Throws their support behind theresa may. As she sealed the deal for the top job in britain . We are going to discuss all of this with our allstar guest lineup today. In a moment we will be speaking to socgens chairman, and later in the program, the head of the european stability facility. Plus, ecb president mario draghi speaks in 30 minutes. Were half an hour away from the European Equity market open; lets show you what the terminal was telling us about where we think the story will go. To the fair value calculation, euro stocks down by 8 10 of 1 , london looks like it will outperform, but sterling has been smashed. Dax called lower. Caroline quite phenomenal moves. We sawwas pummeled a drop to its lowest in three decades. One of the most accurate forecasters when it comes to fx see it at one dollar 16 come september, even more pain for sterling. Money moving into the yen we will be watching german bond today with 0 coupon money into the haven that is gold. Clear risk aversion lets get caught up with the first word news and haidi lun. Haidi thanks, caroline. Theresa may has taken a clear lead in the first laid of the race to succeed as the next uk prime minister. She got the backing of a hundred and 65 mps. Previous competition was meanwhile the pension secretary chose to drop out. The president of the San Francisco fed says the rate hikes could still be warranted this year, brexit or no. The decision to leave the eu wont derail the u. S. But is expected to lower growth by 1 10 of one percentage point to just under 2 . Chief says thed decision to leave the eu could escalate into a significant headwind if it triggers wider turmoil. Hillary clinton will not face charges over her use of a private email server while she was secretary of eight although the fbi described her actions as careless. The news came as she campaigned with president obama, who says he believes her and that she deserves to be in the white house. Global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Is bloomberg. Guy it certainly is. Mark carney says brexit risks are beginning to crystallize and the market seems to agree. Are drivingy funds denver market sovereign yields to alltime lows. Sterling continues to be hit and hit hard. Lets go to paris for the International Finance forum we are joined by the chairman of socgen and former good morning, sir. Financial markets are driving global to developed yield to new record lows on a daily basis. Do you get a sense that markets are orderly, that markets are rational . Uncertainty. U have you dont know whats going to happen. Its difficult to make any forecasts and there is no rationality, no basis, just very emotional. On the other hand, given the uncertainty, what Governor Carney said is right. You have all the fears about the effects of brexit and people are starting to withdraw from the market and to save assets. I talk to you about the way the market is functioning . You cant see this the libor spread, the u. K. Libor spread. It is by no means as elevated as it was at the financial crisis, but it is beginning to elevate, and we are back at levels that we saw august, 2007. Do you worry that we are at the beginning of another crisis, that the market may not function, that interbank lending may start to dry up, or do you think that is something that the central bankers have controlled . Well, as we mentioned in 2007, we thought the column was back until one year later when we found out it was not solved. Compared to 2007 the Central Banks have learned a lesson. They are out there, a ready to absorb all the shocks, but at least it this is different compared to 2007. Caroline does more need to be done for the italian Banking System . You aboutd aboure the unraveling . Does the European Commission need to allow a bailout . Well, we are getting into a situation where there is contagion the whole banking market is under pressure. Aboute adopted some rules how and when and under which conditions to inject new capital into the Banking Systems, and these rules have to be assessed where there isnt a systemic crisis. His rules foresee the , and eveny to suspend small investors are getting out. I think its a situation where we have to assess some suspension of the rules that may need to be applied. Guy come back and talk about that in a moment. Can i bring you back to what is happening in europe, and how the effects of the brexit are likely to be felt . My first question is do you think a difficult divorce can be affor avoided . How do you see it working through . Well, first we need a plan by the u. K. Government. Its difficult to start a negotiation without knowing where we want to go. Would be a new region solution but that doesnt seem to please the british government, so what is the alternative . My fear is that we are in for a long negotiation and that is with the markets are afraid of too,. We could start with the region and then develop from their the swiss agreement took a very long time to negotiate. Thats what the markets are afraid of a long period of uncertainty and the british economy sitting on a major imbalance, 7 currentaccount deficit. You can see the pound sterling. Anna give us a sense of your longterm view on the eu. Will we see a domino effect . Could we see other countries leaving the European Union . Will it remain, even a 28 member state . Could the u. K. Remain part of it . Well, to be a bit cynical, it will depend on what happens over the next few weeks and months, and if things develop badly people will be dist discouraged. Its a key moment. We tended to think we are in front of