Transcripts For BLOOMBERG The Pulse 20150220

We are getting breaking news out of the eurozone. Eurozone pmi numbers coming in pretty much as expected. Im trying to get them up for you in terms of what we are seeing overall. They are we were expecting a figure of 51. 5. They came in at 51. In terms of services, they arrived at 53. 9 versus 52. 7. Overall, it basically shows the divergence in which some of the countries find themselves. Germany had betterthanexpected figures. Some of the weaker countries actually showing that they didnt grow as much as they were expecting. Brinkmanship over the bailout. Greece and germany face off in brussels for the second time this week as the clock ticks toward the deadline for a deal. Just hours after greece requested an extension of its loan agreement, the finance minister of germany dismissed it. Our International Correspondent hans nichols, joins us from brussels. It is not just the germans who are going to insist that greece completes its bailout program. Hans thats right. Weve heard from the finnish finance minister saying that greece needs to stay in their program. Weve also heard from a deputy in the Minority Party in germany , saying they need to be unified on the need for greece to stay in the imf program. It is clear that the german establishment there was some talk about a split, and that doesnt appear to be the case. Take a look at some of the greek headlines. These are greek papers. Sure block, thirsty for blood. Schaeuble divides europe another one. One from we are sending away our allies. It seems that domestically in greece and germany both sides are not only girding for a flight but demanding a fight. Take a look at what mr. Varoufakis told the telegraph in the u. K. What we cannot accept is that the fiscal adjustment by the last government he carried through just because the rules say so. There is no macroeconomic argument i can be made. That is the negative side. There is some reason for optimism. German officials are saying that you could potentially use yesterdays letter as a starting point for negotiations and not require greece to submit an entirely new proposal. Angela merkel and Alexis Tsipras are talking. They had a conversation last night which mr. Tsipras described as positive. Yet the leaders may be taking a more conciliatory tone and working towards agreement. Very hard to actually figure out what is going on. Francine so what kind of measures is the ecb considering . Hans heres what we have some great reporting out of our colleagues in frankfurt. The ecb would likely intend would likely ask greeces banks not to accept, or at least reduce their reliance on greek debt. Thats crucial for a couple reasons. They are the main buyers. If greek banks are being told to no longer by greek debt, you could have a Funding Crisis for the greek government. You could have a funding government much sooner. There is a 4. 4 billion bond coming due next month and a 2. 4 billion the following month. When we reported the original strategy, it was to wait and see until may or june, when germany would be in a more advantageous position. This could be one of those things where they see they have an advantage. Francine thank you so much, hans nichols in brussels. For more on the continuing greek saga, we are joined by unicredits chief economist. Thank you so much for coming in. First of all, it seems there is quite a strong debate. Is germany and is the german finance minister pushing too hard . I dont know. It is a matter of politics. I dont think it is a matter of the ecb. The germans have a problem. They are ones who pay a big part of the bill. The german public, maybe because of the media and germany, were extremely hard towards greece. I think hans made the point that there is not a big split inside the German Government because there is no wind for germany to give that away. Do you agree . You have talked against austerity measures in the past. Does there need to be a realization that the timing was flawed and germany needs to back down . Absolutely. Just on your previous point about whether mr. Schaeuble might have gone too far, he is on the record as having wanted greece out of the eurozone in 2012 when the suppose it costs of exit were much higher. It is very clear and his hardline stance is something he fundamentally believes in. He is willing to pull the trigger. I think the point that erik made is important. This is always going to be a political call. The stakes are so high. This is well above the paygrade of finance ministers. The numbers matter, but what matters more is what Angela Merkel decides with tsipras in consultation with president obama. It is not just a european problem. Every leader of every large state in the world is involved as is the head of the imf. Nobody for the most part wants greece out. Francine yet weve talked about the potential that greece accidentally leaves because the politics arent sorted or it gets too heated. We are beyond that, it seems. This is negotiation tactics. Erik the risk of an accident is not very high in my opinion. It comes down to whether the ecb provides money for the greeks to get their money out of the greek banks. Again, that is not a typical point. It is a political decision. I dont think it is right to say it is just merkel and others. Anything they do has to go through parliament. It is for the democratic processes in europe. I share your view but at the end of the day somebody has to explain to the rest of the eurozone taxpayers that the burden sharing between the greeks and the rest of the europeans if you took something close to what the greeks originally wanted, you would end up having italy, spain, and portugal having their taxpayers pay a bigger share than the greeks would. How can u. S. The portuguese for help if it actually burdens the portuguese beyond the greeks . It is a matter of burden sharing. Francine and you think we will find an agreement today . Erik i have no clue, but my gut feeling is yes. There always seems to be an agreement. Francine sony, are you confident that we will get something . Does it matter if we get an agreement today . As long as they keep talking, they will find a solution. Sony i think the fact that there is an agreement is more important than the timeline. Our track record is clear. It is always a few minutes past midnight. There will be an agreement. My gut instinct i hope im right francine i think everybody hopes they are right. Sony there is that possibility that thats not the case, but it will not be an accident. This idea of a grexit by accident is silly. Francine it would be even of the greeks voting out. Sony absolutely. That takes are two big for an accident. Francine erik, in terms of the ecb, they may or may not have capital controls. There were sources saying that they were going to impose them or try and put pressure on greek banks to do that and that was denied. At the same time, theres them asking the banks not to hold so much greek debt. Do they need to have a bit more of a counterpart . Erik this is problematic on both sides. They did not discuss the issue of capital controls. I think that is just a wording issue. You can be sure it has been discussed. Was it on the agenda . Maybe not. But these guys talk all the time. It would be out of the question in my opinion that they would not have considered this issue. Francine considered, but put to one side . Erik i think it was mentioned and batted aside without much discussion. At this point, this is highly counterproductive. It would actually be quite selfdefeating and shooting the ecb itself in the foot. Francine all right, thank you so much. A little more about the ecb after this very short break. Erik and sony they stay with us and we will talk a bit more about the ecb and some figures out of the eurozone today. That brings us to our twitter question of the day. Greece versus germany, who should back down. Tweet me. Guy johnson is also taking part in the conversation on twitter. Later in the show, we will talk greece and centralbank divergence. That is with a former fed governor. For the first time ever, London Fashion week and the Chinese New Year coincide. We will explore chinas thirst for luxury. Francine welcome back to the pulse. We are live on bloomberg tv and radio. The standoff between greeces new government and its creditors risks triggering a cash and credit crunch. That could of course severely hurt greece financially. Tom gibson breaks down the numbers in this report. If greece fails to find a bailout solution, it could be push out of the eurozone and lose a lot of money. Without an agreement, 10. 