Macron Is a Modern Monarch, Fenby Says

and of course on the Bloomberg. This is a real joy, really a high point that we planned for this trip. A conversation with Sir Howard Davies of RBS and of course formerly in Seance PO and LC and Jonathan Fenby of T S. Lombard and of course Sir Howard and I celebrate his wonderful one volume on Francis. Mr McCraw mentioned in your book only briefly at the end, and I'm afraid but I hope there'll be a new edition out before afterward. Fair enough, he's only just come onto

the politics got any rapid form? What did you think of the lou of celebration and that long walk It wasn't something I would think John Fenne would approve. Oh I did. I thought it was tremendous. I sat there watching it on television and I thought, hey, you know this guy, he's got the drama right. Whoever? Come on? He's walking in the palace, the palace of the sixteenth century kings, which you touched on early in your book. Was there a symbolism there of a museum that we

all go to? Or is it the symbolism or royalty from another time and place. He's a kind of modern monarch, I think, And he was playing that and it was wonderful if you looked at it. When the replays the shadow, his shadow falling behind on the gateway as he came through was absolutely out of a first rate film. He was looking towards the carouselo as well. I can you think about kind of Napoleon and you know it phoneography when you think about what happens next. We heard it

described earlier as a as a four parts store. Absolutely, and we're through two of them too, are still to come? Is the easy bit over for Mr Macrol? Does I get harder from here? I think in retrospect, yes, I mean it's not never easy to win the presidency of France, but he had such a lot of luck with the or and other people, with the socialist splitting and so on. I mean, you know this was handed to him on a silver plate, and anybody up against the Penn in

the second round was going to win. So yes, but actually there's probably five more acts to come. That are the two rounds of the parliamentary election on June the eleventh and June, and then I would guess there will be a lot of street theater after that, from the hard left to menon sean people with Lapen approving. So we're probably into a long running saga. What kind of a person? And I mean to get both your take

on this, does he need to appoint as prime minister? Howard? Well, I think it depends on what kind of majority there is in parliament. I mean, if there are them before Well, I think that there will be an interim there's a short term prime minister. Yes, I think that might stay on if the unexpected happens and all marsh his party gets a majority or close to a working majority in the parliamentary election. Sir Howard, I I analyze everything through

uber drivers. I was going orally into the hotel and the uber driver. The first thing he said is Madame Legarde should be helping out. Should Christine Lagarde come back to France and assist Mr mccron. Well, the difficulty about Christine Lagard in francis of course that you know that there was a legal case which where she was kind of convicted but then not sentenced them and so whereas that throw the forgotten about in Washington and elsewhere in France,

I'm afraid that still does resonate. So it's not completely straightforward for Christine Lagarde to take a senior position in France. How do somebody from that international world more likely to come in? Is about me? Yes, yes, much much more straightforward person. And of course you know that Madame lepen did win the vote saying anti globalization, and there's nobody more globalization than Christine Lagarde. So I'm not sure you'd want to go there with Macron. Lagarde s let me

start with you. If we're doing hope in audacity, reducs here with Mr mcgrahan, what is the audacity that the new president of France needs? Well, I think he does need to do some quite symbolic things on labor market reform, because otherwise I think the rest of the world will

not believe that anything's changed in France. Unfortunately, some of those things you can argue up in Hill and down Dale about thirty five hour week and how significant it really is, but internationally it has achieved a totemic status and you have to do something about that because otherwise I think your rhetoric about reopening France for business and attracting it with investment will not work. Aren't you just challenging headlong into the unions if you do that? Isn't

there a workaround? Isn't there a smarter way of doing it? It's not so much question us. I mean, the unions are not that significant. Frankly, they don't have very much membership. It's more the street union. It's the street and also the union is more nuanced so it used to be, because the CFDT, which has always been the reformist union, now has more members than the hardline CGS. But nevertheless, in the point, well, isn't the point still stand that

that don't work around it, don't work against it. Well, this is gonna be difficult. Everything that car would do, the kind of thing, how it's talking about on the working week, on cutting corporate attacks, which is the highest in the EU, which is on exempting investments from the wealth tax and sold. All these, of course will be seen by the left and by the street as proof that yes, indeed, here's the puppet of international globalized finance.

