>> the end of the road. germany's finance minister said the e.c.b. has run out of ways to get europe growing. our exclusive interview this hour. boots over the border. kiev begs the world for help as nato says 1,000 russian troops have now moved in. and a basket case. tesco shares down as the company slashes forecasts and dividends. good morning, everybody. welcome.

you're watching "the pulse" live in our european headquarters. germany's finance minister said the e.c.b. has now run out of ways to help the eurozone. that puts the burden on governments to spur growth without critically running excessive deficits. data will be out in one hour's time. he spoke with caroline at the annual meeting. >> what mario draghi is saying again and again is that it is not to the e.c.b. to implement because monetary policy can't -- the parliaments and we agree 100%, monetary policy policy has to take its responsibility. monetary policy can only buy time. the underlying problems.

fiscal policy. economic policy. in this globalized economy we have to work for -- ongoing again and again to announce competitiveness because markets are changing very fast. if you look at what is going on in the global economy, there are varying problems. every member said we have to stick on -- to enhance competition. if we will be come placents, even in germany, we are fine tually but if we would not continue to enhance our competitiveness in coming years, would lose. >> should the e.c.b. do more to fight inflation? >> i don't think that the e.c.b.'s monetary policy has the instrument to fight inflation to be very frank. interest rates are on a historical level low.

u can't solve the problem in lowering interest rates. the liquidity of markets is not too low. even too high. therefore we have the problems. i think monetary policy has come to the end of its instruments. therefore what we urgently need is investments. regaining confidence. by investors, by markets, by consumers. germany, we have of course our economy -- geopolitical risks in the given situation. but on behalf of our exports but our growth is driven by internal mand because have a -- consumers and investors as well and the reason we have such a high confidence is that -- it is

sustainable. we will stick to what we have promised and we will continue to stick on the investments to increase, we have investments. we are working on this. of course we have to -- expenditure for research and development and that's what the french government has also decided to do. >> fascinating stuff. caroline join us us. you also talked about the french reshuffle. what were his thoughts on that? >> yes, the visit of the finance minister had been planned for a long time. of course he didn't expect to be such -- so much in the spotlight the middle of these -- this crazy week for france, the cabinet reshuffle and the austerity policies.

he told me he was not happy at all that the former economy minister's comments about austerity, prices, directly pointing the finger at germany. remember he said that austerity policies in europe where -- were dogmatic and absurd. here is what he told me about this debate. >> to be very frank, we were not very pleased when we got what the former minister of the economy said over the weekend. we have been happy that this has not been agreed by the president of the republic, by the prime minister. >> he also told me he endorses the new economy minister. that he sees as a more pro business liberal economy minister for france.

he said that competitiveness is going in the right direction. now of course he says he is confident that france will stick to the rules but as you know, the deficit targets of france have already been burdened and french deficit will be above 4% of g.d.p. this year. he said he is confident his french colleague will do everything they can to bring the deficit back to the 3% target and of course germany need france to recover because otherwise it is holding back the whole eurozone growth. especially at a time when germany is also going through their slowdown. the minister also told anyway the german economy is being -- by russian sanctions even though he doesn't realize their growth targets for this year. back to you. >> we're looking forward to hearing more from that

interview. thank you very much indeed for bringing us that. we're back in paris a little later. in the meantime, let's move over to ukraine. the nation says russia has invaded and president poroshenko is asking the world for help. hans nichols joins us now first there was a u.n. security council meeting and then president obama spoke. in terms of how united the front is against russia and the information we have, where are we? >> well, it seems like there may be division within the u.s. government. when the u.s. ambassador to the united nations spoke, her language was much stronger than president obama when he went out a few minutes later and spoke to the cameras. he declined to call it an invasion and basically said this is an escalation, continuing behavior, pattern of behavior from russia but it didn't mark an invasion. that is a crucial distinction. at the same time obama ruled out military action and after that

press conference, the white house put out a statement saying that president obama and angela merkel had spoken by phone and they are talking about consequences. merkel seems to be inching towards another rounds of sanctions but not new secretary tomorrow sanctions. much of this will be discuss tomorrow at an e.u. leader's meeting in wales and next week you a nato summit. the backdrop to this is vladimir putin is praising the rebels inside ukraine. remember this is southeastern ukraine along the water there. so a different front from where they were before. at the same time, 20,000 -- this is according to nato, 20,000 troops are on the russian border. they are there. no one quite know what is putin's next move will be. >> everybody is watching carefully as we begin to inch our way into winter. we're talking about more sanctions here and we had energy talks between the e.u. and

ukraine and gazprom and we're thinking about how cold it could potentially get this ecked winter. >> well, we'll know a little bit more on how much progress they are making. the e.u. has a plan. a short-term payment and international arbitration trying to solve the long-term dispute. we spoke with the e.u. energy minister. here is how he put it. it would be to afterwards have decide -- be effective for everybody. >> he plans to head to moscow tomorrow for more talks, guy. he said look, clearly the e. sumbings making contingency plans, is aware of the fact that yaws could cut off all natural

gas supplies to europe this winter. 15% of supplies is going to be a very big and very cold story. guy? >> yeah, and you're going to be monitoring that very closely. let's turn to our top company story. tesco shares are under a little bit of pressure. they cut the profit forecast. let's find out how much of a basket case it is. caroline hyde is here. it is not like this is the first time we have had bad news from this company of late. >> it is not. this is the worst since january 2012. what happened is philip clark had town vail the first slash in profit forecast in two decades and he hasn't caught a break since. on his departure, he is going to leave a month earlier than planned and they had to make him swallow all the bad news. you have to cut the capital expenditure and slash the

