>> calling it quits. the french government resigns following a rift on economic policy. a warning from merkel. germanisiting kiev, the chancellor says the clock is ticking to resolve the battle between russia and ukraine. she speaks live this hour. taking the temperature. key data measuring business climate in germany is out now. welcome to "the pulse." i am anna edwards. let's start with that breaking

news. measure of how german businesses are feeling about life right now. business confidence has come in at 106.3. that was against an estimate at 107. the measure of business confidence has come in a touch below estimates. of.3 versus the estimate 107. that marks a number of months where we have seen that number getting lower. four months we have seen that getting lower. let's have a look what the euro is doing. you have plenty for the euro to digest. a little bit weaker in early trade on the back of the comments coming out of jackson hole. mario draghi putting investors very much in mind of quantitative easing. that is certainly the topic of conversation. we haven't seen anything being announced just yet. that was adding weakness to the euro.

then we got the resignation of the french government and now we have this lackluster indicator coming through on the german economy. let's get back to some of our breaking news. france's prime minister has presented the resignation of the government after meeting with president hollande. it follows a disagreement over policy between vowels and the economy minister. caroline connan joins us with more. is that what this is all about, and internal falling out within the government that is calling into question the direct and of the french economy? >> exactly, anna. that comes after the economy criticizing the way that president hollande and prime minister manuel valls are handling the economic policy of france. the economy minister said in an interview and at a gathering of politicians over the weekend

that france was going in the wrong direction. he had to tell the cruel truth, that the failure of the french economy policy, he offered to cut taxes by 16 billion euros by 2017. he was supported by the education minister, who said that the failure of the french economic policy was a result of austerity for the past 10 years in europe, not only in france. he also criticized the german chancellor, angela merkel. wase minister manuel valls very mad after all these comments. he said that they had crossed the yellow line. hollande wanted to reaffirm his authority and decided that manuel valls should present the resignation of the entire government. for now, manuel valls is still prime minister.

a new list present of ministers to president hollande by tomorrow. of course, the important part of all this, the french are going to react in terms of popularity. has lost about nine points of popularity over the past month. he went from 45% to 36%. the president's popularity is at a record low right now. >> where does this leave the french economy? fromre talking to guests bearing berg. they were saying that while a lot of the right noises are being made by the french government, they haven't followed up with policy actions. where does this leave the french economy and the outlook for it? of course, these signals that president hollande wants to maintain his line of economic policy. he introduced a stability pact

earlier this year to cut taxes for companies. that is starting to have an impact. as you see, the french gdp didn't grow in the past two quarters. from that, to abandon the deficit target for 2014, of course we will have to see who gets named finance minister and economic minister in this new team. that will determine whether hollande will change his line of policy. back to you. >> caroline connan on reporting from paris. let's broaden the conversation. hans nichols joins us from berlin. what does this mean for the rest of europe? thoughts about angela merkel and her policy in general very much at the center of what is going on in paris right now. >> it was at the center of what is going on in paris and also the center of some personally acrimonious comments toward the german government. if you think francois hollande's only goal is to spend more, to

break the austerity pledges, to spend more than 3%, it would have been difficult to do that acquiescence if he continued to have month average in his cabinet when he was lobbing grenades into germany. you look at the three big situations that are taking place right now. germany is clearly slowing. it is not contracting but the animal spirits are not taking off. the economy has slowed down. two, the geopolitical risk is acute. ms. merkel was clear about that over the weekend in ukraine. don't expect a breakthrough. the overall geopolitical outlook doesn't seem to be primed for a takeoff of the economy of the recovery. the third one is the one that is really in question. is germany still committed to austerity. about a month ago, you had short tock recommitting himself

