tv Bloomberg Markets European Open Bloomberg January 18, 2017 2:30am-4:01am EST
guy: good morning and welcome. this is the european open. cashfirst trade of the equity session coming up shortly. i am alongside matt miller. matt miller is in berlin. the dollar finding from a ground this morning but for how long? yellen speaks tonight. donald trump remains firmly in focus for fx traders and the technicals look tough. sterling. the pound turns south after yesterday's surge. it did not have a funding currency of choice to make money
in emerging markets. the group's co-vice chairman j.y. lee is held in detention while a judge decides on his arrest. in demos, switzerland. stuart gulliver says trading operations that generate 20% of the banks investing banking revenue may move to paris. ceo tells us the oil tax will be cut to lure investors. and the rise of populism. christine lagarde is, larry summers and others join our debate on bloomberg in 30 minutes time. matt: we're less than half an
hour before the european open. european stock futures are higher this morning after asian markets climbed higher after the pound put up its biggest gain since the 1990's. we do see that pound and the and getting back some of those gains. here you see european futures ftsi futures up and the dax and cac. it is back on as people are unwinding their safe haven trades. guy: let's go to the gmm. some of it is very clear. yesterday.0 down sterling surging so that relationship between x markets and currencies intact. the dollar and the u.s. equity markets, where that correlation is, unlike the dollar and the pound and what happened to the
yen and then the cake, different relationships. the british pound is down. the market is -- the japanese yen is down. the dollar finding firmer ground. the dollar index is down. gas affected by the weather. thursday bloomberg first word news with juliette saly. juliette: the ceo of hsbc said investors need to lower the expectations in rank profitability. a 10% return on equity is probably as good as large universal lenders can do. >> once we get clarity on what it actual quantum is, then comes down. when you solve this issue of how of 12th can you get roe's
or 13%. expect ang -- you dividend yield of 4% or 5% and trading at one .2% is your framework. the bank agreed to pay $7.2 billion and admitted to its investors, resolving one of its biggest litigation risks. billionpay one point $5 . which had a home prices increased last month and the fewest cities in almost a year. prices excluding government subsidized housing gained in 46 of the 70 cities tracked by the government. that compares with 55 in november and signals that a potentialeflate housing bubble are taking
affect. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you. has praisedr theresa may for her handling of brexit. however, speaking exclusively to bloomberg, he said trading operations would generate around 20% of revenue for the lending investment bank. in london -- london may now move to paris. as quantifying some of the aftershocks were the u.k. post-brexit. with -- hsbc will proceed quite slowly in how we organize our business. isrity around single market important. you can see how the pound rally -- rallied as the prime minister was speaking. we have a fully operating banking subsidiary in france. we do not have to make decisions today. we can wait and see how this
develops. we can get the best of both worlds. and the benefit of london as a global financial center. i think irrespective of brexit, which is the decision the british people have made so we need to get on an executed, london will remain a global financial center. i believe that the revenue impact of brexit on financial services will be made good in two or three years time. you see the investment grade bond market moving by the equity market moving, the high yield bond market moving. those activities covered by european legislation will need to move. the king and our own numbers that is about 20% of the revenue. andrea or sell told lumbered that employees will definitely have to move due to brexit. brexit, we will have to. the question is how many?
it will depend on the agreement that the u.k. will reach with the eu, but yes, we will have to havebankers and i think we nsc in frankfurt and an appropriate set up in spain. we have wax ability to decide where to go but we will definitely have to move. erik schatzker is in davos joined by another high-profile guy. this is the economy minister of portugal. let's begin if we made with theresa may's speech on brexit. yuan -- and your -- you and your collies had to be listening closely. what is your response? >> we're looking at brexit as everyone in europe with expectations. we have the longest alliance in , it isld with england
between portugal and england. we are going to keep working with england, working with the u.k., but we are, of course, aware of what instability this may bring to the european union and the world. >> what kind of instability? share it with me. guess: it is already in the markets, it is already showing. now it stabilize. i think there is a lot of things of what kind of brexit we're going to have. i think the speech yesterday clarified some of the things but there is still a long way to go. >> she outlined in very specific terms what she wanted, does that help, does her clarity on the type of withdrawal that britain is seeking good for the eu? guest: i think clarification is good and but we should be looking for is of a brexit that
people,ew movement of few movement of goods to be a reality between the eu and the u.k. this does not affect open relation that the u.k. has to have with the european union and with portugal and particular. the prime minister tried to leave herself some negotiating room. in terms she did not define, who decides whether the u.k. is allowed to remain part of the customs union? surely the eu decides that. guest: the u.k. will have to negotiate with 27 countries. there was a democratic decision in the u.k. they're going to have their own opinions and what i expect is that we have a very rational discussion and the result that is good for all parties
involved. i think the best for the u.k. is also the best for the european union. theu.k. can remain within common markets. >> you believe that. guest: our position is a position that we are negotiating . it depends on the position of their u.k. and i see the free movement have -- of goods has to be a link to the free movement of people. of all, not part something you can separate. i want this i do not want that. either you are going to want to be in and then you have to negotiate, or the situation will be more complicated. >> brexit was the first manifestation in europe and we saw it defeat prime minister renzi and his subsequent
resignation. we have elections in europe. happen?going to how much concern do you have for the future of the european union? guest: the european union has an important role in the world. it has to be a stabilizing force in the world. i think it should also be a ground for fighting for trade openness, for openness to the , for these people values that were always the values of the european union and today are less clear in the world. i think the world, since world war ii has passed for openness and this is being questioned. questioned by the countries who were the pushers of this movement. we have to find in the eu with agreements with india and south america, like the one we have made with canada. we have to keep fighting for an
