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Speaker 1: Broadcasting live to New York, Gloomberg eleventh through Washington, d C.

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Speaker 1: Bloom to Boston, Bloomberg Dwellers to San Francisco, Bloomberg to

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Speaker 1: the country. See he is ex Damn General one ninety

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Speaker 1: and around the globe the Bloomberg Radio Plust Happen Bloomberg

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Speaker 1: dot Com. This is Bloomberg Surveillance. Good morning everyone, Michael

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Speaker 1: McKee and Tom Keane a special edition of Bloomberg Savannahs.

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Speaker 1: We're on for what fourteen hours today? Mike? Is it is?

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Speaker 1: It is? It's just like endless right for the hours.

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Speaker 1: Were flying to Washington to speak with Ellen Greenspan and

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Speaker 1: Madeline Albright. We will do that tomorrow. Right now, we

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Speaker 1: need to speak to someone who's on the short list

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Speaker 1: to be the next Secretary of State. Why don't you

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Speaker 1: bring her in? I got to get her back to

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Speaker 1: the United States. Megan Green is the chief economist at

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Speaker 1: Manual Life. She's been over in England, UH and made

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Speaker 1: a brief detour to Scotland while she was there to

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Speaker 1: check out the situation during the whole debate. And that's

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Speaker 1: where I want to begin, Megan. This morning, stories that

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Speaker 1: Nicolas Sturgeon is looking at parliamentary ways, not just a

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Speaker 1: new referendum to withdraw from the United Kingdom of parliamentary

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Speaker 1: ways to block this. Uh, the Scotts did vote overwhelmingly

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Speaker 1: to remain in the EU. What kind of threat do

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Speaker 1: the Scots post to the execution of withdrawal from the

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Speaker 1: European Union. So the Scots could easily um black ball

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Speaker 1: any kind of withdrawal from the European Union. And ironically,

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Speaker 1: a number of people, a number of prominent people who

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Speaker 1: voted for the UK to exit the EU or now

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Speaker 1: putting all of their hopes in Scotland to go ahead

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Speaker 1: in black ball anything that isn't um withdrawal from the

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Speaker 1: European Union that involves seeing in the Single market. So

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Speaker 1: a lot of people who chose to leave are not

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Speaker 1: saying we really hope that we still leave, but that

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Speaker 1: we leave by the least amounts. So we've maintainer you know,

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Speaker 1: financial services, passport to the we maintained free movement of

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Speaker 1: labor as well. Um. I think it's going to be

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Speaker 1: really hard for a number of senior politicians who were

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Speaker 1: leading the Leaves campaign to Boris Johnson, Michael Go to

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Speaker 1: go ahead and withdraw all of their promises um leading

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Speaker 1: up to the referendum, now and go ahead and follow

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Speaker 1: this Norway model that involves the UK staying in the

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Speaker 1: e A. But that's what a lot of people are

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Speaker 1: now hoping for. What is the feeling in Scotland and

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Speaker 1: the other countries that are part of the United Kingdom

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Speaker 1: towards this whole process. This seems to have gotten. It's

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Speaker 1: the biggest strength, uh in the vote from the former

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Speaker 1: industrial areas in the middle of the United Kingdom. Yeah,

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Speaker 1: that's the bad. So we saw an incredibly high participation

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Speaker 1: rate in this referendum um and that meant to some

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Speaker 1: degree that not only were the use getting out and

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Speaker 1: voting and that they tend to be pro Euse, so

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Speaker 1: that was positive for the remainders, but it also meant

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Speaker 1: that they did affected kind of working class who don't

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Speaker 1: usually vote at all and are generally anti EU came

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Speaker 1: out and voted. So I do think that we're seeing

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Speaker 1: a massive class divide um. We're seeing huge divisions within

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Speaker 1: goes to Conservatives and the Labor Party. So the UK is,

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Speaker 1: you know, more divided than I've ever seen it. Well,

