US economy
Speaker 2: is stronger than expected, but it is supported by a
Speaker 2: fiscal policy which is much more expansionary than Europe. And
Speaker 2: the question is will the EASY be there cutting grates
Speaker 2: while the Fed doesn't. I think for next week should
Speaker 2: be a done deal. I don't think the CB will
Speaker 2: surprise the markets. The question is more what about July September.
Speaker 2: I think the CB will will want to wait and see.
Speaker 2: They want to commit. September is likely, but it will
Speaker 2: depend bit on the data and coming. I think the
Speaker 2: CP wants to be sure that it will not be
Speaker 2: surprised like the FED maybe was earlier on to promise
Speaker 2: something that cannot really deliver.
Speaker 1: So it is the main concern actually that the market
Speaker 1: understands that once a cut, I guess there's going to
Speaker 1: be gradual cuts. Or is it that it's the first
Speaker 1: time that the ECB and any other central bank is
Speaker 1: not really cutting in a recession exactly.
Speaker 2: But if you look at inflation and market policy is restrictive,
Speaker 2: I mean you know at the levels where they are.
Speaker 2: You see this in the in the bank lending data,
Speaker 2: in all the underlying data. We haven't had a very
Speaker 2: stronger session. There is a recession in Germany and you
Speaker 2: see that in the in the wage behavior also, So
Speaker 2: inflation is coming down, it's projected to come down. It
Speaker 2: will be surprising if the Easybilian cut rates. The question
Speaker 2: is the pace, how quickly they will cut rates?
Speaker 1: How quickly do you think they'll cut rates? And again
Speaker 1: there's all this tightening that we still have to really
Speaker 1: see the effect of. And I don't know whether it's
Speaker 1: lagging or it's because it's a funny economy.
Speaker 2: Because of COVID, I think, I think that they will
Speaker 2: want to see the forecast. So September is the next
Speaker 2: forecast after June, So I expect September and then maybe
Speaker 2: the end of the year. So three three cuts. I mean,
Speaker 2: don't don't make me make a bed, but it'll be gradual.
Speaker 2: Bets it would be graduate, Yes, And I think that's
Speaker 2: would be the case.
Speaker 1: When you look at I guess what THECB has been doing.
Speaker 1: I feel like it's it's hard to be the first
Speaker 1: one to cut right when the BOE is probably delaying
Speaker 1: it and the FED is could also not cut at all.
Speaker 1: This yeries gravitational pull from the FED going to be strong.
Speaker 2: Yeah, well, you know, you don't want to be the
Speaker 2: laggard all the time. I mean, this was late in
Speaker 2: cut in hiking grades. You don't want to be late
Speaker 2: in cutting rates either. So the situation is clearly different
Speaker 2: from from the US. So if they delayed, they would
Speaker 2: be remembered in history as making two mistakes, which you
Speaker 2: don't want that to be.
Speaker 1: You said, in an enviable position of understanding banks and
Speaker 1: understanding some of these market forces that could potentially also trade,
Speaker 1: you know, change the supply chains and kind of how
Speaker 1: we do trade. Where do you see the global economy headed?
Speaker 1: Are we deglobalizing? Do you see like concerns of you know,
Speaker 1: everything being redrawn a little bit well.
Speaker 2: I mean there are some short term developments. Clearly what's
Speaker 2: happening in the in the Strait, in the Red Sea,
Speaker 2: what's happening in other parts of the world. But at
Speaker 2: this stage I don't see a huge change in the
Speaker 2: global and globalization. And clearly China is a very special case.
Speaker 2: But you see other emerging markets popping up, strengthen in
Speaker 2: Mexico and elsewhere. So globalization, I think is here to stay,
Speaker 2: to be frank, and that's good for everybody. Of course,
Speaker 2: you have to be able to manage it and to
Speaker 2: manage it and to manage risks, the risks that are
Speaker 2: implied with this. So I am relatively optimistic or the
Speaker 2: medium term growth is coming back in Europe. It's going
Speaker 2: to be gradual. There are huge challenges ahead. But if
Speaker 2: we look at the last two or three years, especially
Speaker 2: after the start of the war, nobody expected Europe to
Speaker 2: be where we are today, I think.