open world for business, and open world for movement of ideas and people. >> its unsecured proposing the eu as an alternative to the trading partner that the united states has been but may not be under the trump administration. , when i think we have to i am talking about an open european union, it has to include the u.s. we havethe vision that in portugal. we are open country for business, open country for investment, open country for people who want to live in portugal or just visit. we have record numbers and tourism. people feel welcome and feel safe in portugal. and feel safe to visit, to live and also invest. >> since we are talking about donald trump, his raised questions about the usefulness of nato and insisted all nato members spend their 2% of gdp on the agreement
requires. what is your position? guest: we are coming to dallas -- davos with good numbers. down.s coming our economic growth was the highest in the european union. i think we should focus on the positive numbers of the portuguese economy. of course, the economic situation and the world situation is very important for all countries in the world and we are aware of that. we have to work with the new administration the way we worked with the last administration. we are allies of the united states for a long time. the u.s.cooperate with in trade and investment. this is the position we have about the united states. we work with several administrations. we were always a reliable partner of the u.s., and i think
we are going to have to managed to do that with this administration as well. it is just starting. let's wait and see. >> thank you for your time here at the world economic forum. that is the economy minister of .ortugal and from davos, we have so much ahead on this day, january 18. through me run anybody what we can expect. we will talk trade, shipping, and oil. the interview next. later we will bring you the discussion of the crisis of the middle class. francinelacqua hosting brazil's finance minister, and the former u.s. treasury secretary, larry summers. that conversation at 8:00 a.m. u.k. time and it will be live and in full on bloomberg television and on bloomberg radio.
executed, and those are the two big ones. china less so in the middle east less so. our business in asia pacific in the middle east is going well. it is around the execution around the u.k. exiting the eu true of this will be most people, the unknown around how the trump presidency works out. tempered positively by the selection of the team he is putting in place in his cabinet and advisory level. matt: that was stuart gulliver speaking exclusively to bloomberg on his concerns coming into 2017. let's get to the bloomberg business flash bringing in juliette saly. juliette: a special prosecutor in south korea is making his some hot --esting samsung groups heir apparent on suspicion of bribery. court.e left the
samsung has denied any wrongdoing and said it anticipates the court will decide not to detain lee. the court is expected to rule in 24 hours. and withdrawing the profit goal for 2018 amid challenges in the u.s. market and plans to sell its stake in publisher penguin random house. it said operating profit this 570 million tobe 630 million pounds. expectst that -- pressures in the north america market. and facing a possible prison sentence in singapore. to 13 chargeslty relating to using the banks account to get preferential rates on the dollar in november 2009. the former spot trader was accused of unlawfully making almost 100,000 u.s. dollars through false trade. that is your bloomberg business
flash. guy: thank you. , erik schatzker, back to you. erik: good morning. what is the future of global trade with donald trump in the white house? >> we have mixed messages coming out of the u.s. right now in the sense that the new administration seems to want to lower taxes and interest in infrastructure would -- which would be good for trade. there's all the talk about renegotiating trade agreements which will have a negative effect. about your business? these are the kinds of things you have to plan for as the ceo, what do you anticipate? guest: i do want to say that level trade has been an incredible driver of prosperity and wealth generation over the last on five or 30 years.
erik: you are a believer. from 35% ins grown the last 15 years. global trade has made a lot of people much more wealthy. hundreds ofought millions out of extreme poverty, maybe billions. for those living in the u.s. and europe, they have given us consumption opportunities we would not have otherwise. erik: what if donald trump does what he says, what he puts a nail in the coffin of the tpp, what if he tears up nafta, what if he takes a similar approach with other trade agreements, what if -- these are all what-ifs, he starts a trade war with china. war with china would be bad news for anyone who is in global trade related business. there's a big difference between not completing the tpp
negotiations and tearing up nafta. the tpp if it were able to be implemented would be of further stabilization of roles but not implementing it is not going to change the status quo. are you fearful of a trade war? do you think it is a possibility? guest: i do not think so. you are dividing the company into and you will be a transportation company and an energy company on the other hand. where does that stand? guest: three and half months ago we announced we would separate out our energy businesses. our make about a third of total portfolio today. since then, we have announce that we are going to acquire a german container carrier. the idea of splitting out the energy business is not to make it a smaller company. progress on the
energy side, we are working on finding solutions for how to do that. we have given ourselves to years to do so. : do think it is better to sell them, do you think it is v's or is itrm j better to take the business and listed on the stock exchange? guest: we are looking at all the options. the last one is the more likely option. it is still too early to say. investors an gives opportunity to evaluate independently? guest: we want to make sure we separate the business is out in a way we create most value. and exactly how to do that. erik: looks like a stock market listing makes the most sense. guest: yes. erik: you have acquired a small
german shipping company. what is -- what are the prospects for consolidation in the container business in 2017, how does a look right now? container rates have been rising. guest: we were surprised by how much the sector consolidated last year. of sixa total transactions being announced during the year. around 16to 2016 with global carriers that met up and about seven were announced to either be merged or acquired through the year. erik: what is your appetite for consolidation question mark guest: we have to [indiscernible] we expect to have regulatory approval. eerik: that will occupy your time. is out of the market
until next year. what is the outlook for container rates? guest: container rates have gone up basically since march of last year. war, a globalice price war that started in march of 2015. of 2016med out in march and now they have been rising quite significantly. cannot continue, cannot keep rising? guest: our business model is subject to supply and demand and we do expect a little bit of [inaudible] what we saw last year. is plenty of idle capacity so if you want to deploy more, you can easily do that. erik: thank you very much. from davos, back to you.