9 billion euros from any you rescue fund will be canceled. Another 5. 6 billion comes from euro area member states, with money made from profits on greek bonds pledged in 2012. Those creditors have no obligation if greece rejects bailout terms. Another 1. 8 billion euros comes from belttightening. Failing to agree with european leaders also affects 12. 5 billion honest by the imf. These hinge on the same austerity measures. The largest amount, 68 billion euros, comes from the European Central bank, which has been keeping the greek banks afloat. This will only reach greece if it stays solvent. Should the eurogroup agree to a sixmonth extension, greece might hold on to the muchneeded cash. Francine back with us for more, erik and sony. We were talking first about the standoff germany versus greece something that we that has been bubbling in the background. Sony, you were saying tsipras has to fight, otherwise there is a risk that the government wont hold together if they end up signing something that is too diluted. Erik as we talked about, it is overwhelmingly likely there will be an agreement. On a scale from one to 10 it is coming in at 9. 99. That means the greeks have a domestic problem. I wonder whether the Syriza Coalition can pull through this for very long. Francine and you are concerned about it as well, sony . Sony this is why i was so harsh on germany yesterday. I think this is a deliberate ploy. Mr. Schaeuble doesnt just one greece to capitulate, but he is almost intent on public humiliation of the kind that will destroy syriza domestically. It is equally important for surveys a tough fight back. I dont think we are going to end up in a compromise close to the european position. I think the greeks will get 20 to 30 of what they set out to do, which is realistic given that they are one state pitted against 18 or 19 others. They were never going to get all of their way. Most of the greek electorate knows that. Theres about 75 to 80 support for severus strategy. The deal is important. But the phrasing is important. If he shows he fought the good fight, he tried his best and you always have the possibility of taking a deal to a referendum francine . Francine the problem, i guess, is that greece is just one country. Are the germans so tough because they are trying to find some kind of solution, or they are trying to placate possible parties that are more extreme than we have at the moment . Erik i think there is a degree of concern about contagion to other countries. There is something to that. Also, i dont know if it is personal or not. I would say that given the way the germans have treated greece if it is personal it is so unforgivable. The nasty ofiness of this has been terrible. Hopefully it is not personal. Francine one quick last question on the markets, because theyve always been here in checks. There are no checks anymore. Equities are soaring. Is qe distorting the European Crisis . Sony i dont think so. I think the equity markets are doing what they are doing because the recovery is underway and nobody really thinks that whatever happens in greece can unravel that. And then of course qe is more like a backstop. We have the various institutions , we have the qe, but the underlying rally in the equity markets is not so much qe as it is the stimulus effect and the recovery that seems to be coming. Francine sony, do you agree . Sony i think the overestimation of how easy or how low the cost of a grexit will be there is huge complaisance because this has never happened before. The second part, i think, is the fact that for the first time we actually have a nascent recovery that might achieve escape velocity. The Exchange Rates and qe, that is the reason not to inject additional uncertainty. That is gratuitous. I think that will be a stabilizing influence that will make political decision on a grexit less likely. You dont want to jeopardize the recent recovery weve had in the past six years. Francine thank you so much for everything. Erik stays with us. Coming up, ukraine at crossroads. After it lost a strategic city to russian rebels, we will look at the options one year off from the main clashes. Francine welcome back to the pulse live on bloomberg tv and radio. The test for ukraines truce. Rebels take the key city of the pulse of debaltseve. Henry meyer joins us from moscow with the latest. Can the truce continue intact . Guest there are continued violations, but not on the scale of the battle for debaltseve which was described by germany as a massive violation of the ceasefire. We are hearing reports of artillery fire close to donetsk, one of the main rebelheld cities, and also near mariupol, a city under government control but which the ukrainian rebels have had their sights on. If they take the city, this would be the last remaining obstacle to a land bridge connecting rebel held Eastern Ukraine to crimea. The osce, the International Organization charged with implementing the ceasefire, has issued an appeal today for both sides to implement the agreement, and warning that it represents a final chance for peace. We are hearing talks that the four countries in the normandy format, germany, france, russia and ukraine, may meet at the level of foreign minister in paris this coming week. That underscores the urgency of these efforts. Francine tell us a little more about gas in the area. Gaprom has said it will stop supply to the rebel held areas. Francine that is an interesting question. Ukraine cut off supplies to the rebel regions earlier this week. Russia then said that it would supply gas instead, and it would charge ukraine for it. I think what you are seeing is these regions which have already been cut off from the rest of ukraine although the Peace Agreement supposedly will see them reincorporated into ukraine, and economic links restored, what is happening on the ground is that they are very much separate entities and will remain so. Francine henry, thank you so much. For more, unicredits chief economist. If we talk about russia, we were saying how the markets dont seem to see the tail risk in greece because theyve seen it play out before. You believe that the rally in indices is not down to qe but because the economy is recovering. Why are they not taking the russia consult more seriously . Erik thats a very good question. When we think about the big risks in the world, this is number one. Russia and how it progresses in ukraine. I think there is a big tail risk here. What are you going to do with the money . There is so much money out there and you cannot invest on the back of risks. You have to think about the key scenario you have. Theres nothing you can buy in fixed income that gets you any return at all. Half of all funds in the core area is now in negative rhetoric or he negative territory. You have to buy something else, otherwise you dont have a job anymore. If you look at all the macro indicators, it is a screaming case of european equities and real estate on this sort of stuff. You have to do it. Just hope that it is a frozen conflict as people say. Francine it certainly is how the markets are seeing it. Erik thank you so much. We will be talking easing next. Francine welcome back to the pulse live from london. Im Francine Lacqua and here are bloombergs top stories. Euro zone finance ministers talks in brussels today over greeces proposal for a sixmonth extension for its loan program. A government leader says that the proposal is a basis for negotiations. The greek Prime Minister said yesterday that he had positive conversations with the german chancellor Angela Merkel just hours after her finance minister rejected greeces request. Today marks the First Anniversary of the maidan massacre in ukraine. 