Hi, and welcome back to Bloomberg Benchmark, a show about the global economy. It's Friday June. I'm Daniel Moss, Executive editor for Global Economics at Bloomberg and New York, and I'm joined on the line from London by my colleague Paul Gordon. Paul is responsible for Western European central banks, the news on the central banks. So Paul, what kind of night have you had? A long one, for certain, I was in at about four o'clock in the morning.
I got up about four o'clock morning to get out the hotel and head over to the office and severally bemused handful of people on the street at that time. A little later on, my colleague was down at Canary Wharf, obviously a big financial district in London, and there people were looking at their phones, looking at the headlines. There was a lot of swearing, i can tell you, and a lot of the muse face. And there's a good reason for that, because these are the people who have
been hit most of all. Initially, the markets have been plunging, as you're aware, and it is the bankers he may well be fearing for their jobs in some areas following a brexcept and Britain's vote to leave the EU wasn't really even that close, was it. Well, in the end, pretty much cent so no, nowhere near as close as some of the opinion polls had been in the run up to the vote, and nowhere near as close. Quite the reverse in fact of what the first opinion poll
said once the polls closed yesterday. So a lot of people went to bed last night thinking, right, the Leave campaign has lost, Remain will win, And when they got up this morning they found it was a very different story. And the country is not just divided on whether to stay or whether to go. The results and where the results have come from indicate a nation divided economically some pretty stark ways. Talk about that, yes, I mean one of the key divisions that you seen is on age.
The young have been supporters and the elderly much less. So There's been division on wealth as well, the wealthier people have wanted to stay and the poorer have not. And also geographically, with the North in many cases voting out and the South and particularly London voting in the other exceptions there are though, that Scotland and Northern Ireland voted to stay, and that does make the question of the UK that union three year old union also gets
called into question. So speaking of London, it is one of the great cities of the world. It is by far the most populous region of the country. When you go to the Starbucks around the corner from our office for a red Eye with an extra shot, do you expect to see people with their head in their hands? Oh my god, what have we done? Well, I'll tell you there's a good point to remember is that when you do go to your local Starbucks, the person serving
you may well not be British. They may well have come from one of the Southern European countries or one of the Eastern European countries. One person I spoke to earlier this morning, he asked me if I knew what the result was, and I told him where it was headed, that Leave was winning. He said that's good, and I said, well, why is that? And he said that's going to be
good for the Southern European economies. All I could say there was, don't be so sure at the point they're being that, we don't yet know quite what ramifications of this are going to be on a global scale. It's fairly clear what they're going to be, at least in the medium term on a national scale, but globally not so much. We'll get back to the barista in a second, because I think that's emblematic of something that we do
need to discuss. But first of all, under the immediate stuff, now you're responsible for Western European central banks, the biggest of which is the ECB, which in itself is a product of the EU and was seen at the time of its establishment in the late nineties as a just a really natural thing, like dirt. We're more closely integrated.
Let's have a central bank that institution. Yes, well, there were plenty of calls you'll remember yourself at the time, to say, look, this doesn't actually make a lot of sense to have a monitory union when you don't have a proper fiscal union. But the push was there too deep in European integration, and Monsher Union was seen as one way of doing that. There is now some strain. There has been a lot of strain within the EU
area for quite some time. What may happen now is that because of the success of the lead campaign in the UK, you get stronger calls for anti euro parties in countries like Spain, countries like Italy, and that makes the European central banks job far harder, and the European Central Bank is struggling. That undermines the khesive myths of
the European Union in the eyes of some people. Wouldn't it be ironic if it was Britain, which never really wanted to join the euro system over which the ECB presides, was the thing that not the e c B the greatest, not Portugal, not Greece, not Italy, not Spain. That's entirely feasible. The ECB has was quite slow, i have to say, to respond today getting a state with out well behind the Bank of England and the Bank of Japan and some of the other banks that were open at that time.
It's been it had some tense discussions, we understand, and that has highlighted some of the struggles within the European Central Bank that you are made up in nineteen countries, the nineteen central bank governors all with a slightly different views there. But ultimately this is quite a strain on the European central banks ability to operate. And you're right,
it's coming from a non new country Britain. This lead vote is being characterized, at least in part as a rejection of the liberal economic establishment, which has by and large flourished since nineteen and the idea here was again seemingly inexorable, seemingly inevitable, free flow of goods, services, capital, and people. And the European Central Bank is about as polyglot as you can get. The Bank think of England is headed by a Canadian and you and me, Paul,
were products of that system. Now I first met you when you were in Hong Kong. You were born in Britain, and your wife is from where and you now live in Frankfort, right. My wife is German, and my children, who knows where they come from. They were born in Hong Kong. They live in Germany, but they've got British grandparents and great grandparents. So there is this generation coming through that has an international feel to it, but it's not really the majority of the population. And that's really
key for European politicians to think about Netlork. Not everybody benefits from globalization, or if they are benefiting from globalization, they don't realize it. They feel that they're suffering somehow. That others are benefiting more, and that's what's caused this backlash. That's dangerous for the European Union, for the European project, is dangerous for the as you know, the supposedly inexorable
rise towards globalism, which is not really inexorable. It's been a sort of been a lot of politicians sort of haggling, sorting out deals between themselves, and there have been has been a jump start, start and stop progress over more than more than a hundred years. So I was not born in the United States. I was born in Australia. I've lived and worked around the world thanks to our employer, Bloomberg News. My son was born in the UK, my
daughter was born here. Our colleagues, our producer Magnus born in Sweden. Our colleague Alec, who does a lot to make the podcasts get to air, lived for many, many years in Hong Kong. I mean, are we being rejected here? Is our model of the economy and the way we see ourselves when we travel, when we buy things, when we think about our aspirations for the future, we being rejected. There's a great question, and I don't suppose we have
the answer to that. At this point. Again, this is something politicians going to have to sit back and think about, what are the economic benefits and how are those benefits being distributed, and if they're not being distributed fairly, you do get a political backlash, the political backlast that we've been seeing, and that may make the whole model as as you say, rejected, and that would be rather worrisome for our generation. But not everybody sees it that way.