joe: good morning. you are watching bloomberg markets. this is the european open. i'm in london. matt miller is in berlin. eric joining us from davos. matt, let us talk about what the morning brief is this morning. int: currencies firmly fergus. the dollar fines firmer ground, but for how long is the question. donald trump remains in focus for ethics traders. look tough.ls what your twitter stream. the pound turns south after yesterday's surge. is it now the funding currency of choice to make money in the emerging markets? secession in
leadership is on the mine. held atps heir apparent a detention center while the judge decide on his arrest. guy. joe: the markets are just about to open. -- the foreign exchanges front and center. let us show you what the numbers look like. ftse 100 looking positive. through therun you open. the ftse 100 beginning to move up. the cap trading up. you have got two of these markets. the ftse 100 up 2/10 of 1%. the cac gaining more traction. that is interesting as well. the foreign exchange story front and center. the pound is down. the ftse 100 is up. the only real interesting theme for the foreign exchange equity markets story has been the dollar going up of late. the u.s. equity markets have been going up.
that is an anomaly. what are the movements moving these markets? matt: i'm checking out the mov screen to see which movers are pushing and pulling on the stoxx 600. ubs is now the biggest loser along with credit suisse as far as its reductions of the stoxx 600. if i switch from index points to percentage change, we can see that the banks are not at the top of the movers. they are very heavy movers. they are moving the index around, but not very big movers. you saw hsbc helping to add with thents along stoxx 600. maybe it will take a second to get open, but the world largest education company withdrew its profit goal for 2018 amid challenges in the u.s., so expect to see you possible moves on pearson today, although city
analysts say to watch pearson because there is a big position. guy. uy: matt, the pound is trading on the cable rate right now. you can see that clearly on my gmm. massive pop to the upside yesterday following theresa may's speech. there it is. japanese yen trading lower as well. brexit remains front and center for the markets and it has been a theme in davos as well. however, speaking exclusively to bloombergs john -- to move to paris. this is -- beginning to quantify the u.k. leaving the single market and what it will mean for the financial markets. quite slowly in the way we me organize our business, but clarity around singles markets
step forwardnt because it removes a lot of uncertainty and you can see how the pound rallies, but for us, we have got a fully operating banking subsidiary in france, so we do not have to make decisions today. we can wait and see how this develops. >> to get the best of both worlds, the maximum opportunity asia-pacificn the and the benefit of london as a global financial center, i think irrespective of brexit, a decision the british people have made, we have to execute it, actually, london will return or remain a global financial center and i believe the revenue impact of brexit on financial services will be made good into -- into her three -- in two or three years time. those activities cover specifically by european legislation will have to move,
looking at our end numbers, 20% of the revenue. impact of thehe single market exit for the financial sector. that's for hsbc. matt, what is the story in berlin? what has been the political reaction in berlin to what camesa may -- to what theresa may said yesterday? you have to deal with the four central pillars, including free movement of people. what is the reaction? i think i heard the word "delusional" used by more than one person over the last way for hours because the reaction from the political sector here has been of course and cannot have her cake eat it, too. she cannot have complete control over borders, limiting free movement of people through europe and the u.k., and still have full access to the single market, whether that is as part of the customs union or some other agreement. the other response has been that
theresa may sort of fell back on this idea that the commonwealth is still there, therefore the u.k., the empire is the great trading block it was and really, the u.k. is just a very small trading partner compared to the othersnd compared to the they have across the atlantic, so really, they were pretty nonplussed i would say by theresa may's speech. guy: does it define -- is it starting to give them clarity? am not sure. i think eric's first question was interesting on dolch him. what he says? well, what if britain actually exits the e.u.? everseems to be the case since the vote. i have not seen anything that is different in what theresa may laid out yesterday to what it would normally expect from the news on june 23.
guy: it is going to be fascinating. i guess the brexit vote part and parcel of what we will be hearing from davos very shortly as well, matt. matt: absolutely. we are going to cross over to the world economic forum in davos with francine lacqua and her pet on a crisis of the middle class. we bring together leading figures in the world of politics, government, and finance. i am francine lacqua. the rise of populism, the crisis of the middle class. .he politics the movement that has been sweeping across our developed world. christinia: -- francine: this francine: was the big surprise in 2016 and as we enter this the establishment braces for what is next. allow me to introduce my panel. central to the issue today of course is what some have called the new normal, and my first panelist has called it the new
mediocre. she is the managing director of the imf, christine lagarde. italy has had new governments since the end of the second world war and these days, it's only constant seems to be a man named pierre. the minister of finance of italy, an economist. you will have heard him talk about secular stagnation. the worlders from bank, harvard university and the council, andomic bridgewater associates of the world largest hedge funds, it is more than 150 billion dollars scattered across the world, spanning virtually every sector. it was founded and shared by -- and reeling from a setting impeachment, the road ahead for brazil is unclear, but in rico enrico's project is to close a big wealth gap.