50 processors were shot dead protesters were shot dead in kiev. The shootings sparked protests. The anniversary comes as germany, france, russia, and ukraine reaffirmed their commitment to last weeks ceasefire agreement despite the seizure of the town of debaltseve. The German Economy picked up momentum this month while france showed signs of strengthening. The composite figures indicate that the regions economy is Building Momentum even as concerns mount about a possible greek exit. For more on all of this, we are back with erik. We talked about the conflict in russia. We talked about what is going on between the eurozone and greece. Central banks around the world are easing. This week, we heard that janet yellen is a little bit more dovish. When are you expecting the first Interest Rate rise from the fed . Erik we still stick with june. Weve had it for a long time, but the minutes got us nervous. There was a bit of new aspects to it. It still seems to be the best guess. We dont like to change forecasts. Francine june is quick. June is around the corner. Erik we had it earlier originally, but we put it back to june. I think that it is still [indiscernible] the data will suggest they are clearly behind the curve. For me, the key issue is not the dollar. It is what the dollar does the u. S. Equities. If you look at the financial conditions in america, the dollar is not that important despite the companys often refer to it. If a stronger dollar takes down the u. S. Equities, then we have to move that forecast. Francine but equities are seeing record highs in some cases. You dont think janet has entered a currency war . Erik no thats not what it is. I dont like the term very much. At the end of the day, what we have is 10 years on our numbers on evaluation of the dollar, and 13 of the euro. What weve had the last few months is the creation of that. We havent gone the other way yet. The present level is not far off. It is actually what we have is more a correction of years of weirdness in the market. Francine thats a very technical term but a good way of putting it. Talk to me a little bit about when you say youre sticking to your guns it seems that in the language, what the fed is looking at is wage growth. Do you think thats something the markets can discount or that wage growth will come because the economy is in a strong position . Erik we feel confident over that. If you look at the position of growth in america, it is not only consumption. It is also investment growth. The underlying recovery is more robust. If you look at the conversation of how the Consumers Fund thweieir record or quite strong consumer spending, it is much more now from earnings. Savings was their original part. It is a classic recovery in every respect. When you look at this and say, consumers are having Earnings Growth that funded the consumption, the flipside of that coin is that wage pressure is coming. Where will the money come from . Im very confident that over the next six months, you will see this clearer than you have now. Francine and you dont feel nervous raising Interest Rates in an environment where eight major Central Banks have cut Interest Rates . If you look at qe i think 14 or 15 Central Banks engaging in some sort of easing. Erik extraordinary. Francine is it not dangerous trying to raise rates . The bank of england will be feeling pretty lonely if the fed doesnt raise Interest Rates. Erik i think thats exactly right. We used to have the bank of england go ahead of the fed. We changed around because we made an assessment that mark carney doesnt want to go ahead on the fed. We have flitted around, so he has this very strange environment. Nobody wants to really tight in. The fed has been the leader before. They have to be the leader. They are the big ones. No little one can go first. At the end of the day, with qe they are running Monetary Policy for the united states, not the world. They are looking at financial conditions and wage growth. By all probability, they are at least six months behind the curve. They are hiding behind the fig leaf, which is low inflation from oil prices. By the fourth quarter, that washes out. Francine for the boe, is it more dangerous . We talk about what mr. Trichet did, he acted too soon in raising. Is it better to wait . Erik exactly. Thats not a nice thing to be remembered for. They are very worried. Thats exactly why they have waited. They have gone well behind the curve. And i think thats exactly as you said. That fear has caused the bank of england to send the signals that they want to wait until after the fed. Francine interesting. I want to ask you, what if the fed doesnt do anything this year . Do you think the bank of england will wait . Erik i dont think they have the guts to go alone. Francine interesting. As everything is in this kind of environment. Thank you so much. Now lets turn to france. French data shows a strengthening economy as president hollande wins a confidence vote that will allow him to go ahead with reforms. We are joined for more on this by Caroline Connan in paris. What is in them . Caroline good morning, francine. The process of getting this law passed was more impressive than the reform itself. According to Many Political analysts, this law is not a revolution but and a cumulation of little reforms. Ill give you some of the highlights. It is allowing more shops to be open on sunday something which is very limited to some tourist zones. This was the most controversial part of the macron law. There is also easing restrictions. It is removing the link on the severance pay of division, which is being shut down and the profit at the parent company. That change, according to economists could have a more Significant Impact than opening more shops on sundays. Then you have a lot of mini reforms in different sectors. For example, opening up the markets or increasing competition of legal professions. Not deep reform of the french economy. Many reforms in many different sectors. According to many executives weve been talking to recently, from loreal even though this macron law is not a revolution it is actually showing that the government of hollande wants to move in the right direction and show a more positive attitude toward business. Francine caroline, thank you so much. Caroline connan in paris. Coming up, London Fashion week meets Chinese New Year. We discuss tapping into the potential of chinese shoppers. Francine welcome back to the pulse. We are live from bloombergs london headquarters. London fashion week kicks off today. It coincides with the Chinese New Year. Our retailers prepared to engage with mature Chinese Consumers . Joining us now, the managing director of luxury. That was a long title. It got me all twisted up. Thank you for joining us. Let me start with you. Weve been talking about the Chinese Consumer as the el dorado of the luxury world. We have seen some profound changes on how they consume, and what is the engagement between big Luxury Brands trying to sell the Chinese Consumers . Is there something they are getting wrong . I think they have been. What they missed is how quickly the Chinese Consumer has matured. It used to be all about bling. People have started to go after much more understated luxury. The brake bands the big b rands have struggled and you have these new brands suddenly explode. It is showing you that people are looking for something different, something they dont see with someone else. That has caught up with the chinese, that exclusive luxury that somebody else doesnt have. The other way theyve been clever about it, the companies have had to learn things like twitter. That can make or break products or brands. In a way, it either makes a brand a big hit or shortens your product cycle dramatically. Francine give me a sense of what the Chinese Consumer wants. What rahul is saying, we have seen a shift. I think thats exactly right. The key thing about the Chinese Market is that it is predominantly made up of millenials, people who are 18 to 35 years old. The average Chinese Luxury Consumer is 12 years younger than the average Luxury Consumer in europe or japan. Millenials are more alike than they are different. The way they are alike is in there needs and desires, and the way they access information. They are an internet generation. 