surprise surge in factory orders out of germany i head of the ecb rate decision this morning. russia topping the agenda. nato leaders meeting in wales as president putin and partial bingo say they are working towards a resolution in ukraine. plus, live with lego. the cfo releases the company's earnings with us. we will break down the results piece by piece.

good morning, everybody. you are watching "the pulse." we are here in london. i am guy johnson. let's go to wales, newport. world leaders are gathering in south wales for the nato summit. the meet just a day after russian and ukrainian presidents. ryan chilcote is at the summit. ryan, walk us through the agenda. walk us through what we can and cannot expect from this event. >> good morning, guy. it is a very busy agenda. they are going to talk about the situation in ukraine. that is going to get a lot of attention. president poroshenko will be here. they will be keen to hear what he has to say. he will be addressing them later. they are also talking about what they can do to assist that non-nato country.

i think we should watch for some conversations on the sidelines about what some of the countries in nato can do in a so-called coalition of the willing to provide military assistance to ukraine. a lot of countries have been discussing the idea of arms shipments to ukraine. that is something we could hear two or three countries agreed to at this meeting. one thing we know that there is a great of -- a great deal of unanimity on is the idea of helping the baltic countries. that was well telegraphed by the secretary-general when he had his press conference before the summit. that is all about that rapid deployment force that would be able to get there quickly, should there be any russian aggression into the baltics. attention ont of the islamic state and what nato can do to counter it. they make decisions like the eu, consensus.

there will be discussion about what they can do in terms of reconnaissance. we know that britain plans to float the idea of actually sending troops back to iraq for a training mission. that would be a nato training mission. just to get a sense of what the other nato members think about the idea. a very busy agenda. it now looks like france is not going to sell to the russians. any talk about that? any sense about what those carriers could be used for? it is too early to tell at this stage. any traction on that story? >> yeah. not all whole lot of traction. what we have got so far is president hollande getting pats on the back from countries for bowing to the pressure and agreeing not to sell those warships or putting those sales

on hold. the foreign minister of ukraine was tweeting earlier in the day, thanking the french president for putting that sale on hold, saying that was the right move. your question is one that i am sure will be discussed if france isn't going to sell those warships to russia. what is it going to do with them? it is a $1.2 billion deal. france can't let the deals of that size go without anything happening to them. it means a lot of french jobs. there has been talk that perhaps this european union could make use of it or nato could. there hasn't been anything concrete. i am certain that is something they will be discussing as well today. tendto military exercises to be substantial operations. what are nato summits like in terms of their scale? give us some sense of what is going on down there.

summits only happen once every two years. the last one was in chicago. there are 28 members in nato itself but there are 60 world leaders here. not just nato countries but people that are associated with nato, want to be in nato like the ukrainian president who is coming as a guest speaker today. we have some 60 world leaders coming, six battleships parked off the coast of south wales as meals of force, 15,000 expected to be served over the next couple of days. and even though the french don't get to sell their weapons to the russians, there is an arms display of sorts. right behind me at the celtic manor resort on the 18th hole. .hat is an f-35 that is a lockheed martin aircraft.

there is a couple more down here on the right. they are sprinkled throughout this complex. there was a rumor going around that if they wanted, maybe they would invite president putin for a round of golf and if he made it to the 18-hole, they could unleash the f-35 on him. it is on the fairway here. quite unusual to see a fighter jet. it is a big bonanza. just like it is a big affair in the field. this is an organization that has to validate itself. it had a clear purpose during the cold war. perhaps it is getting that purpose back. anetheless, they try and make big show of it every time they get together. >> i wonder how the members feel about having tanks and reconnaissance vehicles, and as you say, fighters parked on their golf course. probably not happy about it.

i think they would classify that as a hazard if you are playing a round of golf. ryan, thank you very much indeed. yeah. talking a little bit later. we will get back to ryan and talk about the hazards. some news coming out from the u.k. at the moment. this beleaguered institution is coming out with some announcements this morning. it has named richard penny cook as its new chief executive. that is effective immediately. far-reaching reforms have been .greed for the institution it is going to be smaller and have a more effective board. the board will stand at 11 people. a significant change of structure and leadership down at the co-op.

let's move on. central banking, one of the key themes of the day. mario draghi's speech in jackson hole a few weeks back, shocked the markets. he said, we will use all available instruments needed to ensure price stability in the near-term. pretty broad list of things that could be used. will the ecb take any action today? what can we expect? the man that has been figuring all this out for us, manus cranny. >> guy, it would be folly if they don't deliver something. some form of action, some form of roadmap, some form of movement. very few analysts think they will move. the conversations that i am , he hasith bnp paribas got to really grasp the moment,

to not do something would perhaps be folly. jpmorgan were in here this morning. john norman saying the markets are expecting so much. i think that is demonstrated through the move in euro. down to 1.25, down to parody by 2017. the government bonds now below 1%. by gosh did his words yet again move markets. today is the day, the potential beginning of the ecb with their hand in their pocket. everybody else has to pay for the movement of european sovereign debt bond yields. everybody else has had to pay for the movement in the euro lower. it is the dollar story that is moving higher, not the euro. german government bonds hit just under .80. the positioning of markets, the positioning of rhetoric coming from draghi today.

action, rhetoric and forecasts. i am getting the impression that we are going to get action today. >> that is what people are saying to me. fine-tuning lending, to make it even cheaper. small and medium enterprises saying there is such a need. the ceo over at deutsche bank captured things perfectly for me. have a look at this. what he is saying is, 70% of credit creation is happening via bank loans. simply lowering the cost of sovereign debt. you cannot get growth to move beyond that point. it is about structural change complemented by the policy moves. think today is the day. >> yes. andibly a roadmap on abs targeted ltro's.

