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Speaker 1: From Bloomberg World Headquarters. I'm Katherine Cowdery and this is

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Speaker 1: a Bloomberg Business flash. Socks are declining, drag lower by

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Speaker 1: commodity producers and lenders. Bank of England Governor Mark Kearney

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Speaker 1: renewed concerns that Britain's withdrawal from the European Union will

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Speaker 1: further way on global economic growth. Investors are also awaiting

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Speaker 1: the second quarter earning season, which gets underway next week.

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Speaker 1: We check the markets every fifteen minute throughout the trading

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Speaker 1: day on Bloomberg Radio. Down Industrial average is down one

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Speaker 1: hundred forty seven points, seven eighth of a percent, trading

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Speaker 1: at seventeen thousand, eight hundred one. SMP five hundred is

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Speaker 1: down at twenty points, that's the loss of one per cent.

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Speaker 1: It is trading at two thousand eighty two. NASACK down

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Speaker 1: fifty nine points one to forty eight oh three. West

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Speaker 1: Text is Intermedia Crude oil down two dollars thirty cents

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Speaker 1: of barrel, four point seven percent at forty six sixty nine.

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Speaker 1: Spot gold is of eighteen dollars thirty cents announced at

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Speaker 1: thirteen fifty seven twenty and the tenure treasury is of

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Speaker 1: twenty three thirty seconds with the field of one point

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Speaker 1: three six percent. And that's a Bloomberg Business flash. This

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Speaker 1: is taking stock with Pim Box and Kathleen Hays on

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Speaker 1: bloom Bird Radio. Political turmoil, financial uncertainty. Here to tell

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Speaker 1: us more and explain it all is Bob Hormett's. He

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Speaker 1: should be able to. He's a former under Secretary for

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Speaker 1: Economic Growth, Energy and the Environment of course at the

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Speaker 1: U S State Department. Currently vice chairman of Kissinger Associates.

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Speaker 1: He can be followed on Twitter at Bob Hormets. Bob

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Speaker 1: Hormett's all right, so you get to select which dysfunctional

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Speaker 1: political system you'd like to tackle first. You want to

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Speaker 1: start off with the United Kingdom and their Brexit vote. Well,

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Speaker 1: I think the UK really has presented a problem that's

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Speaker 1: in effect bigger than the UK. It's big enough in

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Speaker 1: the UK context, but when you add the implications for

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Speaker 1: Europe and other parts of the world, it's much more global.

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Speaker 1: The UK is having difficulty. First of all, the Labor

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Speaker 1: Party is uh not a very functional one could say

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Speaker 1: a dysfunctional opposition. The Tories are trying to figure out

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Speaker 1: who their next prime minister will be. The judgment has

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Speaker 1: been that they will not really begin negotiations with the

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Speaker 1: rest of Europe until there is a new prime minister.

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Speaker 1: Of course, the new Prime Minister then has to decide

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Speaker 1: what the policy of Great Britain will be in terms

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Speaker 1: of these articles fifty conversations, what the deals, so to speak,

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Speaker 1: will be. All that uncertainty causes a rush to UH

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Speaker 1: more stable markets UH into the dollar, into the end

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Speaker 1: into Germany. But a lot of other countries are seeing

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Speaker 1: money pour out, so that has global implications, and of

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Speaker 1: course within the European system, the weaker economies are the ones,

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Speaker 1: and the weaker banks are the ones who were suffering

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Speaker 1: this prolonged period of jitters that's now occurring in financial

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Speaker 1: markets and prolonged uncertainty and of course rabbid capital flows

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Speaker 1: jitters in financial markets h entities that suffer unexpected large losses.

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Speaker 1: This is the kind of thing that can deep stabilize

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Speaker 1: markets and hit economies. This is obviously what central banks

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Speaker 1: are concerned about so far. You know Mark Arney's book

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Speaker 1: for the third time in twelve days, he's the head

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Speaker 1: of the Bank of England UH. In his last speech

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Speaker 1: he said he wasn't gonna step down no matter how

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Speaker 1: much some want him to go from not step down

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Speaker 1: his head of the b o E. He suggested that

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Speaker 1: that the the bank may have to cut rates. Today's

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Speaker 1: talking about shoring up the bank's helping them len more

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Speaker 1: is he is he doing enough and is it enough

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Speaker 1: to keep the UK stable while this long negotiation with

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Speaker 1: the EU plays out? Well? This is the problem. I

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Speaker 1: think he's doing enough for the moment. Mark Arney is

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Speaker 1: a terrific guy and a very very good central banker.