Speaker 1: And do you see that in your clients? Are they
Speaker 1: you know, are they saving more? Does it does it
Speaker 1: feel okay? As an economy?
Speaker 2: I think European corporates are relatively doing relatively well. I
Speaker 2: think they're improving. They see that there are opportunities globally.
Speaker 2: Of course, there are huge issues in Europe in terms of,
Speaker 2: you know, are we able to compete with the US,
Speaker 2: with the rest of the world. What about you know,
Speaker 2: continuing the single markets. Maybe we'll discuss this later. These
Speaker 2: are the key challenges, but the opportunities for companies there.
Speaker 1: So what do you see as your main challenge? We've
Speaker 1: been waiting. I feel like we've been wearing a couple
Speaker 1: of markets union for all of my lifetime. Are we
Speaker 1: any closer to actually getting something concrete that means that
Speaker 1: you know, your bank and other European banks can maybe
Speaker 1: a little bit be stronger compared to the US.
Speaker 2: I think this is the big political issue in Europe.
Speaker 2: We need to integrate more. But we have to realize
Speaker 2: that there are forces, political forces within our own countries
Speaker 2: that are against and we have to face that, and politicians,
Speaker 2: the heads of government have to face that there are
Speaker 2: resistances like in the past, where resistances to monitor reunion,
Speaker 2: to banking union, now to the capital market union, and
Speaker 2: the politicians have to be strong enough to you know,
Speaker 2: to push back also because some of these resistances come
Speaker 2: from you know, people that are close to them, the regulators,
Speaker 2: the national regulators, the national supervisors, some of the market
Speaker 2: infrastructure who have maybe a monopolistic position in their own
Speaker 2: country and are afraid of you know, of competition. But
Speaker 2: unless we create a real market in Europe, then what
Speaker 2: we observe is that companies are moving the other side
Speaker 2: of the Atlantic and the attractiveness of Wall Street compared
Speaker 2: to Europe is so strong that, you know, heads of
Speaker 2: states have to realize that. I mean, this is in
Speaker 2: the news discussions of companies that want to release somewhere
Speaker 2: else or that under under pressure. So I think it's
Speaker 2: really a political issue and we have to to to
Speaker 2: be able to support this, and banks I think are
Speaker 2: very favorable to that.
Speaker 1: We do see it. But in the UK it also
Speaker 1: in fronts a lot of a lot of the companies,
Speaker 1: especially some of the oil rich companies, saying, look, maybe
Speaker 1: there's there's more capital in the UIs some thinking of
Speaker 1: deal listing and going over there. What does the Capital
Speaker 1: market Union actually help? So it brings investment, Does it
Speaker 1: you know, help to deal with the AI, the green
Speaker 1: transition and common defense?
Speaker 2: Well, first it helps financing all the transitions that Europe
Speaker 2: has to make climate digital. Of course, now the Defense
Speaker 2: chapter you can't expect this to be done elsewhere, So
Speaker 2: you need to have a pool of capital and savings
Speaker 2: that is able to finance. Public money is not going
Speaker 2: to be sufficient and politicians know that, so you need
Speaker 2: to have the investors and the savings directed to that.
Speaker 2: And without a capital markets, we won't be able to
Speaker 2: do that. So we need it, we know it. Now
Speaker 2: it's the politicians who have to take the tough decisions.
Speaker 1: But would it help with securitization or kickstart the securitization market?
Speaker 1: Like what do you want you know, as prioritizes for
Speaker 1: the CMU, there's a number of lists like what would
Speaker 1: you do first?
Speaker 2: Well, I think you know securitization is key. I mean
Speaker 2: we need a single rule book and a single or
Speaker 2: a uniform supervision and implementation of this rule book. If
Speaker 2: every country is defending its own little market in twenty
Speaker 2: seven little markets because they think that by defending these
Speaker 2: little markets they support their companies, the only result is
Speaker 2: that these markets with shrink shrink, shrinks, shrink, and is
Speaker 2: not going to be a capital market in Europe anymore.