the major disruption one year ago we were discussing grexit, and europe in the end was able to manage. Lets see if we are able to manage this time. It will require some major leadership on behalf of the prime ministers and heads of state of europe. It all depends on them, in the end, whether they are able to look over the longterm and try to fix the series of things not working in europe. Guy id love to pick up on some of those points, by can i talk to you very quickly you talked about a longterm negotiation. Do you think the u. K. Can avoid a recession during that. . And what would be the appropriate response to deal with that recession . Is Monetary Policy beginning to get to the end of the road . Is a fiscal response now required . We saw the chancellor talking about reducing corporations taxes walk us through what you think it should look like. Well, frankly, in front of uncertainty, people dont spend, dont invest, so its a real economy phenomenon. This will have impact on the Manufacturing Sector in particular. That if theraid reaction is a coming of corporate taxes, in a context where you have a discussion in europe, what will happen to other countries . Will they also cut . There is a risk of competition to cutting taxes on the most mobile factors, which is capital, and that will not necessarily end of the right way. With biggerup deficits and debt in the markets will not like it in the end. Idea from the point of view of britain is to try to have a clear view of where we want to be one or two years from now and clearly showed to the market that the negotiation will and with the relatively good compromise and that this will help confidence build up again, spending money, throwing money around that will burn the money. Potentiallybout london losing its allure as a Financial Hub . You said that you remain committed to london why . Will he not see more bankers moving to paris . Well, we are in a privileged position, both in the continent and in london. We are able to move our business wherever it will be more convenient. This is different for other banks. We are waiting there, committed to london because we think london will remain a major financial sector, but it will be the only one in this part of the world. I think we are wellpositioned to adjust. We are going to take a quick break. We will be back with you very shortly. We need to discuss with happening in more detail surrounding the italian Banking Sector. We will be back in paris with the socgen chairman very shortly. Italian banks are front and center; this is one of the biggest stories right now, and we will discuss it further. This is bloomberg. Anna welcome back to on the move. Italian banks have taken center stage as the u. K. Votes to leave the eu. Its devastated share prices are bearing the brunt. The stock hit a record low yesterday, as they are looking to inject capital into the embattled lender in its third bailout since the financial crisis. The market regulator has been shortselling in monte de paschi today. By. Smaghi is standing you said earlier we could see a systemic crisis spreading out of the italian issues what is needed right now to help prevent that happening . Well, what is needed is a european solution. I think what has not happened so far is we have had national solutions. We need a European Solutions and a clear backdrop to the safer expectations that drive this contagion Banking Sector. Some italian banks have a couple of problems and one is a nonperforming loan. Many italian banks are less profitable so if you put your u wont solve the problem. You need restructuring of the Banking System which gives you an opportunity to consolidate the italian Banking System as it becomes more profitable. It also requires some political determination because that means also restructuring, costcutting. That has not been really addressed. The german Banking System, if you look at stock prices, they are going down, and there are too many banks in germany that are not profitable. Profitable is not attractive. Guy can i pick up on the political angle you were just discussing . I want to talk about the political will to change the way and peels are dealt with. Is there any point dealing with the bad loan story until you change the legislation . I wonder if we are getting the sequence wrong here in the way we are tackling the problem. The government has implemented some tools to speed up recovery. Its not clear where this is sufficient, but there has been some movement. Now they need to deal with the stocks of nonperforming loans and incorporate the losses. Whatever the losses are, they have to be recognized if you need something that clears the way. Then the next step is how to make these banks valuable and avoid them being zombie banks, just because they are not able to be sufficiently profitable to generate new loans. Is a series of effects that are politically costly i know theres a referendum in october and banks are delicate issue and you have to reduce employment and put money into banks when its not politically easy and to sell to the public. Anna you are talking of recapitalization. Germany wants to see the recapitalization done by the private sector, by those that hold the debt. Does it need to be the taxpayer that is the backstop for italy and the wider european Banking System . Well, in theory, it shouldnt be. We have implemented all these rules to avoid the taxpayers having to fill in for the private sector. But when you have a systemic crisis when there is a risk of and fulfilling expectations the Banking System has problems, in these