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Kissinger's Bob Hormats on Lack of European Leadership (Audio) · Bloomberg Intelligence

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  Speaker 1: From Bloomberg World Headquarters. I'm Katherine Cowdery and this is
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  Speaker 1: a Bloomberg Business flash. Socks are declining, drag lower by
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  Speaker 1: commodity producers and lenders. Bank of England Governor Mark Kearney
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  Speaker 1: renewed concerns that Britain's withdrawal from the European Union will
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  Speaker 1: thirteen fifty seven twenty and the tenure treasury is of
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  Speaker 1: twenty three thirty seconds with the field of one point
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  Speaker 1: three six percent. And that's a Bloomberg Business flash. This
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  Speaker 1: is taking stock with Pim Box and Kathleen Hays on
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  Speaker 1: bloom Bird Radio. Political turmoil, financial uncertainty. Here to tell
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  Speaker 1: us more and explain it all is Bob Hormett's. He
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  Speaker 1: should be able to. He's a former under Secretary for
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  Speaker 1: Economic Growth, Energy and the Environment of course at the
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  Speaker 1: U S State Department. Currently vice chairman of Kissinger Associates.
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  Speaker 1: He can be followed on Twitter at Bob Hormets. Bob
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  Speaker 1: Hormett's all right, so you get to select which dysfunctional
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  Speaker 1: political system you'd like to tackle first. You want to
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  Speaker 1: start off with the United Kingdom and their Brexit vote. Well,
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  Speaker 1: I think the UK really has presented a problem that's
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  Speaker 1: in effect bigger than the UK. It's big enough in
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  Speaker 1: the UK context, but when you add the implications for
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  Speaker 1: Europe and other parts of the world, it's much more global.
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  Speaker 1: The UK is having difficulty. First of all, the Labor
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  Speaker 1: Party is uh not a very functional one could say
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  Speaker 1: a dysfunctional opposition. The Tories are trying to figure out
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  Speaker 1: who their next prime minister will be. The judgment has
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  Speaker 1: been that they will not really begin negotiations with the
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  Speaker 1: rest of Europe until there is a new prime minister.
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  Speaker 1: Of course, the new Prime Minister then has to decide
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  Speaker 1: what the policy of Great Britain will be in terms
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  Speaker 1: of these articles fifty conversations, what the deals, so to speak,
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  Speaker 1: will be. All that uncertainty causes a rush to UH
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  Speaker 1: more stable markets UH into the dollar, into the end
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  Speaker 1: into Germany. But a lot of other countries are seeing
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  Speaker 1: money pour out, so that has global implications, and of
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  Speaker 1: course within the European system, the weaker economies are the ones,
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  Speaker 1: and the weaker banks are the ones who were suffering
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  Speaker 1: this prolonged period of jitters that's now occurring in financial
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  Speaker 1: markets and prolonged uncertainty and of course rabbid capital flows
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  Speaker 1: jitters in financial markets h entities that suffer unexpected large losses.
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  Speaker 1: This is the kind of thing that can deep stabilize
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  Speaker 1: markets and hit economies. This is obviously what central banks
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  Speaker 1: are concerned about so far. You know Mark Arney's book
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  Speaker 1: for the third time in twelve days, he's the head
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  Speaker 1: of the Bank of England UH. In his last speech
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  Speaker 1: he said he wasn't gonna step down no matter how
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  Speaker 1: much some want him to go from not step down
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  Speaker 1: his head of the b o E. He suggested that
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  Speaker 1: that the the bank may have to cut rates. Today's
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  Speaker 1: talking about shoring up the bank's helping them len more
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  Speaker 1: is he is he doing enough and is it enough
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  Speaker 1: to keep the UK stable while this long negotiation with
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  Speaker 1: the EU plays out? Well? This is the problem. I
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  Speaker 1: think he's doing enough for the moment. Mark Arney is
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  Speaker 1: a terrific guy and a very very good central banker.
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  Speaker 1: One of the problems he has and everyone has, is
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  Speaker 1: trying to figure out how long this is going to last.