saying the important thing is to follow the rules. now you have mario draghi saying, yes, he may be open to monetary stimulus but he wants to see fiscal stimulus at the same time. let's watch closely to see what angela merkel says in spain. spain, at least in the german view, is one of the countries that has made structural reforms and is deriving some benefit. they had some growth in spain. their auto sector has taken off. some of the pearl river he countries have been doing well. they were close to 1% growth. is, aretion in berlin they still that opposed to new additional spending? there is some talk of 300 billion in new stimulus. ncker is talking about. we will be calling our sources in berlin. is 3% still written in stone or

can there be more flexibility? what do the numbers and what does ukraine due to that? >> you mentioned things that are waiting on german animal spirits. one of those has to be the situation between russia and ukraine. angela merkel has been downplaying what we can expect from the meeting of the presidents. that is set to take place tomorrow. we will be listening to what she says on ukraine and the broader question of euro zone growth. yes, she is downplaying expectations for any sort of breakthrough on tuesday of this big summit in minsk. is, willr question there be a resolution to the gas crisis? was perhaps an overlooked factor of what merkel was talking about over the weekend. she said it is not time for a red alert yet. but they are getting awfully close. when you look at the overall

economic feel in germany, you can't discount concerns about russia. you saw carlsberg last week getting hammered. the russian situation, even though it is only the third biggest trading partner, it is weighing on people's conscious. off scenario, you could have more calls for more stimulus. that is a big if. we don't want to point stimulus into the government's mouth. clearly there is some entrenched opposition to the idea of spending more to get out of this. >> thank you very much, hans nichols reporting from berlin. let's move on. air disasters, malaysia air is said to be considering a complete overhaul. the company is reportedly considering thousands of job cuts and looking for a new ceo. david ingles has the details from hong kong. we knew that the government and the sovereign wealth funds were

considering a big rebound. what is new this morning? -- thiswe know so far is based on people familiar with the matter, just for things. they are revisiting orders for new aircraft. they are looking at perhaps cutting down. we could see a lot of job cuts. just to put some context, 19.5 thousand, more or less, was the number of employees malaysia air had last year. about a fifth of the workforce could go. between 3000 and 4000 jobs. the firm and its largest , is also talking to as many as three people as potential replacements at the top for the current ceo. will be this week, they reporting earnings, which will correspondence we

will see for malaysia air as a public company. the major rebound was for the sovereign wealth fund to take the airline private. the twoanges on top of disasters they have had to deal with this year. they have been losing a lot of money because of competition here, especially along the short routes with the budget airlines coming, not only in southeast asia but right across the region here. we will continue to follow this very closely. back to you. >> david ingles reporting from -- on that malaysia airlines story. coming up, poroshenko's plan. what comes next for ukraine as the country's leader prepares to meet president putin of russia. ♪

>> welcome back to "the pulse." we are live on bloomberg television and radio and also streaming on bloomberg.com. let's return to our focus on the crisis in ukraine. vladimir putin meets with his ukrainian counterpart tomorrow in belarus. the meeting comes amid spiking tensions between the two nations. can putin and poroshenko stem the fighting? joining us now is chris weaver, a senior partner at macro advisory.

thank you for coming in. i want to get your response from a few things that are coming in from russia right now. foreign minister sergei b saying russia is planning to send a second aid convoy to ukraine. we saw the controversy that surrounded the first. do you think these aid convoys from russia -- are they escalating or de-escalating tensions around this situation? >> i think they are clearly escalating the tensions. over theat happened weekend where chancellor merkel and other western leaders referred to the trucks crossing the border as an escalation. it is keeping tensions high. it creates that a fairly tense backdrop ahead of tomorrow's meeting in minsk. no question about it, this is ratcheting up the pressure. angela merkel, the german chancellor, has been downplaying the chances of anything material coming from that minsk conference.

what are you expecting to be the outcome of that? >> i think she is absolutely right. the important thing about this meeting is that the two presidents are finally sitting down face-to-face. i wouldn't expect much to be on that agenda. the important point is that the first meeting will lead to a series of meetings and perhaps more serious discussions in the next couple of weeks or months. both presidents are now under pressure to try and draw a line under this conflict. neither president can afford to do that in a way that cedes anything to the other side. that is why the situation is difficult. russia is not going to walk away from east ukraine. that theysomething will point to as being in its favor. the clock is ticking on both presidents. both have economic problems.