Speaker 2: So there is no future for the thing for the
Speaker 2: for the national markets. You need a bigger market and
Speaker 2: and and in order to do that, you need to
Speaker 2: bring under the same rules the largest stock exchanges, the
Speaker 2: non European, the large asset managers. Uh we weally these
Speaker 2: for the banks, so you have to do the same.
Speaker 2: It's it's not always as easy. But you can't allow arbitrash.
Speaker 2: You can't allow regular arbit trash, and have to say
Speaker 2: you cannot allow that non European large institutions can pick
Speaker 2: and choose the best regulator they want in the Union
Speaker 2: just by arbitrag. This is is not possible.
Speaker 1: But do you think that basically we need you know,
Speaker 1: big common supervision of exchanges, you know, like Deutsche bors
Speaker 1: and your next even before investment bank.
Speaker 2: I think that's I mean, if I had to suggest
Speaker 2: something to to Knack and Shoalzes to commit to bring
Speaker 2: their stock, the two key stock markets in Europe to
Speaker 2: under the same rule, then supervision doesn't need to be
Speaker 2: a single one joint you know, like we have in
Speaker 2: the banking system, joint supervision, but the same so no arbitrage.
Speaker 2: I think that would be a big push to to
Speaker 2: to to to avoid to avoid these incentives, to protect,
Speaker 2: to protect your little backyard.
Speaker 1: And also insultancy laws or does that come in certain.
Speaker 2: Installman laws are so for securitization, for instance, you are
Speaker 2: not going to securitize a mortgage putting and put together
Speaker 2: a German mortgage and a French mortgage and an Italian mortgage.
Speaker 2: They're just so different, not only from bankruptcy laws, but
Speaker 2: in terms of of of of type of you know, instrument.
Speaker 2: What you want to do is to securitize the German
Speaker 2: mortgages and sell them everywhere, and for that you don't
Speaker 2: need a uniform bankruptcy laws. What we have to be
Speaker 2: careful not to put too many things on the agenda
Speaker 2: because then it will make the union impossible because there's
Speaker 2: so many things to do and people are afraid of,
Speaker 2: you know, changing too many things. We need to go
Speaker 2: to the key priorities. Now we're just.
Speaker 1: Talking about the capital markets union, but there's also baby steps.
Speaker 1: I would probably say against, you know, for a banking
Speaker 1: union next month with the deal on how to to
Speaker 1: also deal with some of the smaller banks that failed,
Speaker 1: do you think you can reinvig that discussions can be
Speaker 1: reinvigorated on the next steps, including you know, joint deposit issuance.
Speaker 2: Well, I mean sure, we can't progress on capital markets
Speaker 2: unless we also progress on banking union. And to be frank,
Speaker 2: the biggest obstacles to banking union is not so much
Speaker 2: it is I mean, you know, to complete the insurance
Speaker 2: scheme and so on, but also to eliminate all the
Speaker 2: barriers to moving liquidity, bankingquidity across Europe and capital and
Speaker 2: this is in the hands of the regulator, the national regulators,
Speaker 2: the central banks, I mean those who are sitting around
Speaker 2: the table of the single Supervisory mechanism or the European
Speaker 2: central banks. So I mean, maybe we should put the
Speaker 2: lights on those authorities that should should maybe we should
Speaker 2: take away that this question that they have.
Speaker 1: But for all of your years of experience, and you
Speaker 1: know the politicians, you speak to politicians, you understand exactly
Speaker 1: what some of these countries want. I mean Germany wants
Speaker 1: one thing. Would the Italians.
Speaker 2: Agree to it? Well, you know, things have changed dramatically
Speaker 2: over the last ten years, you know, ten years of
Speaker 2: banking union, single supervision. You look at the solidity of
Speaker 2: the various banking systems. Ten years ago, people were concerned
Speaker 2: about the solidity of the banks in the South. Yes,
Speaker 2: Now if you look at market capitalization, if you look
Speaker 2: at all the parameters, you're not concerned about that anymore.