i am really looking forward to the conversation. lagarde,rde -- madame is the middle class in crisis? christine: yes and no. first of all, i would like to try to identify the middle class. and i would say that the middle is is was growing and shrinking. it is growing on a global basis. if you look at numbers, over the last 40 years the middle class has gone up, but it has gone up by 7% of 13% today on a global basis. the middle class is generally defined with someone with an income between $10 and $20 a day. the middle class is also shrinking if you look at the u.s. numbers, for instance. the middle class in the united the 60'ss shrunk from to the 50's, a result of more wealth accumulating at the top and people moving down below as well as a result.
the middle class has been shrinking. if you combine that and i think we are in this panel focusing more on the advanced economies, where clearly the middle class has shrunk and where there have been signs of lack of trust, lack of hope, disenchantment with many of the principles and vision that people have for growth,ture, with lower more inequality, and much more transparency, i think you have the good ingredients of what is identified now as a crisis of the middle class in the advanced economy. i think we need to distinction between what is actually structuring some of the low income countries and the emerging market economies and the larger economies, where there is clearly crisis. francine: can we really save the developed world is in a crisis and its them from the middle class? >> of course, there are many ways you can define a crisis and there is one possible way, was as an economist, i would say is
politics. i'm thinking about advanced countries, but also i'm thinking especially about europe, where hardly you can find a country where, according to the polls, or according to recent election result, there is dissatisfaction with what has been going on for some time, and i think christine made it very clear that it is wealthbjective change in and income distribution, but also, and maybe increasingly so, about expectations. pier: the middle class is disillusioned about the future, disappointed about the job perspectives for their kids -- perspectives for their -- pro their kids, and addressing disillusionment in terms of saying no to whatever the policy leaders suggest. of course, we on the very well, and it is much more difficult to build up a solution to design and implement it than it is to
say no, the fact is that no's are now dominating the political landscape and this is a sign of it calls foruse rethinking what leadership means and what it means to have a credible long-term project that can bring back the middle class, not only the middle class, by the way. back into having consensus and read supporting reforms which are badly needed. francine: if we have a middle class which is disillusioned, how do you get them back? i do not think there is anything mobile bullet. there is obviously elements of the middle class looking up and an elite hasll lived and all the various benefits for the people who have gone to the top of the income distribution. it is a mistake not to recognize that the middle class in my country and in others is also
very concerned that people do not feel that the government is fighting for it. larry: that the government is fighting for people who live in developing countries, that the government is fighting for people who have recently come into the country from other countries, that the government is fighting for various minority groups who have legitimate concerns about past discrimination, but the sense of the people at the center of a country as being looked out for by the government, they feel that everybody else is being looks out for pure the wealthy, who can look out for themselves, others, who are poor, and they feel they are not being heard, and they have expressed their not being heard in the brexit wrote, in the italian
referendum, and of course in the u.s. presidential election. thereey are obviously -- are obviously important economic elements, but it would be a mistake to neglect that there are social element as well. francine: do you believe a lot of people feel like they have been left out, and when did politicians, you know, start having that disconnect with their voters? is it a communication problem or were they really not looked after. abouthink you're cutting the phenomenon of populism, so there is a middle -- you are talking about the phenomenon of populism. theou look at history, 1930's,study the understand what the wealth gap was in the 1930's. it rhymes. and populism is not just the there is a wealth gap, although the wealth gap
today is the highest since the 30's, but it is also in a sense that they do not represent me. it is a matter of nationalism. it is a matter of getting greater control. it is a matter of increased polarity. the left becomes more left, the andt becomes more right, that particular dynamic, i would say, this is the first year where populism is the most important issue globally. protectionism as part of that mix, so i would say before it used to be central banks. central banks don't matter as much. now, the number one issue economically as a market participant is how populism manifests itself over the next year or two. francine: is populism the same thing as anti-globalization sentiment? >> yes, by definition.
