Transcripts For BLOOMBERG Bloomberg Surveillance 20160715

This is bloomberg surveillance live from new york. Im tom keene. Scarlet fu with me in london. Another grim evening we reassess on a friday morning. Scarlet yet another attack. Eight months after those attacks in paris last november. We continue to monitor all of the headlines coming out of nice. Tom as George Packer talked about, the other france. We will talk about that this morning. Right now, to give you our first word news it is the seventh deadly attack in the last 18 months in france. At least 80 people were killed in nice, when a truck loaded for weapons drove for a mile along a boulevard pact with residents. The driver was killed in a shootout with police. President Francois Hollande said his country is at war with terrorism. This attack that has all the elements to be called a terrorist attack is once again of an incredible violence and it is clear we have to do everything in our power to fight this terrorist plague. Hollande has extended a state of emergency for another three months and will deploy 10,000 members of frances Security Forces. The truck driver has been identified by authorities. World leaders expressing dismay, sadness, and solidarity with france over last nights bastille day attack. President obama condemned what he said appears to be a significant terrorist attack. China, germany, belgium, and india among other nations condemning the violence. Theresa may will pay a visit to edinburgh, scotland. She will deliver a pledge to govern in the interest of all scots, and attempt to dampen renew calls for independence. Japanese Prime Minister shinzo abe in mongolia. Asias two largest economies a relationshipr fractured by disputes. China warns japan to stop intervening in the south china sea. Global news 24 hours per day in 120 countries. This is bloomberg. Tom lets go do the data check quickly. Quieter markets on this friday. Futures take a pause. What an extraordinary run for equity markets. The yields drive higher. There is a risk on feel. You see it in the 10year yield. , 45. 21 out of west texas intermediate. The extraordinary dow closing. I cant get my mind around 19,000, scarlet. We have a bid to sterling. I know, scarlet, you are watching that. The german 10year almost back to zero, made some real risk on headway back to a smaller negative yield. Scarlet lets stick to overseas markets. A asia, gains extended to fifth straight day. Dataatalyst was the better than expected out of china. We should mention the yen, as well. Weaker once again. Traders are unwinding along yen positions. These are two competing forces in play. Cable is set for its best week since 2009 on signs of political stability. Debate. L balance, real bank on italian banks in our next hour. Nowme go to bloomberg right and the idea of inflation. The white line is core. I should be put in the Hillary Clark timeout chair for how messy that chart is. The red circle is when we lent when we went below the 100 per barrel on oil. The white line is cpi ex energy. That is what gets the elites attention. Lets call it an overshoot on core cpi. On our lets get more top story, the attack on the french riviera. Greg, the latest, please. It has not really moved that much recently. Major news recently is they did match the documents found in the car to the driver. It is the same person, a 31yearold frenchman of tunisian descent. He has been known for commonlaw violations, household violence, fighting, violence of various sorts, but not radicalization, which underscores the difficulty of stopping these sorts of things. Scarlet absolutely. We have seen president aland hollande speak. What has been the political fallout . We know he has been looking to run for reelection, though he has not declared candidacy. The timing is not great. E was on tv for bastille day he was talking about how successfully the Security Forces had dealt with the euro 2016 football championships, which was true. He said that the state of emergency would be allowed to expire. A few hours later, he has to go on tv in the middle of the night and say that the state of emergency will have to last, the military personnel that had been assigned to domestic security duty that he was planning to run down a little bit because frances military is stretched on every front, he will have to keep them on domestic security duty. Yes. The attacks did not move the political meter that much. After every attack, we say, Marine Le Pen is going to do well. Marine le pen remains popular, but does not really make a breakthrough. Not really sure what the effect is going to be. Tom what is the significance for the french. Greg i have to correct you for it. Marseille is not one of the most polarized cities. It has a greater sense of unity. For instance, there is hardly any frenchman that has gone off to join isis from marseille. There are quite a few in nice, a much more polarized area. All of the attention has been on paris. The last two attacks have been in the paris area. Resonatehe attacks to are around paris. That may be why the police did not seem particularly prepared last night. We are getting comments from people on the streets saying there was not much security around and very poor information afterward. It does seem that may be provincial cities are the weak link. Tom will this change the dialogue of miss Marine Le Pen in france . We saw mr. Trump and secretary clinton last night commenting on this from the distance from america of america. How will this change the polarized political dialogue of france . Greg it is already pretty polarized. I dont know how much more it could change. Her message is not one of antiimmigration. A lot of it is antiglobalization, a lot of it is economic issues. I dont really see what is going to change. She has her view alongside his. This is the third attack. I dont see why the third one is going to make a huge difference that the previous one did not. Scarlet thank you to greg. We will check in with you next hour. Us. Jukes is with when you look at the markets, they are secondary to the events that happened overnight, but there does not seem to be much of a reaction. I can only speak for my french it is glum and it is quiet. There is not a visceral reaction that might cause risk aversion. It is separate to the underlying story of what is driving markets. The pickup in the chinese data, the risk on move. There is no connection to that and the general sadness. Play directly into the elections, the referendum, whatever is coming up in the next 18 months. Of us sadly no, there will be one after this. The uncertainty of the political process in europe, that has got to play into the markets. Where will that be expressed in the markets . Kit i think the Political Uncertainty generally plays through, as much as anything else, in the underlying economy. The uncertainty about politics make Investment Decisions harder. The general sense of angst and continued reasons for Interest Rates to stay low. I would not overstate the political environment in europe. Realization it is a that there is not the quick fix from some Political Party that comes along and says, lets leave the eu or anything like that. I think more and more people realize these are deeper issues. Next hour, robert withts will join us kissinger associates. We will speak to him on the distorted and changed International Relations of france and