Faster Economic Growth Requires Structural Reform, Buiter Says

of course on the Bloomberg. We have a special guest in London day Yes, Film Bowdery, the global chief economistic City Group, joins us from there. We miss having him here in our Bloomberg eleven three oh studios in New York,

but great to have you with us from London. There is there is such symbolism to this moment when we see this letter being delivered to Donald Tusk, the the EU Council at present, what notionally changes as a result of this, and indeed we have the symbolism what what's going to change with regard to the economy When this letter is delivered, the clock starts sticking unless a miracle happens Britain will be out of the EU in two

years time, and so the diual concentrate mind. And we'll see the opening bid of the British government in that letter, and we'll get I think, also quite publicly with dispect the initial response of the European Council and and the Commission and indeed European Parliament, which of course has to approve to hold you it really is a it's it's

a defining moment, uh. And I think those who I hope it wouldn't happen or felt that it could happen uh smoothly and without um any material pain for the British economy, will, I think, have then those wrapped in the unpalatable facts as the weeks become months. How worried do you hear about the element of surprising that we've heard quite a bit from Prime Minister Theresa May since since this referendum she stuck to the timetable she set

out several months ago. Are are you worried about a sort of surprise factor here in light of what we've seen in the UK economy thus far. No, I think the positions uh are pretty clear. The British government has UH I think UH waded back from its uh Conservative Party Conference rhetoric and it's embrace of the heart brekxhit. It's clearly trying to UH find a way of getting uh some interim agreement which phil have significant continuity for

British business. So I think there's uh at disappoint a little. UH. I think I'm not surprised if you don't get an early agreement on uh the existing EU citizens in the UK and UK you on lordn Island and on the budget. That would be a surprise. If they we do this in two years, Professor Powder, it will be a century, one hundred years from the Paris peace conference associated with Versailles. I don't see David Lord, George of Vittorio Orlando, George

Clemenceau or Woodward Wilson in sight. How do negotiations actually occur? I mean, what, how do you visualize negotiations? Have they done it? Ah? You know, look kinto hotel in Brussels or I mean, I mean, what's gonna be at the table. Where's the table gonna be? There's no president for exactly, uh, For all I know, they will be sitting in the will their spaniord on the ground plus in Brussels. But I think they'll probably UH meeting UH Commission premises or

something like that. It's doubt why they would assist on on neutral territory sort of a demilitarized zone in the middle of Brussels. Um the logistics are actually not going to be that important. It's really uh the mandates the negotiators will start with and be especially interesting to see what the you know, the Commission and the Council come up with in terms of guidelines and sort of opening positions.

That's the great uncertainty to be at this point. I feel one of the soft data telling us now about the UK economy, how is sentiment in the United Kingdom about the Brexit and need what may follow after Well, sentiment has been remarkably robust until quite recently. There is some indication now that especially among Samese and very recently also among uh major corporations Japanese among them making a capital expands in FDI decisions, that they are looking at

ways of reducing the exposure to to Britain. But but until now, consumer sentiment has been remarkably robust, and UH as has a corporate sentiment the only place where we've seen concern expressed and the anticipation of pain has been the exchange rate, and ironically that is of cause helped the rest of the economy. There's no question about that.

Let's come back with Villan Bouder in our London studios and as most history outside of David, it was something that the Prime Minister migrate by jaguar from ten Downing Street over to Parliament. I mean there's that, you know, for even for us from a distance, it's happening and the se see the footage that are calling. Matt Miller tweeted out as well of the the Ambassador to the EU arriving in the jaguar as well, with that letter in a briefcase soon to be delivered to the President

of the EU Council. Yeah, I mean I would have gone in a range over land Rover Defender hic with the Hunter boots looking very queenly out in the tundra. David Gern Time Keena New York in our London studios, Villain Powder of City, Professor Powder, help me here with your great call on slower economic growth, on a global slow down. What's gonna take for you to move your vector I don't mean to get the gloom right, but

how do you get more optimistic? What do you need to observe in the global economy that would get you more optimistic about economic growth? Well, uh, from a sustained, longer run active we would need UM structural reforms, UM, more capital expenditure broadly defined, including infrastructure, human capital, and I think an elimination of trade barriers and barriers of mobility of laboring capital. So all these things. Uh, we're

moving into opposite direction. So that's unlikely to happen from a short run cychnical perspective, but we uh, anything that looks like a fiscal stimulus UM implemented or anticipated will boost the level of activity. That's happened in the US a certain extent or there was growing doubt about the ability of administration to deliver the meaning for fiscal stimulus.

