1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee. Daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,800 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,240 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,760 --> 00:00:35,880 Speaker 1: on the Bloomberg. We are here with Paul Donovan from UBS. 6 00:00:35,960 --> 00:00:39,280 Speaker 1: He's the managing director of Global Economics. And I suppose 7 00:00:40,280 --> 00:00:44,040 Speaker 1: that it's fairly obvious that, um, there would be an 8 00:00:44,040 --> 00:00:49,600 Speaker 1: impact on Great Britain should the country vote to leave, 9 00:00:50,080 --> 00:00:52,000 Speaker 1: and there've been all kinds of estimates about what that 10 00:00:52,080 --> 00:00:54,400 Speaker 1: might be. But I'm a little I'm curious about what 11 00:00:54,480 --> 00:00:57,120 Speaker 1: the impact on the rest of the world will be 12 00:00:57,480 --> 00:00:59,400 Speaker 1: and on the US. Janet Yellen goes up to Capitol 13 00:00:59,480 --> 00:01:02,280 Speaker 1: Hill today for her semi annual Monetary policy testimony, and 14 00:01:02,280 --> 00:01:04,920 Speaker 1: I'm sure she'll be asked the same thing, because she 15 00:01:04,959 --> 00:01:07,360 Speaker 1: said last week it would have an impact on the 16 00:01:07,440 --> 00:01:09,800 Speaker 1: US and they took that into consideration when they decided 17 00:01:09,840 --> 00:01:13,679 Speaker 1: to hold rates. But how bad an impact would it be? Well, 18 00:01:13,720 --> 00:01:16,560 Speaker 1: you've got two areas where you get an impact. I 19 00:01:16,560 --> 00:01:20,960 Speaker 1: think on the first, you have obviously an impact on 20 00:01:21,160 --> 00:01:24,440 Speaker 1: the European Union itself. There would be consequences of this 21 00:01:24,520 --> 00:01:27,920 Speaker 1: for the European Union. European Union is an enormous trade 22 00:01:27,920 --> 00:01:30,360 Speaker 1: partner for the United States, so there's got to be 23 00:01:30,400 --> 00:01:32,560 Speaker 1: a concern about trade linkage. Is it's not just the 24 00:01:32,680 --> 00:01:35,559 Speaker 1: UK as the fifth or sixth largest economy in the world. 25 00:01:35,560 --> 00:01:39,040 Speaker 1: You've got the EU as arguably the largest or second 26 00:01:39,120 --> 00:01:41,800 Speaker 1: largest economy in the world that would also be affected. 27 00:01:42,200 --> 00:01:44,319 Speaker 1: And then the second thing, of course, is the financial 28 00:01:44,400 --> 00:01:47,760 Speaker 1: system into linkages and the financial contagion now here. I 29 00:01:47,760 --> 00:01:49,400 Speaker 1: think we need to be a bit cautious. This is 30 00:01:49,440 --> 00:01:52,520 Speaker 1: not two thousand and seven. What happened after two thousand 31 00:01:52,520 --> 00:01:58,919 Speaker 1: and seven has caused a parochialization of finance around the world, 32 00:01:59,280 --> 00:02:01,600 Speaker 1: and so we don't have the interlinkages that we did have, 33 00:02:01,920 --> 00:02:04,920 Speaker 1: But there are still sufficient interlinkages there that if you 34 00:02:04,960 --> 00:02:08,359 Speaker 1: get disruption in the financial markets, that may have implications 35 00:02:08,440 --> 00:02:12,160 Speaker 1: for the US financial sector. Is it something that would 36 00:02:12,720 --> 00:02:16,240 Speaker 1: seriously disrupt I mean, would we see the yeah, George 37 00:02:16,240 --> 00:02:18,919 Speaker 1: Soros out saying we're going to see crash in the pound, 38 00:02:19,240 --> 00:02:23,560 Speaker 1: Would we see a concominant level of stress on US 39 00:02:23,600 --> 00:02:27,080 Speaker 1: financial markets or is it a second order effect? I 40 00:02:27,080 --> 00:02:29,800 Speaker 1: don't think it would be quite so dramatic, and it 41 00:02:29,840 --> 00:02:32,720 Speaker 1: may evolve more slowly. I think that there is the 42 00:02:32,720 --> 00:02:35,960 Speaker 1: prospect for a more immediate reaction in the UK, which 43 00:02:36,000 --> 00:02:38,640 Speaker 1: will in the event of an exit vote, would would 44 00:02:38,639 --> 00:02:41,200 Speaker 1: then have a period of uncertainty, so you would then 45 00:02:41,240 --> 00:02:46,360 Speaker 1: see reactions in financial markets to that in the United States. 46 00:02:46,360 --> 00:02:49,480 Speaker 1: I think this would be a slower burn and evolution 47 00:02:49,960 --> 00:02:53,920 Speaker 1: of the economic consequences um and so not an immediate 48 00:02:54,200 --> 00:02:57,320 Speaker 1: dramatic change in financial markets, but something that comes out 49 00:02:57,360 --> 00:03:00,359 Speaker 1: over the course of several months. What is your aptermism 50 00:03:00,440 --> 00:03:03,200 Speaker 1: of stability? I mean everybody des as you and I 51 00:03:03,320 --> 00:03:07,040 Speaker 1: talked earlier about first derivative and second derivative moves. I mean, 52 00:03:07,040 --> 00:03:09,840 Speaker 1: the heart of the matter, particularly for Global Wall Street, 53 00:03:09,919 --> 00:03:13,400 Speaker 1: is not levels that movement not change, but brutal is 54 00:03:13,440 --> 00:03:16,519 Speaker 1: Trouchet would put it. Are we entering a brutal period 55 00:03:16,560 --> 00:03:19,360 Speaker 1: whatever this vote turns out to be. Well, I think 56 00:03:19,440 --> 00:03:23,760 Speaker 1: that a remain vote has consequences as well as an 57 00:03:23,760 --> 00:03:25,720 Speaker 1: exit vote, so we you know, we can't look at 58 00:03:25,760 --> 00:03:30,079 Speaker 1: this as just being um A one way better remain 59 00:03:30,160 --> 00:03:32,400 Speaker 1: vote will also change things, and it will change things 60 00:03:32,400 --> 00:03:35,080 Speaker 1: in Europe. But of course this isn't the only political 61 00:03:35,120 --> 00:03:37,960 Speaker 1: event that we've got this year, you know. We we've 62 00:03:38,000 --> 00:03:41,520 Speaker 1: just had Italian local elections which proved to be anti establishment, 63 00:03:41,520 --> 00:03:45,240 Speaker 1: We've got the Spanish elections. We've got over thirty elections 64 00:03:45,280 --> 00:03:48,200 Speaker 1: taking place in the States in November um or, most 65 00:03:48,200 --> 00:03:50,320 Speaker 1: of which will have some bearing on where we're going. 66 00:03:50,520 --> 00:03:53,320 Speaker 1: So this whole issue about political risk is not going 67 00:03:53,320 --> 00:03:56,360 Speaker 1: away from the markets. And my concern is that when 68 00:03:56,360 --> 00:04:01,040 Speaker 1: we look at politics today, it's becoming more more polarized, 69 00:04:01,320 --> 00:04:04,160 Speaker 1: and I think this is about the way that politics 70 00:04:04,160 --> 00:04:07,400 Speaker 1: is being organized. The new social media aspects of politics 71 00:04:07,680 --> 00:04:10,840 Speaker 1: tend to drive people to more extreme positions, it seems, 72 00:04:10,880 --> 00:04:14,640 Speaker 1: and that is something markets don't handle very well. How 73 00:04:14,680 --> 00:04:18,760 Speaker 1: do you get, I don't know, at chance of Trump 74 00:04:18,760 --> 00:04:21,200 Speaker 1: and a sixty chance of Clinton, for example, how do 75 00:04:21,240 --> 00:04:23,360 Speaker 1: you price in the probability of that when they are 76 00:04:23,520 --> 00:04:30,120 Speaker 1: so diametrically opposed on their policies. I find extraordinary the 77 00:04:30,240 --> 00:04:35,120 Speaker 1: challenge that you guys walking by your headquarters today, walking 78 00:04:35,120 --> 00:04:38,840 Speaker 1: over from the hotel, have to synthesize the politics of 79 00:04:38,920 --> 00:04:41,880 Speaker 1: the moment. Yeah, it's to me, Mike, it's absolutely original. 