situations you need the taxpayer and the public sector, union policy to step in and to intervene but the quicker the speculationop the and then you need to get out. Its not as easy in some countries, but ultimately if you dont accept the taxpayer as the ultimate resource, there is a risk of systemic crisis. How do we get to the point where we can spin the Banking Union . The germans say the rules must worried to, they are about the fact that we end up in a series of situation where the rulebook gets tossed out the window. We seem to be in one of the situations again. I understand that this is a difficult situation, but arent we effectively drawing a line under the Banking Union and saying this is never going to happen . There are always situations and developments that allow us to sidestep the rules. German once the rules germans want the rules and others dont. How do you do with the aching scenario . The banking scenario . Cant govern Financial Systems on their rules you need to interpret them and you need an institution which implements them. It cant be automatic. C that theor procedures are suspended. The question is are we in this situation or not . And who decides the commission, the ecb . If this happens, we should interpret the rules and apply way tod this is the best make sure that the system in the Banking Union are really implemented in an appropriate way. Lets not forget that you are missing some elements of the Banking Union. Weould say to the germans, interpreted the fiscal rules in the past in favor of germany also and we need to be pragmatic like a policymaker. Should you think the ssm i be housed within the ecb . Do you think there is a case because of the concerns . Ssm and moste Central Banks see a supervisory function that goes back to Central Banks you have this in england, in the u. S. This idea of fleeting supervision is and ifstoric in my view you separate them they dont talk to each other and we have a problem is a function of the financial market. Guy we certainly learned that in 2007. The socgen chairman, thank you very much for joining us. Discuss what all this means and where it takes European Asset classes. Andrew perry is the head of equities. Good morning. You have been listening to a former central banker, a current chairman of socgen, who clearly has some concerns. Will you look at what you are seeing in front of you . Do you think we have a grip on it, an understanding of whats happening . I come back to the ios story thatent at 2008 levels, we are beginning to move a little bit higher. Yeah. World isveryone in the being heaped on the shoulders of but what brexit has illustrated is the underlying Security Issues that existed beforehand. The italian banks have been underperforming for quite some time, the u. K. Funding crisis has then potentially there and i think this is whats happening we are shining a bright light on the underlying fragility and now we have an informational deficit for market participants. There is a lack of understanding of what the details are going to be. Its not a surprise that we get this febrile environment. Question. Ew, quick good morning. Do we need a european version of the troubled asset relief program. To the tune of 700 billion, to prevent exit of the italian bank . The previous chart on mpls in italyly versus america it was a great chart. That shows what that part of the european problem, not gripping the situation decisively and taking definitive action. Italy have doubled since 2009 and in america they have fallen by 70 . The tarp is the shock and all of we. Many smacks their hands and thought that was job done and were very complacent. Europe has been a series of exercises and this is whats coming back to haunt us now when we have this challenged environment. Guy thank you very much. This is bloomberg. Guy welcome. You are watching on the move, right here in london. I am alongside Caroline Hyde in berlin. We are moments away from the start of european trading and you have the morning brief. Caroline i do. Hurricane brexit hits the market; risk sentiment slashes global yield in sterling ducks below 1. 30 how do investors weather the storm . None are stared. Italy banks, while investors flee u. K. Property funds. Where did the biggest risks life . Yday. Ad support thrown behind theresa may has she sealed a job for the top job in britain . And mario draghi about to speak at the ecb statistics conference here in germany. We are monitoring on the headlines throughout the morning. Guy we certainly well. Thing butst exciting futures are pointing to a negative start, the ftse likely to perform better. Up and it is opening can bring you what we are looking at here this is the lower,ac sharply all kicking lower by around 1 10 see and we will wait and we are expecting a similar picture in germany. Lets get the details and find out what happens with nejra cehic. Lookingve got the imap into the Industry Group for the stoxx 600 and how they are performing. Financials are the worst performers at the moment, down 7 10 of 1 , closely followed by energy stocks, down 6 10 of a percent. Betters of the performers, it is down and read across the board, health care up by 2 10 of a percent. A lot of risk aversion, meaning we have seen record lows again in bond yields globally, the japanese 20 year, and now lets look at the u. K. 10 year yield as the guilt markets open looks like we are down five basis points, 77 is what we are looking at on the 10 year yield in the u. K. We are moving lower on this as well is at a record low . I will let you to check. Lets look at the stocks we are watching today, starting very much on a u. K. Commercial investorsocus, aviva one of the three companies that suspended trading in Real Estate Investment funds. We are talking about 9. 