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Speaker 1: that migrate to other nations and confederations of age confederations

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Speaker 1: of income levels, the lethargy of Europe. Will the UK

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Speaker 1: model migrate to other nations? I think that it's very

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Speaker 1: unlikely that it won't. Actually, so I think this is

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Speaker 1: just the beginning of a much larger movement, and it's

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Speaker 1: driven by um, you know, such a sluggish economic recovery,

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Speaker 1: the fact that nobody's really getting wage increases. And this

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Speaker 1: is a phenomenon that we're seeing across the Western world,

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Speaker 1: actually not even just in Europe, UM. But it means

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Speaker 1: that this message that anti immigrants, anti globalization, anti elites,

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Speaker 1: anti bankers, um, it really resonates with a lot of

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Speaker 1: people from particular classes UM in particular. And so I

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Speaker 1: do think that we're going to see these divisions across Europe.

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Speaker 1: Will probably see it, you know today and staying, for example,

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Speaker 1: in their elections. But there is hardly a Unropean country

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Speaker 1: that doesn't have a populoust party promoting these messages that

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Speaker 1: isn't doing pretty well these days. How how does it spread?

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Speaker 1: Can it spread politically? I'm wondering because David Cameron didn't

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Speaker 1: have to call this referendum, and you can imagine that

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Speaker 1: the people in power aren't going to be anxious to

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Speaker 1: give the voice of the people a real voice. Yeah,

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Speaker 1: it's true. David Cameron largely called this referendum um to

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Speaker 1: try to unite his own party, which he's obviously totally

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Speaker 1: failed to do. So this was a massive o goal

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Speaker 1: by David Cameron. My Greek friends are all joking that,

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Speaker 1: you know, the UK politicians that I've done the Greek

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Speaker 1: one terse of we're ferend them and what they have

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Speaker 1: to do afterwards. But I do think that you know,

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Speaker 1: eventually politicians will have to listen to their people and

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Speaker 1: if you don't go ahead with the popular view on

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Speaker 1: referendum then they'll get loaded out of government eventually and

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Speaker 1: the party that will be willing to have a referendum

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Speaker 1: could be voted in. So the reason it's so poll

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Speaker 1: came out and said that more than French and Italians

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Speaker 1: would like to have or any referendum in their countries.

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Speaker 1: Maybe the current leadership won't go ahead and do that,

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Speaker 1: but you know, eventually the people will have their say

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Speaker 1: at the ballot box in general elections and that could

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Speaker 1: be to a referendum. Megan Green with Danielife will come back, Um,

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Speaker 1: we wanna talk to you some more about the elections

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Speaker 1: that are underway in Europe in Spanish voting today, an

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Speaker 1: update on that and the economic effects. So data check here, Equities, bonds,

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Speaker 1: currencies come out of these, there's no data check. It's Sunday.

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Speaker 1: But tonight Australia will open in Hong Kong and Tokyo.

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Speaker 1: Look to Bloomberg Radio Asia for the market openings. Good morning,

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Speaker 1: Good morning everyone. Bloomberg Surveillance, A special edition of Bloomberg

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Speaker 1: Surveillance is Sunday Michael McKay and Tom Kane. A lot

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Speaker 1: of discussion of politics and international relations. This as a

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Speaker 1: backdrop of dynamics in the United Kingdom, with major news

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Speaker 1: today of selective resignations from Labor Party leadership there in

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Speaker 1: the minority in the parliamentary system of United Kingdom. David

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Speaker 1: Cameron is a Conservative, a Tory. He has suggested her resignation,

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Speaker 1: honor about what Mike October is that the latest The

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Speaker 1: Conservative Party holds its next conference in October. And then

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Speaker 1: away from that, let's get quickly back here to Megan.