80 00:04:42,120 --> 00:04:44,280 Speaker 1: And it's not just the US the United Kingdom, it's 81 00:04:44,760 --> 00:04:47,880 Speaker 1: nation and nation. Literally, I mean the dialogue just in 82 00:04:47,880 --> 00:04:50,560 Speaker 1: the last twenty four hours of Mr Putin and Mr 83 00:04:50,600 --> 00:04:53,839 Speaker 1: Trump just as one example, absolutely original, I think. I 84 00:04:53,839 --> 00:04:56,680 Speaker 1: mean this is of course, in in the nineties, I mean, 85 00:04:56,720 --> 00:04:58,680 Speaker 1: who cared who was president of the United States in 86 00:04:58,720 --> 00:05:01,039 Speaker 1: the nineties. As long as al Greenspan was alive and 87 00:05:01,080 --> 00:05:03,359 Speaker 1: well and running a federal reserve, that's all you focused on. 88 00:05:03,960 --> 00:05:06,280 Speaker 1: But things have changed now. And of course the real 89 00:05:06,839 --> 00:05:09,719 Speaker 1: risk for me that comes of this is again this 90 00:05:09,800 --> 00:05:13,919 Speaker 1: parochialization effect. Economics is global. I can go anywhere in 91 00:05:13,920 --> 00:05:16,760 Speaker 1: the world and talk about CPI and people hopefully will 92 00:05:16,760 --> 00:05:20,039 Speaker 1: know what I'm talking about. But politics is local, it's cultural, 93 00:05:20,240 --> 00:05:23,039 Speaker 1: it's embedded in in the society in which you live. 94 00:05:23,440 --> 00:05:27,599 Speaker 1: It's if political risk is rising, that's something that is very, 95 00:05:27,720 --> 00:05:31,880 Speaker 1: very difficult for international investors to necessarily understand. And so 96 00:05:31,920 --> 00:05:33,560 Speaker 1: the instinct is to say, well, actually, you know what, 97 00:05:33,560 --> 00:05:35,080 Speaker 1: I'm just going to invest at home. I'm not going 98 00:05:35,080 --> 00:05:37,400 Speaker 1: to invest overseas. And then I think the mistake because 99 00:05:37,400 --> 00:05:40,279 Speaker 1: you lose the diversification of your portfolio. But that's the 100 00:05:40,360 --> 00:05:42,680 Speaker 1: gut instinct. In this sort of environment that we were 101 00:05:42,720 --> 00:05:46,839 Speaker 1: talking about, extraordinary monetary policy, I want to get your 102 00:05:46,880 --> 00:05:49,960 Speaker 1: feeling and whether it is still working. Certainly, the the 103 00:05:50,040 --> 00:05:52,200 Speaker 1: FAN is keeping rates low and holding under its balance 104 00:05:52,240 --> 00:05:55,840 Speaker 1: sheet even though they're not currently buying other than reinvesting 105 00:05:55,839 --> 00:05:58,800 Speaker 1: with the Japanese are buying, the European Central Bank is buying. 106 00:05:59,480 --> 00:06:04,359 Speaker 1: Are we seeing any progress, Are we seeing loans grow? 107 00:06:05,000 --> 00:06:09,039 Speaker 1: We're not seeing any additional growth or inflation anywhere? Well, 108 00:06:09,360 --> 00:06:11,280 Speaker 1: that's that's not entirely true. I mean, if we look 109 00:06:11,279 --> 00:06:13,640 Speaker 1: at the United States, so the Federal Reserve is actually 110 00:06:13,720 --> 00:06:17,320 Speaker 1: tightening quantitative policy now in the sense that their balance 111 00:06:17,360 --> 00:06:20,800 Speaker 1: sheet is falling as a share of GDP, and economically speaking, 112 00:06:20,800 --> 00:06:23,880 Speaker 1: that's tightening. But they're tightening policy at a time when 113 00:06:24,320 --> 00:06:27,360 Speaker 1: core inflation analyzed to and a half percent in the 114 00:06:27,400 --> 00:06:30,799 Speaker 1: first half of this year. When you've got core inflation, 115 00:06:30,920 --> 00:06:34,400 Speaker 1: the trimmed mean inflation rate, service sector inflation all out 116 00:06:34,480 --> 00:06:36,919 Speaker 1: or above twenty year averages, so we are seeing an 117 00:06:36,920 --> 00:06:39,240 Speaker 1: inflation issue and the third is tightening in response to that. 118 00:06:39,720 --> 00:06:42,719 Speaker 1: In the Eurozone, we can see that when we lose 119 00:06:42,760 --> 00:06:45,680 Speaker 1: the oil base effect, we will get higher inflation coming through. 120 00:06:46,080 --> 00:06:49,440 Speaker 1: Growth in the Eurozone this year probably comes in a 121 00:06:49,480 --> 00:06:51,359 Speaker 1: round about one and a half percent, but that's above 122 00:06:51,400 --> 00:06:55,400 Speaker 1: trend for the Eurozone. And I think that the improvement 123 00:06:55,440 --> 00:06:58,680 Speaker 1: in bank lending, the improvement in the transmission mechanism in 124 00:06:58,720 --> 00:07:02,480 Speaker 1: Europe where banks pushing money into the economy, that's helping 125 00:07:02,480 --> 00:07:05,919 Speaker 1: the Eurozone economy. One can question how much of a 126 00:07:05,960 --> 00:07:09,520 Speaker 1: help negative interest rates are. I don't regard that as 127 00:07:09,560 --> 00:07:11,960 Speaker 1: a monetary policy. I regard that as a fiscal policy. 128 00:07:12,800 --> 00:07:16,080 Speaker 1: But for the most part, I think the extraordinary measures 129 00:07:16,120 --> 00:07:19,160 Speaker 1: have helped imagine what would have happened if we didn't 130 00:07:19,200 --> 00:07:21,440 Speaker 1: have them. That's the thing we've got to do. I've 131 00:07:21,480 --> 00:07:24,040 Speaker 1: never asked this question, and I embarrassed to say that 132 00:07:23,840 --> 00:07:29,000 Speaker 1: that's the case. Is the United Kingdom productive? Front and center? 133 00:07:29,040 --> 00:07:32,880 Speaker 1: And Janet Yellen will mention this inner testimony today. Productivity 134 00:07:32,880 --> 00:07:35,760 Speaker 1: in the United States is front and center. Is the 135 00:07:35,880 --> 00:07:40,760 Speaker 1: United Kingdom productive? Looking at capital, labor and that mysterious 136 00:07:40,800 --> 00:07:44,160 Speaker 1: total factor productivity. So, I mean, the great problem economists 137 00:07:44,160 --> 00:07:46,680 Speaker 1: have with productivity is that productivity is the bit of 138 00:07:46,720 --> 00:07:50,520 Speaker 1: the economy we don't understand. Literally, we we work out 139 00:07:50,520 --> 00:07:52,520 Speaker 1: what we do understand, and then everything else we call 140 00:07:52,520 --> 00:07:56,200 Speaker 1: it productivity. In the UK, productivity has been lower. It's 141 00:07:56,280 --> 00:07:58,200 Speaker 1: it's been a bit like the United States, we've had 142 00:07:58,320 --> 00:08:02,440 Speaker 1: very good employment honin old GDP has been okay, but 143 00:08:02,520 --> 00:08:05,880 Speaker 1: the productivity numbers have have been lower. Part of the 144 00:08:05,920 --> 00:08:07,920 Speaker 1: problem though we've got in the UK, as we've got 145 00:08:07,920 --> 00:08:09,920 Speaker 1: in the States, is the data is being revised all 146 00:08:09,920 --> 00:08:12,080 Speaker 1: the time. Nobody's really sure what's happened. We've got an 147 00:08:12,120 --> 00:08:16,000 Speaker 1: island nation, essentially a smaller nation with great respect for 148 00:08:16,480 --> 00:08:22,040 Speaker 1: scale issues. We've got odd capital dynamics, a hugely weighted 149 00:08:22,120 --> 00:08:26,040 Speaker 1: London financial was seventeen percent of GDP. It's financial something 150 00:08:26,440 --> 00:08:31,520 Speaker 1: something along that wine an interesting original manufacturing component. I 151 00:08:31,560 --> 00:08:34,720 Speaker 1: can't even begin to have to measure productivity in a 152 00:08:34,760 --> 00:08:37,160 Speaker 1: more polarized island. Well, I mean this is this is 153 00:08:37,200 --> 00:08:39,120 Speaker 1: one of the challenges, particularly with the role of the 154 00:08:39,120 --> 00:08:42,360 Speaker 1: financial sector. You know, what is the productivity of an economist? 