I'm going to say this worldwide. You've said it for weeks. John Ferby's book, You rush through this history with a beautiful writing skill in one of the great enigmas within the book has just started to stay Compare McCraw is. We heard an interview after an interview with Valories just

started to staying is that apt? Yes, absolutely, he's He's the one I would go back to from that can including the fact that, of course Scott didn't have a parliamentary majority when he started and was dependent on the Goal Lists who eventually stabbed him in the back with Jack Shark. And you could have the same thing with the Republicans being the main force in Parliament after June

the eighteenth and mac Hale dependent on them. Now, that could work because a lot of their ideas are very similar. But the Republicans are going to want just like the Gold Lists in the seventies to preserve their own identity. Sir Howard, does France need a different Euro than Germany? And I means separate from the Euro? But what are those relative valuations? How far apart is a good Euro

for Germany from a good Euro for France. I don't personally think that there's a much difference between Germany and France. There's a different argument if you're talking about Italy, for example, But if you look, French productivity has actually matched German productivity reasonably well over quite a long period. The French problem is more that they do have sclerotic labor markets and too high public expenditure and too high taxation. I don't think it's a problem of the competitiveness of the

French trading sector, which is very highly competitive. Me in the French produced you know, the almost per hour more than we do in the traded sector. So I don't think the answer for France is a decline in the euro in The answer for France is a rebalancing of

their economy away from the public sector. Jonathan. As the UK leaves, the relationship between Germany and France becomes closer, closer, more interesting, and probably in favor of France as a result of the kind of the three way split changing. How does Mr McCraw take Germany along for the ride? And and he is he the guy to do it? He's very pro Europe. We heard the music, we've heard seen the flags. Is he going to be changing Europe in a meaningful way? And will the Germans be on

board with it? I think it's the best chance of something meaningful happening over the next couple of years. He's already worked with the Germans. He's drawn up various plans for going into the fiscal side of the euro with the Social Democrats. Submittedly, but I was in Berlin a couple of weeks ago, and certainly the people around CDU, around Merkel, they're very anxious to work with Machorn and I think they may cut him a bit of easy ease on the budget and the deficit things over the

next couple of years. So long as to go back to what how it says he delivers some reforms, Sirard. A final question to you before you start your day for RBS, what do you need from Janet yelling? Right now? We have you not talked about the American Central Bank? What does cher yelling need to do in the coming weeks. Well, I think she needs to do what she said she's going to do, and that would be fine, I think.

And also I think probably the Fed does need some greater clarity about how it's going to reduce the size of this balance sheet. My own view is the central bank balance sheet in the medium term, in the long term are going to be bigger than they used to be, but not as big as they are now. And I think they need to find some way of edging that balance sheet down, and that's I think the big conundrum that we're looking for. Maybe edging is an uncer Howard

phrase for tapering as well. Thank you so much for a generous set of time this morning, Sir Howard Davis, as chairman of our Eric Nielsen joins us from Berlin. He's the chief economist with the UniCredit group. And let's start with the French election, if we could hear Eric and let me just get your sense of of what import we can draw from it. Of course there's domestic significance, but when you look at its importance to Europe, to the euro Zone, give us your sense of of what

what what we can draw from that. Yeah, I think that it's good news on two accounts. First and foremost, it sort of brings a French kind of a leadership rule back in place as Europe had originally. I thought we had been frozen during the Secosi and the Olan period. So Germany has been looking for for a good friends collection or a French ship partner in a lot of this.