1 billion pounds and they are also hosting a Capital Markets daytoday, and if the fundamentals are plans to increase its 2017 dividend payout ratio to 15 . It cant quantify the exact impact of brexit so the u. K. Is an attractive market a lot of news to absorb around this and i wanted to bring this up because we have numbers from this company new orders in the First Six Months to about 2. 5 billion pounds, putting in place robust plans to deal with the leave vote in the u. K. And revenue is expected to increase. 2. 5 , theg higher, up volvo up because they are facing record fines from the eu for charges of pricefixing. Caroline thanks very much. We are keeping a close eye on houses and ecb president mario draghi is delivering the welcoming address to the eighth ecb statistics conference, about the need for staff and banking supervision, saying it needs more granular data. We will be digging into the headlines coming out of mario draghi by discussing things in frankfurt. Much has been looked at in terms of the crushing bond yields. Guy yeah, thats the big market story at the moment. We are mention that waiting for price discovery. A fantastic chart this morning curve, thishe swiss is zero, fully below zero. Its absolutely being buried now. It went fully underground this morning and its an amazing story to see, at large across the entire bond story. Andrew perry is still with us. We live in a weird world where how doesonds that resolve itself . A lot of money is pouring into the bond market at the moment, seeking safety. How do we ultimately end up finishing the story . Can we keep going . Should we keep going . You use an interesting word, the bonds for safety and i are thinking negative rates across the entire duration spectrum, that is safe . I dont think any of us fully understand where the ultimate conclusion of this comes from, but it is a worrying signal for what people perceive as the risks in the world. Trillion of14 Government Bond yields where it was nine just two weeks ago. It sends quite worrying messages about the world, but also think of the risks for the pension industry. Every time bond yields lurched down, deficits rise. That has an impact on the corporate sector. If your Pension Scheme is finding funding difficult, that means you might be asked to put more money in and it makes you cord cash. You arent going to rush out and build a factory or a new Office Development or even take people on. These negative Interest Rates also have a negative consequence in the corporate sector via the Pension Funds sector, and i think we are building up a crisis in that sector, particularly in the u. K. Caroline crisis in the pension sector. We have australian bonds at record low yields today, japan twentyyear debt hitting 0 for the first time. Does this also spelled doom for the Banking Sector . Is the bond negative story going to be hitting the Banking Sector . It doesnt help. I think your previous guest was talking about a lack of profitability in the Banking Sector, and i think that is one of the issues. Its not just about having low yields, its about having people who have a propensity to borrow. We had seen prior to the brexit vote some signs of people beginning to borrow, but less of that corporate borrowing and more of individuals borrowing for current consumption and for buying houses and flats. That has to be a worry. We need to get Industrial Production up, not Consumer Spending first. It has to be about finding how we can develop jobs, not how we can keep spending just by financing. Guy we are getting a price on nps this morning. Let me just show you what is happening here, to give you an idea. Mps is opening up around 6 . 6. 52 . We are getting a price on the italian banking, the full spectrum of the italian Banking Industry. How do you look at the banks . An you put risk in, buy italian bank and put it with hsbc . How do you invest in a sector if you need to put money to work . Do you avoid the Banking Sector completely, or how do you do it . We have been underway to thanks for as long as i can remember and i have been in the industry for quite some time. We find them not completely uninvestable, but we just dont see the growth. In this world where there is a scarcity of growth, we tend to follow the companies that can grow. Banks are bobbing on the economic waves while a large part of their destiny is controlled by an economy like italy, which has grown by 0 since the interruption of the euro. It is hardly a compelling story. Us, its not enough for has to be a growth story, and we are still struggling with the Banking Industry to see where growth is coming from. Caroline talking about looking cheap, 1. 