Well, joining us to talk monetary pals, inflation, everything in between for an exclusive conversation Lorenzo Binismagive Cross Chairman Association Hallo, former executive member, board member of the European Central Bankroad as always, thank you so much for joining us. And there's a lot going on. The markets are really pricing in cuts, not cuts. They're a little bit all over the place. Is it because sticky inflation could surprise us? Or is there a risk of a recession even in the US.
Well, there are many concerns. I think the US economy is stronger than expected, but it is supported by a fiscal policy which is much more expansionary than Europe. And the question is will the EASY be there cutting grates while the Fed doesn't. I think for next week should be a done deal. I don't think the CB will surprise the markets. The question is more what about July September. I think the CB will will want to wait and see. They want to commit. September is likely, but it will
depend bit on the data and coming. I think the CP wants to be sure that it will not be surprised like the FED maybe was earlier on to promise something that cannot really deliver.
So it is the main concern actually that the market understands that once a cut, I guess there's going to be gradual cuts. Or is it that it's the first time that the ECB and any other central bank is not really cutting in a recession exactly.
But if you look at inflation and market policy is restrictive, I mean you know at the levels where they are. You see this in the in the bank lending data, in all the underlying data. We haven't had a very stronger session. There is a recession in Germany and you see that in the in the wage behavior also, So inflation is coming down, it's projected to come down. It will be surprising if the Easybilian cut rates. The question is the pace, how quickly they will cut rates?
How quickly do you think they'll cut rates? And again there's all this tightening that we still have to really see the effect of. And I don't know whether it's lagging or it's because it's a funny economy.
Because of COVID, I think, I think that they will want to see the forecast. So September is the next forecast after June, So I expect September and then maybe the end of the year. So three three cuts. I mean, don't don't make me make a bed, but it'll be gradual. Bets it would be graduate, Yes, And I think that's would be the case.
When you look at I guess what THECB has been doing. I feel like it's it's hard to be the first one to cut right when the BOE is probably delaying it and the FED is could also not cut at all. This yeries gravitational pull from the FED going to be strong.
Yeah, well, you know, you don't want to be the laggard all the time. I mean, this was late in cut in hiking grades. You don't want to be late in cutting rates either. So the situation is clearly different from from the US. So if they delayed, they would be remembered in history as making two mistakes, which you don't want that to be.
You said, in an enviable position of understanding banks and understanding some of these market forces that could potentially also trade, you know, change the supply chains and kind of how we do trade. Where do you see the global economy headed? Are we deglobalizing? Do you see like concerns of you know, everything being redrawn a little bit well.
I mean there are some short term developments. Clearly what's happening in the in the Strait, in the Red Sea, what's happening in other parts of the world. But at this stage I don't see a huge change in the global and globalization. And clearly China is a very special case. But you see other emerging markets popping up, strengthen in Mexico and elsewhere. So globalization, I think is here to stay,
to be frank, and that's good for everybody. Of course, you have to be able to manage it and to manage it and to manage risks, the risks that are implied with this. So I am relatively optimistic or the medium term growth is coming back in Europe. It's going to be gradual. There are huge challenges ahead. But if we look at the last two or three years, especially after the start of the war, nobody expected Europe to be where we are today, I think.
And do you see that in your clients? Are they you know, are they saving more? Does it does it feel okay? As an economy?
I think European corporates are relatively doing relatively well. I think they're improving. They see that there are opportunities globally. Of course, there are huge issues in Europe in terms of, you know, are we able to compete with the US, with the rest of the world. What about you know, continuing the single markets. Maybe we'll discuss this later. These are the key challenges, but the opportunities for companies there.
So what do you see as your main challenge? We've been waiting. I feel like we've been wearing a couple of markets union for all of my lifetime. Are we any closer to actually getting something concrete that means that you know, your bank and other European banks can maybe a little bit be stronger compared to the US.
I think this is the big political issue in Europe.
We need to integrate more. But we have to realize that there are forces, political forces within our own countries that are against and we have to face that, and politicians, the heads of government have to face that there are resistances like in the past, where resistances to monitor reunion, to banking union, now to the capital market union, and the politicians have to be strong enough to you know, to push back also because some of these resistances come
from you know, people that are close to them, the regulators, the national regulators, the national supervisors, some of the market infrastructure who have maybe a monopolistic position in their own country and are afraid of you know, of competition. But unless we create a real market in Europe, then what we observe is that companies are moving the other side of the Atlantic and the attractiveness of Wall Street compared to Europe is so strong that, you know, heads of
states have to realize that. I mean, this is in the news discussions of companies that want to release somewhere else or that under under pressure. So I think it's really a political issue and we have to to to be able to support this, and banks I think are very favorable to that.
We do see it. But in the UK it also in fronts a lot of a lot of the companies, especially some of the oil rich companies, saying, look, maybe there's there's more capital in the UIs some thinking of deal listing and going over there. What does the Capital market Union actually help? So it brings investment, Does it you know, help to deal with the AI, the green transition and common defense?
Well, first it helps financing all the transitions that Europe has to make climate digital. Of course, now the Defense chapter you can't expect this to be done elsewhere, So you need to have a pool of capital and savings that is able to finance. Public money is not going to be sufficient and politicians know that, so you need to have the investors and the savings directed to that. And without a capital markets, we won't be able to
do that. So we need it, we know it. Now it's the politicians who have to take the tough decisions.
But would it help with securitization or kickstart the securitization market? Like what do you want you know, as prioritizes for the CMU, there's a number of lists like what would you do first?