dividend by 75%. now we want to bring in the brand manager rather than the shopkeeper, dave lewis. this is a company that has seen just this week, posting they had the worst sales decline in two decades . market share has fallen sub30%. now 28.8%. discounters are eating at them from the bottom. you and i are becoming savvier. we're going our discounters and buying our meat and products. tesco is a huge asset in the middle that can't -- >> is this then getting all the bad news out before the new boss starts? >> i think certainly yes. they have a whole load of bad news there. they are trying to clear the deck. you have to ask yourself what

can lewis do? he has to rebrand tesco. they have been trying to make changes. the changes to a certain extent worked. in london they were already up to that refinessed 80 stores. and the sales have risen there. if you go to bank, if you go to a store there, if you go to white chapel, it is more about the indian spices. i was in notting hill for the carnival. they had all the caribbean products. they are trying to make it far more local. it is working at the moment. is it a question of time or totally changing their entire ethos and make is that your the products that the premium and the likes of unilever krks he that? >> a very big worings a lot of people invested in the current culture. it is going to be interesting to see whether one can deliver those changes. >> when you have 30% of the

market, where do you go from there? >> 31. >> one would hope. but that hasn't been the case. they have not suddenly hemorrhaged. this is a huge juggernaut that has piled a lot of money into real estate. they have invested in restaurants and bakeries and coffee shops trying to keep up to date but this is years of underinvestment they are trying to play catch up to. i think for the time being it is going to get worse before it gets better and the shareholders are worried. slashing dividends is never appetizing. >> certainly not. still to come, the robot sidekick has literally out of this world. we'll show you how japanese technology is helping astronauts handle isolated space travel and we'll show you the unusual companion and the difference he is making.

♪

>> draghi saying again and again hat is needed. >> that is the german finance

minister speaking to us exclusively. he said the e.c.b. has pretty much run out of twice help the eurozone get growth going. it is now up to the government to do more to spur growth. is that true? does mr. draghi listen to him? should he listen to him? the head of maker economic research joins us now. do you think draghi has run out of road? >> not at all. structural reform is a good thing. but it will take years to implement. we have already seen more than five years on from the global nrble crisis that any adjustment euro land managed to achieve will be the expense of loss of output and record unemployment. unless those structural reforms are supported by monetary and fiscal policy together with the necessary debt writeoff, euro

land is headed for demand deflation. staggering that the eurozone is still, especially in the corporate and the government sector having excessive debt. >> right. >> now if that has to be worked out, what the e.c.b. could do is u.k. style quantitative easing. but contrary to what quite a lot of central bankers think, quantitative easing doesn't work through compressing the premium and the credit channel. what it does sin ject money directly into the economy bypassing the banks and supporting nominal domestic emand. >> q.e. , when you have yields where they are at the moment.

are the opportunities to be missed? how about the opportunity to do full q.e. already passed us by because we're factoring in a much more different scenario than the one the u.k. continue bait or the u.s. contemplated when they implemented q.e. ? >> it would have been a good idea to have q.e. or to have had q.e. earlier but that didn't happen. that is not to say that it is not a good idea for the e.c.b. to still go for q.e. and as i was trying to explain it is not through yields that it would work. it would work through supporting the amount of money this the economy. >> would they be better -- would there be a better way of doing it than -- >> than buying government assets? > that is the problem in euroland in terms of the political opposition to that. yes, other assets would be a good idea.

it become vrs tricky, though, for the e.c.b. to judge what other assets it could buy. certainly their plan for the a.b.f. market that, market is too small. what the eurozone needs is large q.e. so then which other assets can they buy? equities? >> bank debts. all kinds of other options could e out there. i'm challenged by the idea that q.e. is the best ox option here in europe. i'm curious to know whether or not -- look at all the options. i'm wondering how they are running through the the various options on the table at the moment. >> if q.e. is not -- a good option, what would you say would be a good option in your view? >> i'm not sure. i agree with you that the a.b.s.

market is too small. you heard what carney and draghi said about trying to expand that market. the it is something that would take time. if q.e. is all we're left with for government bond q.e. , the only thing we're left with? >> pretty much yes, i'd say. what we might see next week is en further lowering of the already negative interest rates in euroland in order to incite banks to take the -- but that is very much the wrong method. trying to stimulate the take up of more debt in an economy that is still suffering from excessive debt, that would not be a solution. o then you look to -- well, in terms of monetary policy, leading to the fiscal -- structural reforms, what else can the e.c.b. do?

and it can bypass banks inject money directly into the economy. it will allow the necessary structural adjustments and the necessary and must stress write-up of debt to go through without severe recession. and the e.c.b. has that option. or has that policy too. now on the other side of the story, yes, it would be a good idea if the eurozone wasn't so fixated on this tight fiscal policy. however, that seems highly unlikely to change and yes, structural reforms are needed. >> is it more likely that the germans will accept that we embark on a massive program of q.e. given their fear of hyper inflation or is it more likely

that they will accept the fact that maybe we need to start changing the fiscal rules and allowing more spending to take place. it strikes me neither of those two are comfortable options for berlin to deal with. >> i think what is likely to ppen is that the e.c.b. will ultimately go for q.e. but it will be much smaller in size than needed. and i think the germans will be more prepared. >> isn't q.e. almost the worst case scenario here though? if we end up with q.e. but it is not big enough? >> yes. yes. i would agree with that. it will be worse because it will create a sense of for a little while that maybe it is working in terms of its support to asset prices and it wouldn't be. and especially at the moment you ill have this very pro cyclical push to require banks

to raise their capital to asset ratios. >> we'll have to leave it there. thank you for joining us. i've taken up too much time. we'll take a break and see you in a couple of minutes. ♪