And if anything, the risk is now that the Friends are going to get more euro pro European than than the Germans and wanted to do more than the present German government want to do. But but certainly it's a big move in that direction. Secondly, um, it's a big message that they're, through the European politician and other places including Italy, that there is a victory to be gained

by being unashamefully pro European. It's the first time you've had a clear choice in a country between somebody really European. Noticed when he walked out in front of the Roue War he had did not have the French national anthems playing for the European one. This is a big message across Europe. I think drew the contrast, if you would, between the economy in Germany where you are right now in France. How different are these two economies within Europe? Uh? Different,

but not nearly as different as you think. Let me stop by reminding you and the listeners that, since if you look at real GDP, France has actually done better than many so culatives since they introducted the Euro, the French real GDP is up aside a couple of presentative points, more than the German. So we get very excited about these cycles and swings and and and all the rest of it. But these are not that different economies at the end of the day, and none of the two

economies have severe imbalances. If anything, Germany has a two big current count surplus, but but not the negative ones that that sort of spilled trouble right around the corner. Um. That said, the labor market is more rigid, particularly for younger people in France. But again, if you look at the o c D indicators for rigidities, the two countries are quite similar. But but surely there's more rigidities in the French economy. That means that it dips less in

recessions and accelerate less in the recoveries. And that's exactly what we've seen, but when you look through it for for a decade or so, they perform incredibly uh incredibly alive. Eric Nielsen with the UniCredit group with us here on Bloomberg Surveillance from Bloomberg Gritty. You talk about labor market rigidityes and this president elect has promised to change some of those are less than some of those. What kind of difference could that make to the French economy if

you were to make progress on that? And I use the word were there? How difficult and undertaking is this going to be? It's difficult. They have unions who are already on the streets now. But he has a mandate.

You could argue, um, and I would suggest that what he needs to do and probably want we'll do is not a lot you could and he doesn't necessarily have to do a whole lot what he I think that the most obvious one would be to copy the German flexible label laws for the youth unemployed that Germany did with the Sword reforms so way back, and a lot of these timber employments in Germany have actually been merged into permanent employments since so there's certainly a live an

idea to be lifted there that that could help on that side. The other one, which I think is important not only in France but throughout Europe and in Italy included is to lower the payroll tax. So they so it is it is ironic the politicians say they want people in employment, and the tax employers who try to employ people, and particularly young people who in this world economy in Europe struggled to make a return for the company they work for that matches the cost of them.

So why not cut the tax on the payroll So and I think that's something he will be doing. President spoke with with the President elector of France, Amandel McCown yesterday by by fun, I imagine the relationship that we're going to be paying The closest attention to though, is Mr mccrowen's relationship with Angela Merkel. How well do you think they get along? How important is that relationship going to be going forward? I think it's gonna be incredibly important.

Um I would, as I said, the Germans have been been longing for a French leader who is willing to to pick up joint leadership on issues with relations with Russia and Ukraine and out with the US, which is a becoming more tricky partner for sure, but to to sort of obtaking on the European economic side. I think the important thing here is that mccoon needs to do

something for the Germans. First. He needs to pledge at degree of fiscal discipline, so he sort of puts the rest is constant German fear that that the French are just running away with the Fiskeland ultimately want to be paid up by Germans. He needs to make that very very clear, and he needs to address some of the

labor issues we've just talked about. And once he's done that, there will be scope, probably only after the election in Germany for for further corporation, certainly on security matters, but there could also be other issues. The capital markets reform could be accelerated, the banking before banking union could be completed, and maybe maybe they're certainly talking in Berlin about it, an attempt to do something on unemployment benefits. Eric Nielsen

with US. He's the chief economist at the Union Credit Group. My co host Tom Keane has traded the send in for the Thames joins us now from our bureau in London and Tom I trust the Eurostar wide was uneventful. Why can't this be in America? I think it's because it's a sinkhole of money. But I'll tell you it is a beautiful and very successful training right. Thank you yours for your care. Yesterday from London, from New York, Bloomberg Surveillance with it's Eric Nielsen from Berlin. This morning

he is with Uni Credit. Eric, we talked about this, that and the other thing. But it does circle back, certainly for our American listeners to the US dollar. What is the Uni Credit call on dollars stability or do we see a trichet like brutal move in the months ahead. No, we don't have. We don't think it's going to be a bruder move, Tom. I mean I think the so we have we have just revised all your dollar a bit. But this is more a euro appreciation story than a

dollar depreciation story right now. In other words, from an American point of view, we think that Trump is going to be rather ineffective and sort of talking the dollar weaker. But but in trade way to terms, it will be a bit because you're seeing quite a bit of interest in European ass now that drives the euro stronger obviously, and and on the trade with the trip that will get the dollar a little bit weaker. But we don't know.