So the barista you mentioned in Starbucks, he or she doesn't have to go home tomorrow. What's going to happen for the next couple of years. This is going to be a rather sort of torturous back and forth process,
but they will have to leave correct well. Interestingly, there was a survey done amongst the German investors that concluded only yesterday and of those respondents said they did not think of Brexit would ultimately result in the UK leaving the EUN and that goes against everything that the politicians on both sides of the British debate have said. But I did hear the argument made again today that maybe the European Union will come back with such a generous
offer that Britain rethinks its stance. The most likely outcome, though, is s over the next two years, the British exit from the EU is negotiated without Britain taking partners negotiations, a deal is struck by which it has some kind of links to the EU. What they are remains completely unknown at the moment. There are models Norway as one, Switzerland is another, but they may not be suitable for the UK, and that means two years of quite a
lot of uncertainty. The global economy just can't seem to find blue water at the moment, can it. You're right, you have this issue where you've got the rise of nations like China for a while, you have the rise of nations like Brazil, which is obviously going through a
very tough time at the moment. And when you get those rapid periods of economic growth amongst sizeable or becomes sizable economies and then they slow down, there are international repercussions, and again you've got that anger amongst some groups of people built up as they've seen their manufacturing jobs outsourced in their view, and now things are slowing down and they're not really in a position to benefit one way
or the other. And we could be in for some years of fairly tough times on a global scale, just when it looks like the global economy has dodged a bullet, for example, in January, there are all sorts of dire predictions about China and the market tumult that accompanied and that abated, and we moved forward. People thought Greece would blow up the euroregion. Okay, we survived that, We moved forward, and I guess we'll struggle along or drift along with
global growth somewhere around two or three percent. But that's not great, Paul, is it? It's not great. There are many arguments out there that say that this may be the way it remains for a long while. The arguments sometimes sent on the demographics. There's just a relatively large supply of labor, which keeps prices down and keeps productivity low. There is, of course, the techno pessimism argument, which says that inventions from eighteen seventy through nine seventy were one off,
they're not going to be repeated. That gave a vast boost to growth in the developed world and ultimately the rest of the world, and they can't be repeated. So those arguments come in. If you do want to see growth pick up, You've got to find some kind of a source, something which is going to push us along, and clearly, by its very nature that's as yet unknown and as shocking as it is. The central banks have made it known that they have prepared for this event,
even though it wasn't the result they wanted. Let's talk about the person that's really in the hot seat. Bank of England Governor Mark Karney himself a product of the free flow of global goods, services, capital and people. Yes, he is part of the free flow people from Canada
to the UK, and he's quite a few people. During this whole Brexit debate, the Bank of England has put out a numerous statements pointing to the downside risks of a Brexit, and some have taken that as seeing the Bank of England intervening in a political debate instead of staying out of it. To the Mark Karney's defense has been that nobody knows his personal view, that these were all economic statements of probability which may or may not come to fruition now we're seeing them being tested. But
certainly the market slump was something that was predicted. The drop in the pound it was something that was predicted, but because he is identified with that, with the remain stance, through no fault of his own, he would say there's a question mark over his future. Now Now, Governor Carney made a televised address in addition to the statement that the Bank of England put out, and if I'm interpreting it that correctly, the first line of defense is liquidity operations.
Just throw as much liquidity at British lenders as possible, and the second line monetary policy, well will get to that in a few weeks. Is that the right interpretation, It might be he wasn't quite that specific, certainly on the liquidity, there's no doubt about that. The Bank of England has two fifty billion pounds which it can throw
at banks should they need it. Banks can also access swap clients with major banks around the world, including the FED, the e CV, the Bank of Japan, the Swiss national banks, and liquidity really shouldn't be an issue here. The key thing, as you say, is what happens next if there needs to be some kind of response to deal with the economy, and that's difficult one to say. The slump in the pound could push up inflation, which reduces the room for the Bank of England to cut interest rates if it
needs to do so. But rates are at zero point five the ECB as rates zero. It shows you can take them that low, and some economists have said that's precisely what the Bank of England is going to have to do. And does Governor Carnee have some work to do in terms of repairing relations with the out camp? Who now, of course are the in camp? Depends who's going to have to deal with I guess I mean at the moment, of course, we still have the pre
existing government. David Cameron will step down. It remains to be seeing what happens with the rest of his colleagues, but their positions are obviously not very strong. Whoever is coming in is at least initially almost certainly going to have to deal with Mark Kearney, and Mark Conny is going to have to handle that quite sensitively. He probably has the skill to do so. Questions whether he chooses to,
and that remains to be seen. Well, we better let you go and get that red eye with an extra shot. But first I'm just wondering when you come home to Frankfort tonight and you walk in the door and you see your polyglot family, What on earth are you going to say to them? Sorry, honey, we shrunk the union. Seriously. I did text my wife to say, you know, she asked how things were going, and I said, it's madness at the moment, and she replied, it's sadness. And that's
the response I'm going to get when I go home. Well, Paul, thanks for joining us. Benchmark will be back next week and until then, you can find us on the Bloomberg Terminal and Bloomberg dot com, as well as on iTunes, pocket Cast, and Stitcher. While you're there, take a minute to rate and review the show so more listeners can find us. You can talk to and follow us on Twitter at Dan almost DC and Paul you are p Gordon sixty six on Twitter. See you next week. M. M.