70 of the chinese urban population has access to a smartphone and 60 have access to an ipod or some kind of tablet device. The euro point about the other chinesebased networks that deliver social interaction into china, the American Brands have been blocked out but that hasnt meant they are not communicating with one another and they dont have access to the insights and the brands and the behindthescenes stuff. Rahul that is an excellent point. What a lot of Luxury Brands got wrong is theyve been caught napping about the internet. You think of someone like burberry supposed to be the leading edge of digital. Burberry is actually quite normal compared to other retailers. Francine in china or overall . Rahul globally, but china as well. They were scared that they could send the wrong sorts of messages. The other thing that happened in china, consumers are much more interested in buying not just in stores, but online. Hardly any of these companies have made that effort to sell to them. Francine if we were to boil it down, you would not try to do something for the Chinese Market specifically, but tell your story more locally. Rahul i think so, certainly. What the chinese do like, for example, when you come to europe, you will see chinese members with a certain familiarity. They wont be pandered to. They would like a product that screams out chinese. In a way, it is a bit of a minefield. Ralph lauren some time ago but all his tshirts would be emblazoned with the number four. The number four means death in china. That product died quickly. Francine ill bet it did. Erminia i agree. I think theres a lot of similarities between consumer groups. It is about having access to those exciting new opportunities. The millenials that we are talking about are the first generation in china. They have more money than their parents. There is a universe of whitecollar workers that are ambitious. Theres a lot of mobility. They just want to be like everyone else. In this globalized environment, they just want the things that we once. I think it is about not calling out differences but taking yourself as a brand and allowing yourself to be accessed. Across the luxury portfolio brands have been very reticent about letting social media happen. Theres a lot of presence on instagram. Instagram is huge, but it is a push social environment. I push out my pictures and videos. There isnt much scope of conversation. Luxury brands need to let go. If we take a brand like top shop and look at what theyve been doing in fashion week last year and the year before, theyve been really brave and bold inviting the actual designers to do behind the scenes activity inviting the models to do their own instagrams, and give consumers access to this globally. That is what Luxury Brands likegucci anmdd prada should be doing. Francine rahul you mentioned to brands. You are mentioning silane and Celeron Celine and Saint Laurent. Are those the brands that will do well in china in the future . Rahul it is hard to say. You are targeting a younger consumer. What luxury is starting to learn now, as you move away from low Growth Products unfortunately, in this internet age product life cycles are compressing somewhat. You are still a little protected if you are dior or hermes and you have the classic shape, but some of the slightly more accessible price points for luxury, the lifecycles are becoming shorter. I think why Saint Laurent is doing so well is, it is the brand and bank that people dont have. This is the brand tone. Im not sure that is going to be the case 1218 months from now. Francine if you are a luxury brand, how do you position yourself . Shoppers are younger and more fickle. If you are a big luxury brand, what do you do . Do you cater for everything are just find what you stand for . Erminia i think you have to have a center of gravity as a brand, and that center of gravity is what you are. It is a basic principle of branding. You need to have a reason to exist and you need to bring that to life. Authenticity is really important for european consumers and japanese consumers at American Consumers when they are buying luxury products. The bling moment has passed and it is about authenticity for the Chinese Consumer as well. At the end of the day, a leather handbag is two squares of material that are sewn together. You can pay 20 for that or by this other leather handbag for 7,000. The Chinese Consumer or any consumer is not an idiot. They need to understand why that is worth 7,000. As a brand, the onus is on you to explain that to me. Give me the back story, the history, and the reason to believe it is worth my while. At the beginning of this process, the bling generation, i think a lot of brands saw the Chinese Market as a cash cow. Just make something with a logo on it. Throw it in. There are a billion consumers that will buy it. Even if only 5 buy it, that is a profit for us. I think that has passed. Francine thank you so much. Rahul and erminia. Coming up, what can we expect from todays eurogroup meeting . A look back at the last round of talks and the war of words between greece and germany. In the history of the European Union the general feeling is that the best way forward would be to seek an extension of the program. It is not enough because it is the only option you have. There is no plan b. Something the country doesnt want. Francine here are some other top stories we are following today. Sanofi has hired a new ceo who is starting his new job on april 2. The move comes after sanofi fired its previous ceo in october because it was unhappy about his handling of the business. Danone, the worlds biggest your maker, has set lower sales forecasts than last year. The company says sales will rise 4 to 5 on a like for like basis this year. Danone pointed to deflationary pressure in europe and weakening currencies as challenges for the year ahead. Apple has been working on an electric car. That is according to people with knowledge of the situation. It sets the stage for a battle with tesla and general motors, both of whom are targeting a release of an electric vehicle that can go more than 200 miles on a single charge. For those listening on bloomberg radio, the first word is up next. For our viewers, a second hour of the pulse is coming up. We will be joined by a former fed governor, now a professor of economics at the university of chicago. On greece, we want to know your thoughts. Who should back down, germany or greece . Join the conversation on twitter. I will be back in just a couple of minutes. for the second time this week. Germany and greece continue their standoff. The Ukraine Rebel offensive takes the strategic town of debeltseve. An excentral banker, Randall Kroszner joins us for a wide ranging interview. Good morning to our viewers in europe, good evening those in asia and a very warm welcome to those just waking up in the u. S. I am Francine Lacqua. This is the pulse. Brinksmanship over the bailout. Greece and germany face off as the clock ticks towards the deadline. Hours after greece requested an extension, Wolfgang Schaeuble dismissed it. Hans nichols joins us. It is not just the germans that are going to insist greece completes the bailout program. Hans weve heard from the finns, the belgians. Germany is not isolated. The idea that greece has to complete the program without making adjustments seems to have currency among the eurogroup. The headlines out of athens Wolfgang Schaeuble is out for blood. Yanis varoufakis did give an interview. What he said, what we cannot accept is the fiscal agreement by the last government be carried through because the rules say so. Theres a possibility as long as the sides are talking for a deal. They meet at 3 00 today. Last may, Angela Merkel in Alexis Tsipras had a positive conversation as described by the greek side. German officials are saying greece does not have to profit a to proffer a new agreement, the proposal can be the basis for negotiations. They have made clear they want greece to stay in greece has been just as clear saying they want to leave the bailout. Francine what is the ecb considering . Hans the ecb is prepared to ask greek banks to stop relying so heavily and stop buying as much greek debt. Reduce their holdings. Next month, greece plans to roll over another 4. 