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Speaker 1: But first though, Ben Sills is in Madrid and all

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Speaker 1: eyes in Europe are on Spain today. Ben Sells with

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Speaker 1: Bloomberg News ben give us the hour tich here of

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Speaker 1: tonight in Spain. Do you know results this evening? Yeah,

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Speaker 1: we'll we'll get the full of the final results before

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Speaker 1: we go to bed tonight. The polls closed eight and

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Speaker 1: the Spanish have an extremely efficient vote counting system, so

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Speaker 1: we'll get exit polls at eight when when the polls closed,

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Speaker 1: will have the first the first real numbers coming through

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Speaker 1: by about nine or so, and by half past ten

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Speaker 1: local time, we're going to start to have a pretty

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Speaker 1: clear idea of how this is playing out and we'll have,

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Speaker 1: you know, pretty definitive results by around midnight. Or is

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Speaker 1: there going to be a Brexit drama? I mean, sell

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Speaker 1: us here on what to look for across the headlines

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Speaker 1: of the Bloomberg late tonight. Well, we are the analysts.

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Speaker 1: We spoke to, Yes to the Prime Minister Mariana Rohoy.

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Speaker 1: Maybe the beneficiary of the Brexit vote um in bettors

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Speaker 1: have seen a flight the quality on Friday and there's

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Speaker 1: a night there's a cent that maybe Spanish voters might

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Speaker 1: also look for safe haven assets and that would be

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Speaker 1: like the safe hands of Rohoi. There was a pole

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Speaker 1: out late last night which suggested support for for the

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Speaker 1: Hoise People's Party was creeping up slightly. Um, they go

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Speaker 1: a hundred twenty three seats um in December, So any

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Speaker 1: thing I love and that's going to really strengthen the

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Speaker 1: Hoise position. Ben Sils thank you so much from Madrid

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Speaker 1: this morning, he is with Bloomberg News. A quick snapshot

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Speaker 1: there of what we will see in Spain. Mike, why

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Speaker 1: don't you pick it up now the of the potential

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Speaker 1: outcome and where the rest of Europe goes now with

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Speaker 1: Megan Green, she is Managing Director Chief Economists at Manulife

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Speaker 1: Asset Management. She's been working out of London for the

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Speaker 1: past week or so. Uh. There are three main candidates

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Speaker 1: or three main parties who are trying to end up

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Speaker 1: in control somehow of the Spanish government set up for us, Megan,

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Speaker 1: if you could what um for the rest of the

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Speaker 1: world would be the best solution. What are the implications

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Speaker 1: of this vote? Well, I think it's gonna be really

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Speaker 1: difficult for any of these top three parties to actually

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Speaker 1: partner up in government, and none of them will have

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Speaker 1: the majorities themselves. So um, you could have a grand coalition,

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Speaker 1: which we've seen in a lot of other countries In

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Speaker 1: Europe between the center right and center left. But the

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Speaker 1: center left, UM in the center right don't get on

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Speaker 1: at all, so that's unlikely. UM. You could have a

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Speaker 1: coalition of left wing parties, but actually, UM, the socialist

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Speaker 1: the center left would never want a partner with this

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Speaker 1: new up and comer potamos. UM they would fall off

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Speaker 1: an electoral cliff as they did. So I think the

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Speaker 1: most likely option is probably a minority government run by

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Speaker 1: the biggest party, which is the center right party. UM. Unfortunately,

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Speaker 1: that won't be very stable because every time they have

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Speaker 1: to pass something, they're going to have to negotiate the

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Speaker 1: tacit support from another party in parliament. So UM, I

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Speaker 1: think it's the most likely. UM. I don't know if

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Speaker 1: it's the best for the rest of the world, but

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Speaker 1: it is, you know that the best of a bad bunch.

