tv Bloomberg Business Week Bloomberg June 25, 2016 3:00pm-4:01pm EDT
francine: the brexiteers get shy after winning the referendum with the support of the u.k. fell and the immigration voters. the leave campaign softens. jonathan: a dismembered eu changes its tone. how can the eu keep its credibility without losing growth? francine: all asset classes suffer whiplash. on this historic day, central bankers convened. ♪ francine: welcome to our brexit special live from bloomberg european
headquarters. i am francine lacqua with jonathan ferro. what a week we have had. jonathan: the city of london is probably happy it is the weekend, because the market is closed. francine: they are watching us. they are reading papers. they are raising analyst reports, trying to figure out how monday will pan out. jonathan: shall we get you up to speed on how the carnage laid out? beginning in equities. the ftse closing down three percentage points on this day. actually finished higher on the week. the big carnage was in mainland europe. the dax down 6.8%. the biggest one-day drop since 2008 and the biggest one-day drop on record for the european banks. the fx market, the biggest they drop of all time to a 30-year low. the dollar-yen yesterday at a 99 handle at one point. a big stand out the bond market -- a big stand out in the fx market. get to the bond market and i will whip you through. down 14 basis points on bonds. spreads down on the periphery.
francine: the problem is that there are so many angles. we have to look at the european union, how they are negotiating, if they are negotiating. we heard they want to kick out the u.k. and the political turmoil. then you look at the markets. jonathan: listen to european leaders. francois hollande: i regret the vote of the united kingdom, but i respect it. it is a matter of democracy. we have to think about the consequences and conclusions. within the european union framework, we have to organize the exit of the united kingdom , but we have to do it in good order, and in accordance with the rules from the treaty. which have to be lamented. didier reynders: if it is possible for the u.k. to do it, based on article 50 or informally. but we need to start as soon as possible to avoid possible crisis. >> no, i do not think great britain was setting an example for europe. listening to our own population, i think there is a big majority in favor of europe and european
cooperation. nicole sturgeon: the independence referendum is clearly an option that requires it to be on the table and is very much on the table. francine: we are across all of the action today. anna edwards in westminster, ryan chilcote in brussels, and caroline hyde in berlin. jonathan: let's get to anna edwards in westminster. scotland starting work on their own referendum all over again. going to happen? another independence referendum up in scotland? anna: it was talked about as a once-in-a-lifetime or once in a generation decision. it seems things have changed so much that this could be back on the table. that is what nicole sturgeon was addressing. she says this is something they are considering, and because of that legislation is paving the way for a possible independence referendum. she is in talks with the eu for immediate discussion.
the timing will be interesting. will they be able to get the independence referendum on the radar before the u.k. and eu go through the divorce proceedings and enable scotland to not actually leave the eu? that could be one of the angles on this. meanwhile talking with those , disappointed by the results yesterday, as 62% of scots wanted to stay in the eu, we also have a petition calling for another referendum. it seems unlikely this particular petition will be successful, but it underlines the divisions in the country. jon, fran? francine: given the uncertainty, will there be a coup in labour and a possible general election? anna: that is being discussed. we heard from jeremy corbyn, saying if there is another leadership challenge, he would stand again. there has been a no-confidence table motioned by some in his
own party. we will see if it gets the 51 signatures needed to get another leadership vote in the labour party. that is certainly fast-moving one story. another is how much pressure the government will come under from brussels to get these conversations happening quickly. we heard a lot about that from the brussels side, which a lot of that hinges on article 50. few voices from the conservative party speaking. the ones we have heard from the leave side saying it is in the -- the ball is in the u.k.'s when, up to them to decide they trigger it or indeed, if they do. we know that michael gove, one of the key leave campaigners wrote this document before the results of the election -- of the votes were known, where he talked about article 50 being one of only a number of ways the u.k. could leave, saying that we are in control of the process.
