WEBVTT - Societe Generale Chairman Lorenzo Bini Smaghi Talks Monetary Policy

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<v Speaker 1>Well, joining us to talk monetary pals, inflation, everything in

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<v Speaker 1>between for an exclusive conversation Lorenzo Binismagive Cross Chairman Association Hallo,

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<v Speaker 1>former executive member, board member of the European Central Bankroad

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<v Speaker 1>as always, thank you so much for joining us. And

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<v Speaker 1>there's a lot going on. The markets are really pricing

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<v Speaker 1>in cuts, not cuts. They're a little bit all over

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<v Speaker 1>the place. Is it because sticky inflation could surprise us?

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<v Speaker 1>Or is there a risk of a recession even in

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<v Speaker 1>the US.

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<v Speaker 2>Well, there are many concerns. I think the US economy

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<v Speaker 2>is stronger than expected, but it is supported by a

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<v Speaker 2>fiscal policy which is much more expansionary than Europe. And

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<v Speaker 2>the question is will the EASY be there cutting grates

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<v Speaker 2>while the Fed doesn't. I think for next week should

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<v Speaker 2>be a done deal. I don't think the CB will

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<v Speaker 2>surprise the markets. The question is more what about July September.

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<v Speaker 2>I think the CB will will want to wait and see.

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<v Speaker 2>They want to commit. September is likely, but it will

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<v Speaker 2>depend bit on the data and coming. I think the

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<v Speaker 2>CP wants to be sure that it will not be

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<v Speaker 2>surprised like the FED maybe was earlier on to promise

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<v Speaker 2>something that cannot really deliver.

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<v Speaker 1>So it is the main concern actually that the market

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<v Speaker 1>understands that once a cut, I guess there's going to

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<v Speaker 1>be gradual cuts. Or is it that it's the first

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<v Speaker 1>time that the ECB and any other central bank is

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<v Speaker 1>not really cutting in a recession exactly.

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<v Speaker 2>But if you look at inflation and market policy is restrictive,

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<v Speaker 2>I mean you know at the levels where they are.

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<v Speaker 2>You see this in the in the bank lending data,

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<v Speaker 2>in all the underlying data. We haven't had a very

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<v Speaker 2>stronger session. There is a recession in Germany and you

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<v Speaker 2>see that in the in the wage behavior also, So

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<v Speaker 2>inflation is coming down, it's projected to come down. It

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<v Speaker 2>will be surprising if the Easybilian cut rates. The question

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<v Speaker 2>is the pace, how quickly they will cut rates?

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<v Speaker 1>How quickly do you think they'll cut rates? And again

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<v Speaker 1>there's all this tightening that we still have to really

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<v Speaker 1>see the effect of. And I don't know whether it's

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<v Speaker 1>lagging or it's because it's a funny economy.

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<v Speaker 2>Because of COVID, I think, I think that they will

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<v Speaker 2>want to see the forecast. So September is the next

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<v Speaker 2>forecast after June, So I expect September and then maybe

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<v Speaker 2>the end of the year. So three three cuts. I mean,

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<v Speaker 2>don't don't make me make a bed, but it'll be gradual.

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<v Speaker 2>Bets it would be graduate, Yes, And I think that's

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<v Speaker 2>would be the case.

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<v Speaker 1>When you look at I guess what THECB has been doing.

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<v Speaker 1>I feel like it's it's hard to be the first

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<v Speaker 1>one to cut right when the BOE is probably delaying

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<v Speaker 1>it and the FED is could also not cut at all.

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<v Speaker 1>This yeries gravitational pull from the FED going to be strong.

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<v Speaker 2>Yeah, well, you know, you don't want to be the

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<v Speaker 2>laggard all the time. I mean, this was late in

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<v Speaker 2>cut in hiking grades. You don't want to be late

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<v Speaker 2>in cutting rates either. So the situation is clearly different

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<v Speaker 2>from from the US. So if they delayed, they would

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<v Speaker 2>be remembered in history as making two mistakes, which you

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<v Speaker 2>don't want that to be.

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<v Speaker 1>You said, in an enviable position of understanding banks and

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<v Speaker 1>understanding some of these market forces that could potentially also trade,

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<v Speaker 1>you know, change the supply chains and kind of how

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<v Speaker 1>we do trade. Where do you see the global economy headed?

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<v Speaker 1>Are we deglobalizing? Do you see like concerns of you know,

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<v Speaker 1>everything being redrawn a little bit well.