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Speaker 1: One of the problems he has and everyone has, is

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Speaker 1: trying to figure out how long this is going to last.

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Speaker 1: When did the Tories got a new prime minister? How

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Speaker 1: things that take the new prime minister to pull together

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Speaker 1: a policy within the UK on what kind of severance

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Speaker 1: they want from the rest of Europe, How long those

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Speaker 1: negotiations will take. Do they want to make a new

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Speaker 1: deal uh to make sure they have access or at

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Speaker 1: least a substantial amount of access to the European markets

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Speaker 1: and the so called financial passports so that British banks

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Speaker 1: can operate freely in Europe? And then what do they

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Speaker 1: have to pay for it in terms of immigration, in

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Speaker 1: terms of budget contributions. UH. One of the deals people

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Speaker 1: talked about the Swiss deal. It took them seven years

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Speaker 1: to negotiate that. There were large numbers of elements to

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Speaker 1: that that take a very long time to negotiates. So

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Speaker 1: even after the Article fifty conversations begin, that's two years,

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Speaker 1: but it could take a lot longer than two and

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Speaker 1: throughout that period there'll be a lot of uncertainty. So

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Speaker 1: he has to really gauge when does he use his ammunition,

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Speaker 1: does use it now or is he in for a

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Speaker 1: pro long period of uncertainty and is it going to

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Speaker 1: have to deal with a lot of a lot of

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Speaker 1: uncertainty for many, many months and perhaps years. Bob Hormett's Uh,

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Speaker 1: I want to just give people a little idea of

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Speaker 1: the kinds of let's say, meetings or settings that you

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Speaker 1: are familiar with because you helped a president Nix and

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Speaker 1: I believe, and the opening to China, the diplomatic relations

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Speaker 1: with the Chinese Communist government. You've also served as a

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Speaker 1: staff member for International Economic Affairs on the United States

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Speaker 1: National Security Council, vice chairman of Goldman's actually been I

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Speaker 1: bet you've been in your fair share of meetings with

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Speaker 1: other people on the other side of the table. If

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Speaker 1: you were in the meetings and in any of these

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Speaker 1: negotiations with either the politicians or leaders in the UK,

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Speaker 1: in Italy, in France, what is going on? Are there

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Speaker 1: adults in that any of those rooms, or they're adults,

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Speaker 1: but they are not particularly experienced at running countries. They

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Speaker 1: have have to deal first and foremost with enormous contention

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Speaker 1: within their political parties, so they're really thinking first about

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Speaker 1: the power structure and the power dynamics within say the

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Speaker 1: Tory Party or the Labor Party. And the bureaucrats in

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Speaker 1: the UK who are not leaders in the sense that

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Speaker 1: prime minister would be, or the cabinet members for instance,

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Speaker 1: but they i think are working on what kind of

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Speaker 1: deal Britain ought to try to come up with. And

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Speaker 1: I'm sure there are various people, very talented people within

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Speaker 1: the UK civil service who are trying to figure out

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Speaker 1: what kind of deal Britain wants, or at least to

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Speaker 1: put options together so that the new prime minister can

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Speaker 1: look at them very quickly. But you need leadership, and

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Speaker 1: if you need strong leadership, and you really don't have that.

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Speaker 1: Even the strongest leader in Europe is subject to pressure

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Speaker 1: within her own coalition, and then you get the right

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Speaker 1: wing party in Germany, the alternative for Deutsche Land as

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Speaker 1: it called as it's called UM, arguing for much more insular,

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Speaker 1: much more nationalistic, much more xenophobic policies, and they're growing

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Speaker 1: in important so she's got to contend with that risk.

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Speaker 1: They're like the National Front and France, only their German

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Speaker 1: version with very very tough, harsh, ugly language and growing

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Speaker 1: in power. Unfortunately, you know, the Italian banks, maybe that's

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Speaker 1: more of a European Central Bank and a banking regulation problem.

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Speaker 1: They want to give some of their biggest banks money directly,

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Speaker 1: give them capital. The new rules being formed in that

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Speaker 1: area saying no, you know, shareholders have to take losses.