america. From london and new york, this is bloomberg. Tom good morning, everyone. Bloomberg surveillance from new york and london. Scarlet fu and i and our team looking at the coverage from nice bench trying to make some form of intelligent conversation out of it. This is arguably our most important interview of the day. Truly the expert on this move from jihad to al qaeda to isis the book is isis a history. We are thrilled he has taken time to be with us. What is different this time . , not paris, but there seem to be too many similarities. What is different at this moment. The most important difference is the use of a vehicle, a truck. This has been used several times as a tactic, but this is the deadliest attack by a lone wolf terrorist. A truck has been used to deadly at effect. On as been following calling on supporters to use cars and trucks as mowing machines to kill the enemies of god. Isis has called on filers down westerners in the streets. The lone wolf phenomenon is here to stay. France has a bigger problem than most european countries. A smaller segment of french born, north african men, who tend to be radicalized for a variety of reasons. Scars have not been healed from the relationship with algeria. It is a big problem that is here to stay. This attack could happen anywhere. Whether you are talking about brussels, paris, nice, london, god forbid, it is here to stay. There are no easy answers. Tom when i look at this, i see president hollande using technology to go after isis in syria or wherever and i see mr. Trump in the United States asking, when will we learn . What should be the policy response to the reality, not of institutions like islamic state, but the lone wolf . How do societies deal with this . Fawaz if you ask me, with all humility, i would say there are no easy answers. There is no easy fix to this complex phenomenon. It is very difficult to basically put an end to this particular phenomenon. Think how easy it is for individuals who are radicalized in the privacy of their homes or radicalized online. We have to have resilience, we have to appreciate the complexity of this phenomenon, we should not buy into the rhetoric of some politicians believe there are quick fixes or certain magical wands to deal with this phenomenon. Scarlet tom mentioned syria and how president along hollande will further strengthen airstrikes. To airstrike 70 lake do the airstrikes have any link to these attacks . Fawaz i think so. France has taken a leadership role in iraq and syria as day one at day one. It has taken a leadership role and this has radicalized, has put gasoline on the raging fire inside syria itself. Those radicalized individuals who believe the government is killing muslims. There is a causal link between frances leadership role in the attacks in france, even though we need to understand that there is a larger constituency of radicalized individuals in france than there are in london or germany or other laces. Spoke onetary clinton Fox Television last night, i believe, of we need more intelligent. Everyone is running out of patience. Can there be a greater intelligence to go after lone wolf, angry north african young man . Can we go after them with our intelligence apparatus . Listenif you go back and to the pronouncements of american Intelligence Leaders from 2005 through the present, what they tell you time and again from john brennan and others, they basically spent sleepless nights worrying about the lone wolf phenomenon. What does this tell you . That even some of the most professionalized Intelligence Services in the world, the americans, the british, and the french, are having difficulties finding mechanisms and solutions to the lone wolf phenomenon. We need to have humility and appreciate the complexity. It is easy for certain individuals to be radicalized, to take action into their own hands. Think about what has happened in orlando, brussels, and now in nice. It is much easier than you think. Even though intelligence is important, sharing intelligence is important, and working with local muslim communities in order to tackle this complex phenomenon. Tom thank you so much for joining us today. With the London School of economics. In our next hour, a conversation with a leading authority of the United Kingdom on intelligence and terror. From london and new york, this is bloomberg. Good morning. This is bloomberg surveillance. Im scarlet fu in london with tom keene in new york. We are back with kit juckes. When you look at this left that haslifted lift that lifted risky assets, what is the japanese distinction of printing larger money and distributing it to the public . Kit the thing you notice with japan is that when youve got a negative yield curve after 17 years, everything is below zero, when youve got a central bank that has a third of all the government debt, it is not a big helicopter, superduper, spectacular move. You blur the lines. Centralbank it is paying money to hold the government debt. Government and say, can you extend the maturity . With these terribly blurred lines come you dont need these big events. It has put fuel on markets. Scarlet thank you so much. Here in london. We have much more coming up. We will be speaking with Deutsche Banks chief economist about the state of italian banks and the European Central from london, from new york, this is bloomberg. Scarlet im scarlet fu with tom keene and we have the name of the attacker. Police have identified the attacker. We are still waiting to get more details on the casualty count. We have details. , recapping our top story frances reeling from a deadly attack. A truck loaded with weapons thealong a boulevard driver died in a shootout with police. Along Francois Hollande is extending the state of emergency in france for three months. The truck driver in the attack has been identified by authorities. The attack in france disrupting the u. S. President ial campaign. Donald trumps planned unveiling of his running mate scheduled for today has been postponed after the violence in nice. The deadly assault came hours after reports the Presumptive Republican president ial nominee had chosen indiana governor mike pence. There was pushed back by Trumps Campaign that said no decision had been made. Talks between president putin and secretary kerry failed to bring the countrys closer to a deal on military cooperation in syria. John kerry characterized the meeting as productive, calling the conversation frank and serious. Global news 24 hours a day powered by journalists in 120 countries. This is bloomberg. Breaking news on the bank england. The bank of england will probably push for stimulus next month to bolster the economy after the vote to leave the european union. This follows on the heels of yesterdays decision not to cut Interest Rates. The chief economist of the bank of england saying he will probably push for august stimulus to counter the negative vote toof britains leave the european union. The town has pared pound has pared its gains. Tom he is hugely respected in his own unique way. What i notice in the headlines, the many headlines across the bloomberg, dr. Holding makes it ne makes it clear that the 2 inflation. I would say that they are miles away from the 2 inflation. You wonder how the inflation called dovetails with the desires for people. Scarlet absolutely. He also adds that the post brexit area will not be a rerun