We don't expect very dramatic books. When you when you look here at the future of the European project, Russia has to loom large. We had Angela Merkel in Russia last week meeting with Vladimir Putin. How how much of the strength of the European Union right now has to do just with the the change in in in political trajectory, policy trajectory that we've seen in Russia. Is that is

that leading to more strength in the European Union? Eric, Yeah, without a sount, but it's not the only one, right, I mean, I think you contract the European relationship with Pruting back to his re emergence as president was in two thousand and twelve, right where and and he's handling on the demonstrations where people starts a question whether he

was how much of a democratic it was. Then we have this shock of Crimea and Ukraine, we have the shock of of Syria and in the shock of the apparent as almost proven right interference in the American election and messing around in France apparently, so there's so this is an interest. But your point is very interesting because I think what you have seen from a European perspective now is anybody who wanted to flirt with the idea of sometimes these same politicians you know, in effective we

need a strong guy. So I think you look at putting little ergon and you look at at least the one want to be strong guy Trump and Europeans, the vast majority majority of Europeans do not see something they like. So you so these events outside Europe have for sure is strengthened the ability of things being. Politicians say, this is not where we're going, Eric, we gotta leave it there. Eric Nielsen, chief economist of the UniCredit Group. Brought you

by Bank of America. Marylynch 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 Federan Smith Incorporated, Member s I p C. There's something new from Bloomberg. It's called Lens. Starting right now, you can use the Bloomberg Io s app off your iPhone or iPad, or our new Google Chrome extension to read any news story on any website, scan it, and then instantly see

the news stories relevant market data from Bloomberg. In addition, see all the bios of the key people mentioned in the story. It's called lens, and it is just that, a lens into the people and the data of any story you may be reading. Again, Lens brings you the power of Bloomberg's news and data. Download or io s app or search for the Bloomberg extension at the Chrome Store to try lens out. Learn more at Bloomberg dot com slash lens. Let's go to Steve Whiting. Now he is,

as I said, the global Chief Investment Strategic City. I've probably been great to have you with us against Steve un surveillance. Let's start with that. Your your read of what's going on in Washington. The President chalked up a legislative victory. Does that give you, as an investor any any better sense of what's to come? In other words, what did that signify to you? Getting that healthcare vote

through the House? You know, I tend to have a little bit higher confidence that at the end of the day, Congressional Republicans and the President will manage to cut taxes, whether that will be a full blown reform or not as to be seen. But you have to remember that with all of the either failed votes or votes that don't take place, it will take only one successful vote

to change the fiscal outlook in two thousand eighteen. As late as that may come, um, you know, it could come at the end of the August session, it could come later. But you know, we think of this as mostly a two thousand eighteen effect. And you know this is one sign that ultimately they with a majority or not in a single party gridlock. I saw Steve Whiting once again. Earnings I think did better than good. You

are wonderfully skilled folding earnings dynamics into the economy. Do you just equate over great earnings great g d P. Well, I think that there's this translation issue, and you know it's worth mentioning. It looks like first quarter EPs for large CAPUS companies has grown fifteen percent from a year ago. I have to remember g d p s typically not in the United States reported on a year at a

year basis. Uh it's inflation adjusted, so reduced by the rise of inflation, and we did have an excessive two percent headline inflation in the first quarter, so it's not a nominal figure. So you have to adjust for all of those things. And you have to remember that profits are just more cyclical than the economy. You know, they boom and bust around a relatively steady, steady economy. You know, laundromats and hair salons are in GDP, but not in