Well, I think you know securitization is key. I mean we need a single rule book and a single or a uniform supervision and implementation of this rule book. If every country is defending its own little market in twenty seven little markets because they think that by defending these little markets they support their companies, the only result is that these markets with shrink shrink, shrinks, shrink, and is not going to be a capital market in Europe anymore.
So there is no future for the thing for the for the national markets. You need a bigger market and and and in order to do that, you need to bring under the same rules the largest stock exchanges, the non European, the large asset managers. Uh we weally these for the banks, so you have to do the same. It's it's not always as easy. But you can't allow arbitrash.
You can't allow regular arbit trash, and have to say you cannot allow that non European large institutions can pick and choose the best regulator they want in the Union just by arbitrag. This is is not possible.
But do you think that basically we need you know, big common supervision of exchanges, you know, like Deutsche bors and your next even before investment bank.
I think that's I mean, if I had to suggest something to to Knack and Shoalzes to commit to bring their stock, the two key stock markets in Europe to under the same rule, then supervision doesn't need to be a single one joint you know, like we have in the banking system, joint supervision, but the same so no arbitrage. I think that would be a big push to to to to to avoid to avoid these incentives, to protect, to protect your little backyard.
And also insultancy laws or does that come in certain.
Installman laws are so for securitization, for instance, you are not going to securitize a mortgage putting and put together a German mortgage and a French mortgage and an Italian mortgage. They're just so different, not only from bankruptcy laws, but in terms of of of of type of you know, instrument. What you want to do is to securitize the German mortgages and sell them everywhere, and for that you don't
need a uniform bankruptcy laws. What we have to be careful not to put too many things on the agenda because then it will make the union impossible because there's so many things to do and people are afraid of, you know, changing too many things. We need to go to the key priorities. Now we're just.
Talking about the capital markets union, but there's also baby steps. I would probably say against, you know, for a banking union next month with the deal on how to to also deal with some of the smaller banks that failed, do you think you can reinvig that discussions can be reinvigorated on the next steps, including you know, joint deposit issuance.
Well, I mean sure, we can't progress on capital markets
unless we also progress on banking union. And to be frank, the biggest obstacles to banking union is not so much it is I mean, you know, to complete the insurance scheme and so on, but also to eliminate all the barriers to moving liquidity, bankingquidity across Europe and capital and this is in the hands of the regulator, the national regulators, the central banks, I mean those who are sitting around the table of the single Supervisory mechanism or the European
central banks. So I mean, maybe we should put the lights on those authorities that should should maybe we should take away that this question that they have.
But for all of your years of experience, and you know the politicians, you speak to politicians, you understand exactly what some of these countries want. I mean Germany wants one thing. Would the Italians.
Agree to it? Well, you know, things have changed dramatically over the last ten years, you know, ten years of banking union, single supervision. You look at the solidity of the various banking systems. Ten years ago, people were concerned about the solidity of the banks in the South. Yes, Now if you look at market capitalization, if you look at all the parameters, you're not concerned about that anymore. I think, you know, the the system in the different
countries is strong, so the next step. You know, Banking Union had two key objectives given to the supervisor solidity of the banking system and integration. The first we achieved, the second we failed. I think the supervisor has to ask why is this happening? And I cannot say it's just the fault of the banks. I mean they are
clearly some barriers for that to happen. And one of these barriers is the liquidity within the system which is not flowing openly, and the capital also which is not flowing. And this is due to do the measures that some regulators still can take to prevent this mobility. These measures are taken out of fear that if a bank fails, where will the capital go. I think this needs to be addressed also because the system is more stable today, so these fears are not justified.
What we see cross border consolidation. You know, Emma con spoke to our Eratornaty. What did you make comments of the French president saying he would be opposed for a form takeover.
Of sub gen I think it would expect all countries or heads of state to say the same. They should not oppose, you know, deals which are done in other sectors. We've seen mergers in all sectors in Europe, but not in the financial sector, not cross border mergers. And for these to happen, you need the conditions, and the conditions have to be set by the regulators, by the market authorities, because you need to create value out of a merger.
Otherwise your shareholders, your shareholders are not going to support it. And in order to do that, you need to create the synergies and you need to create an advantage for growing. And today what's the advantage to grow in a market which is fragmented? But do you need to.
Get bigger to actually counter also Wall Street banks? Would it make it easier? And do you I mean, so, what's the future of South jener Are you thinking like I need to protect it and make it stay independent. I want to be an acquirer, Like how do you think about all these big questions?
I think our banks have the same Our banks that have a systemic position in the markets and are active in particularly in the markets in investment banking. They want to compete with the US institutions, so they need to grow, they need to be solid, they need to access a strong market. So we need to create these conditions so that really the European the large European institutions can can compete and there is this should not be seen as a source of fear for the smaller institutions in Europe.
There is a like in the US, a rule for larger banks or rule for medium and smaller banks. But you need to give the opportunity for the larger banks to grow and to grow in Europe and outside Europe.
I could talk to you for three hours, but just the final question, if Donald Trump comes into the White House, is there going to be an unfair disadvantage with the US banks? Is he going to deregulation and where does that leave European banks.
Well that's a big issue today, even before Donald Trump is elected. It's not clear what will happen to Basil to Bazzle. For in Europe, there's no rethinking. Actually there is implementation, but more other things are coming on top of Basil three or the whole climate agenda, the whole revision of models. So the impression is that the game is not over there's no endgame in Europe, while in the US the endgame is more or less decided and it could be even shorter than you know, short than
what we explained. So there is an an unfair competition between the US and Europe, and the politicians in Europe and the regulator cannot have a blind eye on this. Otherwise we are at a competitive disadvantage.
Louren to Binisma, thank you so much as always for coming on to He's a first Chairman of Associety General