>> 268 is how many miles per hour the fastest train can

travel at. the train floats above the tracks to reduce friction of course. it cost around $1.2 billion to build. ♪

>> hello, everybody. welcome back. you're watching "the pulse" live from bloomberg's european headquarters in london. i'm guy johnson. david cameron is making another plea to scottish protesters to emain a part of the e.u. he said there are huge benefits for being in the union. >> our single market is one of the greatest advantages. if we stay together scottish businesses have better opportunities. consumers have more choice. scottish people have more secure

jobs. all of those great advantages at risk by going into the great unknown. >> president obama does not have a strategy for confronting the islamic states ouffed iraq. he ruled out plans for immediate action in syria adding that air strikes in northern iraq will ontinue. the e.u. are blaming russia for thesque nation fighting in ukraine. president putin's troops have crossed into the country. the two groups are discussing the possibility of more sanctions. ok. let's stay on this tensions with russia. in an exclusive interview, germany's finance minister said the crisis with ukraine is impacting the german economy. he warned of dangers of military

scalation in the region. there are crisis that is caused by russia does harm our economy. you have to be clear in the hierarchy. to stabilize the political situation. to make clear and sure that we will not fall back in -- we will borders and -- iolence. we want to have partnerships of course. everybody wants to have partnership. as close as possible. but of course everyone has to

stick to the rules. we cannot accept that this will -- that it will be violated by force. >> are you -- you need to revise your growth tact for this year? >> no, we have been very casme. -- careful. had experts in the economy a higher forecast for our growth. we have been very careful and we were not so optimistic. targets and economic targets. >> germany is a big customer of russian oil. >> we want common persistence by ll europe.

angela merkel is working again and again and i think we have been rather successful in finding a common european position together with the united states. what we have decided in the financial markets and i think what we are trying to find is the right balance, not to work for escalation. and to help russia to correct its own policy but to make clear to russia, russia has paid a rice. it is not really acceptable for russia. >> the german finance minister. she also asked him about the political turmoil in france, this after the government's reshuffle earlier this week. >> i think it was a good decision and we are fine with it. i have met my french colleague, who used to be the finance minister.

i am happy that he will ontinue. >> do you think that the french economic policy is in the right direction? >> it is it is what we agreed we have to do. we were not nk very pleased when we got what the former minister of the economy said over the weekend. we have been happy that this has not been agreed by the president of the republic, by the prime minister. the economy has -- the same as the finance minister -- the prime minister yesterday -- from the university where france will work on enhancing competitiveness. which is crucial for all of us or sustainable growth.

we have to regain confidence. by markets, by investors and consumers. to stick to what we have agreed o. >> i think france will do what is needed. it has been agreed again and again and again. >> are there economic reforms in germany that could be a model for france? >> every country has their own -- we have the -- market economy. i think our -- is good partnership.

think between companies and the union. we have very good experience. in this direction, i think the which has been announced by the french rep. is in the right direction. we are very supportive because partnership is a good way to implement reforms which is eeded in -- but it is always difficult to implement. 3 politics sometimes have to sake a tough decisions. > the german finance minister. a lot for the markets to think about. data coming up as well. jon ferro is tracking the action. >> thanks very much. things bubbling away quite nicely here in europe. ftse 100 up .1%.

dax up. ac 40 up by 1/3 as well. slash your dividend. cut your forecast. your outgoing c.e.o., give him the boot as well. what does that mean for his reputation? doesn't look good, does it? ugly numbers for tesco. that drop in the share price is as good as it has got this morning. elsewhere, data out of europe, believe it or not. italian unemployment data jumps to 12.6%. it was 12.3%. that is not pretty. german retail sales also disappoint. what does it mean for the bond market? not a lot. 2.4%. money going into spain this morning. another three basis points on the spanish 10 year. that is just off record lows for yields in the bond market. best of the e.c.b. next week

coming in fast. jpmorgan, nomura, b.n.p. paribas. this is the euro year to date. the data drops in about 30 minutes. that will recap brate or calibrate expectations next week for the e.c.b.. inflation is set to be 0.3%. if it is a little bit higher, it might offer the e.c.b. some confidence. a little bit lower, that is a lot of pressure. euro/swiss, if i can bring it up. remember, the swiss franc. 1.2062. the s&p, the swiss national bank do not want it to go below this level. if the e.c.b. does more, where does it leave the swiss national bank? >> doing more, probably. certainly the message very clear. e will do more if necessary.

jon ferro tracking the action. let's talk about other company news. london's property market has stagnated for a second month. values were unchanged in august. buyers are reductant to aseth sess higher prices. america is close to getting a new chief technology officer. google executive megan smith could become the third person to fill this position. google is talking of drones to handle its deliverries. small ones at least. it has been in testing for two years. they said google up against amazon what announced plans to use drones last year. all of this is happening in

australia. maybe they are delivering sweets or candy. we'll need bigger ones to deliver tv's. aren't we? up next, vivendi makes a choice about telefonica and hangs up on the competition. we'll discuss that telecom saga when we come back. ♪

>> good morning, everybody. welcome back. let's talk about telecoms.