you know, S and P profits. See, we just had actual work on the show a few minutes ago and Tom asked him how he plays Asia. How do you regard or look at Asia right now? Where is the opportunity in Asia? Well, we've upgraded our view of emerging Asia in particular, and you know, I would note that, you know, we have seen uh decreased sensitivity in Asia

to rising US rates. Now you can couple that with at least the feds U forecasts that it's tightening cycle this time around in real terms is likely to be only about half the average tightening cycle you have. Obviously, they are all these questions, you know, what's sort of dead is there in China? Questions all the time, But so many investors just ignore the assets side of the

balance sheet in China. And so you couple this all together, and if the US is not disrupting the world with tremendously high interest rates UM or or trade disruptions of any sort. Uh, then Asia should thrive. And I would say that the export picture has actually been a real new positive surprise there within the positive surprise is what Schure yelling will do. And President drog and the rest.

Are they just behind? Is it just simple to say that, given better economies and the micro news that David and I hear every day, there are central banks are behind? Well, I think there's um two ways to look at this. Um. First of all, they would not tell you there behind. I would say, to a certain extent, they've changed the game.

If you think about the United States, you know since uh, you know, the nineteen seventies, most of that time it was trying to force down the inflation rate, lock in in ever lower inflation trend, use every recession as a chance to make the inflation rate lower towards price stability. Uh. And you know from most of this cycle the Federal Reserve is argued that the trend inflation rate is too low. Um. They think that they might overshoot if they don't tighten

to some extent. But again, the game has changed from from that one, so naturally they go in a more mild way. I do think that balance sheet adjustment on the part of the Fed, the idea that they won't hold more bonds than they need to to conduct monetary policy the way they want. Uh, that is going to be a volable event. And uh, you know it has been over the last eight years at times when the Federal Reserves balance sheet has shrunk pot passively when they

have not had a new quee program. There's been some volatility around that. But I think that they will come back and and look at that financial market impact and say we are not going to allow, you know, balance sheet normalization of this desire to have fewer bonds, you know, to override you know, where they want to set financial conditions and set monetary policy. So in the end, I don't think the balance sheet will shrink very much. By the way, thy Ben Bernanke has bitten written very well

about this recently. Yeah, and I certainly talked with Tom a little about that as well, not just last week. Let's talk more about the FED here and just woman we'll come back with Steve White's the global chief Strategic City Private Bank. So much to talk about when it comes to the FED, also to the geopolitical landscape in Europe as we look ahead to uh, the snap election where you are Tom in one a month's time. Yeah, we've really turned to it with a vengeance today and

it's certainly front and center all the newspapers. Guy Johnson was translating the Labor Party festivities in Manchester today. Manchester. David is a city. It's outside of London. Yes, home to the home to the Guardian newspaper. If I'm not mistaken, or it was Stephen. Wherever I go, wherever David goes. It's all about the dearth of investment. I know you thought hard about this. Is it possible that the new

investment is a global investment that we can't even observe? Well, look, I think we take a peek within most developed markets where the data are fine, the investment trend has been very modest um. You know, I think people say there's been no investment, no investment, only consumption. Really don't have that right. You know, in the US we had a massive investment in the energy sector. Here we are now mid forties on oil, not in the hundred and fifteen range.

Other investment has been there, but it hasn't been powerful. And if we take a look, you know, country by country, there are areas where they're imbalances. China's had in some cases probably the only country in the world with too much infrastructure investment UM. So there are some imbalances between countries. But I don't think that it's some some missing quotient doubt there. What's your your sense? We talked about taxi form at the top of the interview with you, and

you express your optimism. We'll see some how about for for the kind of fiscal package that President Trump talked about when he was a Canada Do you think we're going to get anything from from the Congress this year? Well? I think we will, I think, but there's so many questions. How will it be financed? Does it need to be financed? Uh?