in a 30, every government that existed practically was populist. -- in the 1930's, every government that existed practically was populist. is nationalistic and protectionist. it is also a matter of values. in other words, there is a sense of a threat that my country is losing its values to internationalism. it is that combination of those things that makes populism. minister, you have been part of the efforts to stabilize brazil's economy, but because of the impeachment, a portion of your agenda requires even more sacrifice from working families. how'd you get them on board? that in i think economies like the one i come from, which is brazil, the dynamics is different. in the sales, there is no history of growing middle class
populationare of being part of the middle class. nominala recent from a -- recent phenomenon for a country like brazil. during the last 15 years, we had ae middle class doubling as percentage of the population, but that happened throughout the of deepade as a result recession, which took place during the last years. that dynamic has reversed, and that is the problem, but that is . shorter term problem my vision, it is directly related to a specific situation of the brazilian economy. the brazilian economy is in a recession and that is affecting
everyone, particularly the middle class, but also the incomes,el particularly the lower-level income classes as well. in summary, the way out for an economy like brazil is to create jobs again and actually to modernize the economy and opening up, etc., on our way to become more efficient, which where i would gather is at the end of the day, we are in a different cycle compared to the developed countries. we are at the moment of establishing the middle class. having a growing, opening up the economy. francine: i imagine a lot of the emerging markets do not want to be left out of a possible globalization effort. why did we not see this coming? you came here to the world economic forum in 2014 and you talked about inequality. at the time, you did not get much traction. >> i hope people will listen now. [laughter] you're quite right, actually,
because not only did it not get much traction and up a time, we were producing research focusing particularly on the excessive on the relationship to sustainable growth, and our points was that if there is excessive inequality, then it is counterproductive for the sustainable growth that the g-20 members and many people aspired to. if weine: which is -- want larger share of the pie for all, we need a larger pie altogether. and for that pie to be sustainable, we are demonstrating, i think, rightly so, that excessive inequalities were putting a break on that sustainable growth. why did people- not listen?
i don't know. i got strong backlash saying it was not their business to worry about these things, including in my own institutions, which has now been very much converted to the importance of inequality and studying it and providing policies in response to that, but i would say that we now probably, and i hope, have a very, very opportune time to put in place the policies that we know will help, and i would completely agree with larry that there is no silver bullet response to that, but there is view and fence in my the minister just indicated that when you have a real crisis, when you have very strong signals as we have received from the voters, from people who say "no," it is really time to say "what policies do we have in place?" what more can we do? a kind of measure can we get to reduce inequalities? a kind of safety net to we have?
-- do we have? to the technologies that are going to completely disrupt and change the working place for a long time, so if policymakers do not get the signal now, i do not know when. they do not listen to my opening speech in 2013, that is ok, but if they received the feedback from the voters who say "no," than they really have to think if through and see what can be done. there are things that can be done. fiscal, structural reforms and the monetary policies that year alluded to.ierre it needs to be focused on what will people get out of it? it probably means more redistribution than we have in place at the moment. francine: very. pier: -- larry: i am half in agreement with an agreement with christine and half in disagreement.
francine: let us have half the disagreement. larry: christine has made a huge contribution to the global dialogue in the way that she has given the imf a face of concern about human issues in a way it did not before, of which a equality is one, which i salute her for. i think it is important to distinguish, though, between redistribution is him and populism. look, the united states has just elected the world's most visible symbol of conspicuous consumption. [laughter] larry: that is a bizarre aboutstation of a concern inequality. [laughter] larry: i think you have to think about that in analyzing what it is, and i think the answer lies in some of the things that ray
talked about and his initial remarks, and what i tried to touch on, having to do with the middle class. you know, when you say inequality, the first thing you think about, and it is a very important issue, is the poor and what you are going to do to support the poor, but a lot of the people who voted against brexit, and a lot of the people who voted for donald trump think too much is doing done to help the poor, not too little being done to help the poor, and so i think, this sense of what i have called "responsible nationalism," a way of bringing greater cohesion to countries, and having more of a sense of governments as standing up for the broad center of the at theion, is very much heart of it, and i think framing
this in terms of inequality captures some of what is going on, but i do not think there is as much of an element of envy, and i think there is more of a desire for national unity and onength than the emphasis inequality suggests, so that would be the new want the difference that i would highlight -- the nuance of difference that i would highlight. francine: was it actually just taking control back? >> i think it is a phenomenon that has happened through history that we have seen repeatedly, so i think we just look at it. it is most obviously in the 1930's, so it is as larry is saying, partially, it is a matter of the differences in income, but partially, it is set d-upness with no
control. partially, it is what davos represents, the inclusiveness of making, a group of elites, essentially. it is an anti-davos way of operating. in the 1930's, if every country in the 1930's ended up becoming more extreme, like bernie if you look at the repeat and say what were those elements? they repeated over time. i think you have to have an iconic vision of what that is, and i think it is living itself out now globally. it is not just income. minister, was a referendum on warning sign and look at italian politicians due to reconnect with their voters? >> let me remind that there is another problem in europe and the problem in europe is europe. the fact is that a specific manifestation of