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  Speaker 1: When did the Tories got a new prime minister? How
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  Speaker 1: things that take the new prime minister to pull together
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  Speaker 1: a policy within the UK on what kind of severance
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  Speaker 1: they want from the rest of Europe, How long those
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  Speaker 1: negotiations will take. Do they want to make a new
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  Speaker 1: deal uh to make sure they have access or at
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  Speaker 1: least a substantial amount of access to the European markets
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  Speaker 1: and the so called financial passports so that British banks
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  Speaker 1: can operate freely in Europe? And then what do they
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  Speaker 1: have to pay for it in terms of immigration, in
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  Speaker 1: terms of budget contributions. UH. One of the deals people
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  Speaker 1: talked about the Swiss deal. It took them seven years
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  Speaker 1: to negotiate that. There were large numbers of elements to
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  Speaker 1: that that take a very long time to negotiates. So
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  Speaker 1: even after the Article fifty conversations begin, that's two years,
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  Speaker 1: but it could take a lot longer than two and
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  Speaker 1: throughout that period there'll be a lot of uncertainty. So
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  Speaker 1: he has to really gauge when does he use his ammunition,
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  Speaker 1: does use it now or is he in for a
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  Speaker 1: pro long period of uncertainty and is it going to
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  Speaker 1: have to deal with a lot of a lot of
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  Speaker 1: uncertainty for many, many months and perhaps years. Bob Hormett's Uh,
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  Speaker 1: I want to just give people a little idea of
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  Speaker 1: the kinds of let's say, meetings or settings that you
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  Speaker 1: are familiar with because you helped a president Nix and
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  Speaker 1: I believe, and the opening to China, the diplomatic relations
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  Speaker 1: with the Chinese Communist government. You've also served as a
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  Speaker 1: staff member for International Economic Affairs on the United States
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  Speaker 1: National Security Council, vice chairman of Goldman's actually been I
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  Speaker 1: bet you've been in your fair share of meetings with
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  Speaker 1: other people on the other side of the table. If
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  Speaker 1: you were in the meetings and in any of these
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  Speaker 1: negotiations with either the politicians or leaders in the UK,
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  Speaker 1: in Italy, in France, what is going on? Are there
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  Speaker 1: adults in that any of those rooms, or they're adults,
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  Speaker 1: but they are not particularly experienced at running countries. They
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  Speaker 1: have have to deal first and foremost with enormous contention
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  Speaker 1: within their political parties, so they're really thinking first about
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  Speaker 1: the power structure and the power dynamics within say the
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  Speaker 1: Tory Party or the Labor Party. And the bureaucrats in
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  Speaker 1: the UK who are not leaders in the sense that
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  Speaker 1: prime minister would be, or the cabinet members for instance,
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  Speaker 1: but they i think are working on what kind of
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  Speaker 1: deal Britain ought to try to come up with. And
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  Speaker 1: I'm sure there are various people, very talented people within
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  Speaker 1: the UK civil service who are trying to figure out
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  Speaker 1: what kind of deal Britain wants, or at least to
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  Speaker 1: put options together so that the new prime minister can
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  Speaker 1: look at them very quickly. But you need leadership, and
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  Speaker 1: if you need strong leadership, and you really don't have that.
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  Speaker 1: Even the strongest leader in Europe is subject to pressure
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  Speaker 1: within her own coalition, and then you get the right
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  Speaker 1: wing party in Germany, the alternative for Deutsche Land as
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  Speaker 1: it called as it's called UM, arguing for much more insular,
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  Speaker 1: much more nationalistic, much more xenophobic policies, and they're growing
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  Speaker 1: in important so she's got to contend with that risk.
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  Speaker 1: They're like the National Front and France, only their German
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  Speaker 1: version with very very tough, harsh, ugly language and growing
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  Speaker 1: in power. Unfortunately, you know, the Italian banks, maybe that's
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  Speaker 1: more of a European Central Bank and a banking regulation problem.
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  Speaker 1: They want to give some of their biggest banks money directly,
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  Speaker 1: give them capital. The new rules being formed in that
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  Speaker 1: area saying no, you know, shareholders have to take losses.