155 00:08:42,360 --> 00:08:49,520 Speaker 1: What's the value of an economist? But this, of course 156 00:08:49,640 --> 00:08:52,800 Speaker 1: is a real problem. How do we we accurately capture 157 00:08:52,920 --> 00:08:57,199 Speaker 1: in an economy like the United Kingdom, which is basically 158 00:08:57,280 --> 00:09:00,720 Speaker 1: leading in terms of the move towards service sector growth. 159 00:09:00,760 --> 00:09:02,200 Speaker 1: I mean, it's one of the first economies to go 160 00:09:02,280 --> 00:09:06,080 Speaker 1: down that route. So what is it um that actually 161 00:09:06,880 --> 00:09:09,760 Speaker 1: dictates what our productivity is? When so much is service 162 00:09:09,760 --> 00:09:11,920 Speaker 1: section that's so difficult to measure. Then we've got things 163 00:09:12,000 --> 00:09:14,320 Speaker 1: like the rise and self employment. Number of companies in 164 00:09:14,320 --> 00:09:17,480 Speaker 1: the UK has risen twenty five cent since the crisis, 165 00:09:17,800 --> 00:09:21,360 Speaker 1: nearly all self employed people. How do you measure their productivity? 166 00:09:21,360 --> 00:09:24,240 Speaker 1: A lot more difficult to capture? What could be done 167 00:09:24,240 --> 00:09:27,280 Speaker 1: about it? If there were if you were a member 168 00:09:27,320 --> 00:09:29,960 Speaker 1: of Congress, or if you were Janet Yellen or Mario 169 00:09:30,040 --> 00:09:33,560 Speaker 1: Dragging today before the European Parliament and they said what's 170 00:09:33,600 --> 00:09:37,840 Speaker 1: the policy change that would affect that? What would you say, Well, 171 00:09:37,920 --> 00:09:42,600 Speaker 1: I don't think in terms of trying to improve productivity, 172 00:09:42,679 --> 00:09:44,960 Speaker 1: it comes from the monetary policy side. This is not 173 00:09:45,040 --> 00:09:48,480 Speaker 1: what monetary policy is for. This is supply side economics. 174 00:09:48,480 --> 00:09:52,200 Speaker 1: This is flexibility of labor markets. It's skills training, but 175 00:09:52,240 --> 00:09:56,480 Speaker 1: it's also flexibility of skills. One of the great problems 176 00:09:56,520 --> 00:09:58,720 Speaker 1: I think at the moment is that in some parts 177 00:09:58,760 --> 00:10:01,600 Speaker 1: of the world we're churning out university graduates who are 178 00:10:01,600 --> 00:10:04,040 Speaker 1: low skilled workers because all they've got to do is 179 00:10:04,080 --> 00:10:07,559 Speaker 1: memorize the textbook to pass the exam. That's great, until 180 00:10:07,559 --> 00:10:10,360 Speaker 1: the textbook becomes obsolete. In two years time. You two 181 00:10:10,400 --> 00:10:13,000 Speaker 1: are obsolete. So we need to get that flexibility of 182 00:10:13,040 --> 00:10:15,280 Speaker 1: skills and wanting. I gotta get this question is critical 183 00:10:15,320 --> 00:10:19,040 Speaker 1: The Guardian, which is clearly a Remain paper headline Soros 184 00:10:19,679 --> 00:10:24,680 Speaker 1: EU exit risks Black Friday. Do we risk a Black 185 00:10:24,720 --> 00:10:29,079 Speaker 1: Friday's Mr Soros out over his skis. I think we 186 00:10:29,240 --> 00:10:32,640 Speaker 1: risk many things, both on exit and on Remain. I 187 00:10:32,679 --> 00:10:37,160 Speaker 1: think that one of the features of the campaign from 188 00:10:37,240 --> 00:10:41,400 Speaker 1: both sides has been a strong language which is not 189 00:10:41,640 --> 00:10:45,720 Speaker 1: necessarily helping understand the debate that's going on that we 190 00:10:45,760 --> 00:10:48,840 Speaker 1: should be having. This has not perhaps been a terribly 191 00:10:49,760 --> 00:10:54,199 Speaker 1: measured negotiation and debate between the two sides, and the 192 00:10:54,480 --> 00:10:57,480 Speaker 1: strong language has been very common. Paul donavent very valuable 193 00:10:57,480 --> 00:10:59,880 Speaker 1: to have you with us today. Paul Donovan is with UBS. 194 00:11:00,040 --> 00:11:04,280 Speaker 1: We greatly appreciate. I am being with television and radio 195 00:11:04,400 --> 00:11:18,559 Speaker 1: Michael McKee and Tom King globally on Bloomberg Radio from London. Well. 196 00:11:18,559 --> 00:11:21,080 Speaker 1: As I mentioned, Tom and I are here in London 197 00:11:21,200 --> 00:11:26,520 Speaker 1: for the Brexit vote. A lot of possible outcomes remain. 198 00:11:27,040 --> 00:11:30,000 Speaker 1: We don't know yet which side will come away with 199 00:11:30,040 --> 00:11:32,959 Speaker 1: the victory since it is too close to call officially 200 00:11:33,120 --> 00:11:35,679 Speaker 1: with the polls, which means that if you are investing 201 00:11:36,440 --> 00:11:39,200 Speaker 1: and you want to take a stand, you also want 202 00:11:39,200 --> 00:11:42,240 Speaker 1: to hedge that stand. Bill Blaine is an old friend 203 00:11:42,400 --> 00:11:45,400 Speaker 1: of Bloomberg Surveillance, a strategist at mid Partners. It's always 204 00:11:45,400 --> 00:11:48,920 Speaker 1: good to be in the same city as you. Um, 205 00:11:48,920 --> 00:11:53,680 Speaker 1: and we're curious, what are people doing too to take 206 00:11:53,840 --> 00:11:57,880 Speaker 1: risk off in this uh in this time. Well, that's 207 00:11:57,880 --> 00:12:02,040 Speaker 1: an absolutely fascinating question, Mike quota people doing to prepare 208 00:12:02,520 --> 00:12:07,000 Speaker 1: for the vote? Well, and that everyone's got different guesses 209 00:12:07,360 --> 00:12:09,880 Speaker 1: and that's all they are about what's going to happen. 210 00:12:09,960 --> 00:12:12,360 Speaker 1: We do have a binary outcome. Britain is either going 211 00:12:12,400 --> 00:12:14,600 Speaker 1: to vote in or out. At the moment, it is 212 00:12:14,679 --> 00:12:18,680 Speaker 1: looking pretty unclear which one it will be. I guess 213 00:12:18,760 --> 00:12:21,520 Speaker 1: we'll know by four o'clock in the morning Friday morning. 214 00:12:21,960 --> 00:12:26,000 Speaker 1: But what then happens following it? A lot of people 215 00:12:26,080 --> 00:12:28,600 Speaker 1: expect that Sterling is going to crash out of bed 216 00:12:28,679 --> 00:12:31,760 Speaker 1: and it will be the end of all things British. 217 00:12:31,960 --> 00:12:33,840 Speaker 1: A lot of people take the opposite view to that 218 00:12:33,960 --> 00:12:37,000 Speaker 1: and think, well, look, if Britain decides to leave Europe, 219 00:12:37,000 --> 00:12:40,000 Speaker 1: then it's not a British problem. It immediately becomes a 220 00:12:40,080 --> 00:12:43,280 Speaker 1: European problem. So I'm afraid for the people who are 221 00:12:43,280 --> 00:12:46,840 Speaker 1: looking to short term trade this market, It's very much 222 00:12:46,880 --> 00:12:50,840 Speaker 1: a question of guestimates and placing your bets on anything 223 00:12:50,880 --> 00:12:54,040 Speaker 1: except for Green. The real issue is what is the 224 00:12:54,160 --> 00:12:59,520 Speaker 1: long term investment scenario here. If you're a serious investor 225 00:12:59,600 --> 00:13:02,120 Speaker 1: in your thinking about the next five to ten, fifteen 226 00:13:02,160 --> 00:13:05,040 Speaker 1: to twenty five years for the insurance money and the 227 00:13:05,040 --> 00:13:08,040 Speaker 1: pension money, which is going to be better for Europe 228 00:13:08,240 --> 00:13:11,439 Speaker 1: and the UK? Is it going to be in or out? Well, 229 00:13:11,480 --> 00:13:13,800 Speaker 1: I suppose you probably don't want to make that decision 230 00:13:13,960 --> 00:13:17,360 Speaker 1: until you get to Friday. We're seeing a lot of 231 00:13:17,400 --> 00:13:20,199 Speaker 1: money on the sidelines now, well, I think there's there's 232 00:13:20,440 --> 00:13:22,560 Speaker 1: there's a growing I mean that this has been an 233 00:13:22,600 --> 00:13:25,800 Speaker 1: absolutely fascinating campaign, Mike. I mean a lot of us 234 00:13:25,840 --> 00:13:28,080 Speaker 1: started off looking at it and saying it would be 235 00:13:28,160 --> 00:13:31,200 Speaker 1: madness for Britain to pull out, it would be foolish, 236 00:13:31,240 --> 00:13:33,520 Speaker 1: look at the risks were running. That's very much a 237 00:13:33,600 --> 00:13:36,880 Speaker 1: status quo type of arguments, and I do think that 238 00:13:37,000 --> 00:13:39,080 Speaker 1: is the way the vote is going to be. So 239 00:13:39,160 --> 00:13:41,760 Speaker 1: many people just don't know whether it's a better thing 240 00:13:41,840 --> 00:13:43,559 Speaker 1: to be in or out, So the easy thing to 241 00:13:43,640 --> 00:13:46,240 Speaker 1: do is just stick with the status quo and stay 242 00:13:46,280 --> 00:13:49,000 Speaker 1: in and I rather suspect that's the way the vote comes. 