vivendi is talking with elefonica. the other potential bidders are on hold. we're joined by a european telecoms analyst. what we have here is vivendi talking exclusively to it fonica about the sale of bu but that it is not for sale but everyone knows it really is. they want to get out of telecoms and want to focus on selling music and focus on content. telefonica is much bigger than

telecom italia. >> was that offer real? some talked about the fact that it may have been a ploy to flush out the higher bidder. >> i think it was real. however, telecom italia -- in terms of debt that telefonica has not. for vivendi it was more cash. i think the offer was real from telecom italia. >> how quickly do you think this will be done? >> regulatory? i don't think so so much. probably probably next year. with all the clearance from regulators. >> in terms of where this leaves vivendi, you have a pretty strong rating on the stock. a lot of cash floating around. you kind of wonder from an investor's point of view where what the use of that money might

be. the amount of money is returning to shareholders. the first day of investing into the business. is the management team doing the right thing? >> i think so. it is going to be a mix. you're right. we don't know yet the final permit of the company. they will use that cash to invest locally, for instance in asia, they want to expand more in asia for music. they are already the number one music company in the world in europe and in the u.s. probably to invest more in -- to produce movies. to produce drama as well. of we think about sort from view in terms over the value chains that exist, is vivendi positions itself in the sweet spot within that value chain or is iten n the pipes, the plumbing, what ever else is out there? >> i think if you look at sports -- they continue to go up.

there is still value and demand for content more and more. with all of the platform possibilities to be selling content. if you own good content, you'll have more and more ways to monetize that. >> when you look at what's happening in the telecom space in europe, as you see these companies filling in, are they going the need to be done to get us to the next phase? >> there are still a couple of markets where consolidation is happening. there is a couple of assets that are still for sale in spain, for instance. in norway. potentially in the italian markets coming up in the french arket. we can see some consolidation on the local level. >> we're beginning to understand the premise.

we can't figure out how that is going to happen. what the objectives are in france or over the atlantic. how much of an understanding do we have of what the end game looks like at this stage and how long is it going to take us to get there? >> the market is -- the psychologicalization happening. overall we're going for two to three years in most mobile markets. >> regulators are going to be comfortable with that? >> yes, they are more and more comfortable with that that. 3 >> and the -- sorry. you made it clear that it is going to be comfortable in the major markets. do you think that is going to be the case? >> we have just seen that in the german market. trying to boost the -- the network. we have seen this in the average market. in the german market. over all we're going for two to

three networks in each -- europe and the -- market. >> ok. we'll leave it there. hank you very much indeed. now let us get out of this world quite literally. traveling in space for long stretches of time can be emotionally challenging, even for the best astronauts. now one experiment shows a machine that can display very human emotions if left alone in a space station. >> for such a small robot, it has a big journey. for the past year his mission has been to test how a robot can emotionally support isolated eople. but now the submission coming to n end.

his character is thanks to oyota what provided kirobo's voice and facial reck ligs software. they are making partner robots to assist people and it is a popular idea. >> i think it is a much more natural thing than most people in the world have thought. >> kir oboe was blasted into space in 2013, to spend a year with japan's commander in the international space station. but the rocket returned to earth in may 2014. researchers have finding interesting results from the isolated robot.

>> i think it felt lonely with its companion gone and that came through to us from the video. it also felt lonely watching the power being switched off. >> luckily, its scheduled return back to earth and companionship come at the end of the year. >> the way forward. now coming up, attention to detail doesn't come cheap. some parents are finding that out the hard way as they prepare for the new school year. we'll explore the cost of dressing up for class. ♪

>> welcome back. you're watching "the pulse". it is nearly that time of year. children are dregged it. they are -- dreading it. they are going back to school. it is not all great news for parent. new uniforms can come at a massive cost. we report from an outfitter which supplies for britain's most prestigious schools. >> measured and cut by hand before being stitched together. to make this. a blazer for one of the u.k.'s most exclusive independent schools. >> for example, we have the school in belgradia.

the school in southwest london. the prep school in mayfair and of course the school with their prop coats. >> they outfit 3/4 to have u.k.'s most successful independent schools including weatherby once attened by princes william and haryism they have the right shade of black. the correct typing or colors like this. this sort of attention to detail doesn't come cheap. >> 613 pounds for this particular uniform. a butwear specialists have challenge. parents were using independent uppliers going for high street altern alternatives. >> there is no way we can compete on price. >> others suches a tom brown taylor which has been making uniforms for over 200 years, has adapted. >> it is ready mf made.

it is tried on. ok? and then all the alterations are done from there. if you wanted something to be made, if you had a coat made, it would cost you about 800 pounds just for the coat. cost is important as well. >> with some schools tracing their histories back over 400 years, the tradition is worth it. >> the brand identity. the overall look. how the children will appear as a body of children, as a collective within the schoolgrounds. >> just hope they don't grow out of it too quickly. >> yeah, i guess kids don't get bigger ever, do for our viewers, it is the second hour of "the pulse." what have we got for you? eurozone inflation data is out at the top of the hour. everybody is going to be paying attention to that.

draghi a at is front of the queue. we have our interview with the german finance minister. we'll bring you more of that interview and we'll be talking about europe's addiction to russian energy. ♪

the road. germany's finance minister says to ecb has run out of ways get europe growing. our exclusive interview. boots over the border. kiev begs the world for help, nato says 1000 russian troops have moved into ukraine. basketcase, tesco shares slide as it slashes its forecast and its dividends. good morning to our viewers in europe, good evening to those in asia, and a very warm welcome to those just waking up in the u.s.