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Speaker 1: I think there isn't any kind of arrangement that would

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Speaker 1: be particularly evil. And of course, you know, political instability

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Speaker 1: books in economic uncertainty, so that's bad for the market

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Speaker 1: and therefore for the rest of the world. How much

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Speaker 1: influence would instability in Spain have on the rest of

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Speaker 1: the Eurozone. So on its own political instability and Spain

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Speaker 1: wouldn't be a huge deal. We've already had political instability

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Speaker 1: in Spain since the last election in December, so we're

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Speaker 1: we've gotten quite used to saying not really having a government,

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Speaker 1: but but in in the wake of bregfit um. Actually

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Speaker 1: this could be just another catalyst to spark instability in

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Speaker 1: Europe UM. And probably adding to that would be you know,

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Speaker 1: worries about Italian banks UM. And so therefore the periphery

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Speaker 1: in Europe might come back into the into focus for

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Speaker 1: both the media but also for investors who are worried

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Speaker 1: about the sustainability of not just the financial services sectors,

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Speaker 1: but the governments is lost. And I've been boring people

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Speaker 1: with a dissertation on balance sheet flows at the macro level.

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Speaker 1: Take megan up to seventy feet way above the Boeing

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Speaker 1: uh and the Airbus airplanes and look at the current

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Speaker 1: account deficit one part goods, one part services. I think

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Speaker 1: we all sort of get that. Explain investment income dynamics

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Speaker 1: and what they mean for a disunited United Kingdom. So

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Speaker 1: the United Kingdom has a massive current account deficit UM,

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Speaker 1: and that means that essentially, UM, they're borrowing from abroad

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Speaker 1: to operate everything so for all their goods and services.

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Speaker 1: If investors lose all their confidence in the UK, then

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Speaker 1: they'll stop, they'll stop lending. So you could get a

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Speaker 1: hard stop, which would be a disaster for the UK economy.

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Speaker 1: It would shrink pretty significantly. UM. So you know if

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Speaker 1: you also then have um, not just the UK leaving

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Speaker 1: the EU, but also falling apart itself, that you have

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Speaker 1: Scotland leaving Northern Ireland, perhaps also having a hard border reintroduced,

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Speaker 1: Gibraltar having a hard border reintroduced, that that would just

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Speaker 1: seed all this uncertainty and and make investors less willing

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Speaker 1: to actually go ahead and lend the UK money. What's

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Speaker 1: the likelihood that we do see a full stop at

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Speaker 1: this point? London is such an important financial center. Capital

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Speaker 1: account obviously the mirror image of the current account the people.

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Speaker 1: You could argue that the main product that London makes

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Speaker 1: themselves now, or that the UK makes themselves now is debt.

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Speaker 1: Uh is that going to fall off a cliff? Yeah,

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Speaker 1: so that's a huge concern. I mean, I think we've

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Speaker 1: seen a day of a full stop for the UK.

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Speaker 1: You know, you know, traders wanted to be involved in

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Speaker 1: trading um involving the UK on Friday it was hard

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Speaker 1: to get anywhere in London because all the traders had

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Speaker 1: left the office, had gone for drinks and what's going

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Speaker 1: into the streets, so cars couldn't get through. Um. The

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Speaker 1: question is whether that will be sustained or not, and

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Speaker 1: I think that the East case um public and private

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Speaker 1: indebtedness is definitely a concern. Will there be a full stop,

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Speaker 1: Probably not, because the UK is still a center for

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Speaker 1: you know, financial services for now at least UM that

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Speaker 1: seems to underpin their growth models. But we certainly will

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Speaker 1: have you know, foreign countries much less willing when you

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Speaker 1: can money, so their economy will contract absolutely no matter what.

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Speaker 1: If there are two compensating factors inflation dynamics and currency dynamics,

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Speaker 1: which is Megan Green most focused on, is they enjoy

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Speaker 1: a greater combined traite deficit UM So I think that

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Speaker 1: the currency dynamic is probably the more important one, but

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Speaker 1: I agree seating one another. So when the town collapses,

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Speaker 1: it's gonna We're going to see inflation like and the

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Speaker 1: Bank of England will have a really hard time figuring

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Speaker 1: what to do with this, because on the one hand,

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Speaker 1: they'll want to stabilize inflation, but on the other hand,

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Speaker 1: the economy is going to slow, so the one is

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Speaker 1: stoke growth as well. And given that dilemma, I think

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Speaker 1: that the banks of England will probably choose to stoke growth.