243 00:13:49,280 --> 00:13:51,720 Speaker 1: But I think now there is enough lot of the 244 00:13:51,760 --> 00:13:55,439 Speaker 1: financial markets, and I mean by that the serious investment 245 00:13:55,520 --> 00:13:59,600 Speaker 1: money that is considering the long term implications of the 246 00:13:59,640 --> 00:14:02,720 Speaker 1: Euro and Europe. And I think one of the issues 247 00:14:02,760 --> 00:14:07,160 Speaker 1: there is the Euro simply doesn't work very well. You've 248 00:14:07,160 --> 00:14:10,240 Speaker 1: got all these countries trying to adapt very quickly to 249 00:14:10,400 --> 00:14:13,240 Speaker 1: using an unfamiliar currency. The only thing that can use 250 00:14:13,360 --> 00:14:17,559 Speaker 1: is monettery policy. Fiscal policies not on the table. That 251 00:14:17,600 --> 00:14:20,800 Speaker 1: means that these economies aren't working. And it's just like communism, 252 00:14:20,840 --> 00:14:24,760 Speaker 1: which was a great idea in economics but fundamentally didn't worked. 253 00:14:25,200 --> 00:14:27,560 Speaker 1: And I think the worry for long term investors are 254 00:14:27,800 --> 00:14:31,560 Speaker 1: is that if Britain stays in Europe long term, does 255 00:14:31,600 --> 00:14:34,520 Speaker 1: that create long term financial damage. Well that's certainly been 256 00:14:35,360 --> 00:14:40,640 Speaker 1: the view of a lot of people on the leave side. Um, 257 00:14:40,680 --> 00:14:43,400 Speaker 1: but you really don't know the answer to that either. 258 00:14:44,160 --> 00:14:47,000 Speaker 1: Guess the thing that this this referendum might none of 259 00:14:47,040 --> 00:14:50,640 Speaker 1: us know the answers to anything. Everything is speculation. I 260 00:14:50,760 --> 00:14:54,240 Speaker 1: happen to go with the David Cameron and Remain Camp 261 00:14:54,320 --> 00:14:58,120 Speaker 1: are probably right. You're going to have tremendous dislocation, but 262 00:14:58,240 --> 00:15:01,760 Speaker 1: probably not as bad as people think because if sterling weekends, 263 00:15:02,040 --> 00:15:03,960 Speaker 1: people are going to jump in and buy it. I 264 00:15:04,000 --> 00:15:08,360 Speaker 1: saw analysis today that said you want to own British 265 00:15:08,360 --> 00:15:11,840 Speaker 1: hotel stocks if if they vote to leave because sterling 266 00:15:11,840 --> 00:15:14,680 Speaker 1: will weekend and then you know you'll be overrun with 267 00:15:14,760 --> 00:15:18,560 Speaker 1: US Yanks. You know you may not want that. Yeah, 268 00:15:18,600 --> 00:15:22,720 Speaker 1: that's a very good point. Michael McKee and Tim keenan London, 269 00:15:22,960 --> 00:15:28,280 Speaker 1: thrilled to finally meet Bill Blaine uh who writes the 270 00:15:28,400 --> 00:15:34,960 Speaker 1: Morning Porridge, People's Healthy Breakfast Street absolutely Healthy bread rated 271 00:15:35,040 --> 00:15:38,200 Speaker 1: every morning. What my porridge? You with your porche your 272 00:15:38,200 --> 00:15:40,560 Speaker 1: surveillance point when I mean in the United States we 273 00:15:40,760 --> 00:15:43,160 Speaker 1: have oatmeal. Here we come here we have like porridge 274 00:15:43,160 --> 00:15:45,680 Speaker 1: is one the longest established health foods on the planet. 275 00:15:45,880 --> 00:15:48,760 Speaker 1: The reason we Scots are so big, strong and powerful 276 00:15:49,080 --> 00:15:52,880 Speaker 1: is every morning scotsman start the day bullet porridge and 277 00:15:53,080 --> 00:15:55,960 Speaker 1: glasso whiskey. I'm sure that Lord LaMotte did I got 278 00:15:56,000 --> 00:15:57,840 Speaker 1: the map out? I had no I knew. I think 279 00:15:57,920 --> 00:16:01,400 Speaker 1: I knew the sheld Islands north of Scotland, but I 280 00:16:01,440 --> 00:16:05,160 Speaker 1: didn't know three hundred some miles north of Scotland. So 281 00:16:05,280 --> 00:16:07,760 Speaker 1: it's along the long way. I think Shetland's needer to 282 00:16:07,880 --> 00:16:12,200 Speaker 1: Norway then instead. That's exactly what he said. Chancellor Darling 283 00:16:12,280 --> 00:16:15,040 Speaker 1: is from that neck of the woods jail, Prime Minister 284 00:16:15,120 --> 00:16:18,280 Speaker 1: Brown and others. I I know them. I when I 285 00:16:18,360 --> 00:16:21,160 Speaker 1: was a student, I used to canvas for Alistair Darling. 286 00:16:21,920 --> 00:16:26,080 Speaker 1: How will they respond? Is? I mean, I'm trying to 287 00:16:26,120 --> 00:16:29,400 Speaker 1: get through the hysteria in the panic like the Guardian 288 00:16:29,440 --> 00:16:32,680 Speaker 1: George sort of world. I think you're hitting in one 289 00:16:32,720 --> 00:16:35,000 Speaker 1: of the main things that is going to happen. Let's 290 00:16:35,000 --> 00:16:37,680 Speaker 1: forget about the vote and why you should go one 291 00:16:37,680 --> 00:16:41,640 Speaker 1: way or the other and talk about the unintended consequences thereof. 292 00:16:42,080 --> 00:16:43,640 Speaker 1: And one of the ones is going to be in 293 00:16:43,720 --> 00:16:47,680 Speaker 1: British politics the Labor Party here in the UK the 294 00:16:47,720 --> 00:16:51,520 Speaker 1: traditional opposition to the current government, which are the Conservatives 295 00:16:51,520 --> 00:16:54,000 Speaker 1: are the Tories, or it's the other way around that 296 00:16:54,040 --> 00:16:56,800 Speaker 1: the Conservatives are the opposition to Labor. But at the 297 00:16:56,840 --> 00:16:59,960 Speaker 1: moment Labor Party is very very weak after damaging lead 298 00:17:00,120 --> 00:17:04,280 Speaker 1: ship run and they had a strong leader in David Cameron. 