president poroshenko is likely to have to call parliamentary elections. it comes against the backdrop of a serious deterioration in ukraine's economy. the country is burning through the money that it has been offered by imf and others. it is likely to need more money, perhaps even asking for more money early. >> we are showing live pictures of sergei lavrov speaking in moscow. outnder if you could spell in more detail, how is the clock ticking for moscow? it seems the popularity of president putin has been benefiting from the tensions in eastern ukraine. minded ton very much find a solution to these tensions right now? say, the president's popularity is high and there is no domestic political pressure. you have to be mindful that situations can change.

moscow, there is definitely a strong sense of support for what the president is doing, a very strong sense of allegiance against sanctions. nevertheless, the economic omers are beginning to take a downturn. the economy minister recently downgraded gdp growth for june and july into negative territory. if this trend continues, we could certainly be very close to a recession by the time we get to the end of the year. inflation is back of over 7.5%. russia's retaliatory actions on banning imports will only worsen that. i think you are right. importance of the president's actions is very high. the people at the kremlin want to be careful not to undermine that and a deterioration of the economy over the winter might test that. there is pressure to end this conflict.

>> looking at what ukraine needs at the moment, looking ahead to the autumn, they have an international conference coming up. they want to secure more funding. will they need more money from the imf? is very likely. even yesterday, we heard president poroshenko pledging $3 billion for military spending. that is a new spending item. the budget deterioration has been a little more rapid than expected. alreadyn ministers have been saying publicly that it is likely the country will need more money. calculations is that it will be $5 billion in addition to the $20 billion pledged in spring. ukraine will want to be sitting down with donor countries. thatard from the ministers they would like to have a donors conference to talk about a marshall plan.

clearly, that donors conference can only play place -- take place if there is some substantial de-escalation of the east. the parliamentary elections, if they are complete. those are the key conditions for any additional money to be offered to ukraine. >> thank you very much for joining us. joining us from moscow. still to come, we continue our conversation on ukraine with the ceo of concorde capital. he is calling for a peaceful end to the ongoing conflict in ukraine. hear his message to president putin after the break. ♪

>> welcome back. of russian, ukrainian and international business leaders has joined forces to promote a peaceful resolution to the conflict in ukraine. our next guest stands with richard branson in seeking peace. joining us on the phone is the ceo of concorde capital. thank you very much for joining us. i understand richard branson has said that your group has been asking for a meeting with president putin. have you received any response? will you be meeting with putin soon? >> that is a good question.

[indiscernible] ukrainian leaders are appealing but they never come to moscow. that is why the business leaders of ukraine and russia are united to discuss the situation and find a resolution. >> many business leaders have decided to not comment on this and stay away from it. why do you think it is important that businesses speak out on this matter? >> hundreds of people are dying

on each side of the conflict. down andcture is going there is a lack of water, electricity. this.s one side of , manyher side is businesses are involved in the situation. they are supplying ammunition, military equipment. most prominenthe business people of ukraine are busy not with the nation, they are just thinking about the war and how to fight this war. again, there is no resolution for five months.

there should be a different approach. people are busy with war anyway. igor, you said that the business community stands ready to do whatever it can. what can it do to help resolve this crisis? again, the normal rate of communication is not working. we have not seen any communication between the leaders of the two nations, mr. putin and mr. poroshenko. they may meet each other in -- the political leaders have different goals and different agendas. business leaders have common goals and agendas.

we want to use our influence on the politics. , the ceo ofpa concorde capital. we will take a short break here on "the pulse." back in two minutes. ♪