of the 2008 financial crisis. Lets return to our top story, the attack on the french riviera. We are joined on the phone from nice by bloombergs senior editor. You were on vacation in the south of france and you are now on the scene. Tell us what you heard. Sure. I am here in nice on vacation. We arrived yesterday and thought. Bout attending the fireworks we went to the scene last night just afterward. That has become all too familiar in france. Massive police and military presence. Police officers with riot gear. , a massiversonnel effort investigation underway. The investigation is ongoing, the promenade the promenade des anglais is closed, the main thoroughfare right along the seafront. It is one of the central Tourist Attractions in nice, a city that depends heavily on tourism. Very much a state of shock today. Most of the people attending the festivities in downtown to watch the fireworks, where they local, where they outoftowners . With a fellow europeans . It was a big mix. There are always a lot of tourist. Nice is a big city. They would have been people, ofh locals, and lots tourists. I spoke to an american tourist who came to washington dc from washington dc to with his family. He said nice seemed like a safe bet because it was not paris. Tom good morning. You worked with scarlet fu for years within bloomberg news. You have spent a decade in france. How has your paris changed over the last decade in terms of this polarization of two cultures . That polarization has always been there. Has changed is this series of terror attacks that have upended life. That is where the risk is there. There is an armed presence of soldiers on the street. Be a greater distance from washington to removed fromice is paris. What is the significance that this event is in the southern part of france near to africa . I dont think that geography plays a role. Ist i would say is that nice in a part of france were the economy is utterly dependent on tourism and this is going to be a big blow. This could have happened in any city in france. There are people who are assuming it is terrorism. There are people who are radicalizedto everywhere in france, it just happened to be nice. Scarlet it happened to be nice. It has happened in paris. President hollande is extending the state of emergency. What does that mean in practical terms . I dont think it changes much. After the european soccer tournament ended last weekend, there was a big sigh of relief that they had made it through that massive, monthlong event with stadiums packed with people , lots of fans traveling in, they had made it through that without any terrorist attacks. There was a sense that it was time to bring this state of emergency to an end. That is clearly not going to happen. It is clear why. Scarlet our thanks to phil serafina on the scene in nice. Thanks so much. We want to get some perspective on how the attack impacted the European Economic climate. David, i wanted to get a sense, there is so much uncertainty from the brexit vote, now you have the return of terrorism and the attacks and what kind of impact that would have on the rest of continental europe. How does this play into the uncertainty that is hanging over the region . David these are certainly shocking pictures. Most of us spend time on sidewalks. It does add to the insecurity that we feel. People are going to be affected by this. It has to a general sense of vulnerability and the failure of governments and security. Pparatus to protect us it is very hard to do, in this case. , the a. Side of it is if we look back at the last six or eight incidents, it tends to dissipate quickly. I would not expect this to have a lasting impact. Defense spending may go up. Tom dear team at Deutsche Bank has written extensively on the italian banks. What is the immediacy of your research solution. David this is not a 2008 situation by any means. The banks are much better capitalized. Oversight is significantly improved. It is not the matter of something blowing up in the next several weeks. Nevertheless, it is a systemic problem that needs to be addressed and the numbers speak for themselves. Have 360 billion of nonperforming loans in the italian banks. 200 billion are of the worst kind, Companies Going solvent already. If you take that against the reserving that has been done, you get to about 80 billion. Against that come all you have is collateral. That is very hard to value. The market value of that is very uncertain. Using ares they are probably optimistic. Tom david, let me come back on this with scarlet. It is so important to get your opinion on italian thanks. On monday, we will extend the conversation on europe, the United Kingdom, and france. Christine lagarde will join me on monday at the new york federal reserve. Thrilled to speak with madame lagarde on monday. Good morning, everyone. Bloomberg surveillance. We continue with david from Deutsche Bank. He and his team have been overt and aggressive about a solution for italian banks. Let me bring up a chart of the animal spirit of italy. Throw this up on the bloomberg surveillance wall. Gdp in italy is not getting it done. Growth is not there. How do they do a bailout, how do they do it bail in, how do they cram down these losses to the italian public with an economy flat on its back . David they cannot and they should not. You have to recapitalize the debt. There are three ways of doing it. One of them under the current directive would be the Bank Resolution recovery directive, the banks need to be in default before you can actually put in publicsector money. The government wants to avoid that. It also means that you cant put in money without being in violation of that directive. There is no way you can do it bail in right now with the Current Situation in italy. The debt of the banks is widely held. It is essentially retail that. To turn to the public and say you have to give up 5 20 of that seems to make no sense at all. Scarlet it would be political suicide for the government. I want to show you the damage that has been done to european banks overall. Basically, you were looking at european banks, down 28 this year. The worst performers are italian banks, five of the six worst performers. Scenariohe best case for these italian banks so that it does not infect the better performers like a Standard Charter . David the best Case Scenario is with the u. S. Did in 2008. Not country by country, bank by bank, but forced recapitalization. It is doable. That would take away the stigma from the International Individual governments. However, that is not going to happen. That is wishful thinking. They will never get that together. Scarlet there is no institution brave enough to push that forward . David no. The ideological divisions between Northern Europe and Southern Europe are two great. It is not going to happen. The next best thing you could do is set aside the directive and allow the tie and to recapitalize the Banking System itself. That is a problem because the germans and the commission do not want to suspend the directive. The spent a long time getting it up and running and now they have this toy and they want to insist on using it. Forbest case you can hope scarlet with the stress test. David with the stress test, is that some way will be found around the tools to recapitalize the individual bank. That is the best you can really hope for. Tom why dont they merge . One of the great mysteries we have, there is a chapter in every beginning econ book about the Financial System and combinations are part of crisis. This seems to be undoable in europe. Why is that . The consolidation of the Banking System in europe is definitely necessary. It is screamingly obvious that that is what you want to do. It is politically very difficult to do. Seem torship structures be uncooperative. They are held by foundations. It is a difficult thing to do, to deal with. From a purely financial economics point of view, some consolidation is absolutely necessary. Tom i want to go back to the urgency of this. You mentioned the stress tests. The equities are trading at excessively exceptionally low valuations. If the vigilantes takeover, can they take over the debate . Do they become the decisionmaker . David that is the mechanism whereby stress like this results in a crisis and equity prices go down, the creditors lose faith, counterparties lose faith, gradually you have a deterioration of your role. Frequently that equity prices dont matter. They do matter very significantly in terms of instilling confidence. This is a very serious matter that has to be dealt with. The chart that you showed very early on, the growth chart, that is at the heart of this. That is why something has to be done. You cannot wait until you grow your way out of this. It did not work in japan in the early 1990s and it does not work here. Scarlet it does not work here. Thank you so much, david. You will stay with us. Later on, we will be continuing our coverage of the terror attacks in nice. We will be speaking with Pauline Neville jones. From london, from new york, this is bloomberg. Scarlet this is bloomberg surveillance. Im scarlet fu in london with tom keene in new york. France is reeling from a deadly attack. At least 84 people were killed in nice, when a truck loaded with weapons, plowed along a boulevard at best deal they revelers. The driver died in the attack. The driver the attacker has been identified as Mohamed Lahouaiej bouhlel. Is extending ade state of emergency in france for three more months. A threeday National Period of mourning begins tomorrow. We want to move on to the Bloomberg Business flash. Scarlet, chinas economy stabilized after policymakers stepped up monetary and fiscal policy support. Gdp jumped 6 from a year ago. Investments slowed. A credit surge has been a prop to growth, even as it raises questions about the sustainability of the expansion. Shares of lion surging 52 in their japan trading debut. The biggest tech ipo of the year. Raised 1. 3g app billion. That is the Bloomberg Business flash. Tom thank you so much. With us, the head of research from Deutsche Bank. Which barely describes his contribution to economics. David, it is friday, we are reeling again from the horror of terror. I want to step back and try to figure out what to read this weekend to pull together the strands within the global economy. Horrific Economic Growth within japan. Weve got all the challenges of europe. We just mentioned the italian banks. We have a new government within the United Kingdom. All in search of Economic Growth. Where does that come from . Well, that is the 64,000 question. We have tried everything in the last six years through centralbank policy to stimulate aggregate demand and we have not succeeded. We now have two thirds to three quarters of sovereign debt the german 10year bond was just issued at a negative rate at negative rates. We have just on qe. We are looking at helicopter money to make it work. What is at the basis of this . Can you curate with ever more with ever cure it more aggressive approaches . With ever more aggressive approaches . Tom that is how i wanted to approach it. Do we have to stop these bandaids and start working on the institutional and fiscal side . David i think it is unfortunate that helicopter money is being used because it detracts from the issue. The issue is more fiscal versus Monetary Policy. , very strongly believe certainly more strongly than others, that Monetary Policy has reached its limits. At this point, it is doing serious damage. Upon bankates weigh profitability. It destroys the mechanism of the credit channel, so it is becoming rapidly counterproductive. Once you reach that stage, then you want to ask yourself, what can you do next if you want to do something . It has to be fiscal policy as the next step. Scarlet to put the onus on politicians, we have seen investors drive down bankshares because of negative rate concerns is it showing up in their lending capabilities and actual result . David most definitely. Negative Interest Rates, the regulatory burden, the long growth. Negative rates are poison for the financials. Also for insurance companies. Tom we have run out of time. David, thank you so much. David thank you. Tom inner next hour, we will go to nice. Phil serafina is with us. In new york, Robert Hormats will very changed International Relations. This is bloomberg. Again, terror in france as the french confront and live continued reality. Mr. Trump asks, when will we learn . In this hour, Robert Hormats of kissinger associates. Prime minister may forms a government. The Italian Government caught between the banks and people. Good morning, everyone. This is bloomberg surveillance. We are live from our World Headquarters in new york this july 15. I am tom keene. With me, scarlet fu in london. I know nejra cehic will give us a full report. But in the last hour, our guests were mesmerizing on this changed france. Scarlet absolutely. Everyone was celebrating a National Holiday eight months after the murderous rampage in paris. France is really once again. Francois hollande has wanted to lift the state of emergency later this month. That has been extended. Tom just horrific. Lets get you an update with our first word news. Here is nejra cehic. Nejra in france, it is the seventh deadly attack in the last 18 months. At least 84 people were killed in nice when a truck loaded with weapons, including hand grenades, drove from one and a mile along the boulevard pact with bastille day revelers. In paris, Francois Hollande says his country is at war with terrorism. Hollande this attack has all the elements to be called a terrorist attack, once again of incredible violence. It is clear we have to do everything in our power to fight this terrorist plague. Nejra he has extended a state of emergency for another three months and will deploy 10,000 members of frances Security Forces. The attacker has been identified. World leaders expressing dismay, sadness, and solidarity with france over last nights bastille day attack president obama condemns what he called what appears to be a horrific terrorist attack. China, germany, belgium, and india, among other nations condemning the violence. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am nejra cehic. This is bloomberg. Tom thank you so much. Economics, finance, investment, and International Relations. Much more on our distorted and changed International Relations. Here is the data check with not much going on. Euro, 1. 1141. On to the next screen. The vix doing better, and equity markets have been stunning. Scarlet, what do you have, quickly . Going on in asia with asian stocks rallying for a fifth straight day. Yenhould also mention the making its way lower. Atoyen at 1. 