299 00:17:04,520 --> 00:17:07,480 Speaker 1: But of course David Cameron has called this referendum which 300 00:17:07,520 --> 00:17:10,639 Speaker 1: looks like backfiring terribly on him and we've seen a 301 00:17:10,680 --> 00:17:14,840 Speaker 1: new challenger arrive in the form of Boris Johnson, Everyone's 302 00:17:14,920 --> 00:17:18,600 Speaker 1: favorite mop topped blonde as they call them. Um, it 303 00:17:18,800 --> 00:17:21,600 Speaker 1: is likely that we will see a change around in 304 00:17:21,640 --> 00:17:25,160 Speaker 1: the Conservative Party with a new leader emerging. The question 305 00:17:25,280 --> 00:17:27,800 Speaker 1: is does that mean Labor will be able to reinstitution 306 00:17:27,920 --> 00:17:31,440 Speaker 1: insinuate itself in British political thinking. We're not terribly sure. 307 00:17:31,840 --> 00:17:36,280 Speaker 1: It is there a delineation in uh in policies that's 308 00:17:36,600 --> 00:17:39,480 Speaker 1: significant to the British people right now because you've got 309 00:17:39,920 --> 00:17:43,919 Speaker 1: Corbyn and Cameron campaign together on the Brexit issue. Well 310 00:17:43,960 --> 00:17:46,800 Speaker 1: that that's again a very good question because it used 311 00:17:46,840 --> 00:17:50,440 Speaker 1: to be that the best Conservative Prime minister that we 312 00:17:50,560 --> 00:17:54,800 Speaker 1: had since Margaret Thatcher was of course Tony Blair, who 313 00:17:54,960 --> 00:17:58,000 Speaker 1: was in fact elected by the Labor Party, and Tony 314 00:17:58,040 --> 00:18:02,200 Speaker 1: Blair fold very right wing policies, which works extremely well 315 00:18:02,600 --> 00:18:05,480 Speaker 1: and one of the reasons that the Conservative got in 316 00:18:05,680 --> 00:18:09,080 Speaker 1: last time as they were pursuing effectively the same old 317 00:18:09,160 --> 00:18:12,240 Speaker 1: Blay right policies. But now we have a Labor Party 318 00:18:12,280 --> 00:18:15,840 Speaker 1: that has gone hard left or harder left, and it 319 00:18:15,880 --> 00:18:18,879 Speaker 1: seems to be we have a Conservative Party that is 320 00:18:19,480 --> 00:18:22,560 Speaker 1: on the verge of implosion now. I think that's very 321 00:18:22,600 --> 00:18:24,600 Speaker 1: interesting because if you look at what's going on in 322 00:18:24,640 --> 00:18:27,000 Speaker 1: the rest of the world, whether it's in Europe where 323 00:18:27,040 --> 00:18:32,680 Speaker 1: you have far left, far right and other protest parties emerging, 324 00:18:32,720 --> 00:18:36,399 Speaker 1: and even in the States where the massive protest vote 325 00:18:36,400 --> 00:18:40,639 Speaker 1: against established politicians looks to us to be exactly the 326 00:18:40,680 --> 00:18:44,520 Speaker 1: same thing. Can I reb up the script of Alan 327 00:18:44,600 --> 00:18:48,280 Speaker 1: Campbell is of the United Kingdom and he does great 328 00:18:48,320 --> 00:18:51,600 Speaker 1: statistical work for Bloomberg. He's come up with a d 329 00:18:51,800 --> 00:18:56,280 Speaker 1: x Y equivalent for the pound and it's a shocking picture. 330 00:18:56,320 --> 00:18:59,199 Speaker 1: It will be my single best chart tomorrow on television 331 00:18:59,640 --> 00:19:02,480 Speaker 1: here of London, and and and Bill. I'm thrilled to 332 00:19:02,520 --> 00:19:07,160 Speaker 1: speak to you about it right now. This is a 333 00:19:07,160 --> 00:19:12,040 Speaker 1: an index with focused waitings on the majing major trading 334 00:19:12,160 --> 00:19:15,720 Speaker 1: partners of the United Kingdom, and I think people would 335 00:19:15,720 --> 00:19:21,479 Speaker 1: be shocked by the waitings euro thirty six US dollar. 336 00:19:22,040 --> 00:19:25,919 Speaker 1: It's a real balance between Europe and the UK in 337 00:19:25,960 --> 00:19:30,160 Speaker 1: America that David Cameron and others have to deal with. 338 00:19:30,560 --> 00:19:34,600 Speaker 1: I think that this this index is absolutely the question 339 00:19:34,840 --> 00:19:38,560 Speaker 1: of the moment. Let's forget all list nonsense about whether 340 00:19:38,600 --> 00:19:40,240 Speaker 1: we should be in or out in terms of what 341 00:19:40,359 --> 00:19:43,920 Speaker 1: it means for UK taxpayers or whatever. But this focus 342 00:19:44,040 --> 00:19:49,719 Speaker 1: on UK p LC or UK INC. Because my whole 343 00:19:49,920 --> 00:19:52,280 Speaker 1: thinking at the moment is this is not about This 344 00:19:52,359 --> 00:19:55,200 Speaker 1: is far too important to leave to politics. This is 345 00:19:55,240 --> 00:19:57,960 Speaker 1: an issue about how the UK performs. Is one of 346 00:19:58,000 --> 00:20:01,000 Speaker 1: the strongest marcantile nations on the country, and you can 347 00:20:01,040 --> 00:20:04,080 Speaker 1: see from this index that we're pretty finally balanced between 348 00:20:04,119 --> 00:20:06,520 Speaker 1: our trade with Europe and the rest of the world. 349 00:20:06,880 --> 00:20:09,280 Speaker 1: The problem is our trade with Europe is in danger 350 00:20:09,400 --> 00:20:13,120 Speaker 1: because of the failed economic theory that lies behind the Euro. 351 00:20:13,280 --> 00:20:15,680 Speaker 1: I'll go with that, but the chart is studying in folks. 352 00:20:15,720 --> 00:20:17,680 Speaker 1: I'll put this chart on a radio plus you'll see 353 00:20:17,680 --> 00:20:21,080 Speaker 1: it featured heavily for the next three days here in 354 00:20:21,119 --> 00:20:24,639 Speaker 1: the United Kingdom. The single message of the chart is 355 00:20:24,680 --> 00:20:29,119 Speaker 1: on a currency basis. The index is pound index p 356 00:20:29,320 --> 00:20:32,879 Speaker 1: O U n D on the Bloomberg, the United Kingdom 357 00:20:33,000 --> 00:20:35,960 Speaker 1: is not recovered from the crisis of oh eight because 358 00:20:36,000 --> 00:20:38,359 Speaker 1: they're getting no help from Europe. And what I'd like 359 00:20:38,480 --> 00:20:42,000 Speaker 1: to look at is the Euro on the same basis, 360 00:20:42,000 --> 00:20:45,920 Speaker 1: because I rather suspect that you'll find exactly the same 361 00:20:45,960 --> 00:20:50,439 Speaker 1: thing that Europe and the UK have languished in the 362 00:20:50,440 --> 00:20:53,000 Speaker 1: wake of the crisis in fact, I would argue that 363 00:20:53,480 --> 00:20:58,680 Speaker 1: the UK is the strongest performing European economy since the crisis, 364 00:20:59,000 --> 00:21:01,560 Speaker 1: So we can do the same analysis on the rest. 365 00:21:02,080 --> 00:21:05,720 Speaker 1: I'll think that will be very very thoughtful piece of 366 00:21:05,760 --> 00:21:09,160 Speaker 1: analysis to present people as to why the Euro isn't 367 00:21:09,200 --> 00:21:11,760 Speaker 1: working and ultimately that's the problem here. So we're they 368 00:21:11,880 --> 00:21:14,160 Speaker 1: on Campbell and our team over on the death Star 369 00:21:14,240 --> 00:21:18,119 Speaker 1: Bloomberg gil P Mike. We announced pound index go p 370 00:21:18,320 --> 00:21:21,280 Speaker 1: O U N D and it's it's I I. You know, 371 00:21:21,440 --> 00:21:23,359 Speaker 1: they talked to me about this a few days ago 372 00:21:23,920 --> 00:21:28,600 Speaker 1: and it beautifully shows the tension that you hear from 373 00:21:28,600 --> 00:21:30,600 Speaker 1: the chance to learned from the Prime minister. Yeah. But 374 00:21:30,680 --> 00:21:32,720 Speaker 1: here's the other thing. I mean, one of the reasons 375 00:21:32,760 --> 00:21:36,040 Speaker 1: the UK economy is successful is we have our own economy. 376 00:21:36,400 --> 00:21:39,320 Speaker 1: One of the reasons that Europe is struggling is because 377 00:21:39,400 --> 00:21:42,480 Speaker 1: it's using somebody else's economy, unless, of course, she happens 378 00:21:42,480 --> 00:21:44,240 Speaker 1: to be a jam Mike. I put this out on 379 00:21:44,280 --> 00:21:46,879 Speaker 1: Bloomberg Radio Plus. The first look at it. I'm Bloomberg 380 00:21:46,920 --> 00:21:51,480 Speaker 1: Radio Plus. Uh. It's interesting because you as a not 381 00:21:51,600 --> 00:21:55,199 Speaker 1: a brit but a United Kingdom. You're a Scott We 382 00:21:55,240 --> 00:21:57,600 Speaker 1: have to make that clear. But you get old scott 383 00:21:57,640 --> 00:22:01,920 Speaker 1: and British too, and you have been agonizing over this 384 00:22:02,040 --> 00:22:06,119 Speaker 1: as we follow your your daily notes. Um, you're you 385 00:22:06,640 --> 00:22:08,840 Speaker 1: come down at a different times on both sides, and 386 00:22:08,960 --> 00:22:11,200 Speaker 1: you know what I feel like, Paul on the road 387 00:22:11,240 --> 00:22:14,520 Speaker 1: to Damascus there was I I started off saying, hey, 388 00:22:14,520 --> 00:22:16,800 Speaker 1: this is an absolutely no brainer. We've got to stay 389 00:22:16,800 --> 00:22:19,840 Speaker 