You know, is this something that is is really going to be an effort to uh provide permanent tax reform UM deficit neutral because it has to live beyond uh ten years or you know, do quite practically what was done in the early two thousand's and try something out for ten years. If it's good and it helps, you can extend it or or let it go. So all of those questions haven't been answered, and there's this opening position of the different parties and that will be worked

out until until something's agreed upon. But I do think that you know, the potential to get taxes cut uh, And some of these issues are really low franging hanging fruit, like uh, the ability to bring profits that have never been taxed at all at at some rate repatriating those sorts of things can be done. Let me ask you about political risk in Europe. We've just been through the second round of the French election Thomas in London. Of course, we have a snap election in London on the eighth

of June. Are we at a point where we're moving past the preponderance of political risk? Are things less risky when you look at politics than there were a couple of months ago. Well, yes, we've just passed through a potential shock and it hasn't occurred. And that's sort of you know, the story and markets and the reason why things are going well. There's been uh So, as we mentioned before, no stimulus so far out of the United States,

but no disruptions and no shocks. Uh. In the case of the near term in Europe, France was looming large. You had a candidate who wanted to pull France out of the Eurozone. Now, whether she would succeed or not, that risk alone would threaten the periphery, and that risk is off the table for the near term. Now, whether it resumes, you have to consider the fact that Italy's economy is the same size it was in two thousand four and has a population that's uh, you know, feeling

like it doesn't benefit quite as much. And at the time we've got left with you, let's drift over to the investment world. Twenty one twelve, futures up three the vix a Whiting like nine point six zero. How do you stay invested? If I got pe multinationals? Is that nifty fifty too, Stephen Whiting? Look, I think it's hard for many investors. They're the ones that have not invested or having a hard time committing H two markets at

these levels. I would tell them if they've been home biased US dollar based investors, as we recommended for the last few years, to start looking internationally. Consider that, you know, global emerging markets equities are below their long term average valuation, not relative but their own history. They're below average valuation. There are plenty of warriors and risks, but that's why

there's going to be some future return. And in the United States, Uh, if you have earnings going up as much as they have, and I think they won't go up fifteen percent to every quarter forever, but I certainly think that this is not the valuation environment that we were in the late nineteen nineties at all. Uh. This is not even close to that kind of evaluation problem. So the direction of earnings will set the direction of

markets for the most part. Do you sympathize with what axel Work was saying about investors reluctance to hold on to cash at this point? Do you think that the investors should be holding onto more cash? Well, look, I think investors have held on the cash. You know, there's been, um, you know, a low volume, low confidence recovery since the financial crisis, and cash has been you know, a tremendous overweight,

even in investment portfolios that are dedicated investment portfolios. UM. So, you know, would we have a little dry powder in the summer months is the time when we have frequent corrections that are temporary. Um, would we want to be able to allocate more with some cash, Yes, but I think for the most part, investors didn't have confidence that you know, we weren't doomed, and they've held on a good proportion of them have held onto that view since

two thousand and eight. That's a quick last question here about Latin America and what you're looking at there. I look at dollar Mexico here amid still the rhetoric here in the US about building a wall and how long it will be. In all of that, where's the opportunity in Latin America? Are you looking at sovereigns? Are you're looking at corporate bonds? What's attractive to you? Well, what's really fascinating is that if you just take again look

at emerging markets, sovereign bonds, most of which are investment grade. Uh, you could get in the neighborhood of seven times the yield out of government bonds and emerging markets and local currencies. Then you could out of corporate bonds in the Eurozone taking Euro risk. So uh. You know, Mexico, for example, has seen its currency plunge and then get almost all of it back, but it's bond market is hovering at

a seven percent local yield. So in Latin America. We think that there are a good fixed income opportunities in particular, but like as always, equities would follow. Steve Finning to speak with you as all most winning with the City Private Bank joining us here on Bloomberg Surveillance. He is the global chief Investment Strategy Static City, a private bank. David Gura in New York, Tom Keene in London. This