>> there seems to be a growing sense that we will get full-blown qe. >> you won't get that today. >> that is maybe what the market is beginning to position for. >> you may be right. sovereign bond yields are a little bit ahead of themselves. markets are presuming full-blown qe. did you read the comments? >> is cicely, this is the point -- precisely, this is the point. >> i don't think you are going to get qe. i think you will get some movement on the target, a roadmap. action over words. that is what markets want to see. whether it is a small amount of action, it opens up the roadmap to considerable movement. that is what the consensus seems to be from sources i have spoken to. >> i am just curious. the market is clearly anticipating at some point that we will need full-blown qe.

there is an awful lot of politicking and things that need to happen. >> i will take you forward in a personal view. this is not a bloomberg view, this is my own particular view. in 2015, the germans do not want qe so far. begins to set up a much bigger debate about the unity of the euro. >> going to be an interesting year, thank you very much indeed. stay tuned. we will break the bank of england's release on its rate decision. later, the ecb does the same. then we get to the main event. mario draghi's news conference live and in full. what will he say? it was his birthday yesterday. maybe he will be in a giving mood. you never know. what else is on our radar? german factory orders surging the most in a year. this after a week demand in the second quarter contributed to

economic contraction. orders rose 4.6%. a german builder has cut its profit goal for a third time. the company says is as been hurt by difficult markets for energy. we are going to take a break. coming up, vladimir putin presents his own peace plan after agreeing with ukraine's president on steps to be taken toward the truth. what is he up to? we are going to find out after the break. ♪

>> welcome back. you are watching "the pulse." we are live on bloomberg tv, the radio, streaming on bloomberg.com. you are fully connected. i want to take you back to our top story. nato leaders gather for their summit in wales. vladimir putin is making his own power plays. the russian issued a peace plan after agreeing with his ukrainian counterpart on steps toward a cease-fire in eastern ukraine. how should we read this? let's try and do a little bit of that. with theh fellow russia and eurasia program joins us this morning. we ended up in the situation where we are terribly confused

about what putin is doing, what he wants, how close we are to a cease-fire. how should we analyze the evidence of the last 24 hours? we had a conversation. that is good news. how much was agreed and how much substance came out of that? >> it is important to keep the focus. what president putin is doing is pursuing a week neighbor policy. the play in ukraine means that putin wants to undermine ukrainian aspirations to become part of the integrated west. this means annexation of crimea, a legal territory occupied. it means also fermenting the protest in the east. the fact that putin proposed the plan is good because it brings us back to the negotiating table. time,unately, at the same a military buildup of russian troops in the east is observed. this means that president putin

said, i am not going to give up the separatist movement in the east so easily. what ukraine has to face is a russian regular army. >> to counter that, this is happening as we speak, nato is going to help ukraine develop its armed forces. beginning to feel very cold war-like. we have basically got nato saying it is going to help ukraine and russia putting its forces on the ground. that seems very hard to resolve. >> it is indeed but it was not ukraine or nato who was pushing development in this direction. what nato and ukraine are doing is responding to a clear threat coming to a country that is based in the middle of europe. there is nothing wrong about providing defensive capacity for ukraine. the annexation of crimea means that russians may be seeking to seek a southern part of ukraine to connect crimea.

there are threats coming from continued arms inflow from russia to eastern ukraine that may overflow the region that is controlled. ukraine needs to have this capacity to protect the well-being of the nation. >> russia seems very committed to this. putin doesn't get something close to what he wants, either a very week neighbor, a , or a land neighbor bridge as you are talking about, if he doesn't get one of those three things or all of those three things, it is hard to see him stopping. >> indeed it is very hard. you should not expect him stopping anytime soon. there will be confrontations. this is something we should prepare for. that what the west should do in the rest of ukraine where we have a democratically elected government, reforms

should take place to reinforce ukraine to be able to defend itself era get for president putin, there has to be continued pressure to limit his resources for the policy he is pursuing. we should recall 2008. how do we stop this? this is a very serious wake-up call. nato,bring this back to article five up lies now to the baltic states, part of the former warsaw pact. there is no way that putin challenges article five, is there? >> i don't see it in the immediate future. obviously these countries are full-fledged members of nato. there will be a rapid reaction. these countries will be protected. i think it is the question of the countries in between. nato, if are not in