1: in Europe. We mustn't rope that rock the boat. But 390 00:22:19,920 --> 00:22:23,160 Speaker 1: then I started looking at stuff like this and thinking 391 00:22:23,480 --> 00:22:26,440 Speaker 1: what is the long term effect of tying yourself and 392 00:22:26,600 --> 00:22:30,320 Speaker 1: your economy to an economic theory that doesn't work? And 393 00:22:30,359 --> 00:22:32,199 Speaker 1: it was actually jailed for me. This is quite a 394 00:22:32,200 --> 00:22:34,359 Speaker 1: funny story. It was actually jailed for me. I was 395 00:22:34,359 --> 00:22:37,639 Speaker 1: on the BBC one morning. They are another broadcaster by 396 00:22:37,640 --> 00:22:40,959 Speaker 1: the way, So I was on the BBC and they 397 00:22:41,000 --> 00:22:45,000 Speaker 1: had this Chinese academic complaining that in China they spend 398 00:22:45,040 --> 00:22:49,680 Speaker 1: far too much time in economics analyzing failed Western economics, 399 00:22:49,760 --> 00:22:52,760 Speaker 1: and they want to spend more time doing Marxism. So 400 00:22:52,800 --> 00:22:55,600 Speaker 1: I just simply reminded him that dask Capital and the 401 00:22:55,600 --> 00:22:58,880 Speaker 1: Communist Manifesto were written next door in the British library. 402 00:22:59,320 --> 00:23:02,080 Speaker 1: And that got me thinking communism is an utterly failed 403 00:23:02,240 --> 00:23:05,639 Speaker 1: it's a wonderful economic theory, but it's utterly failed and 404 00:23:05,680 --> 00:23:08,359 Speaker 1: I'm afraid I've got to look at the Euro and 405 00:23:08,440 --> 00:23:11,240 Speaker 1: just the Euro because the dream of Europe is fantastic. 406 00:23:11,640 --> 00:23:13,960 Speaker 1: I don't agree with integration, but I love the idea 407 00:23:13,960 --> 00:23:17,840 Speaker 1: of a single European marketplace. But the Euro is holding 408 00:23:17,880 --> 00:23:21,120 Speaker 1: back growth. It is creating massive unemployment for the youth 409 00:23:21,160 --> 00:23:24,320 Speaker 1: of Europe, and I think that is holding back economies 410 00:23:24,359 --> 00:23:27,879 Speaker 1: that link themselves to Europe, not just the ones that 411 00:23:27,880 --> 00:23:30,720 Speaker 1: are members of the Europe, of the Euro. So that's 412 00:23:30,760 --> 00:23:34,280 Speaker 1: why I'm changing my view, and instruments like this Bloomberg 413 00:23:34,280 --> 00:23:40,200 Speaker 1: Pound index are fascinating. Now. Britain benefits because sterling is moving, 414 00:23:40,240 --> 00:23:42,919 Speaker 1: it's a traded commodity and we adjust our economy. We 415 00:23:42,960 --> 00:23:45,840 Speaker 1: continue to be mercantile as a result of that, whereas 416 00:23:45,840 --> 00:23:48,879 Speaker 1: the rest of Europe has trapped under the dead and 417 00:23:49,480 --> 00:23:55,000 Speaker 1: of the Euro. There's a there's a firm statement for 418 00:23:55,000 --> 00:23:57,639 Speaker 1: your time. You got it thirty seconds to ask built 419 00:23:57,640 --> 00:24:01,840 Speaker 1: about the trains, the trains, the times of London rail 420 00:24:01,920 --> 00:24:05,880 Speaker 1: firms to be find of trains one minute late. Front page. 421 00:24:05,960 --> 00:24:08,359 Speaker 1: This is front page notes, not London loose. We have 422 00:24:08,400 --> 00:24:10,480 Speaker 1: to go further than that we have to look at 423 00:24:10,520 --> 00:24:13,439 Speaker 1: the way that we've got to make trains more efficient 424 00:24:13,480 --> 00:24:15,760 Speaker 1: in Europe, and that means every time a train's late, 425 00:24:15,800 --> 00:24:18,399 Speaker 1: we take the chairman of that training company out and 426 00:24:18,480 --> 00:24:21,560 Speaker 1: do something vicious to them. I'll go for that. You 427 00:24:21,560 --> 00:24:26,320 Speaker 1: should not move to America. You have no idea. I 428 00:24:26,320 --> 00:24:42,600 Speaker 1: don't blame Thank you so much, min Partners, and why 429 00:24:42,600 --> 00:24:44,720 Speaker 1: don't you get it started with our next guests, because 430 00:24:44,760 --> 00:24:48,160 Speaker 1: you have a new research note just published by baronburg Bank. Well, 431 00:24:48,240 --> 00:24:52,000 Speaker 1: it's interesting Hugers meeting is with us. He's Barrenberg's chief economists. 432 00:24:52,040 --> 00:24:54,840 Speaker 1: One of the people that I presume works for you. 433 00:24:55,359 --> 00:24:58,359 Speaker 1: Callin Pickering, just out with a note taking the other 434 00:24:58,520 --> 00:25:02,280 Speaker 1: side of what Bill Blaine was just saying that the 435 00:25:02,359 --> 00:25:06,920 Speaker 1: UK has been held back by the euro. Uh. Your 436 00:25:07,240 --> 00:25:11,560 Speaker 1: note suggests that that's a myth that the UK has 437 00:25:11,640 --> 00:25:17,440 Speaker 1: been able to succeed economically under the EU. They don't 438 00:25:17,560 --> 00:25:20,840 Speaker 1: use the Euro but under the EU. Yes, that's absolutely correct, 439 00:25:20,920 --> 00:25:24,400 Speaker 1: and we've pointed that out repeatedly. The fact is that 440 00:25:24,520 --> 00:25:28,520 Speaker 1: Britain did badly while it was outside the European Union. 441 00:25:28,920 --> 00:25:32,080 Speaker 1: It fell behind badly. For instance, in the nineteen sixties 442 00:25:32,080 --> 00:25:36,640 Speaker 1: and early nineteen seventies, while on the continent Germany and France, 443 00:25:36,680 --> 00:25:40,760 Speaker 1: Italy and a few others were integrating. The Britain is 444 00:25:40,840 --> 00:25:44,880 Speaker 1: now doing very well. Of course, having joined the then 445 00:25:45,080 --> 00:25:49,000 Speaker 1: European Economic Community in nineteen seventies three was not just 446 00:25:49,200 --> 00:25:52,200 Speaker 1: the only point it helped. The other point was that 447 00:25:52,359 --> 00:25:57,240 Speaker 1: the UK did have serious economic reforms under such and 448 00:25:57,320 --> 00:26:01,359 Speaker 1: continues to benefit from that. But the evidence is clear. 449 00:26:01,680 --> 00:26:06,159 Speaker 1: Within the European Union. The UK has become the economy 450 00:26:06,240 --> 00:26:09,280 Speaker 1: among the D seven with the fastest trend rate of 451 00:26:09,400 --> 00:26:13,639 Speaker 1: growth per capita within the EU, and before it joined 452 00:26:13,680 --> 00:26:16,760 Speaker 1: the EU it had the lowest trend rate of growth 453 00:26:16,840 --> 00:26:20,280 Speaker 1: per capita among the G seven nations. To think that 454 00:26:20,440 --> 00:26:24,240 Speaker 1: outside the biggest common market in the world, with little 455 00:26:24,280 --> 00:26:29,040 Speaker 1: access to the big European market for services, that outside 456 00:26:29,119 --> 00:26:33,240 Speaker 1: the EU, the UK could thrive is just contrast all 457 00:26:33,440 --> 00:26:38,480 Speaker 1: available economic facts. Well, a mercantile nation does need trading partners. 458 00:26:38,520 --> 00:26:41,960 Speaker 1: But your assumption is that they would not be able 459 00:26:42,000 --> 00:26:45,200 Speaker 1: to cut a deal to be a sort of Norway 460 00:26:45,359 --> 00:26:50,040 Speaker 1: like member of the European Economic Association. Well, they already 461 00:26:50,040 --> 00:26:52,720 Speaker 1: have a special deal. They have their opt outs. The 462 00:26:52,760 --> 00:26:57,439 Speaker 1: Norway style deal means that they accept full freedom of 463 00:26:57,480 --> 00:27:01,040 Speaker 1: the movement of labor, which is exactly what the Brexit 464 00:27:01,119 --> 00:27:05,000 Speaker 1: campaign is viciously opposed to and in a way which 465 00:27:05,080 --> 00:27:09,320 Speaker 1: really sometimes is put in interesting words. Just look at 466 00:27:09,480 --> 00:27:11,600 Speaker 1: the u KIP and what they have put up as 467 00:27:11,640 --> 00:27:15,440 Speaker 1: a posed. So the Norway deal would come with free 468 00:27:15,480 --> 00:27:20,359 Speaker 1: movement of labor, it would come with accepting payments into 469 00:27:20,440 --> 00:27:25,159 Speaker 1: the EU budget and without the rebate that Britain currently has. 470 00:27:25,240 --> 00:27:28,280 Speaker 1: And on top of that it's pretty unclear whether the 471 00:27:28,280 --> 00:27:33,119 Speaker 1: EU would actually offer Britain and Norway style deal after 472 00:27:33,200 --> 00:27:36,800 Speaker 1: Britain had fired for divorce. That's the heart of the matter. 