4 lower for credit suisse, trading at the lowest priced since all the way back to 1989. You can check it out on my screen. Trading at just nine swiss. Rancs we havent seen these low prices all the way back until the 1990s, so clearly we are seeing significant weakness with credit these, give us a sense of ban on shortselling we are seeing. Could this go wider . Are you worried we are returning to the financial crisis days where we saw the limitation across the Banking Sector . I think thats a kneejerk reaction of the authorities, that short sellers are dragging bancshares down when its possibly that they havent restructured and taken opportunities to do it. Shortselling, it does provide liquidity to the market. If you arent with strong liquidity from the market, it just induces more volatility. To make money you have to buy the stock back. It doesnt always achieve what they want to do. Guy we have to go to property next. , thisty funds creeping under a flurry of rejection. Brexit retreat in the property sector, next. Anna welcome back. Berlin, but we are seeing the dax up, every Industry Group currently declining. Everyone is being held up by the Gold Companies but overall the stocks is off. Up. Rs guy lets take a quick look at the mrr function. Up. Ortselling story going story, but the homebuilders and Property Companies in the u. K. Are very much under pressure. Three of the uks largest real estate funds have frozen there assets due to the british and decision to leave the European Union. Toy dont have enough cash immediately repay investors redemptions. Joining us now, neil catalan. Also still with us. Talk me through the mechanics of this. These funds do not have enough cash to deal with redemption. You have run the numbers. What are the lines in the sand you are looking at . How much cash to have to avoid shuttering . It looks like 20 is the magic number. Similarly if you are below 10 or 12 , it will have to shutter. A lot of Real Estate Investment wn can do you are in a negative position before you get going. Anna this feels scarily reminiscent of the financial crisis. Talk to us about when we have seen this before and what the outcomes tend to be. There was2008, redemption required and Property Funds had to close. Nine years later he still back. T gotten your money they will try and get additional liquidity buffers and will go to banks with lines of credit because they dont want to do sales they dont want to hurt their investors. A lot of them got back less than half of their money. That managers would prefer to take their money out after the brexit vote, mom and pop investors having part of their Pension Funds frozen, so it will be interesting to see what happens next. Guy have you invested in this stuff . Give us your view of how it develops. The property cycle, the commercial property cycle, has been turning down for two years, and it was my point earlier on that brexit is exaggerating the trends are in place already. I think it also picks up on another point about the coercion of ultralow Interest Rates to sort of seek areas of return that would be a natural to them. This is not about a collapse in property prices, this is about a sudden rush of people getting nervous because of brexit. This is the problem with investing in liquid longterm assets they are not liquid by longterm definition. This is something we need to to get theseout, new forms of investing, crowdfunding, etc. Things are going to get contested by tough Economic Conditions and people are being seduced into them because of the lack of yields on traditional assets. That is the dark side of financial coercion through Interest Rates it forces investors into taking risks that might the in more normal conditions be somewhat unnatural for them. Reactiondo see this happening in the less liquid areas, that if you check in on real estate today, every single stop in real estate is falling. We currently have the worst in london is this going to be spilling over to the entire sector . Is it time to get money out of liquid forms they really have been smashed. I was sitting in an office block yesterday, looking around at the london skyscape and counting the cranes. We have a capacity issue, and its overcapacity. If you look at the flat market in london, there are some 50,000 new apartments coming on stream in london alone in the next 18 months. Thatlow Interest Rates engender a massive supply boom, particularly in london in the southeast. Property remains a classic supply and demand asset and the supply is now beginning to outstrip demand. Its a more challenged environment for property, despite the fact that Interest Rates are very low. That, there are still very attractive investments to be made in real estate. ,ut in the southeast supply has risen to meet demand. See what the wonder to more funds shutter. You will also look at uts because of the potential mismatch between liability and value and its going to be a crazy day again. Guy thank you very much for your hard words. It has been an interesting 48 hours in this sector. Up next, the brexit pain continues. The currency has a 35 year low. This is bloomberg. Anna 20 minutes into your trading day, new york at 3 00 a. M. , already the yields are reaching further was when you come to the u. S. 10 year. 1. 36 , yields down to basis points already. We havent seeing record lows in australia, money moving into the havens. Federal reserve minutes out later today. Lets have a look at the european stoxx 600, down 3 10 of 1 , nearly everything Industry Group is lower, largely on the back of real estate. The banks are introspective, the pound down for tenths of 1 . We are looking at forecasts, calling it to be at 1. 