week this is Bloomberg Surveillance on Bloomberg Grady. The big news out of the day in Korea today Moon jay In poised to take power in South Korea according to a leading exit poll as voter Sutton and a nine year a conservative rule there in that country. Scott Snyder joins us now. He is a Senior Fellow for Korea Studies and director of the Program on US Korea Policy at the Council on Foreign Relations. He joins us it Scott,

great to have you with us. Let's start with this Candida who apparently is in the lead again by exit polls, Moon jay And what can you tell us about him and his party here the more liberal of the two parties. That's right, he is what they call progressive Canada and South Korea. It's a liberal plot form that has been in opposition to the conservative leadership four nine years. Moon does have experience with leadership as a former chief of staff to then liberal President No Mu chan Uh in

the mid two thousands. A lot of his policy platforms actually draw directly from that era. He is going to be more favorable towards trying to have dialogue with North Korea. He wants to have greater economic cooperation with North Korea as a way of trying to change that country and trying trying to ease the attention and conflict with the North uh And he's also been h somebody who has raised questions about the UHUM missile defense system that the

US has recently installed in South Korea. He's called for view of that decision, but it doesn't necessarily mean that he's gonna return it at this point because South Korean public units largely in favor of it. I think a departure would that be to have more engagement with North Korea. What's the what's the status of dialogue between these two nations at this point? But really nothing has been going on in terms of dialogue for the past few years.

The progressive blame it on conservative efforts to squeeze North Korea, UH and really to induce some kind of regime change. But the North Korea's also are not configured to have dialogue with the South. The leading individuals who had been involved in inter Korean dialogue in the past are no longer there, and at least as of now, Ki junglen has a general who is in charge of trying to support South Korea in charge of his South Korea policy.

Help us in all of our listeners with our coverage of the Korea, as you are truly one of the nations experts on all of this, when you hear what I perceive is relatively simply us to coverage of North and South Korea and the new South Korea, the new government as well. What do we most get wrong in our coverage? Scott Well? A lot of times the headlines UH sees upon things that are a little bit more sensationalistic, but when you start to dig in us it seems

like things are not as dramatic. Certainly on the North Korean front. Kim Jong un is portrayed as a stereotypical UM kind of joke, but it's a deadly serious joke in terms of the nature of his leadership and the nature of the threat that he poses in South Korea. You've got a kind of you know, black and white contrast between choices where you know, really South Korea is going to be is going to continue to be an ally of the United States, and it really a much

more constrained choice. Does our president understand the brilliance at Scott Snyder just gave us, UM, Well, we'll see the right strategy, the right strategy in dealing with a progressive leader in South Korea. Uh, he's getting advice from different sources. Some of them are pro Alliance and some of them

wanted distance from the United States. And so the key to success is to cultivate the pro Alliance people in the new administration and actually to welcome and um um to bring bring along Moon as a leader, rather than do things like um threatened to make South Korea paid for a missile defense system that um it was understood the US was going to pay for all along. What are the dynamics like right now in in South Korea between the presidency and the legislative branch. We talked about

that in the context of France. Her most most recently, the challenges to the Manimu McColl face in France. In Korea, is it the same situation? How how much how much good faith is he going to get from the parliament when he's inaugurated. Yeah, that's a great question, because you know, South Korea really has a system that allows the winner

of the plurality to become the president. Uh. Frankly, if the South Korean's had the French system, I'm not sure whether Moon would be the next president because his party holds a minority in the legislature. And frankly, it's a system right now with four or five different parties that is designed for gridlock. So he's going to have an enormous leadership challenge simply trying to get supporting legislation for the agenda that he brings um, you know, through the

National Assembly. David Guraa in New York, Tom Keene in London. This week, this is Bloomberg Surveillance on Bloomberg Rady. We're watching the election results come in in South Korea today. A Moon j In poised to take power in South Korea. He's leading his conservative opponent by forty four percent to three point. Scott Snyder is with US he's director of the program in U S Korea Policy at the Council on Formulation. Scott, let me just ask you to remind us how we got to where we are today. We

hear having this election earlier than expected. What led to this moment? Yeah, that's very important because it really also has shaped the election outcome. Essentially, the former president Uh, it was discovered, was linked to corruption and bribery scheme that was really led by her very close UM, lifelong friend Uh and involved extortion of some of the major business conglomerates in South Korea. When that became public as a result of information being discovered on the discarded laptop,

everything kind of unraveled. You saw public protests UM every weekend through the end of last year, and then a formal motion of impeachment against the president Um that was held up in the Constitutional Court on March tent and that triggered a sixty day period during which South Korea had to elect a new president. As you've been listening to the rhetoric on the campaign trail ahead of the vote today, how much of it has centered on that scandal?