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<v Speaker 2>I mean there are some short term developments. Clearly what's

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<v Speaker 2>happening in the in the Strait, in the Red Sea,

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<v Speaker 2>what's happening in other parts of the world. But at

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<v Speaker 2>this stage I don't see a huge change in the

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<v Speaker 2>global and globalization. And clearly China is a very special case.

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<v Speaker 2>But you see other emerging markets popping up, strengthen in

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<v Speaker 2>Mexico and elsewhere. So globalization, I think is here to stay,

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<v Speaker 2>to be frank, and that's good for everybody. Of course,

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<v Speaker 2>you have to be able to manage it and to

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<v Speaker 2>manage it and to manage risks, the risks that are

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<v Speaker 2>implied with this. So I am relatively optimistic or the

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<v Speaker 2>medium term growth is coming back in Europe. It's going

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<v Speaker 2>to be gradual. There are huge challenges ahead. But if

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<v Speaker 2>we look at the last two or three years, especially

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<v Speaker 2>after the start of the war, nobody expected Europe to

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<v Speaker 2>be where we are today, I think.

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<v Speaker 1>And do you see that in your clients? Are they

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<v Speaker 1>you know, are they saving more? Does it does it

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<v Speaker 1>feel okay? As an economy?

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<v Speaker 2>I think European corporates are relatively doing relatively well. I

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<v Speaker 2>think they're improving. They see that there are opportunities globally.

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<v Speaker 2>Of course, there are huge issues in Europe in terms of,

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<v Speaker 2>you know, are we able to compete with the US,

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<v Speaker 2>with the rest of the world. What about you know,

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<v Speaker 2>continuing the single markets. Maybe we'll discuss this later. These

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<v Speaker 2>are the key challenges, but the opportunities for companies there.

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<v Speaker 1>So what do you see as your main challenge? We've

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<v Speaker 1>been waiting. I feel like we've been wearing a couple

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<v Speaker 1>of markets union for all of my lifetime. Are we

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<v Speaker 1>any closer to actually getting something concrete that means that

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<v Speaker 1>you know, your bank and other European banks can maybe

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<v Speaker 1>a little bit be stronger compared to the US.

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<v Speaker 2>I think this is the big political issue in Europe.

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<v Speaker 2>We need to integrate more. But we have to realize

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<v Speaker 2>that there are forces, political forces within our own countries

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<v Speaker 2>that are against and we have to face that, and politicians,

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<v Speaker 2>the heads of government have to face that there are

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<v Speaker 2>resistances like in the past, where resistances to monitor reunion,

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<v Speaker 2>to banking union, now to the capital market union, and

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<v Speaker 2>the politicians have to be strong enough to you know,

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<v Speaker 2>to push back also because some of these resistances come

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<v Speaker 2>from you know, people that are close to them, the regulators,

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<v Speaker 2>the national regulators, the national supervisors, some of the market

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<v Speaker 2>infrastructure who have maybe a monopolistic position in their own

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<v Speaker 2>country and are afraid of you know, of competition. But

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<v Speaker 2>unless we create a real market in Europe, then what

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<v Speaker 2>we observe is that companies are moving the other side

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<v Speaker 2>of the Atlantic and the attractiveness of Wall Street compared

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<v Speaker 2>to Europe is so strong that, you know, heads of

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<v Speaker 2>states have to realize that. I mean, this is in

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<v Speaker 2>the news discussions of companies that want to release somewhere

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<v Speaker 2>else or that under under pressure. So I think it's

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<v Speaker 2>really a political issue and we have to to to

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<v Speaker 2>be able to support this, and banks I think are

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<v Speaker 2>very favorable to that.

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<v Speaker 1>We do see it. But in the UK it also

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<v Speaker 1>in fronts a lot of a lot of the companies,

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<v Speaker 1>especially some of the oil rich companies, saying, look, maybe

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<v Speaker 1>there's there's more capital in the UIs some thinking of

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<v Speaker 1>deal listing and going over there. What does the Capital

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<v Speaker 1>market Union actually help? So it brings investment, Does it

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<v Speaker 1>you know, help to deal with the AI, the green

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<v Speaker 1>transition and common defense?