16 by september. Meanwhile, money is moving in out of your german bond. The yield is negative and germany is selling later today as well. Havenney goes into the that is gold and the yen. Fascinating moves overall, but the money keeps on coming out of the british pound guy it certainly does. I will show you a couple charts this is euros sterling, the move very clear on this screen, now trading at 48522. You can do this on the bloomberg , forecasts coming down quite trading below that already, and its amazing to see. Ome of the spreads if you go all the way out you can see whats going on in terms q117. Forecast, q2, 130 has been the median, 130 to the mean. An awful lot happening, sterling continues to get absolutely crushed. Which Companies Stand to gain from this, and which will benefit . The head of equities at hermes investment. If i go to another screen on my terminal, andrew, the wpi function, i can see very clearly the ftse 100 down 9 in euro terms. Thats a significant outperformance versus of european peers. Se is benefiting from sterling depreciation. How do i take advantage of it . Two thirds of fuzzy earnings earnings are an automatic translation of earnings. Some companies have already seen major upgrades in their earnings forecast just because of the currency movement. That doesnt change the underlying sales prices, but in a world of instability and uncertainty, theres a certain appeal to that. Once we find a flaw and see the economic consequences for the u. K. And the rest of the world, then maybe guy do you think those overweight stocks things like glaxosmithkline, they tend to be very binary outcomes. For us its about where companies are going in the longterm. Its more about whats happening to their product, demand for their profits. If you factor the currency in, we certainly wouldnt trade stocks on the currency forecast. They have all been boosted by recent events. Interesting more with whats going on in the underlying businesses with more optimism from the corporate sector we got some of these genetic moves with people trying to discount what may or may not happen. The companies have an inherent flexibility they have dealt with a lot of crises, not just British Companies but European Companies and they are still here. Anna what about the outlook for u. S. Companies . Are they going to be hit hard by the strengthening dollar, do you go along because you get the uplift . The u. S. Continues to be the haven of relative tranquility in the stormy environment. I think they have their own problems corporate profits in 15 ica are down by over since they peaked a year and a half ago. The question now for the u. S. Is whether it is at an Inflection Point in its growth. Or if wets caused will begin to see a real acceleration. The fed was quite optimistic. Guy thank you very much. Caroline welcome back to on the move. Central bank of sweden is sticking to his negative rate. It has held it at that low. Earlier today we have the Unemployment Rate ticking up again. We are holding steady. What does it mean for the fx . Guy you have your faith always the one to go to. We did see the market frontrunning moving a little bit. As you can see, we are just beginning to come off that. It looks like it is stabilizing. You can see it on bloomberg as well. We are just beginning to stabilize. We will talk to the governor of the ricks bank. Gves joining us at 10 45 u. K. Time. What it means for his policy reaction function right now. Lets talk more broadly about what is happening. Sectorand the Financial One thing we need to be paying attention to. The Banking Sector has been hit and hit hard. Lets join a man who knows an awful lot about what is happening with a the innerworkings. He is the esns managing director and he joins us from paris. Good morning to you. Let me ask you a straightforward question. The markets are very nervous. They are worried about the spillover effect from brexit you are on record saying that you are not 100 convinced the brexit happens. Are you sure about that . Klaus good morning indeed. A lot of and certainty has been created. That is never good for the market. We see a lot of volatility. Im not 100 certain that brexit will happen. I consider it to be the most likely development because there was a referendum. It cannot be ignored. At the same time, we all know all of the costs will be high off of brexit. Maybe that is getting clearer. In the eu, there is a lot of regret if the u. K. Were to leave. If the united kingdoms population has second thoughts, maybe a new government in the context of a newer election scheduled. I think that would be welcome. It is up to the british people and the next government. In my view at the moment, it is the most likely to happen but i dont think it is 100 certain. Caroline how worried are you that you see dominoes fall in the rest of the eu if the u. K. Does leave the eu. Could we see less than 27 remain . Klaus not very likely in my view. Of course we know that several Member States of the eu there are voices and sometimes there are parties that would like to follow that example, that referendum to leave. All the other countries, very clearly, according to the polls, that no majority is supporting leaving. This is not very likely to happen. I dont expect it. I think there is noise around it. They are used to that. One has to keep the perspective that these are minority views. Guy there seems to be a division in the eu as to the appropriate response. More europe or less europe. Which side of the fence to use it on . Do you sit on . Klaus given that the british people voted for brexit, this is a moment where it makes sense to discuss what is the right way forward. On the one hand, we know that many of the problems europe faces can be better dealt with if we act together. On the other hand, we have to take note that in many countries, there is a perception which we may share or not share, but there is a perception that the eu gets involved in too many things. There are two directions. There is a debate. I think it makes sense to have a debate for a while and move forward. In my view, it would make sense to identify the key issues where we really need more europe, like