473 00:27:36,840 --> 00:27:39,919 Speaker 1: There's there's all sorts of shades hulger to this in 474 00:27:40,480 --> 00:27:42,959 Speaker 1: all of the United Kingdom right now and particularly London. 475 00:27:43,520 --> 00:27:47,280 Speaker 1: What can Brussels offer? Mr Younker I saw a passing 476 00:27:47,640 --> 00:27:50,320 Speaker 1: commented they didn't seem like he wanted to offer anything. 477 00:27:51,240 --> 00:27:55,320 Speaker 1: Is Brussels or quote unquote continental Europe? Are they? Are 478 00:27:55,359 --> 00:28:01,400 Speaker 1: they in need of offering something to the English people. Well, Brussels, 479 00:28:01,640 --> 00:28:05,000 Speaker 1: the European Union, the other twenty seven countries have already 480 00:28:05,119 --> 00:28:09,600 Speaker 1: offered a sort of amended deal to camera. This is 481 00:28:09,640 --> 00:28:12,760 Speaker 1: what the vote now is about. If the UK now 482 00:28:12,840 --> 00:28:15,960 Speaker 1: reject the deal. Then of course the EU would not 483 00:28:16,160 --> 00:28:19,520 Speaker 1: offer a better deal. The EU would say, Okay, if 484 00:28:19,520 --> 00:28:21,639 Speaker 1: you really don't want to get out, it don't do 485 00:28:21,720 --> 00:28:24,840 Speaker 1: want to get out. Then as German finances the short 486 00:28:24,840 --> 00:28:29,920 Speaker 1: Blair said out is out, and that would be it. Eventually, 487 00:28:30,040 --> 00:28:33,400 Speaker 1: there would of course be negotiations, there will be trade 488 00:28:33,480 --> 00:28:36,480 Speaker 1: going on, there will be new agreements, but these new 489 00:28:36,520 --> 00:28:41,160 Speaker 1: agreements would be agreements with outsiders. From an EU standpoint, 490 00:28:41,360 --> 00:28:44,480 Speaker 1: they would take time, a long time to conclude. They 491 00:28:44,480 --> 00:28:48,400 Speaker 1: would be significantly worse in terms of market access, especially 492 00:28:48,440 --> 00:28:51,800 Speaker 1: for services for the UK. Then what the UK now 493 00:28:51,920 --> 00:28:55,440 Speaker 1: has as a full member of the biggest common market 494 00:28:55,680 --> 00:28:58,280 Speaker 1: in the world, and with rules on which the UK 495 00:28:58,560 --> 00:29:01,960 Speaker 1: at the moment has a signaling to say, Mike, something 496 00:29:02,000 --> 00:29:04,080 Speaker 1: to look for. I'm not up to speed on this, Mike, 497 00:29:04,160 --> 00:29:06,320 Speaker 1: and I'm gonna quote this very carefully. Help me out, 498 00:29:06,360 --> 00:29:10,040 Speaker 1: if you would. It is called servation, and it's maybe 499 00:29:10,080 --> 00:29:13,720 Speaker 1: the next poll. It's the next poll. Let is later today, 500 00:29:13,800 --> 00:29:17,120 Speaker 1: I don't know servation. It's the United Kingdom. And obviously 501 00:29:17,280 --> 00:29:21,280 Speaker 1: we're poll crazy here right now in the United Kingdom. 502 00:29:21,320 --> 00:29:24,200 Speaker 1: And servation is the next one down the pike. Every 503 00:29:24,240 --> 00:29:27,080 Speaker 1: wiggle in the polls have some impact on the markets. 504 00:29:27,080 --> 00:29:30,160 Speaker 1: On sterling is a new poll do out in no 505 00:29:30,400 --> 00:29:32,960 Speaker 1: an hour or so, we will will keep an eye 506 00:29:33,040 --> 00:29:37,959 Speaker 1: on that. Let me ask you Holger the UK. The 507 00:29:38,040 --> 00:29:40,520 Speaker 1: argument that Bill Blaine was making for the UK was 508 00:29:40,600 --> 00:29:44,320 Speaker 1: not so much on a currency basis, because clearly there 509 00:29:44,320 --> 00:29:48,240 Speaker 1: are impacts and trade impacts, but um the idea that 510 00:29:48,280 --> 00:29:51,959 Speaker 1: the euro Zone construct and we have to keep in 511 00:29:52,000 --> 00:29:55,360 Speaker 1: mind that we're talking about Britain leaving the EU. They're 512 00:29:55,360 --> 00:29:57,240 Speaker 1: not in the euro Zone, but the euro Zone is 513 00:29:57,280 --> 00:30:00,320 Speaker 1: that the heart of the EU. That that has not worked, 514 00:30:00,800 --> 00:30:05,960 Speaker 1: that they have not been able to treat each other 515 00:30:06,040 --> 00:30:11,880 Speaker 1: as equals. The southern and periphery countries have become junior 516 00:30:11,920 --> 00:30:15,640 Speaker 1: partners with all the attendant problems that they've had. The 517 00:30:15,640 --> 00:30:21,040 Speaker 1: banking system is in trouble, and that Britain doesn't need that. Um. Yes, 518 00:30:21,160 --> 00:30:24,520 Speaker 1: Britain is not part of the Eurozone, as you already said, 519 00:30:24,840 --> 00:30:29,120 Speaker 1: and in that sense, Britain is somewhat aloof from what's 520 00:30:29,160 --> 00:30:31,080 Speaker 1: going on on the continent. But if we look at 521 00:30:31,080 --> 00:30:32,960 Speaker 1: what's going on in the continent, the first thing we 522 00:30:33,040 --> 00:30:37,640 Speaker 1: have to say that the Eurozone includes Germany, which is 523 00:30:37,840 --> 00:30:41,720 Speaker 1: a very successful economy which has a full employment, price 524 00:30:41,760 --> 00:30:45,360 Speaker 1: stability of his coal surplus and which exports three times 525 00:30:45,400 --> 00:30:48,320 Speaker 1: as much more than three times as much to China 526 00:30:48,440 --> 00:30:51,600 Speaker 1: than does the UK. Germany is an example that in 527 00:30:51,680 --> 00:30:55,480 Speaker 1: the Eurozone and in the EU, you're not held back 528 00:30:55,800 --> 00:30:59,000 Speaker 1: by EU rules. And as to what the problem countries 529 00:30:59,080 --> 00:31:02,520 Speaker 1: of the Eurozone um as far as those are concerned, 530 00:31:02,560 --> 00:31:08,000 Speaker 1: we have seen significant progress in Spain, Portugal, Italy and Cyprus, 531 00:31:08,040 --> 00:31:11,560 Speaker 1: as well as Ireland. Some of the faster growing economy 532 00:31:11,680 --> 00:31:15,360 Speaker 1: is at the moment in Europe, Our Ireland, our Spain, 533 00:31:15,600 --> 00:31:19,480 Speaker 1: are Cyprus. That is, economies who, thanks to the help 534 00:31:19,560 --> 00:31:23,880 Speaker 1: from other Eurozone members did overcome their problems. So to 535 00:31:23,960 --> 00:31:27,360 Speaker 1: dismiss the Eurozone as something that doesn't really work misses 536 00:31:27,440 --> 00:31:30,920 Speaker 1: the point that we have seen significant progress in the 537 00:31:30,960 --> 00:31:34,600 Speaker 1: eurodon recently. Harger. Is there a London on the continent 538 00:31:34,880 --> 00:31:39,800 Speaker 1: if this goes ugly and they leave, which I guess, Mike, 539 00:31:39,840 --> 00:31:41,680 Speaker 1: I can say looking at the tape is not the 540 00:31:41,720 --> 00:31:45,440 Speaker 1: bet right now. But if they leave, is there a 541 00:31:45,440 --> 00:31:48,840 Speaker 1: London equivalent out there? No, there is no London equivalent 542 00:31:48,880 --> 00:31:51,200 Speaker 1: out there. There will be a London equivaland out there 543 00:31:51,280 --> 00:31:54,040 Speaker 1: on the continent. If Britain leaves, it would be sad. 544 00:31:54,160 --> 00:31:57,360 Speaker 1: What it would probably mean is that London could no 545 00:31:57,520 --> 00:32:02,320 Speaker 1: longer be the virtually un challenged center for its services 546 00:32:02,440 --> 00:32:05,600 Speaker 1: in Europe. London could no longer be to the same 547 00:32:05,680 --> 00:32:11,720 Speaker 1: extent that it's now the place where global firms resigned 548 00:32:11,800 --> 00:32:15,520 Speaker 1: to sell services from London to the entire common market. 