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<v Speaker 2>Well, first it helps financing all the transitions that Europe

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<v Speaker 2>has to make climate digital. Of course, now the Defense

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<v Speaker 2>chapter you can't expect this to be done elsewhere, So

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<v Speaker 2>you need to have a pool of capital and savings

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<v Speaker 2>that is able to finance. Public money is not going

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<v Speaker 2>to be sufficient and politicians know that, so you need

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<v Speaker 2>to have the investors and the savings directed to that.

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<v Speaker 2>And without a capital markets, we won't be able to

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<v Speaker 2>do that. So we need it, we know it. Now

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<v Speaker 2>it's the politicians who have to take the tough decisions.

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<v Speaker 1>But would it help with securitization or kickstart the securitization market?

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<v Speaker 1>Like what do you want you know, as prioritizes for

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<v Speaker 1>the CMU, there's a number of lists like what would

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<v Speaker 1>you do first?

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<v Speaker 2>Well, I think you know securitization is key. I mean

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<v Speaker 2>we need a single rule book and a single or

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<v Speaker 2>a uniform supervision and implementation of this rule book. If

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<v Speaker 2>every country is defending its own little market in twenty

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<v Speaker 2>seven little markets because they think that by defending these

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<v Speaker 2>little markets they support their companies, the only result is

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<v Speaker 2>that these markets with shrink shrink, shrinks, shrink, and is

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<v Speaker 2>not going to be a capital market in Europe anymore.

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<v Speaker 2>So there is no future for the thing for the

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<v Speaker 2>for the national markets. You need a bigger market and

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<v Speaker 2>and and in order to do that, you need to

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<v Speaker 2>bring under the same rules the largest stock exchanges, the

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<v Speaker 2>non European, the large asset managers. Uh we weally these

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<v Speaker 2>for the banks, so you have to do the same.

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<v Speaker 2>It's it's not always as easy. But you can't allow arbitrash.

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<v Speaker 2>You can't allow regular arbit trash, and have to say

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<v Speaker 2>you cannot allow that non European large institutions can pick

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<v Speaker 2>and choose the best regulator they want in the Union

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<v Speaker 2>just by arbitrag. This is is not possible.

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<v Speaker 1>But do you think that basically we need you know,

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<v Speaker 1>big common supervision of exchanges, you know, like Deutsche bors

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<v Speaker 1>and your next even before investment bank.

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<v Speaker 2>I think that's I mean, if I had to suggest

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<v Speaker 2>something to to Knack and Shoalzes to commit to bring

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<v Speaker 2>their stock, the two key stock markets in Europe to

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<v Speaker 2>under the same rule, then supervision doesn't need to be

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<v Speaker 2>a single one joint you know, like we have in

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<v Speaker 2>the banking system, joint supervision, but the same so no arbitrage.

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<v Speaker 2>I think that would be a big push to to

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<v Speaker 2>to to to avoid to avoid these incentives, to protect,

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<v Speaker 2>to protect your little backyard.

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<v Speaker 1>And also insultancy laws or does that come in certain.

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<v Speaker 2>Installman laws are so for securitization, for instance, you are

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<v Speaker 2>not going to securitize a mortgage putting and put together

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<v Speaker 2>a German mortgage and a French mortgage and an Italian mortgage.

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<v Speaker 2>They're just so different, not only from bankruptcy laws, but

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<v Speaker 2>in terms of of of of type of you know, instrument.

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<v Speaker 2>What you want to do is to securitize the German

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<v Speaker 2>mortgages and sell them everywhere, and for that you don't

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<v Speaker 2>need a uniform bankruptcy laws. What we have to be

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<v Speaker 2>careful not to put too many things on the agenda

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<v Speaker 2>because then it will make the union impossible because there's

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<v Speaker 2>so many things to do and people are afraid of,

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<v Speaker 2>you know, changing too many things. We need to go

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<v Speaker 2>to the key priorities. Now we're just.

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<v Speaker 1>Talking about the capital markets union, but there's also baby steps.

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<v Speaker 1>I would probably say against, you know, for a banking

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<v Speaker 1>union next month with the deal on how to to

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<v Speaker 1>also deal with some of the smaller banks that failed,

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<v Speaker 1>do you think you can reinvig that discussions can be

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<v Speaker 1>reinvigorated on the next steps, including you know, joint deposit issuance.