I think that particular source of animal spirits may be wearing thin um and likewise less fiscal restraint in the r Area Party as a result of a number of key elections taking place. All that I think boosts economic activity and the cycnical UH. In the cytical manner um,

that's not sustainable, of course, but it's nice. But at last you mentioned that growing doubt, and I wonder what's changed about your outlook here over the last week in light of what we saw in Washington on Friday's we saw that healthcare build being pulled off, the pulled off

the Congress's floor. It was just the ability to deliver right. Um, we really has to look at the at Washington as not having the Republicans in charge of the White House and both Houses of Congress, but being you know, in charge of both houses of Congress with an independent in UH in the White House, and it's become clear that the ability of the President and the Congress to deliver

key reforms is very questionable. And even within the Republicans in the House and the Senate, there are these very sharp divisions now. But have under mind speak of Ryan's position is credibility. UH. The and the Freedom Caucus and other tea parties are I think orthogonal both to Ryan and and to Trump. So it just looks like a bit of it is organized. Mess help us with this strange word eurosclerosis. I mentioned it the other day and got a nasty note from someone saying, oh, you're so gloomy.

The nominal GDP that City Group looks for for the United States of America. Is it unique, separate and discreet or is it just plain old simple eurosclerosis And you mean the the low growth in the United States. Yes, it's UH, partly, of course, reflection of of eighteen of demographics.

But on top of that, I think there is forty years of progressive over regulation increasingly distortionary, and I think UM UH distribution early and desirable taxation UM a legal system that has made lawsuits so easy that the whole ranges of human activity, including health care, are slowed down

and burdened with enormous costs. So the US is indeed a country that is in deep seated supply side trouble and needs UH both widespread deregulation and UM active tax reforms and selective boosts in public expenditure on health, education and infrastructure. So the country really has all its work cut out for us for it. So Villain Batter thank you so much, with City greatly appreciate particularly UH David and I Agan, thank you for your work. The day

of the Netherlands election. That was really a special moment brought to you by Bank of America Mary Lynch dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated, Member s I p C. On this historic day for the United Kingdom, Daniel Jurgen, Professor Jurgen, Dr Jurgen Rather The Commanding Heights is the iconic book on the ascent of the United Kingdom.

This is not a United Kingdom. Clement at Lee would know at the end of World War to the Prime Minister gave a rousing speech today, what is the perspective you can give on how these negotiations will go? For Prime Minister May, given the sprawl from nineteen fifty two, all of the trade discussions of you the Union, what is the perspective today forward? I think that the good

Morning Tom. I think that the phony war that's going on for the last ten months about Brexit, of course it's now the real war has begun, and I think it's going to be a big and tough struggle. No

one really knows how it's going to go. The EU is proposing a sixty uh dollar bill to UH to Britain, and I think it's what's at stake, of course, is not only for Britain, but is for the EU, which is dealing with the stresses that come from the common having a common currency that isn't backed up by common institutions, the euro, and compounded by the open borders. So I mean for for the EU as much as Britain. This incogation so essential because it's also about the future of

the EU. Where is the commanding heights of Europe? Is it a Chancellor Miracle's desk? At this point it has been. Germany has been really the political and economic engine that has kept the whole thing together. Her position thought have been weakened by the influx of million migrants, but the Germans did well in the most recent UH elections her party, So she is the you know, she is the kind of personification of Europe right now, particularly with this potential

disarray in France. M hm. There was a remarkable moment in the speech, I thought when Prime Minister Theresa May said, perhaps more than ever, the world needs the democratic, liberal values of Europe. And you heard the jeering and the laughter from the backbenches in parliament. What did you make

of that line? What did you make of the overtures that the Prime Minister made to the greater European community in the speech today, Well, I think she's uh, you know, she has to play a very complex hand here in terms of what what part of Europe or europe connections will remain, and so uh, you know, that's an olive branch in a way to the uh, to the Europeans. Uh. You know, I'm sure that line was very carefully crafted as they begin these really tough negotiations for which there's

no precedent. What's the best case scenario here for a deal? I imagine the best cases one that's concluded or agreed

upon within this two year period. But what are you looking for when when when you think of what a good deal for for the UK and the EU might be Well, for the UK, I think it would be a way to continue to be active in almost in a free trade like way with the EU, sort of going back to what the European Community was a trading group, and to maintain the financial position of London as a

as a as as the basis for Europe. I think for the EU, the stakes really are to make sure that this is not the first as many uh, and that this doesn't seed populism. And I'll tell you, uh, you know, the French elections will be so so critical uh to what happens next on oil, And of course everybody wants to know what, Daniel, you're going to think oil. Let's bring the two together. Oil in Scotland. The North Sea isn't the North Sea of the Commanding Heights, is it? No,