549 00:32:16,040 --> 00:32:19,080 Speaker 1: London would still be a great place, an exciting place, 550 00:32:19,120 --> 00:32:23,040 Speaker 1: a financial center. It would just be somewhat diminished with 551 00:32:23,360 --> 00:32:27,640 Speaker 1: some jobs being lost to Dublin, to Amsterdam, to Frankfurt, 552 00:32:27,760 --> 00:32:30,680 Speaker 1: to Paris, and if the Scots vote themselves out of 553 00:32:30,720 --> 00:32:33,760 Speaker 1: the UK, probably a lot of lots being lost from 554 00:32:33,840 --> 00:32:36,680 Speaker 1: London going to Edinburgh. Girl. I think many of our 555 00:32:36,680 --> 00:32:39,840 Speaker 1: American listeners, and I put myself in this group, don't 556 00:32:40,000 --> 00:32:45,480 Speaker 1: understand the quality or the makeup the distinction of European 557 00:32:45,600 --> 00:32:48,920 Speaker 1: economic growth. We love to say, oh it's not as 558 00:32:48,960 --> 00:32:53,160 Speaker 1: good as America, there's eurosclerosis in other terms from another time. 559 00:32:53,640 --> 00:32:56,080 Speaker 1: But when you say there's one and a half percent 560 00:32:56,120 --> 00:32:59,400 Speaker 1: growth or two percent growth, what's the dynamic of that 561 00:32:59,520 --> 00:33:04,760 Speaker 1: across consumption, investment, government and net exports. So first of all, 562 00:33:04,880 --> 00:33:07,800 Speaker 1: if we have in the Eurozone growth around one point 563 00:33:07,840 --> 00:33:10,240 Speaker 1: six percent and in the US of around two point 564 00:33:10,320 --> 00:33:15,360 Speaker 1: one percent In terms of per capita, that is almost identical, 565 00:33:15,480 --> 00:33:21,440 Speaker 1: as the US has more growth in its population. Secondly, 566 00:33:21,720 --> 00:33:26,800 Speaker 1: Eurozone growth is now driven largely by consumption. There is 567 00:33:26,840 --> 00:33:30,160 Speaker 1: a bit of investment in there, but consumer spending, which 568 00:33:30,360 --> 00:33:33,760 Speaker 1: in Europe is about of the total less than in 569 00:33:33,800 --> 00:33:40,080 Speaker 1: the US. Consumption is rising. Employment is rising, not quite 570 00:33:40,120 --> 00:33:43,960 Speaker 1: as satisfactory as in the US over recent years, but 571 00:33:44,080 --> 00:33:47,880 Speaker 1: employment is rising, real wages are edging up the little. 572 00:33:48,000 --> 00:33:51,960 Speaker 1: The region is recovering from the double blow of the 573 00:33:52,000 --> 00:33:55,800 Speaker 1: post Lehman and the euro crisis. All in all, the 574 00:33:55,840 --> 00:34:00,160 Speaker 1: Eurozone and pretty much most of Europe are on the 575 00:34:00,320 --> 00:34:05,040 Speaker 1: right economic track. Having said that, the political risks to that, 576 00:34:05,240 --> 00:34:09,800 Speaker 1: especially the Brexit risk, does loom large, as that could 577 00:34:09,880 --> 00:34:13,360 Speaker 1: cause a bit of confidence crisis and a setback, especially 578 00:34:13,400 --> 00:34:16,560 Speaker 1: to business investment. Brexit not the only vote this week. 579 00:34:16,600 --> 00:34:20,239 Speaker 1: The Italians voted last weekend and Spain. Thank you for 580 00:34:20,320 --> 00:34:24,360 Speaker 1: bringing this up. You've been keeping an eye on those. 581 00:34:25,239 --> 00:34:28,759 Speaker 1: What are the consequences of those elections and what do 582 00:34:28,800 --> 00:34:32,080 Speaker 1: they mean for markets? Um, they don't mean very much 583 00:34:32,120 --> 00:34:35,359 Speaker 1: for markets as long as there is no Brexit. There 584 00:34:35,400 --> 00:34:38,319 Speaker 1: are of course always political risks here, and there are 585 00:34:38,320 --> 00:34:42,160 Speaker 1: the risks everywhere in the world. Yes, but in case 586 00:34:42,239 --> 00:34:48,720 Speaker 1: of Brexit, markets would probably look with much more scrutiny 587 00:34:48,800 --> 00:34:52,520 Speaker 1: at other risks and would like the overreact to other 588 00:34:52,680 --> 00:34:57,040 Speaker 1: risks if there's one risk of Brexit had materialized, and 589 00:34:57,160 --> 00:35:01,959 Speaker 1: that's when the Italian and Nish policy situation could come 590 00:35:02,040 --> 00:35:05,080 Speaker 1: into focus. All that has happened so far in Italy 591 00:35:05,440 --> 00:35:10,360 Speaker 1: is that regional elections have partly gone against the Prime minister. 592 00:35:10,719 --> 00:35:14,279 Speaker 1: That in itself is pretty normal. Um in Italy, we 593 00:35:14,360 --> 00:35:17,600 Speaker 1: have to watch whether the Prime Minister Renly will win 594 00:35:17,880 --> 00:35:24,080 Speaker 1: in October a referendum on a significant institutional constitutional reform. 595 00:35:24,360 --> 00:35:28,279 Speaker 1: Even he probably will, but it's not clear, and if 596 00:35:28,280 --> 00:35:31,160 Speaker 1: he doesn't win, that the Prime Minister may be out 597 00:35:31,160 --> 00:35:34,800 Speaker 1: of office. But that's a risk for October. In Spain 598 00:35:34,920 --> 00:35:39,919 Speaker 1: we have this Sunday repeat elections to Parliament. Opinion polls 599 00:35:40,000 --> 00:35:43,200 Speaker 1: suggests that the outcome will be almost identical to the 600 00:35:43,239 --> 00:35:47,480 Speaker 1: outcome we had in December when the Prime Minister Choi, 601 00:35:47,840 --> 00:35:51,840 Speaker 1: the pro reformed chap who has seen Spain through the 602 00:35:51,960 --> 00:35:56,360 Speaker 1: aftermath of the euro crisis, when he lost his majority. 603 00:35:56,440 --> 00:36:01,160 Speaker 1: If that result is confirmed this Sunday, we might have 604 00:36:01,200 --> 00:36:05,040 Speaker 1: a period of uncertainty in Spain, probably followed by the 605 00:36:05,120 --> 00:36:09,440 Speaker 1: big maint theme party center, right, center left working together. Holger, 606 00:36:09,560 --> 00:36:13,440 Speaker 1: what will you listen for from Janet Yellen this morning? 607 00:36:13,680 --> 00:36:15,759 Speaker 1: I don't think there's much she can tell us really 608 00:36:15,800 --> 00:36:18,160 Speaker 1: ahead of the Brexit vote. What I would listen to 609 00:36:18,440 --> 00:36:22,200 Speaker 1: is when there's anything she says that would suggest that, 610 00:36:22,600 --> 00:36:26,080 Speaker 1: even if things calm down in markets as they seem 611 00:36:26,120 --> 00:36:28,320 Speaker 1: to be doing now, even if there is no Brexit, 612 00:36:28,600 --> 00:36:32,680 Speaker 1: that nonetheless the said, would not raise rates in July. 613 00:36:32,880 --> 00:36:35,399 Speaker 1: But I guess ahead of the Brexit vote, there isn't 614 00:36:35,440 --> 00:36:37,760 Speaker 1: really much we can learn before we know something about 615 00:36:37,800 --> 00:36:40,799 Speaker 1: this big risk, right, Alger Schmaning, thank you so much. 616 00:36:43,880 --> 00:36:47,960 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 617 00:36:48,040 --> 00:36:53,440 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 618 00:36:53,520 --> 00:36:57,600 Speaker 1: you prefer. I'm on Twitter at Tom Keane, Michael McKee 619 00:36:57,680 --> 00:37:01,000 Speaker 1: is at Economy. Before the plot cast, you can always 620 00:37:01,000 --> 00:37:11,160 Speaker 1: catch us worldwide. I'm Bloomberg Radio. H