18 euroyen 118. Week,s down for the premuch unchanged right now. Gold posting its first weekly decline since late may. We will continue to monitor that. Lets turn back to our top story, the attack on the french riviera. Phone fromoins us by france. Scene lastre at the night and have returned this morning. Give us a sense of what it is like 12 hours after the attack here it after the attack. Phil there is still a Massive Police presence. The road that is sort of the essential feature of nice, often packed with tourists taking in the scenery. Part of that road is it off your there are police and soldiers everywhere armed with machine guns in riot gear. They have closed part of the beach, and it feels very much like the city in shock. Scarlet you are obviously there on vacation, as are plenty of other people who were watching the facility who were watching the festivities and the fireworks. Has there been an exodus out of the city . Phil clearly there is a change in the next couple of days. The big nice jazz festival was supposed to begin tomorrow and run for five days. Have beenrobert plant canceled. That brings in tens of thousands of tourists. Those people clearly have no reason to come now, so it is going to affect the tourist economy in nice, which is a big part of the local economy. Tom within the culture of france, how distant is nice from paris . Phil it is a different world. It is known for its sunshine and beaches, whereas paris is the distant capital. Culturally, they are very different, but it is an integral part of french culture. People have a fun spot in their heart. This whole region is absolutely stunning, and it has earned its reputation with tourists as a great place to vacation. It is a fundamental part of france, so it is a long way from paris. This really hits home for all french people. Tom phil serafina, thank you so much phil serafino, thank you so much. And now from kissinger associates, their vicechairman, Robert Hormats. Bob, wonderful to have you here. Again come always under difficult circumstances. For the atlantic council, you have written a wonderful piece, shape, steer, and sustain. I heard that last night in mr. Trumps voice and in secretary clintons voice. What needs to be our amended policy after repeated geographically diverse terror attacks . Co this is bob this is part of a problem. The Global Economic order is being strained by globalization, protectionism, and xenophobia. One of the things that is contributing is terrorism. People turn inward when they are threatened by forces they believe come from abroad, or come from internal dissent within their economies. This is one of the problems, that the economic uncertainties are compounded by this wide range of geopolitical uncertainties. Tom mr. Trumps comments last isht, when will we learn, we havetion of a terror exhaustion and we are distant and removed from the tragedy of this in france. In orlando and in dallas. Exhaustion,error what will be the policy of our next president . Our next president will have to do, as Hillary Clinton indicated tom increased intelligence. Bob increasing intelligence is the first part. Local policing is essential in determining early stages of people who are able to or willing to create these kinds of acts. You need intelligence, good policing, and you have to understand we also have to deal with the center of these terrorist groups, which is isis. But isis now has morphed into a lot of local groups, and a lot of people who were not even part of isis were inspired by all of the information that isis and the hatred that isis pervades all around the world and motivates them to do these terrible kinds of act. So it is no longer a geographically contained problem. It is all over the world, and we are seeing more and more of it here in we are seeing more and more of it. Intelligence and much tub or and much tougher vigilance. The french are much more vigilant than most other countries, but still it does not prevent these things. Perpetrators the in this latest attack and the previous attacks are determined road are determined to goad france. They seem to be succeeding a bit. If you are to advise the french government, Francois Hollande, what should they not do in response . Bob i think they need to work with the Islamic Community in france. The problem is, in france the Islamic Community has for the most part not been integrated into french society, to the same extent we have had in the United States. So their best intelligence in many cases comes from people in that community. That is one thing. The second is, europe in general belgium in particular, which has had its own share of problems and europe in general, the intelligence capability needs to be bolstered. New york city is extremely good at this. The United States is improving a lot, but you need really good intelligence at an early stage before these kinds of things happen. Whowhen you have long walls do not when you have lone wolves who do not have a record who become inspired overnight by this hatred and venom, it is awfully hard to do. Good police work is very important. Local. These things are not ordered from syria or iraq there is so you need police, and you need to go after the center of this. Going after the center is not the panacea. Is it it is in a way a world war because it is all over the world. It is not just the west, but emerging economies as well. Tom we will have much more with Robert Hormats. On monday, a special conversation at the new york federal reserve, after comments from william dudley. Christine lagarde will speak, and i will have a conversation with madame lagarde. Look for that in the 1 00 p. M. Hour monday. This is bloomberg surveillance. Scarlet good morning. This is bloomberg surveillance. I am scarlet fu, with tom keene in new york. Lets check in with nejra cehic. Nejra buyers raising its bid for they are is raising its is for months bayer raising its bid for monsanto. Upping its shares for 55 billion in cash. It was reported earlier monsanto may strike a deal with another german chemical giant, basf. Firsthalf profits slumped by as much as 60 due to weak demand in asia and europe. The maker of omega watches, swatch, is increasing offers to retain employees despite the slum. That is the Bloomberg Business flash. Scarlet lets get back to our top story. The terror attack in france killed at least 84 people. We have live pictures from nice, france, close to where the attack occurred. The country is reeling from this attack eight months after the initial tax the initial attacks in paris last month. Theresa may is making headlines in the u. K. As well. Theresa may is saying that officials will review whether more terror measures are needed. The u. K. Must also redouble its antiterror efforts. She says the u. K. Stands shoulder to shoulder with france. She is speaking on sky news. Theresa may, the new Prime Minister in the United Kingdom, commenting on the tragedy in france. We want to bring in sony could kapoor, along with Robert Hormats in new york city. , we will see much more of this, one way . Sony sadly, yes. The growing this in franchise month of the muslim population, the rise of the far right, are both going to contribute to this. Practice wepycat are going to see. Before september 11, we did not know that an airplane could be a weapon for suicide attacks. Now we have seen incidents in israel before of vehicles being used, but never anything of this