on the refugee crisis or protecting the shanghai agreement. We need better border protector. Only the euthing can achieve acting together. In monetary unions, there are a few items that would be useful to make monetary unions more robust, lets vulnerable. We can only achieve that by acting together. There are other areas where we dont need action at the Central European level. It can be dealt with at the national or even regional levels. I think that is what people like sometimes. They want the action closer to home, closer to where they are. In my view, it is a good discussion. My personal view would be to have a balanced approach, identify items that are unavoidable to europe, but also identify those areas where things can be dealt with at the regional level. It should be a balanced package in the end, which i hope would then satisfy the people who are unhappy, but also help europe to move forward. Guy is Monetary Policy delivering growth in europe . There is a debate going to around at the moment as to whether or not we need a big fiscal push in europe. The Monetary Policy has really, they be in some ways, done more harm than good. That is an open debate. When you see what is in front of you in terms of the ability of the eu to generate growth, . How is that achieved you talked about statue reform. We need to kickstart the economy to get that to take place. How do we get that to happen . Me, the starting point is different from your view. On average in europe, growth is not bad. Projected growth rate is low, maybe because of demographics. The gdp per capita growth is the same as the united states. People ignore these different demographic trends, different population growth spirit we are back comparing the u. S. Where we have been over the last two decades, except during the crisis. It is the same growth rate on a per capita basis. It is not bad. Our growth rate on average is 1. 5 . This is almost twice the potential growth rate. There is no acute problem. If we want to strengthen, Structural Reforms are the answer. It works. We have seen that in countries that went through esm programs the last few years in the context of those programs, these countries adopted more subsidy reforms than anybody else and we see the results. Spain now has one of the highest growth rates in europe. Ireland is 8 and spain is more than 3 . What we know from history is that countries that have structural reform have better growth performance after a while. Unfortunately, not immediately. That is why it is politically difficult. After a while, it happens. We see concerns in europe. I think this will happen in greece. If we think about the longerterm issues in europe, given our port of core demographics, i think we need to think about structural reform and Monetary Policy. I think is particularly useful during the crisis. We also had fiscal policy stepping in in 2008 and 2009. Europe has gone up by 30 of gdp in six years. There was a crisis response. Now i think we have to release the macro instruments and focus on structural reform. Caroline should germany allow more spending to be done by the likes of greece and perhaps lagging behind the original structure reforms to keep the use, to be able to promote growth and stop really negative effects that are happening within these countries . I think i did not get your question fully. Sorry. Too much noise here. [indiscernible] the fiscal adjustment in greece has basically happened. Greece has reduced its fiscal deficit from 50 of gdp six years ago to around 2 or 3 now. Most of the fiscal adjustment in greece has happened. Work, we are not asking looking forward. Additionaling for onorms Like Administration privatization of the Banking Sector. That is what the task ahead is in greece during the remaining two years of this third greek program. It is not an issue of that over there. Guy please stay with us. We are going to take a very, very quick pause in the conversation. Up next, we will be talking about the Banking Sector. We will get mr. Reglings take on whether we will be another greece. Guy this is on the move. The ftse in positive territory. Lets get back to our conversation with klaus regling, the esm managing director from paris. We were talking about the story in europe. We have seen considerable stress in the Banking Sector over the last few days. Is this a forced moment where the normal rules that are applied to governments able to inject capital into their banks should be thrown out . Should italy be able to recapitalize its Banking Sector . Beus i hope it will finding a way to do that, but i dont think we should give up the framework we created. Banking union is a major achievement for monetary unions. They have done a tremendous job to develop the esm to make it operational. An important part of that is the socalled prd. It is important to make it possible to have a common supervisor for the 130 systemic we important banks in the area and have a common framework. This is why it is important to protect this framework. The framework allows many ways out, even if the situation like we see today. I know that the Italian Government is in dialogue with the European Commission on how to apply the framework to these specific circumstances. I am confident they will find a way. I will not accentuate the problem and i dont think at the moment to give up the framework. That was not easy to create. Caroline should it be private investors that bailout the italian banks . That is part of our new system, of course. That has to be mandatory bailing before public funds can be used. That is