>> welcome back to "the pulse" live from bloomberg's european headquarters in london. i am anna edwards. inaine announce an increase military spending before preliminary peace talks with president vladimir putin tomorrow. unveilednian president an increase in defense spending. putin will meet with his ukrainian counterpart during trade talks in the belarus capital of minsk. an alliance of islamic militias says it has gained of tripoli's international airport. weeks of fighting with a rival

force triggered an exodus of foreigners. libby is defunct parliament says it will temper every resume -- temporarily resume sessions. and french prime minister manuel valls and his government have resigned. president francois hollande wants to name a new cabinet tomorrow. valls offered his resignation after the economy minister made comments saying the government should do more to help growth. one of our top corporate stories, more m&a sweeping the pharmaceutical sector. roche agreed to by intermune for $8.3 billion. bloomberg spoke to roche's coo about the deal and the company's strategy. continue to work on acquisitions like this. this acquisition is part of our roche strategy as we move forward. we have a very attractive portfolio and a high bar for products that come into the roche group.

this is a very good example of what we look for to complement our rich internal franchise. philr more on the deal, joins us live from paris. what will this acquisition had to roche's portfolio? drug for aes them a respiratory illness. a respiratoryave salesforce in the u.s. selling older medicines. this gives them a new drug. it will probably be approved in the u.s. this year. analysts expect it will have sales of $1 billion or more. this gives them something away from cancer, helps them diverse a vile little bit and use their existing salesforce so they can get this new product on the market. >> at bloomberg, we reported this month roche was pursuing a buyout of chugai, the japanese company that it already owns half of. what happened there?

are they working on two deals or is that one kicked to the curb? >> that one seems to have been kicked to the curb. roche expects to interest -- expressed interest in that deal. the response they got was not welcoming. roche turns its attention to intermune. we see this a lot in pharma. the business development folks are always working on everything that crosses their desks. if something doesn't work out, you have another opportunity. roche has been very active in m&a. they are looking at small deals like this as darren o'day said in our interview. >> he was talking about wanting to do these types of acquisitions. might we see more deals like this? will they be of a similar nature? >> absolutely. roche has made clear they are not interested in the megamergers we have seen in the pharma industry this year with

pfizer approaching astrazeneca. roche is happy with the business the way it has played out now. they have a big diagnostics business and a big pharma business. they are looking for projects and technologies they can add to those two. they are generating about $16 billion a year. we will see more deals from them. >> thank you very much. phil joining us from paris. now it is shaping up into a big week for telecoms. not only our earnings for vivendi out on thursday, but the race for its brazilian broadband heating up. telefonica and telecom italia telecometing with italia considering an offer of 7 billion euros. joining us now is roderigo to tell us more. thanks for joining us. why are these companies fighting ? what is so exciting about it? companies, brazil is

a huge deal. it is their second market. the possibility of a higher presence in the fixed line sector, which neither of them are big on. brazil is a big market for them and it is a huge margin market. that is why they are trying to snatch this company. >> what do we expect next in this battle? telefonica has declared its hand. we have yet to hear what telecom italia has to put on the table. >> that is the biggest question mark everyone has. the biggest thing we have to wait for is the position. the last thing vivendi says was that they do not want to sell gvt. telefonica came with this offer and now telecom is discussing bears. we have to see what the official italia andom telecom

then see what vivendi responds to both offers. the telecom italia board meeting is tomorrow. vivendi should meet on thursday. after that we will have more clarity. >> who is going to have the upper hand in all of this? difficult to say when we don't know the details of the telecom italia offer. do we have any clues? >> there is two aspects to this. the first is the financial one. telefonica is in a better position. they have cash, not all stock. also, telecoms general financial situation isn't as strong as telefonica's. they would have to turn maybe to equity markets. cashonica can come up with and say, we are willing to pay ask amount. the second aspect that is important to bear in mind is the personal interest the chairman of vivendi may have regarding

italy. he has already got investments in italy. he is an investor in medio bank. there is a kind of more personal relationship there which may be telefonica does not have. >> thank you very much for joining us. roderigo joining us from madrid. food forcome, financiers. a tasty investment that lets you put your money where your mouth is. that is after the break. ♪