4 billion in greek treasuries. The main buyer is the greek central bank. If greek banks are not buying that debt it is going to be difficult for the government to find themselves. They could face a cash crunch. You can see why germany thinks the longer this goes on the more negotiating leverage they will have for the debate, the total size of greeces debt. We are really having a preliminary debate. The big debate about greeces debt and how you tease it out over a longer maturity has not even happened. Francine thank you so much. When we talk about this it seems that the markets focus on the shortterm. What happened to debt neutralization, to spain. It is likely have blinkers on. Hans in some ways, when you look at the eurodollar you have seen a pretty big move. Europe is down. When we look at the overall market, the athens stock exchanges down. The 10 year as well as the three year are not reliable barometers. They are not that liquid. That is one of the challenges. I dont know if our colleague from athens is on. Im curious to see what the mood is like in athens. When i left germany yesterday the papers were very critical girding the German Government not to give in. Francine we spoke to someone from unicredit, saying it is like they are at loggerheads. Joining us from athens. How has this played out in the street, are people taking this personally . Theres a feeling of apprehension. Theres a sense that at the moment this is the moment of truth. Beyond that people in greece feel very bullied. Whether justified or not the request greece made yesterday for the extension. The mood was this was a capitulation. When the german finance minister came out rejecting this, this was considered quite a shock. The sense of a lot of people is that, one, they think germany wants greece out of the euro area. The other sense is that capitulation is not enough. What is required is national humiliation. That is the sense that people have. Whether it is justified or not. Another thing as well francine goahead. Marcus yesterday evening, the deputy Prime Minister met with the central bank governor. The deputy Prime Minister has taken a lot of responsibility of the banking sector. Within the syriza party hes considered moderate. He came out and said there are people within the euro area that want to see greece on its knees. This is the moderate wing of the party. You see how this would be a hard sell. Francine thank you so much, mark is in athens. The political aspect of what happens to the party if they do concede. The Federal Reserve this week signaling it is willing to keep Interest Rates lower for longer. Next week, janet yellen could indicate the timing for the first rate increase. Here for more on greece, Central Bank Divergence is Randall Kroszner former Federal Reserve governor and professor at chicagos booth school. We spoke to an economist and he said whatever is decided on greece will involve president obama. How are the u. S. Viewing the greek crisis . They are saying it is the same thing with the eurozone, it never quite works. Randall kroszner it is a little bit of there they go again. This happened five years ago or so. Bailouts were put in place, supports were put in place, the issue is back with us. Theres frustration as why european institutions cant quite get things done. I have they also have sympathy. Europe is struggling a little like the u. S. Did after the revolutionary war. We had the articles of confederation no physical integration, that did not work. Alexander hamilton said this is not going to work. If you want an economically strong country and a secure country we need the constitution. It took us 13 years together. Some sympathies and also frustration that it is coming up again and could have spillover effect. Francine europeans usually react very badly to the u. S. Saying what they should and should not do. Your point is spot on. If you do not have federalization, these things are going to crop up over and over. Randall kroszner the sympathy, we tried something and it was not successful. It took us a while to work that out. A lot of sympathy for the difficulty of doing it. The second round of crises should say we have got to change some institutions. Francine what the difference in my mind from the last crisis, we have mechanisms to deal with all these blunders but it is the markets are not in check. We have so much qe yields are so low, investors say i will brush off greece or the greek crisis because i need to put my money somewhere. Is this a danger . You lose that kind of third check on politicians. Randall kroszner when risk spreads are really compressed, the markets are not giving the signals to politicians that something may be wrong. Last year, risk spreads were very compressed. That was quite frightening. Now a lot of the risk spreads have come up. In your they are more compressed than i would expect given the difficulties. Since there are more institutions in place to prevent a problem in greece from having impacts elsewhere, i think that is why you are seeing stock markets at or near highs and different bond rates quite low. Government bond rates are low because of low inflation and the possibility of deflation. Francine when you look at the situation with greece the European Central bank is at the head of that. At the end of the day, they will have to take a political decision. How concerned are you that we are politicizing and institutions meant to be independent . At the end of the day, they will have to make a political call. Randall kroszner they are trying to avoid that. As you were illustrating in the previous segment, seems like the ecb would like to get greek banks out of owning greek government debt. That can be a toxic situation. We have seen that in ireland spain. The toxic combination between banks and sovereigns. ] they are wisely trying to work around that. Run ahead of that. It is difficult and puts them in the political crosshairs. They have to do what is best for the overall economy. That is why they are trying to fight deflation with quantitative easing. Francine we will be back with Randall Kroszner to talk about centralbank divergence and the fed. Twitter question of the day. Talking about Central Banks, greece the political standoff between greece and germany. Who should back down . Tweet me flacqua, guyjohnsontv. Also, ukraines bloody anniversary. One year since the maidan clashes. How the recent ceasefire is holding up. Francine welcome back to the pulse. Live from london. A test for you cant a test for ukraines truce. Rebels take the city of debeltseve as leaders insist the minsk truce holds. I dont know how we can say the truce is intact. We are at a critical stage here. The ceasefire which was supposed to have taken effect on sunday