we can proceed at our own pace and at our own time. he certainly does not sound like a man in a hurry. we will see if the leadership of the conservative party as a whole, whoever that may end up being, whether they are in a hurry. jon, fran? jonathan: anna edwards, thank you. joining us from westminster. in the fx market, it embodies the carnage in the markets. a truly once-in-a-lifetime day in sterling. for david bloom, the global head of strategy at hsbc, a historic day. he says there are certain days that you do not forget. this will be one of them. he joins us now. david bloom, what a day. why did the market get it so wrong in such a big way? david: thank goodness they are not always right, or else i would be out of a job. when i am against the market, people will say, that's not what the markets were saying. i will say, yes, the market got it wrong. the market got it horribly wrong. the bookmakers got it horribly
wrong. certain sections of the political establishment got it horribly wrong. francine: how did that happen? was there a horde mentality? or they looking -- david: opinion polls were neck-and-neck and the argument was that the people undecided would want to remain. that was an assumption people made, which was wrong. this is what happens. it is a referendum. we voted, and we voted to leave. now, we have to live with the consequences. we have got to push ahead. this is the choice we made. jonathan: the options market heavily skewed to the downside risk. obviouslyy, very mis-priced. you look at cable in a different way. the way you look at the pound now has changed fundamentally. walk me through that. david: previously, sterling was a highly cyclical currency. did you see the latest? have you seen industrial production? do you think the bank of england
will raise rates? we never asked structural or political questions. we did not care. but now sterling has gravitated to a political and structural currency. the politics does not look good. the structural element has a huge deficit of 7% of gdp in the first quarter. big fiscal deficits. it means the currency has to adjust and flex. and flex it has. francine: are you expecting more volatility as to what we had friday? david: we can't have more than on friday. that's not possible. please. you're giving me a heart attack. at [laughter] francine: what does it mean for mark carney? does he have to decrease things -- interest rates asap? david: no. the markets have been orderly. this has not been a disorderly move. it hasn't been what people worried about, a swiss franc-type move. sudden massive moves that people could not handle. but markets were orderly. in the current deficit and fiscal deficit, the currency needs to adjust lower. that is what it is doing.
that is what, i think, it will continue to do. this is not for the bank of england to say it is the wrong price, it is disorderly. this is the bank of england saying we need markets be orderly and things happen in the proper fashion. the proper fashion is happening. you cannot expect a currency that is not political and structural not to flex. and flex downward it has. jonathan: looking at this market and the broader economy in the u.k., we are still in the eu. voted to weep, yes, but still in the eu and could be well over two years, because they still have not triggered or invoked article 50. what you're discussing, does that continue indefinitely? david: the point i am making is it is the political uncertainty that keeps dragging on the currency. you're absolutely right. nothing has happened. markets are forward-looking. what do you adjust to? what are the new rules and regulations? we do not know. so the adjustment process will take place over two years.
and i can't believe it means sterling goes up. francine: what is worse for sterling? if article 50 gets invoked in the next couple of months and then two years of uncertainty or the article does not get invoked at all for now? david: it is hard to tell. you are saying -- i don't know. currencies and markets do not like that. what i want to know is -- look the future is uncertain anyway. ,jonathan: yeah. david: if now you put a huge uncertainty of all sorts of different things -- who is the next conservative leader, the next prime minister? we do not know. how can that be good for the currency? how can you invoke article 50? we do not have a prime minister, a new one. every time there is an announcement, there will be a move. you heard nicole sturgeon talking about another referendum in scotland. is that going to happen? yes or no? is the union going to break up? that's not good for a current the. -- that's not good for a
currency. francine: we were hoping for a binary outcome. we have more uncertainty than last wednesday. david: what i have argued is every time an ill wind blows in this world, when countries have the current fiscal efficiency of clinical problems, which is usually your south africa and mexico and the sort, not the united kingdom. francine: an emotional david bloom. we have a full day of special brexit coverage starting at 5:00 a.m. u.k. time tomorrow. jonathan: coming up, we talk to colin ellis of moody's after they cut the u.k. outlook for its credit rating. but it's coming up in the next ♪ hour.
>> the british people voted for brexit. we had been saying for at least a year that a brexit vote would lead to a downgrade in the rating. which currently is still at aaa. >> i do not believe this will end up being a long-term drama. i do think all of the market disciplines will be able to cope with the short-term volatility. and we will go back, if you like, to a more considered reaction after number of days. >> it is a shock and disappointment. life goes on, though. look everyone is excited this , morning.
people in britain will continue to travel to europe and europeans will continue to come to britain. the question is if the u.k. can find a way to stay in the single market? francine: that was from some of the bloomberg guests on brexit. the question of course for investors remains howls central banks react? jonathan: we know the snb entered the market, but we heard nothing from the most influential central bankers. apart from a few reassuring words. one thing though marketshare, for the u.s. at least, we are theing at bloomberg on bloomberg terminal. the brake light at zero and zero the rest of the summer. perhaps nothing the rest of the year. david bloom, global head of fx strategy at hsbc still with us. nothing for the rest of the year? david: last time i saw nothing, i got nervous. every time now, you look at markets. i think this referendum has changed people's attitudes to what markets price in.