In other words, how much of the platforms of these two leading candidates centered on reform to the economic system in South Korea. UM. Well, certainly each candidate had his own or her own um policies for trying to improve the economy and address corruption. But the main advantage that Moon had was not in the candidate debates, where the various differences among candidates were featured, but really in the fact that his face had been in front a lot of a lot of these citizen proch pests that had

occurred earlier in the year. Uh and I think that he's basically written the frankly public anger with this to victory. We talked about North Korean China. Scott, what is the

relationship of South Korea and Beijing. It's a very interesting question because China has really been imposing pretty much comprehensive economic retaliation in cultural um and consumer products against South Korean retaliation for South Korea's decision to accept this MUSA missile defense system that the US is deploying in South Korea, and so that really has had a major impact on

South Korean views of China. We've seen about a twenty or thirty point shift in Korean public opinion from positive to negative. UH and UH. That's an area actually where a new administration can try to pick up and get things on the right track. But it's going to have to be under conditions where uh, the new leader doesn't succumb to China's rather brazen efforts to interfere with national

security decisions that have been made in South Korea. How do you explain the way these these family run conglomerates work to those who who don't know of them. How do they work? It's incredibly difficult thing to explain because, uh, you usually when specialists start to put up charts that show the various cross shareholding arrangements that are used in order to allow families to be able to maintain control of the conglomerates, Uh, it involves a page full of

arrows from one intant to another that is truly mind boggling. UM. But essentially, UM, you know, it's about kind of um controlling holding companies that in combination, uh, have allowed the family to still maintain control over these businesses that really have grown to mammoth proportions compared to where they started. What is that? What is President Trump's policy position toward North Korea? At this point, we have a good sense of it We've had his Secretary of State go through

the region of Secretary commerce. Do we know what it is? Is it any sing in fifty words or less? Um? The tagline is massive pressure, pressure, and engagement. But it's been confusing because on the one hand he signaled willingness to potentially use the military. At the same time he called Kim Jong on a smart cookie and says he's willing to sit down. Basically, it's pressuring North Korea into dialogue,

I think is really what they have in mind. Scott, we killed thirty three thousand, sixty two is one count in the Korean War. When you hear the president established his foreign policy and maybe it's a foreign policy away from Secretary Tillerson, is there any awareness of a sacrifice

Americans have made on this important peninsula? Um? Well, the main thing that the administration needs to understand, and I think the advisors understand, but it's not necessarily fully clear the extent to which President Trump has absorbed it yet because of his tension for maximizing uncertainty, you know, And that's basically that you can say all options are on the table, but given the consequences of military action on

the peninsula, all options are not feasible. Uh. And therefore, you know, threatening to use the military option can come off as a bluff or a false threat. But then circle back to your original observation, which is the stability of a leader of North Korea. UM, I mean we well, we you know it's it's it's part of a Saturday night life. Get this isn't funny, is it? No, it's not.

We're about to cross a threshold with regard to North Korea's development of an I C B M. Given the perception of the leader, even if he's rational, most Americans would not want to be vulnerable to the possible use of nuclear weapons by this leader, even if he's trying to gain them and even the score with the UUs UH and strengthen his own um ability to survive. I urge all of you. Scott Snyder the Council on Foreign Relations, and he is dedicated out of Rice University. His work

on Korea is just definitive. The backgrounders that you can see at the sea if our site are just really quite wonderful. YEA. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 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

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