>> welcome back to "the pulse." that leaders have declared they are not close to giving up in the violent conflict with israel in the gaza strip. that is after the israeli president warned that any targets connected to hamas in the area would be considered a target and should evacuate. there are also signs the seven-weeklong conflict could push the israeli economy into contraction. let's talk on the phone from jerusalem to bloomberg news reporter david. what has been the economic impact so far on israel?

impacted,ve been haven't they? >> yes, they have. both by the war and the fact that israel's shekel is a strong currency. that is something that was already hurting the israeli economy. we just cut second-quarter gdp figures that showed a drop from 2.8% down to 1.7% in the second quarter. for a war which started in july, it is already coming on top of that. economists here are raising concerns that it could drop 1% to bring the economy down into a contraction mode. >> bring us up to speed on what other problems are standing in the way of any kind of cease-fire agreement. >> the problem is basically that both hamas and israel have a series of demands that neither side is willing to agree to. hamas is demanding an immediate ease of the border crossings

that gaza has with israel and egypt. it is also demanding that israel allow it to open sn air and seaports. those ones were in operation but israel concerned about weapons shipments has closed them. israel wants any easing of the border crossings to be connected with international supervision and a deep militarization of hamas -- a demilitarization of hamas. they are not prepared to talk right now about the sea and airport. neither side is budging on those conditions. >> do you see anything that is going to lead to a truce? ,> there are efforts being made particularly by egypt, to come to a temporary cease-fire. we have had several already but they have all broken down. egypt once again is trying to bring the sides back -- egypt has played this role in the past.

in two prior conflicts. egypt trying to coach the sides back to cairo. there are reports that it has reached out to saudi arabia to have some influence on hamas and reports of countries like qatar and turkey which are supportive of hamas trying to bring this about. we will have to see. as of today, we don't see a real signs of this. there is always the possibility. not a long-term agreement but may be a temporary truce. >> thank you very much for joining us. now let's get some company news for you this morning. a pilot's union is threatening leptons a with industrial action after talks over its retirement benefits broke down. the trade union warns that strikes could take place immediately and will be announced in advance. the german carrier has faced a string of strikes, mainly centered around wage demands.

food giantn fast burger king is in talks to buy canadian coffee and doughnut chain tim hortons and move its headquarters to canada. this would make it the latest u.s. company to seek a relocation to a lower tax country. the merger would create the world's third-largest fast food chain. nestlé begins its previously announced 8 billion swiss franc buyback program today. the world's largest food company is repurchasing a 3.5% stake based on its august 21 closing price. it is expected to run through december 30 of 2016 at the latest. german business confidence dropped for a fourth month. it reflects a faltering euro area economy that ecb president draghi says might need more stimulus. here for more is the director of surveys with the institute. he joins us on the phone from munich to talk us through the latest data. thanks for joining us. slowdown ine the

the german economy is coming from here. the dropin reasons for of the business climate comes from the industry. further's do not expect -- we have a strong domestic economy, but the uncertainty coming from ukraine and the east and clinics. they are the main drivers of the downturn of the climate. >> do we read into this a ukraine-russia impact? is it to do with direct sanctions or with hesitancy on the part of businesses to invest when things are geopolitically uncertain? >> i prefer the latter one. a general uncertainty affects sensitive industries like the

capital goods industries. it is not an impact from overall numbers in the industry but the uncertainty channel. >> what is the attitude among german business leaders about the sanctions environment? we hear from individual businesses now and again about what a thing should happen, whether they do or don't favor sanctions being imposed. what do you think? what does the business community say about this? >> talking to business leaders in germany, officially in favor of sanctions, but from my point of view it would be kind of a solution to the crisis to have some security about future business plans. officially, they are in favor of sanctions. internally, i don't think so. >> what do you make of the comments from mario draghi at jackson hole over the weekend? are people are going --