at the end of the day, you have to say what do you believe -- the market is just the aggregation. but one big payroll, the labor market comes back. we were at 4.7% u.s. unemployment. then before you know it -- everybody is going, oh, great rise. it swings on a time. dime.swings on a francine: you think it would swing on a good payrolls number? david: absolutely. francine: if you have even two years of uncertainty on brexit, why would you not -- david: we are talking the u.s., not the u.k. slowly, the fed are listening to us. the market rates are not going up, according to their dots. they are going according to our thoughts on the market. but the fed seems determined to want to raise rates. and raise rates they will, at
one point. every time we think they are going to raise rates, it never happens. jonathan: in some ways, the fed probably has it the easiest. the ecb, i am looking at continental markets, the spread the widest since qe began. banks stocks hammered. what does this mean for president draghi and the ecb? it looks like they have fired a lot of their ammunition already. i just wonder whether they look at that market and if that continues, what they've got left? david: the euro is what they have left. some people argue that will weaken substantially. periphery yields cannot really go out in the way they did in the greek crisis. we have lost the signaling device. that is because the ecb will probably frontload some of it, so that signal is gone. if europe is in serious trouble, you will see it in the euro-dollar. i do not think it will happen. my forecast for euro-dollar is for it to stabilize. others think there will be
contagion. if it hits europe, it hits the u.k., and then the fed goes no. is it contagion that wins out? francine: do you think the eu or the eurozone will break up? david: no. i don't. i think the ecb is there. it is the backstop. every time it has been tested, it held firm. jonathan: we discussed the fed, the ecb, and the boj. this is intriguing for me -- the dollar-yen. the 99 handle. if i bandied that number around, strategist would have told me that the boj would have stepped in. no sign of that. quite hard -- "stories in the market," which eren't substantiated. we had the snb stepping in. but dollar-yen is going back. we change on the basis of this vote to leave the eu and risk aversion rising. we think dollar-yen is heading towards 95. we were at 115 when the bank of japan was doing more qe. but this is going to its fair value of roughly 95.
there's not much they can do about it. francine: if we see a lot more volatility on currency, what is the scenario in which central banks come together? david: disorderly. disorderly. disorderly. francine: friday was not enough? david: friday was a big political event. for that political event, an adjustment happened. but the market function, when you look at what happened as a factor of points. you do not know when it would stop there. jonathan: coordination -- they all want different things. they want euro-dollar south of 1.10. i just wonder what coordination looks like between the major central banks? david: what we are doing is assuming something new is
happening, and therefore that galvanizes them as a unit. this current situation, i agree. there is no chance of multilateral action. but if the markets are completely disorderly and it is bad for global growth, they could get together and say "enough." francine: thank you. it seems like a lot of the countries and current policy makers are looking inward. david bloom, global head of strategy at hsbc stays with us. jonathan: special brexit coverage starting at 5:00 a.m. u.k. time. ♪
jonathan: special coverage of the u.k.'s historic decision to leave the european union. where to begin on the market implications of the brexit? let's go straight to the u.k. bond market. gilts rallied aggressively. the yield down 25 basis points. 10 year yield down 29 basis points in a single session. despite the view of the market, moody's lowered its outlook of the country from negative to stable. they say the impact of brexit was certainly negative, but also potentially pretty negative in the long term. depending on what kind of trade agreement the u.k. signs with the eu. the trillion dollar question. francine: quadrillion dollar question. so joining us now is colin
ellis, chief credit officer at moody's. so three different questions. what about the political turmoil? colin: the political turmoil matters as well. because apart from the economic strength and the fiscal impact, we also look at institutional strength. that's a really important component when we think about sovereign credit. essentially, that is a proxy for when events and issues arise and happen. how easy it is or policy makers to bring things back on track. the reason that matters here is that everybody in whitehall will be very busy for several years, trying to disentangle eu and u.k. law. while the institutions themselves are not less effective today than wednesday, the capacity may be reduced. jonathan: it is the opinion of a credit rating to lower a rating. the market has an opinion as well. right now, the market -- it is a good credit. gilts yields are incredibly low.