kind. It is somewhat surely likely inspire copycat attacks. There is no foolproof way of preventing further attacks. Tom we are 15 years on and you mentioned 9 11. Not even 30 days after that, there is the francealgeria football match in paris. George packer wrote it up in the new yorker, which is maybe the beginning of his protest in this new not terror but new tension that we see within the francearab relationship. What is the to do list to redefine what president launched does . There has to be a point where action is taken. What will that action be . Sony one of the clearest lessons that has come from september 11 in previous attacks, where france increased bombing in syria in response to the paris attacks is that it is more important to think and reflect then be seen to be acting in some very visible way, which shows bombs dropping on the screen. Because frankly, there is no replacement for local intelligence, there is no replacement for making people feel included in the community, and france has been the has been poor in assimilating its muslim population. Those more reflective responses have to do with making sure the economy is actually a growing economy where everybody can have seeare and people opportunities come weather is local intelligence, where people have community feeling, where there is trust, and a very important strategy toward the rise of these far right groups. What is important to remember is that in europe, about a third of the attacks have been religiously motivated, including from islamic terrorism. But about a third have been motivated by far right groups. One response, you will see a further rise in the far right parties, including in france. We are in an escalating downward cycle. Scarlet and of course you have the 2017 president ial elections in france, just nine months away. Is Francois Hollandes premiership in crisis right now . Sony this could go either way. He was already the most unpopular french president in recent history. On the one hand, if he is seen to act well, which so far the response has been measured, it could generate a bump up in his support, as it did in the aftermath of the u. S. Attacks. But that probably will not work but that probably will not last. It is likely to increase support for the right and the far right or it i think this probably dims his prospect for reelection. Tom sony kapoor, thank you so much. Sony is talking there about something we all know. We are exhausted by a careful analysis of these events. As i said before, ambassador, all want action. Is that feasible . Bob i think it is feasible. The question is, what kind of action is required. Boost intelligence, that are city, state, local police. Very important. Tom do we impinge our liberties and get away with it . You wrote about this. Can we impinge our western liberty . Bob that is the delicate balance. On one hand we want a society that has civil liberties. That is the strength of the rest of the west, civil liberties. On the other hand, we will have to do a lot more to get earlystage information on what is going on and what planning is occurring to stage these events. In some cases, they are lone wolves. But another other cases, they are supported by groups, by cells. Getting that information is important, and it a well be as lincoln understood during the civil war that there needs to be temporary compromises. Tom i want to come back to the spear you nailed it with lincoln, the idea of temporary. We will come back with Robert Hormats. We will continue this discussion with ambassador hormats. Joining us will be Pauline Neville jones, former chair of british joint intelligence. No doubt also on her new Prime Minister. From london and new york, this is bloomberg. Inrlet i am scarlet fu london with tom keene in new york. This is bloomberg surveillance. Lets go to our top story, the terror attacks in nice. Pauline nevillejones joins us. Baroness, what is the lesson for the United Kingdom from these attacks in nice, which of course the u. K. Voted this month to isolate itself, look inward more. What can the u. K. Learn from this . Pauline i do not think the u. K. Will do that. One of the priorities is to maintain a close connection with europe. A lot of the relationships are based on relationships that are bilateral in any case. I am absolutely confident that this is an area that is a big contributor to european security. They will continue to play a major role. The lessons for us are clearly that you do need to take advantage of the geography. Truck, there was a great deal of guns. We have the advantage of having gun control in the u. K. , and that is something that you need to hold onto. Generally, they cannot guarantee that it will ever get through. Tom baroness, there is the department the state mentioning that two americans were killed in the nice attack. Baroness, you spoke with the Daily Telegraph years ago about one britain. Prime and esther may weeks of Prime Minister may speaks about a conservative tone. How does your britain be one nation given the terror that we see . Polling one of the things one of the things that has been observed is that there is ira terrorism, followed by international terrorism. We are still here as a Single Society, and we have worked hard at that. One of the things that i think where the u. K. Is a bit ahead from its continental european counterparts is in the push we make actually to create a Single Society so that everyone who lives in the u. K. , irrespective color, we have to work at that. So nationbuilding is very important. Tom we will leave in there. Pauline nevillejones, thank you for joining also own for joining us on such short notice. From london and new york, this is bloomberg. Scarlet good morning. This is bloomberg. I am scarlet fu. Here is they which a rich with the up here is nejra cehic with an update on the attacks. Nejra the french Prime Minister is declaring three days of National Mourning after the attacks that killed 84 people in nice. The Childrens Hospital there treated several children. The attacker has been identified by police sources. More details as they become available. Chinas economy stabilized in the Second Quarter after policymakers stepped up monetary and fiscal policy support. Industrial output and retail sales for june Beat Estimates while investments slowed rate a it surge has i a new poll shows Hillary Clinton holding single digit leads over donald trump in four key states colorado, florida, north carolina, and virginia, according to a wall street journal nbc news survey. The former secretary of state leads trump by six points in north carolina, nine in virginia. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am nejrauntries, cehic. This is bloomberg. We are thrilled to have with us Robert Hormats of kissinger associates, associated with the Fletcher School of diplomacy, as well involved in fletcher is the former institute of International Finance chief executive officer with two decades of service to that organization. We are thrilled to have Charles Dallara with us this morning. What is the Charles Dallara solution for european banking . You have to have unique wisdom on how to fix the beast. How do you do it . Charles good morning, tom and scarlet. It is good to be with you. If i have the answer, but i am glad to share my perspective with you. I think we have a number of things to change if we are going to fix european banking. It is important to recognize that there are a few banks that continue to progress and perform reasonably well, but even those banks are suffering probably from relatively weak stock prices. And then there is the prime there is a problem you focused on. Italian banks, a number of german and swiss banks, and a number of banks throughout the region are struggling to rebuild momentum profitability and make themselves attractive to private investors. I think the key thing here would andbrussels to adopt the leadership of europe, not just for brussels, this is an issue for the chief executives of germany and france and other Key Countries in europe to recognize that the repetition of catechisms by Senior Commission officials constantly repeating approaches to resolving the stress in banking, particularly italian banks, is simply not productive and not going to either way out. Tom you have heard every controlled Institutional Response in your two decades of service. With that said, it does not matter when there are negative rates. The artificiality of negative rates, you cannot get the beast fix, the beast fixed, can you . Charles i would definitely encourage the ecb to think carefully about a path toward exiting from these negative rates because in a world where considerable revenue still is derived, at least in theory, from the loan book, banks are struggling to find Revenue Streams in a world of negative rates. This applies not just to europe, but to japan as well. But i do think that the most immediate steps that could be taken is for the leadership of europe to recognize that there needs to be a compromise, and it needs to happen fast, to enable Government Support to come in and combine with some private sector participation, to stabilize and underpin italian banks. This is crucial because without this, i fear that what is now stress on a few european banks could spread. And i feel that the failure of one bank could become a systemic crisis. Scarlet that is what i want to go to because if you look at european banks for the year, worst performers are a tie in banks. What is the this are italian banks. What makes this sector a more likely candidate to get bailed out then other banking sectors . I think they have done less over the last few years, and this is not a universal indictment. They have done less to rebuild capital, to get their leverage ratios into a comfortable position. They have done less to do with the persistent and underlying and huge nonperforming loan problem. This is weighing heavily. A number of the italian banks, including unicredit, spread their wings a decade ago throughout central europe. Many of these are weighing on the profitability of credit. I do not want to single out this , because there is strong and capable leadership. But the fact is, there needs to be a recapitalization, and it is simply not going to be done through the private sector alone. This is part of a broader problem, where regulators have come out of the crisis in 2007 and 2008 and decided that we must at all costs project protect the taxpayer. This is shortsighted. It is not protecting the taxpayer. It is risky, pulling the taxpayers of europe into a further recession. Tom Charles Dallara, thank you so much. Robert hormats, we talk about negative rates. I do not believe you studied those at tufts, did you . Bob people would have been shocked to hear. It is a relatively recent thing. But there is a problem now, a deflationary environment in these countries. Many of the Central Banks believe the ecb and the bank of japan and others believe that one way of dealing with this is to increase the intensity of Monetary Policy, and push down rates to below what they are today, which is negative rates. Tom this is really important, scarlet. Mr. Haldane of the bank of england, earlier in the show, those headlines of 2 inflation, correctly, where is it . Scarlet with the bank of england going down potentially 25 to 50 basis points, what effect would that have on regional economies . Up on thatarney held for the time being. The problem is you have a deflationary environment, and even if you in effect give away ey helicopter money hoping that people will put money in the banks, spend it on consumer goods, or companies will invest it in manufacturing unless there is some sense of inflation that you can get your money back if you are a Company Investing and will be able to raise prices, you cannot do that. So companies are discouraged from borrowing money even if it is very cheap. And consumers believe if they put money in a mattress it will be worth more in the future because the price of goods will go down. So whatever money they have in the mattress will i bank more goods inwill buy more a year than it will today. Fiscal leaders have to understand that. Central Bank Governors have said this. Mario draghi has said this, mark carney has said this. Then bernanke has said this. We have to have an effective fiscal policy that increases productive investment. Tom lets continue and come back. I want to talk about the contemporary impingements to liberty that you talked about earlier. book. Mats monday i will be with Christine Lagarde of the International Monetary fund. She will have any port in speech at the new york federal reserve, and then she and i will speak on the world and france. This is bloomberg. Scarlet i am scarlet fu in london with tom keene in new york. This is bloomberg surveillance. The french by minister says the government is declaring three s of National Mourning, the french Prime Minister says the government is declaring three days of National Mourning after the attack in nice. The attacker has been identified by police sources. s get the wider european the under secretary to the Prime Minister, matteo renzi we will get to your area shortly on economics, but first i wanted to get the italian response to the attacks in nice. Hours drive away from the italian border. This is certainly a concern to the Italian Government, as it is to all of europe. Your thoughts . Is ready tonment act if needed, in collaboration with the european union, which i would just like to say that our Banking System is solid. A are aware that we have problem that is the product of a long economic crisis. We have no real estate bubble, so part of this is due to the economic crisis that can be managed in our system. Systematic shock will be faced in whatevernment means needed. Scarlet italy is suffering from a fairly weak recovery. What is the governments single best prescription to come back to combat the slow growth . Tommaso Structural Reforms to increase growth in the medium run. A level market. Administrations, judicial reformsall structural that we did not do for many years, and now in a very short toiod of time, we are trying andr market flexibility increase efficiency in the public sector. This means potential growth in the long run, but we are aware needitalian households ,ome stimulus right away cutting taxes and adjusting our fiscal stance in the short run as well. The underur thanks secretary to matteo renzi, joining us from rome. Tom bob hormats is with us and we will continue on american politics and International Relations. But one more try on europe as well. It is a different formula, whether financial or investment or economics. This goes back to when you were a student at tufts. Nothing has really changed in the dialogue. Do you see