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Speaker 1: We've seen it do that before when it's based high

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Speaker 1: inflation and growth. I think that's what we can expect.

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Speaker 1: And like, that's the clear sex nation of this. I've

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Speaker 1: heard thanks to all of our other wonderful guests, But Mike,

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Speaker 1: when you tear Megan Green talk about that, you get

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Speaker 1: back to the other unknown, which is the credit rating.

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Speaker 1: And there have been Lowberg headlines on that. There have

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Speaker 1: Moodies and Standard emporters have suggested that they could. I

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Speaker 1: don't want to make a big deal about it, but

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Speaker 1: this is a beautiful explanation of Megan of these these interdependencies.

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Speaker 1: I can remember being up all night in August of

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Speaker 1: two thousand eleven when Standard emporers downgraded the United States,

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Speaker 1: and it ultimately meant nothing. How vulnerable is the UK

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Speaker 1: to credit ratings, so the in the U S it

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Speaker 1: meant nothing ultimately, in part because the US benefits from

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Speaker 1: having the global reserve currency and the biggest, most liquid

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Speaker 1: treasury market in the world. The UK doesn't enjoy either

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Speaker 1: of those things. So actually a series of credit reading

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Speaker 1: downgrades would not just spark investor you know, worries, but

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Speaker 1: UM would also mean that the UK will get kicked

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Speaker 1: out of some automatic UM induices and so I think

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Speaker 1: that would have a huge impact, particularly in an environment

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Speaker 1: where the cohesion of the UK is in question, as

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Speaker 1: is the cohesion of the EU. Now the question is

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Speaker 1: when and you were just talking about this with Tom,

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Speaker 1: the knock on effects of the currency repricing UM, how

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Speaker 1: does the Bank of England manage that? And that they

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Speaker 1: probably want the currency as weak as you know, to

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Speaker 1: the to the weakest point they can get it without

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Speaker 1: hurting the economy. Well, that's the trick is that if

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Speaker 1: you have a weak currency, it means that your exports

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Speaker 1: are more competitive, so you can export more. But it

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Speaker 1: also means your exports are more competitive and that will

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Speaker 1: hurt UM you know people in the UK. That will

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Speaker 1: reduce UM standards of living here UM. And so that's

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Speaker 1: a hard balance to really strike. I mean, if you

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Speaker 1: look at what the UK is exporting, it's largely financial

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Speaker 1: services at the moment, it's it's not good they're manufacturing

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Speaker 1: good UM, and so I think that given how concerned

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Speaker 1: everyone is over exactly what will happen to the city

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Speaker 1: of London now that the UK is going to leave

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Speaker 1: the EU. UM, you know, I think that that will

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Speaker 1: you know, that will provide a huge headman for the

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Speaker 1: city um and that means that, you know, a weaker

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Speaker 1: currency will be offset by that. Megan, thank you so much,

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Speaker 1: generous with you the last few days to join us

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Speaker 1: with Manual Life and John Anncock Megan Green their chief

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Speaker 1: economists from London. Mike, that was a beautiful walk through

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Speaker 1: of something that people enjoy, migrating from a P plus

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Speaker 1: to a C minus on their macro exam, and we

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Speaker 1: managed to get it without doing any Man. You brilliantly

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Speaker 1: flipped from the current account to capital account. It's like

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Speaker 1: making the rotation a second base, kind of double plague

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Speaker 1: the pivot. Well, nobody did a take out slide thing.

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Speaker 1: Go noor a take a slide on our can always

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Speaker 1: break our legs. Michael McKee and Tom Keane. We are

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Speaker 1: in New York. Tomorrow we will come to you from

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Speaker 1: our studios in Washington with Alan Greenspan and Madeline Albright.

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Speaker 1: Stay with us, Bloomberg Saveillance