wondering whether we are going to see further stimulus from the ecb. don't think we can have stimulus for the german economy. the interest rates of germany are too than one year low for the german economy. [indiscernible] >> do you think that further stimulus is likely? do german businesses want to see further stimulus so we can see a pickup in growth outside germany? i think we are going to see further stimulus from the ecb. the interest rate channel is coming to an end. we cannot further decline interest rates. maybe other instruments might be

used on the side of the ecb. >> thank you very much for joining us. the ifo institute in munich. a london food chain is offering nu,e unusual on its me arrigo bonds. you will not only get interest every year, but free food whenever you visit one of their stores. we went to see if these many bonds are a tasty investment. >> the burrito bond is a simple concept. you loan us money and we pay you an 8% annual interest. it is a 500 pound minimum investment. we throw in some food as well. anyone who invests gets a couple of free meal vouchers. those who give 10,000 pounds or

more get the black card. there are 80 of those people so far. that entitles them to a free meal once a week for the duration of the bond. that could be up to four years. we have been going for seven years now. our first restaurant was on upper street. spots thatp two didn't work for us. coming out of that, we became stronger as a team. restaurantsseven and the burrito bond will help us fund the next three. i grew up in chicago. few people realize it is home to the second population of mexicans in the united states. to grow up in chicago and not like mexican food, you are

probably setting yourself up for starvation. word has a bit more to it than that. we ask ourselves the next question. why does anybody want to live in a big city? for us, it is about the vibrancy that you find in big city life. we strongly advise everybody to consider investment in the burrito bond. speak with your financial advisor before hand, before making an investment. at the end of the day, what we are offering is an attractive investment opportunity. that is for every person to decide for themselves. there can't be many fixed income investments that come with free lunch. we will take a short break on "the pulse." see you in a couple of minutes. ♪

>> welcome back. ikea has grown to become the world's largest furniture chain with sprawling out-of-town showrooms. now it is trying something different in germany in a city store. our intrepid reporter, hans nichols, i attempted to do it like the hamburg locals and transport the furniture home with a push bike. >> the sign is the same but

there is something different about the store. city in the pedestrian center, not a suburban parking lot. that means no cars to ferry your goods home. meet my colleague in the german city of hamburg. he is on paternity leave and has his hands full. i am going to try to lighten his load i proving or disproving that you can do and ikea shop without four wheels. that means public transportation and a short walk. the store, one of three in hamburg and 49 in germany, is an expensive bet for the swedish company. it is 25% smaller than most stores and with almost twice the expenses. we invested more than 80 million euros. we knew that in hamburg we had more than 43% of people without cars. if you look at the store in

20%in, we know that between and 30% of people came without cars. >> i have my colleagues essentials. now how do i get them home? ikea is offering transport bikes. they are free for the first three hours. if you are helpless, they will even help you load up. and then you are off. it is a little. i don't know if i am road legal or not. best to maybe avoid standoffs with cars. i think they respect me, but i have got a belt. bell.

>> good to see you. >> we have some work to do. >> a little help? >> you are on your own. i have to get that bike back. you have your helper. >> we made it. we prove that you can do a big ikea shop without a car. next time i think i will take a taxi. >> he is no kind of friend. friend has a new baby and he turns up with furniture and a houseplant. for those listening on bloomberg radio, the first word is up next. for our viewers, a second hour of "the pulse" is coming up. the french government resigns. we talked to thickly about that. we will also talk about the spanish economy. angela merkel is delivering a press conference from spain, from the north of spain. that is due this morning. some further

analysis of the jackson hole conference. michael o'sullivan will be joining us to talk about assets in the wake of that conference. you can follow me on twitter. ♪

>> con acquits. the french government resigns after a rift over economic policy. we are live in paris. a second aid mission. another convoy of trucks is going to ukraine this week. you're looking at live pictures. taking the temperature of germany's economy. good morning to our viewers in europe. welcome to those just waking up in the unist