has been violated over the course of the week. The battle for debeltseve was a major violation which was announced by germany and other countries. What we are looking at now is whether or not they can salvage the Peace Agreement reached last week. The lot there is a lot at stake. If the agreement collapses we are looking at an escalation of the conflict. The u. S. Has said it is considering sending defensive weapons to ukraine, which would mark a major escalation in the way it is involved. Russia has said it would respond and you could end up with a proxy war between russia and the united states. The diplomatic efforts are continuing. The violations of the ceasefire are still there. Theres a deadline and place. There were supposed to have started the ceasefire on sunday. Within two days they were supposed to start withdrawing heavy weaponry. That is an important part of the deal. If they withdraw those weapons they are no longer able to use artillery which is continuing to pound government areas. That is supposed to be completed within two weeks from tuesday. If that does not happen, we can say minsk is dead. Francine tell us a little bit more about gas in the area. Russias gazprom has said it will start supplying the rebel held area. Henry that is not a good sign. The minsk agreement was supposed to lead to the re incorporation of rebel held areas into ukraine. Ukraine cut off gas supplies wednesday and russia responded by saying it would supply gas and charged ukraine for it. What it means is the rebel areas are effectively going to stay separate entities. Francine thank you so much. Henry in moscow. Back with more from Randall Kroszner formal Federal Reserve governor and professor at the booth school at the university of chicago. When we look at what is going around the world, we talked about greece and the fact that the world and markets, that is either a. That is europe. Why are we not taking more notice at what is happening in russia and ukraine . Randall kroszner some risk spreads are higher than they were last year. Certainly the russian ruble its sharp movements down suggest markets have reacted. In ukraine similar kinds of things. The markets have reacted to some extent. With political issues it is hard to predict. We do not have very well worked out models. Theres going to the uncertainty and some sharp movements when there are changes. Francine how do Central Banks view Political Risk . Randall kroszner it is taken into account but there is no systematic modeling effort. I wish we could have something that gave us a model of likely outcomes in politics as we have with inflation and employment but we do not. These are brought risk factors. It is almost like the stress test. You go through different scenarios and say what if this happens and then run through consequences but it is hard to put a probability on it. At least you have run through that to see what are the interconnections that might come up. Francine when we look at qe around the world, easing in general, weve had 18 Central Banks with 8 major Central Banks performing some kind of rate cut. This is unprecedented. Are you worried or uneasy about the amount of liquidity that is being put out there . Randall kroszner it shows the challenge worldwide to fight deflation. Europe is struggling with that. Many other countries are struggling with that. It is not just due to Oil Prices Going down. If you strip out oil prices and food prices, core prices in many countries are moving down also. This is one of the things Central Banks are supposed to do, prevent deflation. That is why they are doing that. In the u. S. We have low inflation, it is slipping down. The fed is likely going on a different path. Francine what is the fed looking at this week . Seems that janet yellen was a little bit more dovish than markets were expecting. Is she looking at wage growth . Is that the key figure that markets had underestimated . Randall kroszner they are looking both that the strength of the labor market but certainly all the aspects of inflation. We are not seeing much wage pressure so far. We certainly have not seen it yet. We are seeing very little Pressure Energy prices are down. Even stripping out the energy prices, core inflation is moving down. It is moving closer to normal 1 . The feds target is 2 . You have the challenge the labor markets seem to be getting stronger but inflation seems to be moving down. That gives the fed more time to be patient. Francine how long . An economist would say they have waited, they are more nervous but they are seeking to do a rate rise in june Randall Kroszner. Engine. In june. Randall kroszner it is data dependent. It is going to depend what happens in ukraine, greece what the numbers are in the u. S. It seems that september it would be a more natural time to do this. It is going to be dependent on the data. Francine the bank of england looks pretty lonely. If you leave the fed aside. Do they have to wait for the fed to go first to raise Interest Rates . Randall kroszner theyre going to be looking at the domestic situation here and the impact on the sterling. More Rapid Movement here is likely to have a bigger impact on the exchange rate. The u. K. Is a very open economy trade is a large percentage of total gdp. In the u. S. , we are a large trading partner because our economy is so big it is less important for the overall economy. There is less of a focus on the exchange rate. Francine ive heard analysts saying janet yellen has entered a currency war. Randall kroszner it happened this week . I missed that. Thats a loaded term and people have used it quite loosely. The dollar has been strengthening of her time. As long as the fed sees that it is done in an orderly way and can understand why this happening, the fed does not have a particular target for the exchange rate. It will take into account the impacts on the economy and inflation of a stronger dollar but it is not trying to say the dollar needs to be this or that. Francine currency wars is a loaded question. People have not been accusing each other like we were three or four years ago. On the sidelines everyone is trying to keep their currency down to boost exports. The u. K. Has a huge political problem. It is the elections and the specter of a british exit. How real is that . Randall kroszner we had a panel on this. Booth was salivating its 10th anniversary in london and we had a panel on these issues. Booth was celebrating its 10th anniversary in london and we had a panel on these issues. The neutral view that there are costs and benefits. There are costs with regulation on the continent that can be constraining. One of the strengths of the u. K. Economy is the Financial Services sector. It is so integrated in terms of movements of goods, services and people it is hard to understand how it would come out. It is like the uncertainty surrounding the potential for scotland to leave when they had their vote. Francine as a central banker how do you deal with it . You do not have models for Political Risk. If you are mark carney on the boe and you are saying the fed, we are not sure if they raise rates in september. I also have a potentially huge problem with the referendum that may lead to a british exit. Do you take that into consideration . Randall kroszner youve run stress tests. You run scenario analyses and see what would happen. What are the consequences of this exit . What are the consequences of a greek exit, a u. K. Exit . Try to work those out and see what do i need to be doing to anticipate these factors going forward. It is hard to put probabilities on them. Im sure that kind of scenario planning is what they are doing. Francine if you look around the world, who has the toughest central banking job excluding china. Between draghi janet yellen, the pboc and mark carney. Francine Randall Kroszner everyone has a tough job. Central banks went from being on the front page of the business section