i am guy johnson, this is "the pulse." live from bloomberg's european headquarters right here in london. news euro zoneng inflation data is crossing the table. jonathan ferro and i had a wait. not reveal where we were, let's give them the breakdown. >> 0.3% is the number. a little below -- no, matching estimates. the euro area inflation slows to zero .3%. not good news for mario draghi. let me show you what is happening with the euro, up. euro-dollar trading higher at 1.3189. it is picking up. the target is 2%> r. euro-dollar highe cpi core, strip out food and energy, the transitory factor

mario draghi has been talking about is up slightly. 0.9%, but maybe a slight comfort if they want to say inflation has bottomed out somewhat and we expect to grow from here. next week, they revise the forecast. expectations for action next week. euro-dollar is speaking to perhaps maybe you will not get that kind of action on the back of those numbers. still, one week things have changed radically off the back of one speech by one man. >> yeah. the front cover of "the economist" is interesting. >> is hilarious. made a picture of a boat from a 5-year note and mario draghi is on the back throwing out water. people are feeling shades of 2012. markets, itand the was so tense, every morning you came in and had violent moves

in the bond markets. it was much worse back then. people have jumped on the boat that things are tragic and awful. isy are not good and the ecb expected to do more. it is about when they do it. >> i love the picture but i think it is slightly wrong. as much as i think mario draghi is providing liquidity, he is trying to keep the liquidity in the system with the bucket of water. the liquidity is potentially going to turn into qe further down the road. is thealysts saying it only option. it is the only option they have left, they need to go big. >> how much of a difference does it make western mark you look at spain.yment in italy and a lot of that is structural. mario draghi will admit that, nothing he can do about that. you have got the french calling for more action, they want a lower euro, etc.

those guys need to get more competitive within europe. they need to reform. 2% target, below the but what he can do about it remains to be seen. >> absolutely crucial. another piece of breaking news, jpmorgan relating to the hack attack. possible russian connections here. anna has been having a look. >> getting a bit more detail on the size and scope of the hacking at jpmorgan and possibly a number of other banks. someding to our reporting, previously unknown software flaws are being used. it appears the hackers were able to dodge jpmorgan's detection system for months. the month of june to the middle of august it is the. this was taking place.

in the middle of august, this was discovered. two people familiar with the investigation have told bloomberg this started in june. what is interesting, there's lots of speculation as to whether this is in any way tied to the russian authority. whether there is the hand of any foreign government in any of this. our reporting suggests that the precision, the skill, and the techniques being used by the hackers put them in a league away from the normal scope of attacks that banks like jpmorgan find themselves under. we heard from jpmorgan yesterday that a bank of their size does come under attack on a daily basis. this seems to be other 92 and a level of sophistication that is a little different. brought you yesterday, according to people familiar with the investigation, there was a sustained program of attacks targeting u.s. financial institutions. the fbi is investigating whether the russian government is involved or not.

jpmorgan is involved in this story. more detail on the scope and size of that. there are thought to be other banks involved and we will wait for more details about which banks those could be. difficult to work out the extent of any foreign hand in this, but that is where the investigation by the fbi will be focusing. >> thank you very much indeed. annall monitor the story, will be back later. we will bring you up to speed about that story. i want to take you to another bloomberg exclusive, the german finance minister wolfgang schaeuble says the ecb has reached the limits of its option to spur growth. he spoke with caroline connan at the annual meeting. >> mario draghi is saying what is needed is structural reforms. that is not easy to implement. there is optimism in government

and parliament. policye, 100%, monetary has to take its responsibility. monetary policy can only buy time. to fix underlying problems is a matter of fiscal policy and especially of economic policy. in this globalized economy, we enhance competitiveness because markets are changing very fast. if you look at the global economy, it is important that we all know in euro, every member enhancehat we have to competitiveness. if we will be complacent, even in germany, we are fine but if towere to not continue

enhance our competitors missed in the coming years, we would lose our position. >> should the ecb do more to fight deflation? >> i don't think the ecb's monetary policy has instruments to fight inflation. interest rates are on a historic level of low. you cannot solve the problem in lowering interest rates. the liquidity of markets is not too low, it is even too high. policy has come to the end of its instrument. what we urgently need is investment. -- ae gaining confidence regaining of confidence by investors, markets, and consumers. in germany, our economy faces geopolitical risks in the given situation and politics.

on behalf of our high exports. ever growth is driven by internal demand. a high contribution of consumers and investors. the main reason why we have such a high confidence is, i think, our public budget is sustainable. we will stick to what we have promised and we will continue to enhance investments. ourourse, we have to raise expectations for development. it is what the french government has also decided to do. >> will think schaeuble -- wolfgang schaeuble. line joins us from paris. he talked about the reshuffle. he was paying attention to the reshuffle. >> he was paying a lot of attention. france this week

has been planned for a long time. he was not planning for a cabinet reshuffle a few days before he came. he was in the spotlight as to this rebellion from the left-wing of the socialist party . clearly, wolfgang schaeuble did not appreciate the comments from ministerr finance pointing the finger at europe saying that austerity policies were of secure and dogmatic. waseuble said the reshuffle a good thing and he was happy about the nomination of the new , emanuelminister macron, he says it raises competitiveness. becauseneeds to recover

europe is being held by the problems in france. germany has its own problems. slowdown.emporary i asked wolfgang schaeuble whether he needed to revise germany's growth forecast. >> we have been very careful. experts in thest economy had a higher forecast for our growth. the government has been very careful. we were not so optimistic and therefore we are still in our in line withs and our economic targets. we have been careful. >> the minister schaeuble telling me that we should not be worried about the downturn in germany and that it is only temporary. there are reasons for concern, you saw the unemployment rising unexpectedly in august. you saw gdp contracting in

germany and the second quarter. even though that was mainly due to seasonal effects, the minister told me that russian sanctions are harming the german economy. of course, germany wants to keep a partnership with russia. veryeat work, thank you much indeed. joining us from paris. all of that wolfgang schaeuble interview. tesco, one of the world's biggest retailers, has seen shares slumping. britain's biggest retailer cutting its profit forecast and its interim dividend. the basketcase -- it has been a tough couple years. let's talk to caroline hyde about just how bad the news is and how bad news just keeps coming. >> it does. there is no let up. on july 21, they said first-half profit does not look to be where consensus is and we will probably miss that. but do not worry, we have a new