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Speaker 1: Uh if will this just be circumventent and then we'll

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Speaker 1: just put the Italian banking problems on a back burner

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Speaker 1: and continue to look at these larger issues like can

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Speaker 1: you really hold together? Now? Well, I think they're going

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Speaker 1: to have to work this out with the European Commission

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Speaker 1: in particularly, there are rules. The rules were put down

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Speaker 1: there for a purpose. Italy, of course, is very worried

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Speaker 1: about the status of its banks because its banks have

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Speaker 1: not taken the corrective measure or at least many of

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Speaker 1: them have not that some of the other banks and

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Speaker 1: other parts of Europe have have done. Um The banks

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Speaker 1: obviously different one from the other. There's some that are

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Speaker 1: in very good conditions, some that are not. But the

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Speaker 1: government I think is is worried about the Italian banking

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Speaker 1: system and perhaps will need to do some emergency things

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Speaker 1: just to hold it together for a period of time

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Speaker 1: while this instability less. As I say, however, the instability

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Speaker 1: or the uncertainty could last a long time and that

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Speaker 1: could put a lot of pressure on those banks, and

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Speaker 1: the flight to risk aversion could could grow. That hurts

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Speaker 1: banks in some of the weaker countries and some of

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Speaker 1: the weaker banks. And you're saying this not only in Italy,

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Speaker 1: but in many emerging economies that were beginning to stabilize.

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Speaker 1: Money was beginning to come back, and now you see

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Speaker 1: money going out into secure currencies like the dollar. The

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Speaker 1: problem that is it pushes the dollar up and slow

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Speaker 1: as American growth. Japan, which is not growing at all,

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Speaker 1: money goes in Japan because the yen is seen as

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Speaker 1: a stable currency stables says, some pushes the end up

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Speaker 1: that slows growth in Japan. So this is becoming and

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Speaker 1: it actually has become a global problem. Different problems for

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Speaker 1: different countries for different reasons, but pulling it all together

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Speaker 1: is important. The Group of Twenty meeting, and the Group

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Speaker 1: of twenty played a very key role in the two

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Speaker 1: thousand eight crisis, is going to be very important, particularly

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Speaker 1: the roles of China and the US and some of

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Speaker 1: the other large countries. But can they Can they exercise

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Speaker 1: the kind of collective leadership this year that they did

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Speaker 1: in two thousand and eight remains to be seen. That

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Speaker 1: takes place in September, but until then you need strong leadership.

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Speaker 1: The US is the best country to provide the leadership,

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Speaker 1: but you've got to have people to talk to and

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Speaker 1: where their countries with no effective governments, that's very hard

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Speaker 1: to do. So are there leaders in any of these

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Speaker 1: countries that we do not know much about that you

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Speaker 1: are watching or listening to to see whether they can

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Speaker 1: pull together and electorate? Well, there are people in these

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Speaker 1: countries that the US is familiar with in the UK

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Speaker 1: and many other parts of Europe, But the question is

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Speaker 1: do they have the credibility internally to pull policies together

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Speaker 1: and to pull people together. I'm sure the U s

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Speaker 1: Government is talking to the aspirants for leadership in the UK,

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Speaker 1: particularly invent Tory Party and trying to figure out what

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Speaker 1: they're trying to do. But I think at this point

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Speaker 1: the US can play a supportive role, but the u

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Speaker 1: UK is going to have to figure out what it wants.

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Speaker 1: And then you need leadership in Europe. You need leadership

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Speaker 1: in the EU, and you really don't have very strong

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Speaker 1: leaders except for Chancellor Merkel in the EU itself. These

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Speaker 1: these people are skilled at bureaucratics. And the other problem

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Speaker 1: is that the EU used to be a great powerful

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Speaker 1: political vision with strong leaders. You know, Schmidt just started

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Speaker 1: to staying others. Uh. Now it's become much more bureaucratic

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Speaker 1: and making tough decisions in the U is a difficult.

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Speaker 1: He's got to pull all these countries together, and they're

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Speaker 1: more technocratic than political. Bob Hormets, thank you so very

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Speaker 1: much for joining US. Vice chairman of Kissinger Associates. I'm

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Speaker 1: Kathleen Hayes along with Pim Fox on taking stock. This

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Speaker 1: is Bloomberg