to the front page of the newspaper. Everyone is in political crosshairs. Mario draghi is in more cross hairs because there are so many countries with different points of view hes tried to deal with. I think he has done an excellent job given the constraints he has had. Francine does he have to be bolder or more diplomatic . When the criticisms that is often put on him is why does he listen to the germans on a lot of things like qe he could go ahead and do it. Randall kroszner theres a lot of things you can do that might be unwise to do. Mario draghi is a very smart, savvy person who understands you do not want to alienate a major part of the European Union and the euro zone. You could do these things but you may need them down the line so you want to build consensus as much as possible. That is why i think his job is so difficult compared with the other Central Banks you mentioned. Not that they are easy. Francine i forgot the Swiss National bank. Randall kroszner theyve had some challenges. Francine also denmark. A lot of central bankers are in a tough position trying to defend the peg. It is getting so expensive. Randall kroszner this is a difficult time. The Swiss National banks Balance Sheet went up to about 80 of gdp. At that point they said this is a little too risky. Most Central Banks who have pursued qe have gone up to about 30 or set. Francine we have not even mentioned japan. Randall kroszner university of chicago professor. The man with more oscars than anyone on the planet. Before the stars gather for oscar night, a man whose trophy cabinet is bursting with those statues. Follow me on twitter, i am flacqua. See you in a couple minutes. Francine back to the pulse. Live from london. I am Francine Lacqua. Eurozone finance ministers will hold talks in brussels over greeces proposal for a sixmonth extension to its loan program. A Government Official says german leaders regard they proposal as a basis for negotiation. Greek Prime Minister Alexis Tsipras said he had a positive conversation with Angela Merkel after her finance minister Wolfgang Schaeuble, rejected greeces request. The First Anniversary of the maidan massacre in ukraine. 50 protesters were shot during clashes with protesters in maidan square in kiev. This sparked prorussian separatists battling in the east of the country. Ukraine reconfirmed the commitment to the ceasefire despite the seizing of the town of debeltseve. The composite euro area many and Services Figures indicated the regions economies are Building Momentum. Lets check in on the markets. Jonathan ferro has the latest. Jonathan that is the story. A fragile trees over in Eastern Ukraine. Tension greece as tension as greece comes to the table with creditors. Look at the equity market performance. The ftse move in italy, secondbest performing equity market in the world. Just short of 15 . Up. 2 , up in london a record high. All the political noise, strip that out and look data for europe. It is pretty firm. The composite in europe with pmi at a sevenmonth high. Greeces problem is looking like greeces problem. The data is firm, the equity market is high. The asc has been taking a battering. Will they get a deal . It looked like we might get one yesterday. Then came the rejection. Greek bond yields shortterm debt yields higher. Yields on a 10 year 9. 84 on the five year i invert on the fiveyear, inverted yield curve. Yields in greece are taking the pain, not elsewhere. That is the difference between now and 2012. Greeces problem was a problem for everybody. Does that mean the creditors think they have a stronger hand . Eurosterling over two years. This morning we touched a sevenyear low for eurosterling. Coming off those lows now. The benefit of a weaker euro. Francine Jonathan Ferro with the latest on the markets. On sunday hollywoods highest honor will be awarded. Which react down the man who has more oscars than any living person. The First Academy award i got was for Empire Strikes back. I never thought i would see very many awards, if any. It was a fantasy. Something that did not apply to me doing the crazy scenes i did. Who would appreciate those . The academy says i have nine oscars i have eight statuettes and one is an achievement award. The first one i got, i kept in a drawer. I did not believe it. It is like the waynes world thing, i am not worthy. The oscars are all over the place. Family and friends have them. They go out to people who want to use them. I spread them around. They always come back. I worked on episode four, episode five, episode six, episode one, a little bit in episode two drastic part jurassic park, e. T. I started doing this when i was six or seven years old. At that time, i wanted to recreate scenes i had seen in movies. I got plastic dinosaurs and my dads camera which i had to learn how to use. To me that never seemed like it was going to amount to anything. It did. When i was starting out, there were very few specialeffects people. Along came star wars. The technology was so new. For the first year we learned to do with the Motion Control equipment. How to create shots nobody had seen before with this early computer system. I was turning out shots that were different. Instead of doing a shot in a trench i could turn that into a shot moving the camera into the cockpit. When it comes up, i remember george lucas saying i never knew you could turn a shot into Something Like that. When we did jurassic park, that knock people out. Nobody had seen it before. We hadnt seen it before. In the time since then everything has gotten more realistic. The audience has gotten used to it. The work would not look as authentic unless you take your time to study reality. Study manmade objects and all that. Then apply it to the movies you are doing. The fantasy films, they still need to the rooted in reality. As far as the awards, it is an amazing experience going to the academy awards. I do not know how to explain it. It is something you never expect. Being a nominee, you get great seats. Francine what a great story. Coming up, londons restaurants go mobile. How can mobile payments take dining to the next level . Coming up after the break. Francine . Welcome back to the pulse. Live from london. Lets have a look at the markets. The equity markets, it seems that the problem in greece is remaining greek. Lets have a look. The ftse, the cac and elsewhere. The cac 40 and dax are unchanged. A little lower. The ftse is gaining. What happens today is crucial. Weve been speaking to investors and economists about what will happen in greece. Yanis varoufakis, in the eye of the storm. Traveling back to brussels. He will face his german counterpart, Wolfgang Schaeuble, who will decide whether greece gets the money or not. This is what weve been talking about and this is something we will keep a close eye on. Other top headlines. The u. S. In iraq are planning an offensive to retake iraqs secondlargest city. The operation to gain control of mosul will require 5000 islamic troops. The campaign would mark the first test for iraqi forces since isis extremists swept across northern iraq. Whenever working on lenovo working on a deal to let users uninstall software. Lenovo admitted it was a mistake to have Software Included after coming under fire from angry owners. The firm has promised the fix will be open today. Telecom italia slowed its pace of revenue declined last year and reported net debt that beat estimates. Sales dropped in 2014. Compared with a 9. 