chief executive coming over from unilever. since that, shares have dropped 20%. 6%. are down by another why? they cut their forecast for the full year. shares down the most since january 2012. what happened then? to unveil thehad first profit warning in 20 years. another one today. a cut and capital expenditures, slowing down reinvestments in stores. dividends 75%, not music to investors' ears. situationg is the that they are bringing in dave lewis one month early. members, polling what the market share looks like in the industry, 28.8% --

used to be in excess of 30%. you have aldi, discounters eating from the bottom. and other stores are eating from the top. why bring in a brand expert? they have been pumping one billion pounds into renovating stores and it has worked at the edges. --london they have rebranded well, redone -- given a facelift to a stores -- to 80 stores. areast london, the spices tailored towards the indian community. they have localized and it is working but it has not worked quickly enough. investors are going to want change coming from dave lewis. share price is down 20% since we knew he was coming on board. people are going to want to see

what he can an -- what he can enact. they have a new cfo coming on from marks & spencer. >> as euro zone inflation slows, what can the ecb chief to get growth going? when we come back. ♪

you areme back,

watching "the pulse." breaking news on euro zone inflation. coming through at 0.3%, 0.9% read on the core number might be a reason we have seen a spark in the euro. effect, a month end keep that in mind. as data came out and was digested, the initial response was to buy the single currency. it has since come back down to on the dayhanged and and reality in terms of the levels over the last few days. paul donovan is a global economist at ubs. thoughts on what we saw this morning? >> what we have got are two factors i european inflation. import prices, legacy of the stronger euro, and food prices.

they are pushing us into the low area of inflation. there's a low inflation problem in the eurozone, not a deflation problem at this stage. >> a low inflation and a low growth problem. >> when you combine those two, you get what is the toxic problem for the eurozone -- low gdp.l -- low nominal dynamicsalk about debt for governments, it is not real gdp, it is nominal gdp, price change plus gdp, that is where the eurozone has been weak. >> policy solutions? >> he solution is that the politicians get their act together . >> structural reforms? >> it means proper banking reform, not the nonsense they keep going on about. one of the big problems mario

draghi is trying to solve is the transmission mechanism, taking money from the central bank and putting it into the euro zone economy -- that is broken. eurozoneswaths of the you need to get money flowing through. >> is qe a way around that problem? >> it will not work. the problem is if you are going to do a quantitative policy, everyone has got to believe that you are going to carry on printing money until your objectives are met. no one is going to believe that. if the ecb did announce a formal quantitative policy, no one believes it will carry on. everyone believes it will carry on until 20 university professors from germany object to it. you do not have the conviction of unlimited printing of money, which is what you had in the u.k. and the u.s. and eventually in japan. have the ability, in

reality, to implement quantitative policy. >> we had an interview with wolfgang schaeuble, she said the ecb has run out of road. >> i agree. i do not agree that schaeuble should have said that. the german finance ministry should not interfere in monetary policy. the last time they did was 1923 and it was not good. germans should take a lead on structural reform in europe and say why don't we try and integrate the banking system? it is a pipe dream and not going to happen, but that would be lovely to hear from schaeuble. >> what's the reality? japan? not quite japan, mechanisms are different. but the japanese are looking at us and going, "hmm." thene difference between eurozone and japan, in the 1990's, the japanese small and -- smalled is this

and medium-sized businesses were bust. in france and germany, they are not bankrupt and the way they were in japan. there's more natural dynamism to the economy, which will prevent deflation as a whole. with do we carry on internal devaluation? the germans are not going to do more, where does that leave us? >> mediocrity. the eurozone is going to be a mediocre growth story for some time. there are political risks. we saw with the european elections and the rise of nationalism in most countries except germany. if the germans experienced their inflation rate rising, the inflation rate goes up when the ecb is raising policy, you get more antihero sentiment coming through from the german middle class in the way we sell in

france. potentially problematic. >> we will watch this carefully. thank you very much. we will take a break and be back in a couple minutes. ♪

says past the hour, kiev russia has invaded ukraine and president poroshenko is asking the world for help.

hans nichols joins us. russia's foreign minister has been speaking, give us the headlines. ov says if ukraine stays with its continued logic, to use his phrase, nothing good would come. he refused nato allegations. satellite imagery of more than 1000 troops moving in from russia. have comes this could from a computer game. back at the old standoff, russia is denying they are meddling in ukraine and want proof. they say they are the only ones interested in finding out who downed the malaysian airlines flight. exchangeys they did the moderate nodes with ukraine and have come to an agreement on a second aid convoy. we will look to kiev for confirmation with that. we need to confirm basically everything. much, hansu very

nichols. we will take a break. next, the hack attack on jpmorgan that apparently went on for months. more details when we come back. ♪

>> good morning, welcome back. you are watching "the pulse," live from london. i am guy johnson. these are the top headlines. u.k. prime minister david cameron making another plea to scottish voters to remain part of the u.k. next month'sd of referendum, cameron said there are benefits to being part of the union. >> our single market is one of our union's greatest advantages. together, scottish businesses have greater opportunities, consumers have

more choice, people have more secure jobs. why put all those advantages at risk by going into the great unknown? euro zone inflation slowed in august and unemployment remained close to a record high. increasing pressure on the european central bank to take action to kickstart the region's economy. we have had breaking news on jpmorgan and the hack attack. the hacking started in june and lasted three months. hackers took advantage of multiple flaws in the security systems. your details on the story, anna edwards is here. in june.tacks started it was carrying on, unnoticed, until the middle of august. quite alarming. the program was designed specifically for jpmorgan. the hackers managed to get away with gigabytes of data, not just account details, also passwords and possibly the on that.