it's quite different. You know, when they had the Scottish referendum, which was very close of two years ago, it was when oil was still a hundred dollars a barrel. I've often wondered how that vote would have gone when oil was forty or fifty dollars a barrel, because part of Scottish nationalism has always been well it's our oil and we'll get the oil. And uh, but in a lower price range Scotland, you know that it doesn't have that

fiscal advantage that comes from higher priced oil. So um, uh, you know it's a question of the Scottish Parliament may vote that they want a referendum, but that doesn't mean that they'll necessarily be a referendum. I should say so for Theresa May, this is really a two front War one is one of Brussels and the others with Edinburgh. I'm putting, are these e I A data will get today at three Wall Street times and putting will never come on the show. And yet and folded into the

conversation that was dominant. I didn't say which data? Did you say the data the ID and folded into the conversation You hadn't to a couple of weeks back at your your Sarah conference that you know what we heard from the Saudio oil ministry there. Well, it was very interesting because of course, Uh, when we began the conference, the oil price was up from what had been when we helped sire a week the year earlier. By the end of the week the oil price was down ten percent.

Not connected to the conference, I think to to UH, because we have the Saudi minister, the Russian minister, UH, the Secretary General of OPEC, the head of i A there, and you know the message was that this OPAC not OPE agreement is really going to going to hold. But UH, as you point to inventories, you know that they said the key metric if that they'll be looking at is inventories,

and inventories remain high. I think that. Um. What was already clear in Houston is that the next key day is May when OPEC meets, and I think coming out of this meeting this weekend, Wait, they're signaling that, Uh they really if if they don't extend their six months agreements, six months goes by quickly. Uh, that would put a new pressure on the oil price, particularly, I should say, with the amount that US producers have been able to

hedge their production forward. Dr. You're gonna honor to have you on with this, for this historic to have United Kingdom folks, I'll put out on Twitter, Yurgens. The Commanding Heights can't say enough about it. We are in the edge of April, and April in any in all cases means the meetings of the International Monetary Fund will of

course give you complete coverage of that. We begin today with the publication of Fiscal Politics and are honor to bring you Vito gas Bar with the International Monetary UH Fund. Dr gaspar good morning, going within your wonder document and thoughtful two plus excuse me, four hundred plus pages. Uh, could you please tell me what you learned about austerity?

You know, I look at the history being made by Prime Minister made today, I look at the challenges of Europe and that word from three or four years ago was austerity. How does austerity fold into our political fiscal or our fiscal politics? So, Tom, Uh, the UH political economy aspects. The link between politics and economics was a tradition UH in economics up to the beginning of the

twentieth century. That tradition has been a little bit lost recently, and about two years ago, UH we decided at the Fiscal Affairs Department of the International Monetary Fund that looking at the relation between polit tics and economics in general, and especially the relation between politics and fiscal policy was key, and so we launched this project that is now come to the presentation of this book that includes three parts and nineteen chapters on a very wide variety of topics

on fiscal policy and politics. Unfortunately, we don't have a special focus on austerity, but we do have quite a lot on how one should think about the political conditions that allow governments to UH follow sound countersyclical fiscal policies, which is a key priority today. I hope Tom that given that we launched this program, this project two years ago, you will concede to us that we got our timing

more or less right. No, Tom Hm. One of the chapters of the nineteen that stood out to me is one that you authored here on lessons that the European Union can learn from early American history. Give us the crisis of that what what? What lessons are there to be learned from what happened in this country when it comes to supernational fiscal policy. Oh, that experience is absolutely fascinating.

So if you go to the beginning of the US administration with Alexander Hamilton's so in a seventeen seventeen eighty nine Hamilton's already benefited from the US Constitution. One of the innovations from the US Constitution was that the federal government was given the power to tax. Since that power was no longer disputed, the federal government had the ability to generate the revenues necessary to service and repay the very large debts that had been accumulated during the War

of Independence. And Alexander Hamilton's was extremely systematic in building the new US federal administration that, of course did not exist before. He built up the US tax capacity at the federal level completely from scratch, and one of the aspects that I developed more in this paper is that he set up the conditions UH that allow US Treasury bonds to become the ultimate safe asset in the US and a cord or stone of the US financial system. And that is the part which I believe is more

relevant for European integration. Today, we're gonna we have breaking news, sir, so we're gonna have to leave it short. But Vitur Gaspar congratulations on this work from the International Monetary Fund. Fiscal politics really beginning to kick off the view of international economics that focuses on the World Bank and i m F meetings here in the end of April. Thanks

for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio, brought you by Bank of America, Mary Lynch, dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the

power of global connections. Mary Lynch, Pierce Feeder and Smith Incorporated, member s I p C,