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<v Speaker 2>Well, I mean sure, we can't progress on capital markets

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<v Speaker 2>unless we also progress on banking union. And to be frank,

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<v Speaker 2>the biggest obstacles to banking union is not so much

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<v Speaker 2>it is I mean, you know, to complete the insurance

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<v Speaker 2>scheme and so on, but also to eliminate all the

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<v Speaker 2>barriers to moving liquidity, bankingquidity across Europe and capital and

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<v Speaker 2>this is in the hands of the regulator, the national regulators,

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<v Speaker 2>the central banks, I mean those who are sitting around

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<v Speaker 2>the table of the single Supervisory mechanism or the European

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<v Speaker 2>central banks. So I mean, maybe we should put the

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<v Speaker 2>lights on those authorities that should should maybe we should

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<v Speaker 2>take away that this question that they have.

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<v Speaker 1>But for all of your years of experience, and you

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<v Speaker 1>know the politicians, you speak to politicians, you understand exactly

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<v Speaker 1>what some of these countries want. I mean Germany wants

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<v Speaker 1>one thing. Would the Italians.

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<v Speaker 2>Agree to it? Well, you know, things have changed dramatically

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<v Speaker 2>over the last ten years, you know, ten years of

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<v Speaker 2>banking union, single supervision. You look at the solidity of

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<v Speaker 2>the various banking systems. Ten years ago, people were concerned

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<v Speaker 2>about the solidity of the banks in the South. Yes,

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<v Speaker 2>Now if you look at market capitalization, if you look

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<v Speaker 2>at all the parameters, you're not concerned about that anymore.

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<v Speaker 2>I think, you know, the the system in the different

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<v Speaker 2>countries is strong, so the next step. You know, Banking

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<v Speaker 2>Union had two key objectives given to the supervisor solidity

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<v Speaker 2>of the banking system and integration. The first we achieved,

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<v Speaker 2>the second we failed. I think the supervisor has to

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<v Speaker 2>ask why is this happening? And I cannot say it's

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<v Speaker 2>just the fault of the banks. I mean they are

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<v Speaker 2>clearly some barriers for that to happen. And one of

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<v Speaker 2>these barriers is the liquidity within the system which is

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<v Speaker 2>not flowing openly, and the capital also which is not flowing.

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<v Speaker 2>And this is due to do the measures that some

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<v Speaker 2>regulators still can take to prevent this mobility. These measures

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<v Speaker 2>are taken out of fear that if a bank fails,

0:12:47.120 --> 0:12:49.480
<v Speaker 2>where will the capital go. I think this needs to

0:12:49.520 --> 0:12:52.160
<v Speaker 2>be addressed also because the system is more stable today,

0:12:52.200 --> 0:12:53.840
<v Speaker 2>so these fears are not justified.

0:12:54.320 --> 0:12:58.000
<v Speaker 1>What we see cross border consolidation. You know, Emma con

0:12:58.040 --> 0:13:00.520
<v Speaker 1>spoke to our Eratornaty. What did you make comments of

0:13:00.520 --> 0:13:02.800
<v Speaker 1>the French president saying he would be opposed for a

0:13:02.880 --> 0:13:03.959
<v Speaker 1>form takeover.

0:13:03.640 --> 0:13:06.400
<v Speaker 2>Of sub gen I think it would expect all countries

0:13:06.679 --> 0:13:09.080
<v Speaker 2>or heads of state to say the same. They should

0:13:09.160 --> 0:13:15.520
<v Speaker 2>not oppose, you know, deals which are done in other sectors.

0:13:16.000 --> 0:13:19.920
<v Speaker 2>We've seen mergers in all sectors in Europe, but not

0:13:20.000 --> 0:13:23.040
<v Speaker 2>in the financial sector, not cross border mergers. And for

0:13:23.080 --> 0:13:25.560
<v Speaker 2>these to happen, you need the conditions, and the conditions

0:13:25.600 --> 0:13:29.319
<v Speaker 2>have to be set by the regulators, by the market authorities,

0:13:29.400 --> 0:13:33.400
<v Speaker 2>because you need to create value out of a merger.

0:13:33.480 --> 0:13:37.440
<v Speaker 2>Otherwise your shareholders, your shareholders are not going to support it.

0:13:37.480 --> 0:13:39.040
<v Speaker 2>And in order to do that, you need to create

0:13:39.040 --> 0:13:42.160
<v Speaker 2>the synergies and you need to create an advantage for growing.

0:13:42.480 --> 0:13:44.600
<v Speaker 2>And today what's the advantage to grow in a market

0:13:44.640 --> 0:13:46.719
<v Speaker 2>which is fragmented? But do you need to.