-- possibly beyond that. no evidence that anything has been stolen, high level of fraud, yet. exploring the link to russia and what it could be. that is what the fbi and other agencies are doing. people familiar with the investigation are talking to bloomberg. investigators have tracked some hacking activity through brazil and back to russia. the advanced nature of the planning and the axis to resources, the precision and skill, the techniques used -- inse are currently uncommon the more day-to-day attacks. >> highly sophisticated. thehey have knowledge of network, the jpmorgan network, and designed this specifically for jpmorgan. they had knowledge of the firewalls and detection systems they use. a specialist said it seemed like they wanted to get in for the

long haul. they went through a public managed toite and get deeper as months went on into the jpmorgan infrastructure. thing,to flag one drawing any links to the government in russia is difficult. have pointedxperts out that trying to find the line between advanced cyber crime ,onducted by criminal groups who can have sophistication, and the government, is difficult. there'll be further investigating going on to establish whether there is anything to that. jpmorgan has not given a great amount of detail as to the nature of the attacks. they said they have not seen any fraud, extraordinary levels of fraud. they've been bolstering defenses. said theythe company expected to spend two hundred $50 million a year attacking cyber security. they have 1000 staff working on this. >> given the size of this, that

seems like a small amount of money. given the systemic threat. >> a number of governments have been talking about the threat for some time. to put the number of people in context, google has around 600 people working -- sorry, 400 people working in this area. a bank like jpmorgan has 1000. that is growing in the future. the commitment to this grows in the future. we will keep monitoring this. >> thank you very much, anna edwards with the latest on jpmorgan and the hack attack. in 25 minutes, "surveillance" with tom keene. we areagenda is what seeing in ukraine. fascinating to see the language being used. invasion,up saying others saying incursion and escalation, counteroffensive. ofspeak with willis berks eurasia group. reaction int the

washington going into the three-day weekend in the u.s. labor day on monday, i will not be working. post weo check on that will speak with francisco blanche of bank of america-merrill lynch, on winter is coming and then oil economics in the middle east. syria, iraq, and libya. >> thank you very much indeed. looking forward to the show. meor day, is strikes as ironic that that is the day you do not work. let's talk about the markets, jonathan ferro? 182,uro-dollar in fx, 1.3 after theations speech from mario draghi. one interpretation is he opened the door to more action. lower euro.

cpi number, a high euro off the back, 1.3177. than the month before. but within that, energy price inflation is -2%. core inflatin, 0.9%. winter's coming, russia has leverage over energy prices. mario draghi, how does he approach that? changes,aying it whether he does more or does not do more. if he wants to do nothing, today's data might give him an excuse to do that. ing pointing out there is so thisspare capacity in economy in europe that you can r they call that tick highe start of an uptrend. in the bond market, german debt up, yield on the 10 year is 0.9

%, up by one basis points. equity markets, a high. dax off the .1%, high, too excited about the prospect of qe. in london is tesco, down 6%. thehave to give the boot to outgoing ceo one month early. this is what happens to the stock. down 6%. >> thanks very much. tough times. is this tesco selling the kitchen sink? let's get you back to the macro story. jon referring to data at the top of the hour, not a pretty picture. we've been talking to germany's finance minister wolfgang schaeuble.

he spoke to caroline about the crisis in ukraine and warned about the dangers of military escalation in the region. crisis caused by russia does harm to our economy, that is quite clear. you need to be clear in the hierarchy of arguments. tore are reasons you have take in account. to stabilize this political situation and to make clear and fall backwill not into times we have overcome. -- violencenot and military forces. we stick to rules. we want a partnership with

russia, of course. everybody wants to have a partnership, as close as possible. of course, everyone has to stick to the rules that have been agreed. we cannot accept that the rules will be violated by force. going to need to revise your growth target for this year? >> we have been very careful. some months ago, most experts in the economy had a higher forecast for our growth. the german government has been very careful. we were not so optimistic and are still in our .iscal and economic targets we have some room to maneuver and we have been careful. >> germany is a big customer of russian oil. is this one of the reasons we are not seeing more sanctions on russia? >> no. , and persistence by all

european countries. angela merkel is working. we have been successful in finding a common european position. look what we have decided in financial markets and related to financial markets. i think what we are trying to find is the right balance, not to work for escalation. and to help russia to correct its own policy. to make clear to russia that that isill pay a price not acceptable for russia if they do not change their policy. >> that was not the only thing we asked him about. we talked about the political turmoil in france after the government reshuffle we saw this week. >> it was a good decision and we are fine with that.

i have met my french colleague who used to be finance minister, he did a very good job, and i'm happy he will continue. >> do you think french economic policy is going in the right direction? >> i think it is the right direction. every number state -- that is what we have to do in every member state. we were not very pleased with what the former minister said. de were happy it was not agree by the prime minister and the .ew economic minister france will work on enhancing , for all of us

-- sustainable growth and we need to reduce our deficits. we have to regain confidence. by markets, by investors, and by consumers. to be reliable. have agreedwhat we to to regain confidence. >> do you think france will be able to meet their deficit next of 3% of gdp by year? ,> my french colleague promised it has been agreed again and again. we are waiting and we are optimistic that france will deliver what france promised. >> are there economic reforms in germany that could be a model for france? >> any country in europe is a little bit different. we have a tradition of the market economy.