populism and this affection with the current state of it is europe. many european countries, there is a strong consensus to say that our problems are generated in brussels or frankfurt, depending on where you live. [laughter] pier: this is a problem because europe used to be the solution to many of the problems left out of the laggards in the european integration project, and now, this is being turned around completely, so europeans have an additional duty when they set out a policy, which is hopefully convincingly dealing with the issues, with sometimes, the right issues are raised by populism. they are not giving answers, but they are raising the right issues. this is one of the aspects. the other aspect is that, let's face it, anyone involved in policymaking those that -- knows
we can design beautiful strategies and solutions, bringing in all the tools in the pot, and before these things generate visible benefits to the population, and therefore, we hope to raise consensus on those policies, time goes by and maybe we do not have enough time today because we need to respond to immediate crises, to immediate pressures. as far as italy is concerned, let me reassure everybody that we are continuing our reform strategy. it is part of what i often read and hear. one nice thing about structural reform is that they have a public affair aspect where you motor reform and to get the headlines but then the next day, the hard work begins because you have to implement the reforms, and of course the media -- sorry -- are not interested in implementation, which actually makes a difference and with lag of a few years maybe will hopefully be recognized in terms of political support. francine: were central banks
part of the problem? with all this cheap money out there? >> i mr. question. missed your i question. francine: the central banks? >> they do. differentnt ways, in times. after the crisis of 2007-2008, we had a credit crisis. as a result of that, they had at that moment a federal row. henrique: it is over now. it is much less important than it was during the period after the crisis and incidentally, today, we do not also have the kind of problem we had before the crisis, when we had some risk of inflation, etc., because
the economy was moving well. now, there is a difference. we don't have a liquidity crisis , a credit crisis anymore, and inflation is low. evidently, that is the moment for the central banks to be quieter in this scenario, but will is definitely -- time come. something about congressional populism versus inequality or what the reason for that. i think that we have local phenomenon and some global phenomenon. the local ones is, yes, indeed, by a welfare state, took care of the lower level income, etc., and actually creates a society which was a solution, but the problem now is a very specific one. there are immigrants coming, and
now, in a similar way as larry pointed out in the u.s., the center, as we call it, saying "well, maybe government is taking too much care of these newcomers," in a different way in the u.s.. it is a specific phenomenon, not the same, but it comes together with globalization, where there are winners and losers in the globalization process, and those two things come together. francine: right, if the donald trump policies get implemented and executed, what does that mean for the little keller -- for the middle class in america? will they be better off than they are now? >> that is a very complicated question. [laughter] >> i think, and again on the phenomenon,t is the more protectionism.
you will not see, perhaps, the reversal of the trend that began in the 1990 is which was with trade agreements and globalization, which by the way, created a narrowing of the wealth gap. ray: the narrowing of the wealth gap between rich countries and poor countries. in other words, if you look at it, the poor countries rose relative to the rich countries. , incomew, by 15% of gdp now use of the 25% and now it is 40% for the wealthy countries. this has brought countries up ad so there has been narrowing of the wealth gap internationally, well within countries, there has been a wealth gap.f the a lot of that was fostered by globalization in the 1990's when we had all the trade agreements and so on, so we may be at the end of that. we may be at a point where globalization is ending, and that provincial eyes asian --
ization is increasing. >> the people they are supposed to help. i actually do not think it is so complicated. history isof overwhelming that classic populism is invariably counterproductive for those in whose name it is offered as a policy regime. not hurt ray,tely who will find ways to position himself in marketing matter what happens. the people who will be the victims of populist policies are the lower income and middle-class people in whose name the policy is offered. let me give just one example.
yes, our president-elect has made four or five phone calls to four or five companies, largely suspending the rule of law, and extorting them into relocating dozens or perhaps even a few plants in thento united states. at the same time, the consequence of his rhetoric and announced policies has been a 15% decline in the value of the mexican peso relative to the dollar. that decline in the peso is a dagger at ohio. it is a major change in the relative attractiveness of locating production activity in mexico versus locating it in the american heartland, and the
consequence of that is measured not in the dozens or hundreds, but in the thousand or 10,000 or even hundreds of thousands of jobs. the same can be said about a variety of other aspects of populist policies, whether it is tax cuts that are in the name of populism, somehow ending up going in vast disproportion to those in the top 1% or top 10th of a percent of population or whether you take a classic broad national objective like "strengthening public investment," like responding to the fact that americans pay a gasoline tax each year because of extra potholes in our roads, and you respond to that not by fixing
the roads directly but by offering a 82% tax cut to private contractors who build pipelines that they were going to build anyway, and so, it is juan inrience of argentina, it is the experience of populist leaders all around the world that while the argument is made in the political season in favor of the middle class, they are ultimately the ones who pay the highest price for the policies that are pursued. francine: records agree? -- agreed or disagreed? >> very is prone to see things larry is prone to see things in that way.