1 decrease for 2013. Samsung is the latest company to Venture Global payments after it acquired loop pay, pitting it against apple. Here for more is jason and the cofounder and ceo of my check. This is basically mobile payment s that allows diners to share bills. I go to jasons restaurant i say lets do it like this you do not have to ask for two pin numbers. How big is it and what is your future expectation . You look at the hospitality sector it is not about the payment, it is the entire experience. Allowing people to pay and restaurants is not big news. If you leverage their experience, being able to view the check live and choose to split with friends, it has become interesting. If you add the ability to engage the customer, this is what makes it huge. Francine lets take a step back. I go to jasons restaurant and i have an app. You download, you check in and the app generates a code. Francine not sure what that means. You have a four digit code on the screen. The waiter comes, you order. Francine it comes on there. You show the code to the waiter. They go to the computer and the restaurant. Just like there used to opening a tab, but submitting the code. Francine this has to be hasslefree. How does it work in your restaurant . All of us at the table, the three of us, how does it make it easier to split pay . You do not have to all of you show the code. One person has to show it and you can invite friends without dealing with anything. You do not have to harass the waiter. Its a one time thing and from that time you control the experience. Francine how many people use that . We went live six months ago. Weve gotten an uptick in january we had 1000 users a day joining the app. Up to about 18,000 people. Francine using her joining . Joining. What we have seen is the redemption. People repeat customers are using it. It is higher than anything weve seen in the sector. The initiative of customer engagement, it is not just a payment system. That allows us to move forward. Francine was trying to figure out trends. This is for people that host parties. It is not really a splitting bill. It would mean you do it discreetly. Im in control and you really do not have to do anything so i engage with you. Would that be a fair assumption . That is one element. Lets say you downloaded the app and use it in our restaurant. You are interfacing with busaba on a regular basis per the beauty of it is loyalty. Id know what your favorite dish is. We would reward you in a certain way. It allows us to get a vip service of rewarding customers to what they like. I think we are seeing an uptick in that. Francine that is the point of engagement which every ceo, every founder is trying to do. That gives it a better chance that the customer will come back. This is not that scalable, you would have to create an app for every restaurant. The strategy is enabling global payments. You generate an app for a chain we would not do an app for an independent restaurant. Mycheck works with many partners. You can use many different apps to get the same experience. It is not specifically an app you can use paypal and decide the experience you want to have. At the end of the day, in the hospitality sector, most of the people are loyal customers. If you give them the brand they like, they are going to engage. Francine do you see yourself as working for the restaurants are the customers . Where a classic b to b to c. We want to know the customers but we are servicing the restaurant chains and the partners said they would get the best experience they wish. Francine do you provide when you look at paypal it is a little bit of a hassle for the restaurants to get in. No one uses cash anymore. You have to individually give the cards. Do you think in the next five years to six years people will even use credit cards and restaurants . That is a big thing a lot of people are talking about it we are certainly going to see more people interfacing through the use of apps. We are developing it now into the future. We are talking about what we have done already. We see a fantastic way of engaging the consumer. A big part of our business is home delivery. That will allow us you will be able to order your takeaway online and pay for it and have it delivered to your door. This is technology that will work. Also, for the launching of new restaurants, a big part of busabas strategy is opening new restaurants. We are going to manchester. That is a different market from london. We can utilize this to help interface with consumers and build data so we can grow quicker. Francine how concerned are you about people who may hurt your Business Model . Someone like opentable could do something very similar. Someone like paypal is already, in a way, your competitor. Our unique proposition, we integrate to the point of saving. We help the business do mobile payment without interfering. We see many of the people, the companies you said that our competitors, that partner with us. We work to enable mobile payments. Any company that wishes to have the best experience which is integrated with approach us. We see that in Paypal Opentable and any other company. Francine thank you so much. Busaba eathai ceo and mycheck cofounder and ceo. Plenty more from greece. Plenty more coming your way from the u. S. We talk about currencies and Yanis Varoufakis and Wolfgang Schaeuble. Coming up next on the pulse. In the history of the European Union nothing good has ever come out of ultimatum. The general feeling is that the best way forward would be for greek authorities to seek an extension of the program. It is not a bluff. It is the only option we have. Theres no plan b. We cannot extend something the country does not want. Francine the war of words from Europe Finance ministers. The ministers meet again this afternoon in brussels at around 3 00 p. M. When you look at the talk from greece germany, and others someone will have to back down. Our twitter question of the day. Greece versus germany, who should back down . The german financed minister said nein. One viewer said we are not facing a war, we are facing a weak eu. A lot of commentators were talking about the trojan horse. I dont see it fair to put germany against greece. Almost everybody is against unilateral agreements breaking syriza. Another tweet, they appear to want to push many states out the door. You can see both sides of the story coming through our twitter feed. Continued keeping them coming. I am flacqua. Ponce nichols is in brussels. Are we going to get this agreement to that . Hans it is a big question. Finance ministers will be arriving in two or three hours. We will try to get them on their way in. To see how united germany as. They seem to have the finns, the danes, the belgians, excuse me. The question remains how much is on the other side. Will the french try to block and tackle for the greeks . Is there willingness on greeces side to give . Is their willingness on germanys side . An interesting summit. Francine what is the ecbs role . Hans what the ecb is considering doing is warning greek banks not to take too much or to reduce holdings of greek debt. That is a big challenge for the greek government and funding itself. Next month they have a 4. 4 billion dollar bond they are going to be rolling over. If they do not have their main buyer they could have a difficult time servicing their debt. Theyre going have to make hard decisions on what and where they are going to cut to pay. Francine hans nichols will be in brussels through the day. That is it for the pulse. Surveillance is next from new york with tom keene. Follow us on twitter. I am flacqua. Guy johnson is guyjohnsontv. Have a great weekend, we will see you on monday. This is bloomberg surveillance. The dance returns to brussels. Artillery fire on. Net on the netscape. On donetsk. This is bloomberg surveillance live from our World Headquarters in new york. I am brendan greeley. Tom keene is in washington. He has something to say to the president. Olivia sterns joining me, and erik schatzker. Erik an emergency meeting in brussels today. They are trying to prevent a complete collapse of bailout talks. Greece madea a request for extension. Germany turned it down. German chancellor Angela Merkel and french president Francois Hollande are meeting in paris. They will discuss the fragile ceasefire agreement they brokered in ukraine last week. The government says the town near