0:13:46.640 --> 0:13:49.440
<v Speaker 1>Get bigger to actually counter also Wall Street banks? Would

0:13:49.440 --> 0:13:51.640
<v Speaker 1>it make it easier? And do you I mean, so,

0:13:51.760 --> 0:13:53.600
<v Speaker 1>what's the future of South jener Are you thinking like

0:13:53.640 --> 0:13:55.480
<v Speaker 1>I need to protect it and make it stay independent.

0:13:55.559 --> 0:13:57.800
<v Speaker 1>I want to be an acquirer, Like how do you

0:13:57.800 --> 0:13:59.480
<v Speaker 1>think about all these big questions?

0:13:59.720 --> 0:14:02.520
<v Speaker 2>I think our banks have the same Our banks that

0:14:03.120 --> 0:14:08.480
<v Speaker 2>have a systemic position in the markets and are active

0:14:08.640 --> 0:14:11.600
<v Speaker 2>in particularly in the markets in investment banking. They want

0:14:11.640 --> 0:14:15.160
<v Speaker 2>to compete with the US institutions, so they need to grow,

0:14:15.280 --> 0:14:18.520
<v Speaker 2>they need to be solid, they need to access a

0:14:18.559 --> 0:14:21.440
<v Speaker 2>strong market. So we need to create these conditions so

0:14:22.440 --> 0:14:25.680
<v Speaker 2>that really the European the large European institutions can can

0:14:25.720 --> 0:14:28.800
<v Speaker 2>compete and there is this should not be seen as

0:14:28.840 --> 0:14:32.560
<v Speaker 2>a source of fear for the smaller institutions in Europe.

0:14:32.600 --> 0:14:34.440
<v Speaker 2>There is a like in the US, a rule for

0:14:34.560 --> 0:14:38.720
<v Speaker 2>larger banks or rule for medium and smaller banks. But

0:14:38.760 --> 0:14:41.400
<v Speaker 2>you need to give the opportunity for the larger banks

0:14:41.720 --> 0:14:44.480
<v Speaker 2>to grow and to grow in Europe and outside Europe.

0:14:44.520 --> 0:14:46.000
<v Speaker 1>I could talk to you for three hours, but just

0:14:46.040 --> 0:14:48.800
<v Speaker 1>the final question, if Donald Trump comes into the White House,

0:14:49.200 --> 0:14:51.840
<v Speaker 1>is there going to be an unfair disadvantage with the

0:14:51.960 --> 0:14:55.200
<v Speaker 1>US banks? Is he going to deregulation and where does

0:14:55.200 --> 0:14:56.200
<v Speaker 1>that leave European banks.

0:14:56.240 --> 0:14:59.560
<v Speaker 2>Well that's a big issue today, even before Donald Trump

0:15:00.400 --> 0:15:03.120
<v Speaker 2>is elected. It's not clear what will happen to Basil

0:15:03.560 --> 0:15:10.000
<v Speaker 2>to Bazzle. For in Europe, there's no rethinking. Actually there

0:15:10.080 --> 0:15:14.560
<v Speaker 2>is implementation, but more other things are coming on top

0:15:14.560 --> 0:15:18.120
<v Speaker 2>of Basil three or the whole climate agenda, the whole

0:15:18.120 --> 0:15:23.000
<v Speaker 2>revision of models. So the impression is that the game

0:15:23.080 --> 0:15:25.720
<v Speaker 2>is not over there's no endgame in Europe, while in

0:15:25.760 --> 0:15:29.440
<v Speaker 2>the US the endgame is more or less decided and

0:15:29.440 --> 0:15:33.040
<v Speaker 2>it could be even shorter than you know, short than

0:15:33.080 --> 0:15:36.160
<v Speaker 2>what we explained. So there is an an unfair competition

0:15:36.280 --> 0:15:41.600
<v Speaker 2>between the US and Europe, and the politicians in Europe

0:15:41.640 --> 0:15:44.600
<v Speaker 2>and the regulator cannot have a blind eye on this.

0:15:44.760 --> 0:15:48.000
<v Speaker 2>Otherwise we are at a competitive disadvantage.

0:15:48.200 --> 0:15:50.240
<v Speaker 1>Louren to Binisma, thank you so much as always for

0:15:50.320 --> 0:15:53.560
<v Speaker 1>coming on to He's a first Chairman of Associety General