ilt rallied aggressively. what do you take away from that someone from a credit rating company? colin: we pay attention to what happens in financial markets, but our focus is on market fundamentals. part of what you saw it yesterday was a flight to safety. even if you are exposed to sterling, you want to be in the bond. if you're more international, maybe you had a flight to safety in gold. over the longer term, those factors should normalize. eigh out.ld way ou we think the market can overshoot and then come back to fundamentals. we come back to economic strength, which will weigh on spending decisions. institutional strength. the capacity to respond is probably reduced. the fiscal profile will be you worse.
and we have susceptibility to event risk. one thing we talked about last night in the credit opinion, we have not changed our view on the risk element at the top line levels thus far. but if this were to have significant changes in sterling as reserve currency. that could have dramatic effects. francine: what about the banks? they had a real good during on does it change the outlook? friday. colin: we are assessing credit implications for the banks now. in terms of individual names, many were already retreating from europe. others may re-house operations from the u.k. into the eu. francine: thank you to colin ellis. moody's managing director for credit strategy. jonathan: coming up, how will a dismembered eu respond to britain? we hear from a former finnish finance minister alexander stubbs. ♪
jonathan: welcome to special coverage of the u.k. decision to exit the european union. i'm jonathan ferro alongside francine lacqua. francine: representatives of the eu founding members gather today meeting and to pressure the u.k. to leave the bloc as soon as possible. >> next week we will have a meeting with 28 member states, but now it is we start the 27. discussions formally. if it is possible for the u.k. to choose a request or
informally, we have to start as soon as possible to avoid any possible crisis. francine: negotiations began in berlin. they will continue in brussels. we are in both locations. caroline hyde is in berlin. -- isne first to you there a clear sense of urgency from the founders of the eu? caroline: you heard it from the leader, the foreign minister of belgium saying to avoid a crisis, they are pushing this through. they want the opposite of what the u.k. wants, to buy time until october, they want break -- breakneck speed. germany brought together ministers from france and belgium and italy to a beautiful lakeside retreat in the sweltering heat because they demand respect from the u.k. for the other 27 countries. france wants to work quickly to avoid any domino effect.
they're concerned about the rise of the right-wing, concerned about the immigration that is causing concern. they are concerned about the lack of jobs in spain and italy for the youth. they are wanting to avoid the crisis the belgium minister spoke of. it really is a balancing act. at the same time, david cameron, who seemingly will be forced to discuss, even informally with , the rest of the eu at the council meeting on tuesday. even though he wants to wait until october. interesting talks, of course. german chancellor angela merkel talking of the desire to avoid ugly negotiations. jonathan: things starting to brew in brussels. let's head over there now. jonathan hill said that he will resign today, cameron's man on the commission. ryan chilcote joins us now from brussels.
here is a man who used to oversee financial services. talk to me about what this means for potential negotiations. ryan: what it tells you is that in this transition period, the uk's role in the eu in guiding policy is going to be in limbo at best and that of a lame-duck at worst. francine: jonathan hill was not just the commissioner. what does it mean in terms of sensitivity? if he was the guy in charge of financial affairs and was pushed out because the eu said i cannot really work with you. ryan: that's right. there were members of the european parliament that never liked jonathan hill. some of them described having someone from britain in charge of financial services for the entire european union was like
having a fox guard the hen house to have him in charge of the eu finances. one of the most sensitive issues that the u.k. will be looking to negotiate as the u.k. exit is what is the role of the u.k. financial services going to be? are they going to have those gast sporting -- passportin privileges or are they going to lose out in some ways to frankfurt, to paris as alternative financial centers? a very sensitive post. that is the thing. jonathan hill has passed that on to the vice president of the european commission. he says he will be a caretaker while the eu and the u.k. workout who should get the job from britain. jonathan: ryan chilcote in brussels. francine yesterday, the tone was , soft. there was a significant luck of hostility. you get the sense as the weekend progressed, things have started to brew. francine: we heard some harsh
words from john paul yunker. let's get some reaction from alexander stubb, the former finance minister of finland. we've heard the concerns about domino effect. what exactly are they concerned about? spill over into investors being concerned or knee-jerk reaction, knee-jerk referendums? mr. stubb: in many ways, we are in uncharted territory here. we don't know exactly how it's going to work out. there's the article 50 procedure, it is only a few years old. we never had a big country leave the european union. i'm not concerned about the domino effect, actually. i'm more concerned about the future of the european union and the u.k..