part of the Banking Unions, the brd. There are many other ways around that. Indeed, that is a statistic. Caroline are you worried this could become a systemic problem . If it does not halt in its banks,now, good spanish other banks be involved and start to settle to the tune we are seeing in italy . , we see ais true particular weakness in the Banking Sector since the referendum in the u. K. It is a bit surprising because there is not much of a direct link. There is an indirect link because now the Market Perception is Interest Rates will remain lower for longer and most people believe that has a negative impact on profitability. That is the indirect thing. Otherwise it is not so easy to understand why banks have had problems since the referendum. I dont think we are in a systemic situation. Europe,ll over your and worldwide, many steps have been taken to strengthen the Banking System. In europe, we have done that. Inc. s doubled their capital since 2008 banks have doubled their capital since 2008. Regulation is stronger before the crisis and we see the benefits of that now. There can be problems. There are problems. We see that. I think we are much better able. Guy im going to let you put your salesman hat on now. The esm bank bailout for greece is absolutely huge. Plus euros. There is really a market for this kind of stuff at the more went at the moment. How are you going to sell this . How are you going to create a market . What do you think the opportunity is going to be . Esm has never had problems issuing bonds. We need to issue bonds in order to generate funds to provide loans to the countries that need them the most. We did that in the past. Portugal, cyprus, and italy. They exited their programs. They have strong growth rates. Greece is a country that needs emergency financing from us. You are right. A have received a lot. They will continue over the next two years to receive potentially another 40 billion euros. Already today, the two institutions that i manage, we own almost half of the total greek debt. The fact that we lend a very longterm, 32 years on average for greece, does not mean that we also issue such longterm bonds. We have a diversified funding strategy. Investors around the world know that. We issue bonds from one year up to 45 years maturity. We put that into one pot of money and provided to the countries that need financing. We have no problems financing greece. We will continue to do so over the next two years. They continue to implement reforms and i am confident that greece, after another two years, can join the other four countries that have proven to be very successful coming out of their programs. Guy you think greece will be back in the bond market by 2018 and what you are saying therefore is that you do not think greece will need a Fourth Program . Klaus i would not be surprised if greece even returns to the bond market next year, 2017. That is something we also saw in the other countries. Portugal, cyprus. They dont wait until the last moment. As long as they get money from esm and then go to the bond market, they begin to test the market well before the end of the program with small amounts. I think that makes sense. The Interest Rates they will have to pay to market will be a lot higher than what they have to pay to us. Our own funding costs are low because everything is good. Thane moment, it is less 0. 8 . Sustain debteece sustainability. When they begin to go back to the markets, they have to pay more. It still makes sense and i think they will be able to do that next year. From 2018 on, they should be able to refinance themselves to the market. Willbecause by then, they run a good primary surplus to all of the financing they need to replace maturing. There will be no need for budget financing. That will happen. Caroline esm managing director, we look to see when greece does tap that market. A fresh 31year load and yields drop. All the markets move our next. Guy a couple of things we need to show you. We are continuing the story in the bond market. That is where the germans are at the moment after the negative yields. 77. U. K. , spot money continues pouring into the u. S. Global Government Bonds expert joins us. We are in strange times. This is the swiss kroner which is under the red line of being negative. Is there a sense that this has much further to run . Give us a sense of the proportion of what we are looking at. Curve swiss kerber is a good one. I look at my inbox. There are a few different views. Crisis ist the praxis not systemic. Other people or raising flag saying maybe the bond market is right, maybe things are worse. This could be a bad time for the economy because things were looking at stocks heading lower. Maybe things are going to turn over. Turn a lot nastier. Caroline we have breaking nose. Of u. K. Tenured yield 0. 767 . The team is busy upstairs as you sit with us on television. Give us a sense of where we have yet to see the biggest tightening. We have got negative across the board in switzerland. Like money with treasuries australia where you have they are also down around the bottom of the second. Guy we have taken up enough of your time. You have a busy time. Paul dobson, manager of Government Bonds. Francine lacqua will be speaking to the ceo of lego. This is bloomberg. Francine risk aversion smashes records. The pound and 20 year yields no negative. Go negative. Three of the uks largest Property Funds hold production as brexit hits home. Desk is the brexit follow fall out starting fall out startingt go back go starting . Francine welcome to the pulse