it is more complicated, i think, then larry makes it. if you create a pro-business environment, in other words, an environment in which it is hospitable to make money, make , you are creating an environment in which you are actually attracting capital in a lot of places, if you think of , just thel moves slightest inclination of something going bad in a place, being anti-wealth or in favor of wealth will cause money to move between countries are strongly and you create an environment in which making money and business is a good thing. and it changes the nature of capital flows. the united states is in many ways unique. it is a favorable environment for making money if it has rule of law, property protections. , know entities that consider "should i be better off in china
or in the united states?" money moves in that way. there is such a thing as animal spirits. animal spirits is when you deregulate some things, it has pros and cons. i'm nottion has cons, arguing that, but it also has pros and terms of getting things going. the sense that you can take cash , when there is a lot of cash around and a lot of cheap money, and all of a sudden, the sense that you can make things happen can actually invigorate the economy. if you take that element of the wealth gap and let's say, imports, one of the elements of the imports has been trade, and because elements of trade, the percentage of the population, the big differences in wealth, the spending is in the lower income groups, not the higher income groups because when you give more money to rich people, they are not inclined to spend it as much. if you put more money into the hands of people who have less, their propensity to spend it is greater and they will have a greater path for economic
activity. so i'm saying it is a complicated question, in other words, there are pros and cons to this. i don't think it is as simple as larry is making it. francine: christine lagarde? christine: i don't want to comment on the possible outcome of the policies by president-elect, because we do not know what the policies are going to be, and we have very little by way of detailed information as to what the plan will be, if there is such a thing as a plan, that -- [laughter] christine: but i want to respond to ray. he said maybe this is the end of globalization? you know, i think if policy makers are concerned about the flow of refugees and massive inequalities between the 3.6 billion people relative to the eight, and everybody knows about talking about here, 50% of humanity relative to the eight
wealthiest people in the world, which might be a very bad way to compare, but still, there are 3.6 billion people around the world who are aspiring to better income, food on the table, twice andy, and sometimes more, to turn our back to globalization and to turn our back to helping development is exactly the wrong approach. that globalization should take a new turn, the asymmetry in certain cases be explored and rectified if it is excessive, but to actually say globalization is bad because it destroys jobs, i think that is a very short cut to something that needs far more analytical work, far more understanding of how much is actually attributable to technology breakthrough and we will see more of it, and then i
conclude with a point that pier made about policies. you said maybe we don't have time for policies? but that is a concern. if there is no time for policies because there is urgency and instant news and tweets all over the place, then what our policymakers going to do? they are there to identify the policies that will serve improving the world, improving the plight of the people as well, so i hope we will find time for policies and those policies will aspire to the better being a people. francine: the minister and then i go back. >> first of all, policymakers need time to see the results of andr policies develop hopefully be transformed into a consensus for those policies. christine: they can do it. >> they have to do it. they are facing additional
constraints. second point, on globalization, i do not think we are exiting globalization. pier: i think we are entering a new stage of international relations, where national policies in important countries will shape how globalization because evenvelops if there are policies that they we are closing down the markets because we are turning production is on the one hand, on the other hand, i'm deregulating, going the opposite direction, is basically means there are new ways to interpret how nation states used to be that name once -- shape globalization. we have to be prepared on how to deal with that, and since i'm concerned about europe, i'm concerned that europe does not have a strategy about how to deal with the new phase of globalization. it is reacting. it is inward looking. it is not facing the challenges in globalization such as the migration flows in a coherent way. francine: when you look at
globalization, are the emerging markets, if there is a new globalization, will it automatically hurt emerging markets more than developed countries? to christine'sk point, i think it should take a look. if globalization is allowing for massive number of people to get and getoverty, to go into the middle class, etc., and as a whole, it is working, definitely. henrique: if you take the whole the net effect is extremely positive. if you talk about specific groups of people, particularly in the developed countries, in which on one hand they are being -- feeling to be left out, not to be looked upon, etc., etc.,
etc., because they think they are losing and in spite of the fact that the economy as a whole is working better, there are cheaper goods to be consumed by everyone, particularly the lower level income, etc., etc., but definitely, i think we are talking about some specific policies basically to address that question of the developed economies, particularly of those who are unaware. here is the question probably of training, education, in terms of allowing those people to get higher paid jobs or jobs which create more value, this is again, and result of the globalization. the question was how to make a group to take advantage of that? if we look at the world as a whole, there is no doubt that the hundreds of millions of people are getting out of poverty, which would not be the case if the markets were closed. francine: how do you see
globalization playing out in the next five years? >> i think the essence of the difference between us, christine, is what we hope for versus what is most likely, so when you talk about we policymakers doing those things, i don't know first of all who the "we" is. that we will change. those policymakers themselves have different agendas, and so i think that as we look forward, we have to say, will in five more, will we be collective in our approaches, more international and embracing that? or will we, the policymakers, be more nationalistic? i think that the trends are clear in terms of the pressures. who will the battle be? who will that we be?