any desire of europe to do some of the best or good doworse practices that we in america and the United Kingdom . Bob they are different cultures, so they are not going to be doing what we are doing or the u. K. Is doing. This is one of the reasons why the u. K. Decided to pull itself out of europe, although it has not really happened yet. They voted to do that. The problem in europe is that they are going to have to figure out a way of toughening up their act. Europe is a very different place. We thought 10 years ago it would become increasingly united, similar laws, more open trade and movement of people, and now you have these populist rightwing parties, groups that want to separate themselves from countries that tom migration and and refugees. Bob it is refugees, but it is also other kinds of migration, people of different cultures in different parts of europe moving to other parts of europe where they had different cultures. That has provoked a backlash in the u. K. And many other parts of europe as well. This notion of an increasingly cohesive europe has been undermined in part by economic issues, but in part by large amounts of immigration and in part refugees from syria. But the u. K. Issue is not syrian refugees, it was their resentment of evil coming from Eastern Europe and taking jobs it was their resentment of people coming from Eastern Europe and taking jobs. Tom it is a lot different than 10 years ago. And theally different, old culture of europe is changing dramatically. And these new groups of people are just not able to do it culturally. Tom may be a sense it sounds like america. Sense it sounds like america. Richard haass will join us, from the council of foreign relations, in the 7 00 hour. This morning from london and new york, with scarlet fu, i am tom keene. This is bloomberg. Scarlet i am scarlet fu with tom keene in new york. French president Francois Hollande, as well as Prime Minister manuel valls, have arrived in nice. You can see video of them arriving after the attack that left at least 84 dead. France has declared three days of National Mourning area we will continue to france has declared three days of National Mourning. Tom without question, it is a great week for sterling, from to 1. 33. Level up for those traveling from london to paris this weekend,. 8332 is the number you will need to know. With us this morning, and on u. S. Politics, is Robert Hormats, serving the president and secretary clinton within the state department, with kissinger associates. I have to rip up the script and ask you about a candidate being vetted for Vice President by secretary clinton. , thenow admiral stavridis dean of the Fletcher School. Give us this idea of military men as Vice President. Why would secretary clinton look for another Supreme Commander of nato . Bob it is an interesting question. My wife and i were at the reunion of the 50th the 50th reunion of fletcher weeks ago. Admiral stavridis is a man of great integrity and capability. Thes the securities Security Issues we face around the world. He is a man of great quality. What she is looking for by vetting someone of this nature is a person of quality, leadership, of proven leadership. What about military officers being vetted for Vice President . Does it speak ill of our politicians . So. I do not think i think the public wants a change. They do not want politics as usual. To get someone with a different set of perspectives would be very useful. He knows the world and he knows the kinds of threats we are facing europe he knows the kinds of threats we are facing from terrorism, from vladimir putin, and other parts of the world. I think it would do another thing. It would enable Hillary Clinton to focus to a greater degree on domestic economic issues. That has to be her priority. She knows that. Job creation is going to be her goal, support for Small Business and infrastructure. It will give her more time to do that. He can deal with a number of tom i want to link what we see in nice today and bring it back to the United States with your great perspective of history. Vicksburg. Rant is at it is march of 1863, and Abraham Lincoln changed the rule book. He suspends our liberties. Are we going to see that again with endless bouts of terror . Bob he did that. He suspended habeas corpus. The french do not even have habeas corpus to begin with. Tom they have their own rules. Bob they have rules that are not the same as ours. I do think for the i do think for a period of time we will need to do a lot more surveillance, a lot more use of technology to follow the conversations of terrorists and wouldbe terrorists. The courts have to play a role in this. What if you are arguing now whether we should do less or more, we need to do more. We need more information. We need to use modern technology to identify telephone conversations and conversations with these people. We need to find out what they are thinking, what they are doing, and they use technology very well. We have to use it better and work with the europeans and the others to do the same. Tom scarlet . Scarlet bob, you said the electorate does not want politicians as usual. You have donald trump, who is not a politician as usual. I want to bring in my morning mustread. Nate silver is talking about Donald Trumps pic of mike pence. Pick of mike pence. Scarlet why would an unconventional candidate choose such a conventional candidate . Does it move the needle for him . Bob if you are talking about stavridis, an unconventional candidate would bring in a different set of perspectives. The public does not want anyone who is not a politician. I think a lot of what trump says is very confusing, and from my point of view would cause more trouble abroad than it would produce positive results. Hillary clinton is a politician with a lot of experience and that she would be much more effective domestically and internationally. The problem the point i was making about stavridis, contrasting him with mike pence mike pence was a governor of indiana and has been in congress. He has that experience, and i think he has a very conventional set of experiences in both. Stavridis and others that he is not the only 1 i think she is looking for people who have a great deal of ill a great deal of skill. I think her experience is not just as a politician. She has been secretary of state. She has done a number of other things, and obviously she has been a senator and first lady. But she has a much greater set of experiences around the world, so she does not necessarily approach this as a politician. Whoapproaches it as someone is a statesman. She is a great statesman. I have seen her, i have traveled with her. Tom i think you are talking your book. We will continue with bob hormats on radio. We look forward to that. Bloomberg is next. Scarlet fu, safe travels. On monday, my conversation with Christine Lagarde on all bloomberg platforms. Good morning. Jon they country in shock. A country in shock. David w. u. S. Stock markets are each for record highs. Urging caution. From wall street to main , Earnings Data do before markets open in new york. David w. welcome to bloomberg. Im david westin with Jonathan Ferro and alix steel. We begin with the tragic terrorist attack in nice, france. We will have full coverage of the story, going to our reporters in paris and nice. Jon has a look at the markets. Jon a bit of a softer tone in the