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  Speaker 1: Uh if will this just be circumventent and then we'll
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  Speaker 1: just put the Italian banking problems on a back burner
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  Speaker 1: and continue to look at these larger issues like can
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  Speaker 1: you really hold together? Now? Well, I think they're going
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  Speaker 1: to have to work this out with the European Commission
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  Speaker 1: in particularly, there are rules. The rules were put down
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  Speaker 1: there for a purpose. Italy, of course, is very worried
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  Speaker 1: about the status of its banks because its banks have
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  Speaker 1: not taken the corrective measure or at least many of
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  Speaker 1: them have not that some of the other banks and
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  Speaker 1: other parts of Europe have have done. Um The banks
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  Speaker 1: obviously different one from the other. There's some that are
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  Speaker 1: in very good conditions, some that are not. But the
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  Speaker 1: government I think is is worried about the Italian banking
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  Speaker 1: system and perhaps will need to do some emergency things
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  Speaker 1: just to hold it together for a period of time
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  Speaker 1: while this instability less. As I say, however, the instability
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  Speaker 1: or the uncertainty could last a long time and that
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  Speaker 1: could put a lot of pressure on those banks, and
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  Speaker 1: the flight to risk aversion could could grow. That hurts
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  Speaker 1: banks in some of the weaker countries and some of
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  Speaker 1: the weaker banks. And you're saying this not only in Italy,
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  Speaker 1: but in many emerging economies that were beginning to stabilize.
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  Speaker 1: Money was beginning to come back, and now you see
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  Speaker 1: money going out into secure currencies like the dollar. The
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  Speaker 1: problem that is it pushes the dollar up and slow
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  Speaker 1: as American growth. Japan, which is not growing at all,
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  Speaker 1: money goes in Japan because the yen is seen as
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  Speaker 1: a stable currency stables says, some pushes the end up
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  Speaker 1: that slows growth in Japan. So this is becoming and
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  Speaker 1: it actually has become a global problem. Different problems for
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  Speaker 1: different countries for different reasons, but pulling it all together
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  Speaker 1: is important. The Group of Twenty meeting, and the Group
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  Speaker 1: of twenty played a very key role in the two
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  Speaker 1: thousand eight crisis, is going to be very important, particularly
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  Speaker 1: the roles of China and the US and some of
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  Speaker 1: the other large countries. But can they Can they exercise
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  Speaker 1: the kind of collective leadership this year that they did
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  Speaker 1: in two thousand and eight remains to be seen. That
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  Speaker 1: takes place in September, but until then you need strong leadership.
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  Speaker 1: The US is the best country to provide the leadership,
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  Speaker 1: but you've got to have people to talk to and
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  Speaker 1: where their countries with no effective governments, that's very hard
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  Speaker 1: to do. So are there leaders in any of these
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  Speaker 1: countries that we do not know much about that you
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  Speaker 1: are watching or listening to to see whether they can
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  Speaker 1: pull together and electorate? Well, there are people in these
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  Speaker 1: countries that the US is familiar with in the UK
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  Speaker 1: and many other parts of Europe, But the question is
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  Speaker 1: do they have the credibility internally to pull policies together
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  Speaker 1: and to pull people together. I'm sure the U s
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  Speaker 1: Government is talking to the aspirants for leadership in the UK,
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  Speaker 1: particularly invent Tory Party and trying to figure out what
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  Speaker 1: they're trying to do. But I think at this point
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  Speaker 1: the US can play a supportive role, but the u
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  Speaker 1: UK is going to have to figure out what it wants.
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  Speaker 1: And then you need leadership in Europe. You need leadership
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  Speaker 1: in the EU, and you really don't have very strong
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  Speaker 1: leaders except for Chancellor Merkel in the EU itself. These
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  Speaker 1: these people are skilled at bureaucratics. And the other problem
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  Speaker 1: is that the EU used to be a great powerful
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  Speaker 1: political vision with strong leaders. You know, Schmidt just started
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  Speaker 1: to staying others. Uh. Now it's become much more bureaucratic
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  Speaker 1: and making tough decisions in the U is a difficult.
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  Speaker 1: He's got to pull all these countries together, and they're
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  Speaker 1: more technocratic than political. Bob Hormets, thank you so very
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  Speaker 1: much for joining US. Vice chairman of Kissinger Associates. I'm
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  Speaker 1: Kathleen Hayes along with Pim Fox on taking stock. This
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  Speaker 1: is Bloomberg