they will determine whether we will have protectionism or things that we want, which is globalization, so i think that that becomes a question. i think there is a question of can the middle be cohesive enough so that the extremes are not in control? because populism takes two forms. it is extreme left or it is so that kind of polarity, i think that the can a mario draghi come together in a certain way of moderates? can the middle be cohesive enough and strong enough and do those things? the question is, what is "do those things?" when you look at what is causing are, the forces behind this things we would like. another word, technology is causing this, globalization is causing this, these are forces
we don't want to do away with, so if we are saying the root cause, what are you going to do? are you going to lessen technology, which is creating a poor 30 in income, or are you going to lessen globalization, which has these affects? so you have to get at the root cause. what are those root causes? and you have to deal with it. the question is, who is "you," and how will you deal with it? i'm trying to be realistic. francine: larry. larry: three things. one, we are having yesterday's debate and away because globalization has changed profoundly. it used to be that countries imported and exported products. today, they are one part of global supply change. snd that change i profoundly the dynamics that makes interference with globalization more difficult. two, what should global integration policies be like? i would like to live in a world
where the global policy community has devoted 10% as preventing tax arbitrage through escape of capital to tax havens, and regulatory arbitrage through taking advantage of low regulation jurisdictions, as it has to protecting the intellectual property rights of multinational corporations, and in such a world, it would be easier to persuade middle-class people that they should be interested in the project of global integration, and we have not lived in such a world, and that is a failure of the political process in every country. i do not really disagree very much. [laughter] larry: i do not yield to him in
my enthusiasm for the idea that business confidence is essential to national economic success, and that is indeed why i resisted the notion that our principal problem was a lack of redistributionism. i do think that one needs to be temporaryous about increases in animal spirits brought about by a reversion to ad hoc, extremely ad hoc policymaking, and i would inquire of my friend ray what he decision to make a few remarks about pharmaceutical companies in a way that within 45 minutes took $25 billion off their equity value and whether he saw that as the kind of positive
contribution to increasing business confidence that he was -- [indiscernible] i think we are talking about different things. first of all, i think we are talking about what we want. various talking about policies he would want and i am talking about what i think could happen. that is problematic. spontaneous the decisions, do you want to have a border tax, do you not want to have a border tax, and all of that, is not good. improvisation, or that fonts and 80, these are that spontaneity, these are the challenges. to the futureck -- larry: i think you and i agree
that the populist elements are almost all negative, and i think was that some of the elements and what we are seeing are not populist and that you like those, but in terms of populist policy, i did not hear you say anything that was supportive of traditional populist notions. ray: populism scares me. i want to be loud and clear. it is the extremes. it goes to more extremes. i'm just saying, what is likely? where are we headed and what does that look like? define it, the finance left version, the finest right version. we know what they are like -- define its left version, define its right version. we know what they are like. they will continue in a slow way in the next year in europe. there is the risks of that greater -- and it is a matter of
impatience. is it likely, is my question? i think it is more likely than not. francine: the hour that are by. i will get a quick comment from christine lagarde. tonk of a three-point plan make the middle class feel a little bit better. christine: i was trying to reconcile ray and larry but they have reconciled by themselves. [laughter] thanks. christine: but i was also thinking that whatever outcome from the additional 10% spent on fighting tax evasion, fighting corruption, having a common solid platform of regulations, particularly concerning the financial world, all of that could actually be used to dress the point made by ray, which is
we are not going to fight technology, we are not going to disrupt completely the global supply chain -- hopefully the private sector will be able to things that can be done -- and as a result, whatever comes out of what a larry has identified can be spent on addressing the middle-class anxiety which is "how am i going to adjust to this new technological world?" thereforety net is the if everything falls apart and i have nothing to hang on to?" that is where policies actually can assert themselves and do so with courageous leaders who like time, itit will take will be difficult, implementation will not be glamorous, will not interest bloomberg and others, but we need to do it to get to a better place. that is what i wanted to say. there is hope and i do not think we should be resigned to take in the situation as it is without
doing something. francine: is there a problem with timeline? can we reconnect with the population in time for dealing with all the european elections? christine: i think the truth and the courage of identifying the landscape as it will be is critical to that. if you look at the global shape of surveys that has been conducted by davos is that the key concerns are about corruption and accountability. those can be addressed through the policies larry has identified and alluded to. >> it is the three-point statement. [laughter] >> first statement is we have to take populists seriously, meaning that not all populists, or those who vote for populist ideas, are the bad guys. in most cases, they are the good ties, our -- good guys, our fellow citizens.
they are worried about the future of their children, job opportunities, concerns about their children. these are real concerns. pier: policymakers had to take that very seriously. second point, there is no shortcut. the solutions are complicated and they take time to develop, however, third point, we as to provide aneed vision which has been lacking. you need a vision to generate animal spirits that translates into action in the private sector, and especially in europe, we are lacking that vision. in some other places, there is a vision. we may agree or disagree with that vision, but that is a challenge that brexit is posing and trump is posing. they have a vision. we don't have a vision in europe, not a vision which is comparable in terms of a powerful message. sorry to be so pessimistic, but that is the case. francine: the minister. >> i think that we have a very interesting point here, and we
should be very clear about the difference between number one, the problems and some reactions, which are coming as a result of globalization, and the policies which are needed to address those questions, versus the populist reaction to the same problem. henrique: if we go back for and 1930's the on the problems in europe, we can clearly see the difference. there were a real problems post the first world war from some areas of europe and the popular reaction to that, this is one thing. the other thing is how leaders took advantage of that problem created disaffection very negative populist measures and went much beyond that. i think that is the difference
in terms of what the populist reaction and how populist leaders take advantage of that and what the real problem is. francine: ray. ray: i think it will be very important over the next 90 days, we'll start to learn more about whether we are invigorating the economy in certain ways prudently. i think donald trump is aggressive. is he aggressive and thoughtful? or is he aggressive and reckless? we are going to find that out with time, and i think that will have a very important inflatio implication. the people he hired in has administration are often thoughtful people so i think we should step act and see how it all plays out. francine: larry. larry: i will answer your three-point plan question in an american context. our broad objective should be to
make america greater than ever before. that is very different from making it great again. there are three major steps. one, public investment on an adequate scale, starting from whenstructure at a time ours is in shambles, but also embracing technology and embracing education. focusedlobal strategy on making global of integration -- global integration work for ordinary people, starting with the issues of capital mobility and its control that i referred to. and third, enabling the dreams of every young american, which goes to issues of education,
>> this morning, after a landmark speech by prime minister may, britain considers a hard brexit. britain listens for an e.u. response. , 20% of revenue. it may take the euro started paris. swiss banking is not too big to fail. we are joined by someone from ubs. and mr. trump considers if nato is ancient history. in