Speaker 2: I think, you know, the the system in the different
Speaker 2: countries is strong, so the next step. You know, Banking
Speaker 2: Union had two key objectives given to the supervisor solidity
Speaker 2: of the banking system and integration. The first we achieved,
Speaker 2: the second we failed. I think the supervisor has to
Speaker 2: ask why is this happening? And I cannot say it's
Speaker 2: just the fault of the banks. I mean they are
Speaker 2: clearly some barriers for that to happen. And one of
Speaker 2: these barriers is the liquidity within the system which is
Speaker 2: not flowing openly, and the capital also which is not flowing.
Speaker 2: And this is due to do the measures that some
Speaker 2: regulators still can take to prevent this mobility. These measures
Speaker 2: are taken out of fear that if a bank fails,
Speaker 2: where will the capital go. I think this needs to
Speaker 2: be addressed also because the system is more stable today,
Speaker 2: so these fears are not justified.
Speaker 1: What we see cross border consolidation. You know, Emma con
Speaker 1: spoke to our Eratornaty. What did you make comments of
Speaker 1: the French president saying he would be opposed for a
Speaker 1: form takeover.
Speaker 2: Of sub gen I think it would expect all countries
Speaker 2: or heads of state to say the same. They should
Speaker 2: not oppose, you know, deals which are done in other sectors.
Speaker 2: We've seen mergers in all sectors in Europe, but not
Speaker 2: in the financial sector, not cross border mergers. And for
Speaker 2: these to happen, you need the conditions, and the conditions
Speaker 2: have to be set by the regulators, by the market authorities,
Speaker 2: because you need to create value out of a merger.
Speaker 2: Otherwise your shareholders, your shareholders are not going to support it.
Speaker 2: And in order to do that, you need to create
Speaker 2: the synergies and you need to create an advantage for growing.
Speaker 2: And today what's the advantage to grow in a market
Speaker 2: which is fragmented? But do you need to.
Speaker 1: Get bigger to actually counter also Wall Street banks? Would
Speaker 1: it make it easier? And do you I mean, so,
Speaker 1: what's the future of South jener Are you thinking like
Speaker 1: I need to protect it and make it stay independent.
Speaker 1: I want to be an acquirer, Like how do you
Speaker 1: think about all these big questions?
Speaker 2: I think our banks have the same Our banks that
Speaker 2: have a systemic position in the markets and are active
Speaker 2: in particularly in the markets in investment banking. They want
Speaker 2: to compete with the US institutions, so they need to grow,
Speaker 2: they need to be solid, they need to access a
Speaker 2: strong market. So we need to create these conditions so
Speaker 2: that really the European the large European institutions can can
Speaker 2: compete and there is this should not be seen as
Speaker 2: a source of fear for the smaller institutions in Europe.
Speaker 2: There is a like in the US, a rule for
Speaker 2: larger banks or rule for medium and smaller banks. But
Speaker 2: you need to give the opportunity for the larger banks
Speaker 2: to grow and to grow in Europe and outside Europe.
Speaker 1: I could talk to you for three hours, but just
Speaker 1: the final question, if Donald Trump comes into the White House,
Speaker 1: is there going to be an unfair disadvantage with the
Speaker 1: US banks? Is he going to deregulation and where does
Speaker 1: that leave European banks.
Speaker 2: Well that's a big issue today, even before Donald Trump
Speaker 2: is elected. It's not clear what will happen to Basil
Speaker 2: to Bazzle. For in Europe, there's no rethinking. Actually there
Speaker 2: is implementation, but more other things are coming on top
Speaker 2: of Basil three or the whole climate agenda, the whole
Speaker 2: revision of models. So the impression is that the game
Speaker 2: is not over there's no endgame in Europe, while in
Speaker 2: the US the endgame is more or less decided and
Speaker 2: it could be even shorter than you know, short than
Speaker 2: what we explained. So there is an an unfair competition
Speaker 2: between the US and Europe, and the politicians in Europe
Speaker 2: and the regulator cannot have a blind eye on this.
Speaker 2: Otherwise we are at a competitive disadvantage.
Speaker 1: Louren to Binisma, thank you so much as always for
Speaker 1: coming on to He's a first Chairman of Associety General