it's important that we slowly and call me negotiate a package whereby the u.k. stays in the internal market and free trade. that's why we should take it quite carefully and not rush things. jonathan: you've been in finance minister meetings very many times. the perception has always been they've looked to punish greece. the italians in spanish would not follow the same suit. many say they will do the same thing to britain to ensure that there will not be a domino effect, inshore that britain -- ensure that britain will not get a good deal. do you not think that's going to happen? mr. stubb: i was a prime minister previously. there is a significant difference between the u.k. and greece. greece did not stick by the rules and that's why we needed to make sure for euro stability that rules were followed in the future.
here, we are in a new situation whereby the u.k. has expressed through a referendum its willingness to leave the european union. that needs to be dealt with carefully. it will have not only political ramifications and economic ramifications, but also have security and political ramifications. francine: this also feels like blackmail. right? if you were to put a referendum to certain european countries, maybe they would want out, too. mr. stubb: it is a self-inflicted pain. to be quite honest i am , pro-european. i think the u.k. has always had a great impact on european integration. it has been a great promoter of free markets. now, it is marginalizing itself. the united kingdom or great britain has become little england. in that sense i do not call it blackmail any which way. there is a significant difference -- i guess the u.k. can stand on its own two feet. there's no question about that. there are a lot of smaller countries that simply cannot do that. for a country like finland with
1003 kilometers of order -- border with russia, the way in which we can be in the core of europe is by being fully involved in all kinds of integration. and that is what we will continue to do. jonathan: you say it is self-inflicted but many would push back against that and say david cameron went to the eu and could come back with enough to convince people they should remain part of the eu. do not think there is self-inflicted pain on the other side of the table? mr. stubb: yes and no. i'm a bit of an eu nerd. i've been studying the institution. the u.k. has always been a reluctant bride in trying to stay inside european union. i never felt the referendum was going to be about the core issues that were renegotiated. it wasn't about rationality or economics or politics, it was more about emotion. at the end of the day, 52% of the british population did not
feel emotionally attached to the european union. that's why come at the end of the day, they left. i've always had the u.k. is one of the most civilized countries in the world. but by god their debate on , european affairs is anything but civilized. it is actually quite uncivilized and that emotion won this time around. francine: a self-proclaimed eu nerd -- jonathan: i like that. francine: what would be your prescription for germany and france to do to keep the eu together? mr. stubb: we need to take it step by step. emotions are always running high immediately after a colossal decision. now we need to calm down, take it easy, see how we get out of this and be constructive in one way or another and not start throwing punches left and right. there will be a bit of debate about the timing, how fast things are going to go. that is not the big issue. let's take the historic
perspective here and think about this as the moment akin to the end of the cold war, the moment when the u.k. rejected european integration and globalization. and then we start taking it down from their step-by-step. that's from there step-by-step. it will take four or five years and then we will see where we stand. jonathan: four or five years. i'm going to ask you for another prediction. what are the odds article 50 is not invoked at all? mr. stubb: i'm very bad at betting. but i will be watching the northern ireland-wales game as soon as this conversation is over. i will look at that from a european integration perspective, but i will not give you a bet on this. i see approximately a million people of called for a new referendum. people are quite down about it. they would like to think things over. i'm afraid this is definite -- we can start thinking about a
new deal for the u.k. whereby they will be part of the integration process, part of the single market -- we've always been very flexible in the eu, you know. let's see what we can find as a way out for the u.k. my big worry is, of course, the united kingdom -- and i say this as someone married to a brit and whose children have dual nationality -- i'm quite worried about what's going to happen to scotland and northern ireland and how that whole issue will be dealt with. francine: do you think brexit is a precursor to donald trump winning the white house? mr. stubb: i hope the world is not that crazy, to be quite honest. i'm a firm believer in liberal democracy, but not a believer in populism. i'm a believer in responsibility and i do hope the americans are responsible. francine: good answer. alexander stubb.
to leave the european union. the stoxx 600 banking index fell by the most ever on friday, the worst performing sector in all of europe. francine, i've got to say at one , point, it was scary. barclays open lower, down 29.93%. it was across europe, it was ugly. francine: fast and pretty brutal. right? sun-times," brutal moves need some decisive action. let's bring in eric nielsen. before we get onto the banks, overall, with the brexit, was it uglier than you thought it would be? >> it was not uglier than i thought it would be. if you would ask me 20 hours before come i thought it would have been worse than that.