i think our experience with this is good. companiesp between and unions is very helpful. we had very good experience. -- ink the responsibility responsibility pact that has been announced is a good way to introduce structural reforms. it is difficult to implement because they are always disputed. they have to take tough decisions. >> wolfgang schaeuble. we will be back in a couple minutes. see you after the break. ♪

willillow bay to develop -- be to develop and influence price. after, whatever they have decided, will be accessible to everybody. energy eu's an

commissioner talking about a deal between ukraine and russia. russian gas piped through ukraine is about 50% of energy in europe. higher.countries, much is the message from the eu changing in terms of what we could be looking at this winter? very concerned and i think the commissioner is saying the same thing. he would like an agreement so europe as reliable gas supplies throughout winter. russia and ukraine have political issues you have been covering all morning and day after day. there are a number of things that can blow up -- excuse the phrase -- cause an issue in negotiations. >> how they a risk are we facing? even if there was temporary disruption to the gas supply, how big an economic impact would that be? >> some countries are better positioned to cope.

in the east, they are totally dependent on russian gas and they have little storage. germany has storage for 90 days and consider much longer. depends, if the shutdown was four or five days, it would be fine. it was four weeks or repeatedly, the impact would be bigger. >> ukraine is paying a significantly higher price for gas. he cannot really pay before. how big a trigger point could that be? ukraine says we cannot pay, how do both sides respond. >> april 1, russia raise prices by 44%. ukraine was struggling before and the price raised. whatever the price is through arbitration will vary, but it will be a 30% plus premium on what the ukraine was paying before. they may not be able to pay. ukraine's economy is still not performing well. the budget is in a poor state.

they may say we cannot afford it or afford to pay it now, that could give russia the excuse to cut. >> do you think that will be the excuse? areguys are not paying, we shutting it off. it is not like they can say you cannot take it out of the pipeline, we have got to shut it off. >> they would have to shut it off, otherwise ukraine would siphon it. europe would lose supply. there is the north stream to germany, but 15% of the eu gas flows through ukraine, that would be cut off overnight. >> if you were running a company that relied on russian gas. running a company, how would you be viewing your business and its prospects over the winter? >> i would be nervous. a lot of it will depend on the weather. we had a mild winter last winter which would have eased the problem. >> they built storage?

>> we built storage, but the and demandquite mild was lower. that eased things. if it is a harsh winter, things are worse. there will be a lot of businesses watching to see how the situation unfolds. >> in terms of the stockpiles that we have in terms of the nationality of using them, bringing more tankers in. there are not that many lng tankers around the world, in terms of option now the, how much is there? >> we are trying to create a more interconnected gas grid. it takes years to improve connections. there are countries investing in lng. the trend is floating lng platforms, which can also act as storage. they are being constructed and lithuania, greece, and croatia. there is some storage capacity there that can help. that does not help hungary and slovakia, that do not have any

coastline. >> if we have a harsh winter and affected, wille this push companies away from the eu? >> this alone will not have an immediate impact but there will be other issues they will consider and they will like to see how the situation develops. it will be a bit of an itch to think do we go elsewhere. companies will be pressing for more investment in storage or as we talked about lng. or looking at other supply options, can we import from the u.s.? there will be pressure on europe's politicians to get some other solutions. >> we will leave it there. thank you very much. joining us from frost and sullivan. russiantails about the hack attack on jpmorgan. how do the hackers by which one of the world's most sophisticated protection systems? after the short break. ♪

>> welcome back, you're watching "the pulse." let's take a look at the currency markets. at the bottom of the hour, data out of the year is done inflation at 0.3%. the core number was a little higher and that is why we got a spike in the euro. unanticipated, given the fact that the headline number was so

weak. maybe there is a bit of end of the month demand, it has been a bad month for the euro. a little bit of rebalancing at the end of the month. still trading at lower levels, the day, down fractional he. not a big problem for mario draghi. what else are we watching? we are joined by hans nichols in berlin. anna edwards is next to me. hans in germany, the conflict in ukraine is front and center. >> we will be looking to see whether or not there is a diplomatic answer from kiev. russia saidut of they have an agreement on an aid convoy. it might seem like a funny thing to talk about that if the two sides are having a conversation like this, that means diplomatic talks to resolve the very real fighting in the southeast of the country could be -- if not on track -- at least open lines of communication. watch kiev for a response. >> hans, anna.

the hack attack on jpmorgan. the details are alarming. sources familiar with the investigation have been telling bloomberg that these hackers have managed to penetrate be theres systems and since june. from june until the middle of august, there were there, undetected taking customer data, passwords and other things as well. waiting for anything we get from the fbi. who they are, whether there is a russia connection, whether hans' story and mine are connected. there were 4 others -- wells fargo, bank of america, and citi have found no evidence and their systems. other banks are trying to find out whether they have been targeted. could any of them be in europe or asia? at the moment, jpmorgan is the one we are talking about. >> thank you very much, anna edwards. that is it for "the pulse,"

"surveillance is court is up next from new york with tom keene. have cold water poured on my head. but i live in london, that is fairly normal for us here. have a great weekend. ♪

>> this is bloomberg "surveillance." >> there will be more consequences -- the russian ruble pledges versus the dollar as the west considers intensify fighting an outright russian

incursion in eastern ukraine. winter is coming for europe, can brent crude stay under $120 a barrel? theynet retail surprise, build bricks and mortar. good morning, this is bloomberg "surveillance." live from our world headquarters in new york. the end of summer. i am tom keene. joining me is scarlet fu and brendan greeley. return as theill leaves change in autumn. mr. greeley? >> euro area inflation slowed in august. the unemployment rate remained close to a record, more bad news for the central bank. german finance minister wolfgang ecbeuble told bloomberg the has run out of ways to help the euro area. he told governments they need to spur growth without running deficits. >> our morning