you want to compare it not to thursday, but the previous friday. we had four days of niceties -- we thought these undecided voters would swing the other way. we got back to where we were the week before, right? equities are down some, but not substantially so. i think you can look back i week or so. i could have imagined worse. jonathan: how much worse? what were you looking for? spreads are wider than when qe began. it has to because certain for the ecb that that risk off spreads out in a risk off event like that. that's got to be some kind of concern, erik. erik: yes, it is. the 10 year bonds were five basis points lower than one week before. had you asked me a week before what would happen in the scenario, i would have guessed 30, 40, 50 up. that order of magnitude. is it a concern for the ecb?
yes, but you have to give it more time. you are not in a crisis mode. you want to watch this carefully and you need to think about whether some of all this we've achieved in terms of leveling the playing field -- there is -- the spreads between what we charge in italy in loans to these businesses -- when you're -- a year ago, it was a 100-basis point difference. francine: is it something more sinister than we think or was it just part of the selloff? panic, or do we need to look at the concerns? could it be even worse next week? erik: it could, i would guess not. but god knows, on a weekly basis, you don't know. i think what you saw a really was the surprise meant risk off , in a big way. it used to be that you would then in europe would sell the peripheral. but you're not going to do this
when you have qe, right? therefore you sell the next level and that is the banks. i think that is what you saw. jonathan: isn't that a worry that the proxy now for stress is to sell the banks? k: absolutely. jonathan: the question for you then -- the next 2, 3, 4, 5 years will be the negotiations between the eu and the u.k. they either ignore what happens in the financial system -- or this gets them to do something about it. which is it in your mind? erik: i think the latter. i'm quite optimistic on that. the negotiations will not be around the ecb and regulators. the key problem in the banking system is that we are at a state when the regulation is almost banking -- no one wants to spend money to sort out -- maybe you could get to that point. maybe the ecb says the qe goes
into senior bank debt. francine: what about consolidation? i know it is more difficult because you have a single regulator. what about taking out the weaker banks? erik: europe is still over bank then you have to get there. you've seen this in italy and germany lately with there -- no country wants to do it. the reason is we do not have a common deposit insurance. you are sitting back and saying, if there is a little bit of a problem, i would have to pay the bill if there were to be a run in the banks and therefore, i want to be involved. that has to be resolved. francine: thank you so much. we will talk more about the political implications for the other countries going to elections. spain goes to the poll on monday. could brexit have an effect there? we get the analysis, next. ♪
will be a big focus for the week ahead. francine: given the underlying tone of the current standoff between the eu and the u.k. -- jonathan: it's interesting how they are trying to keep the tone relaxed and measured. but they are struggling. and over the weekend, i can really feel it starting to brew now. francine: the eu will probably ratcheted up. erik, we were talking about the banks, talking about the storm this brexit vote engendered on friday. what needs to happen for the eu to stay together? erik: i don't think there is a big risk it doesn't. there are two things you will see come out of this. they want to see that -- they will see that immigration has been a big issue in this referendum. we will see crackdowns on immigration in europe. may limiting the mobility of some sort. the second thing is they have to
start to think about institutionalizing -- these will be the two key things you want to look out for. jonathan: how quickly does that get done? we've got spanish elections this weekend, french and german elections on the horizon. they will be incredibly distracted by what's happening at home very, very quickly. erik: the spanish elections are moving. i'm not too worried, they just have to figure out how to live with coalitions in spain. this is why they want the negotiations with britain to start. you want to be sure that there is no illusion that you can lead -- leave and be treated quite well. you have to play by the rules or you have to walk away. at the same time there needs to , be progress on the migration issue.
--ticularly for how long particularly for hollande. francine: are you still optimistic overall? or have clouds really darkened the outlook? erik: my optimism was always that during the crisis, there will be a solution to this. it is a political project. what is challenging now is the populist move. i still cannot believe he will be president. but you get into the second round of the most likely and you have to worry because something could happen. a scandal or something else to the other candidate and that is scary. we should not be here. right? in a sense. but the odds are still ok. jonathan: but we are. if they change their mind on immigration, the germans in particular, do they change their fiscal position as well?
eric: for sure. that is happening with big announcements. you can get away with a lot. the spanish and italians have started doing it. the germans are tired of policing the others. this is happening already. francine: what grade would you give the outlook of the relationship between the u.k. and eu? a being good? francine: yeah. erik: c for the u.k. and b for europe. that will have a spillover effect. for the eurozone, it will be ok. it is not that important in terms of the business sense. francine: erik, thanks so much. global economist from unicredit. on sunday, we have a full day of special brexit coverage starting at 5:00 a.m. jonathan: we leave you with a