you are not covered by article five, how worried should you be? >> exactly. you can see what it brings to ukrainian soil. that is why ukrainian government ukraine never treated russia as a threat. now putin is pushing ukraine to accept that he is a threat. >> if you were to extrapolate this further on, we don't get a resolution anytime soon, does the military adventurism -- when does the next one happen? overhould we view this and what timescale should we view what is going to happen? if putin wants to achieve his , how however we call it big is that? how big empire does he want to construct here? >> without ukraine being part of this, it is hard for president putin to reconstruct the

eurasian union. i don't think it is going to happen. you cannot turn the clock back. ukraine did sign an association agreement with the european union. he has to make deals and cooperation between the european then, associated states of former soviet union and eurasian union. as long as the price will go high for putin to pursue this policy and as long as the pressure inside russia will be mounting, we do see information and news about russian soldiers dying on ukrainian soil and their families demanding information. this will be all over the news. this could be the next afghanistan. he was denying casualties in the soviet times of afghanistan. now in the days of information, you cannot hide it. build internal

pressure from the economic sanctions, from russians dying on ukrainian soil and from russian insulation. russia cannot fight against europe. >> thank you very much indeed, orysia lutsevych. we are going to take a break. ♪

." welcome back to "the pulse

let's check on the markets for you. sensitive, cautious ahead of all the bankrate decisions. we already had sweden, no change there. we are not expecting any change from the ecb on the bank of england. where thecision is potential for fireworks exists. theo draghi whetted appetite of the market in terms of quantitative easing. will we be seeing bond buying? will he hint at further stimulus to combat low inflation? 600 tradinge stoxx just over 0.1%. we are seeing a little bit of caution in the stock market. reallyd markets, interesting stuff coming out of bank of america merrill lynch. bonds are moment of trading below 1% in terms of the yields. none other than german bonds trading at 0.9%. clearly there is caution. numbers.me

i will be back with more just after this break. ♪

>> welcome back. you are watching "the pulse." we are live on bloomberg television, on the radio, streaming on your tablet, on your phone, bloomberg.com, everywhere. let's talk about what is happening in terms of the details of the day ahead. we are watching what is happening with the ecb. the rate decision comes out at 12:45. you could get a deposit rate cut. the corridor may stay the same. different rates that the ecb applies could all be cut.

then we get on to the main event. what does mario draghi say in the news conference? do we get hints about qe? all these things need to be discussed. inflation is a little weak in the eurozone and draghi said in jackson hole that he has all the instruments on the table ready to fight that story. let's bring manus cranny back. talk about what he is hearing about what this meeting could deliver and what the press conference may signal. there seems to be a range of options on the table. maria talk about those at jackson hole. jackson hole seems to have changed people's thinking. where on the spectrum is he going to decide that he will take action? >> where he would like to take action and where he can galvanize his board on the european central bank to take action, my perception is that there is a big difference between the two. he lay down a marker for the

market and markets love a marker. so his mother and his wife started to trade -- started to become more encouraged by trading. and nowll dip below 2% reassert itself above that. this comes down to a couple conversations i have had. one with bnp paribas, one with jpmorgan. and ubs. three big names. greater thinkers then i. paribas would say, do not miss the moment. if you miss this opportunity to deliver some kind of action -- that action could be a roadmap for ideas. that could be a change in the interest rate. gathering momentum for quantitative easing.

so long as the market gets something sewing that there is owing that there is progress, markets will be sated. to do nothing would be folly. to do nothing would be reminiscent of bank of japan. at the end of your show, they said property prices will drop by 75%. i said, that is not happening. thanks go into zombie mode. ok, you have a point. we do have asset quality review coming up. people are raising capital. the banks are going through a bit of a healing process. bank of japan did not do enough. that is the accusation. bank of japan did not do enough to counteract deflationary spirals. once you get into that vortex,

it is hard to get out of it. that is the risk, that they don't deliver small moments of opportunity here. >> we will talk to you a little bit later. manus cranny, thank you very much indeed. as you can see, the nato secretary-general is now speaking in south wales. let's listen to what he has to say. >> security, stability and prosperity. here at the summit, we will strengthen our transatlantic bonds as the bedrock of security in europe and north america. with that, i am ready to take your questions. >> good morning, secretary-general. ukrainian news agency. do you really think that it can help a cease-fire? do you really think this too? poroshenko and putin can never

find a solution? can they expect that during this summit nato nations will go further with assistance for ukraine? thank you. >> first, on the so-called peace plan, let me stress that we welcome all efforts to find a peaceful solution to the crisis in ukraine. that, i also have to what is what comes is actually happening on the ground . and we are still witnessing unfortunately russian involvement in destabilizing the situation in eastern ukraine.

so, we continue to call on russia to pull back its troops from ukrainian borders, stop the flow of weapons and fighters into ukraine, stop the support ukrained militants in and engage in a constructive political process. that would be a genuine effort to facilitate a peaceful solution to the crisis in ukraine. cooperation with ukraine, we will have a meeting with president poroshenko today, adopt a joint declaration and outline concrete steps to enhance our partnership, step up cooperation between nato and ukraine. >> german press agency. secretary-general, president obama and prime minister cameron have made it clear that they and

possibly other members of the alliance are ready to increase the military pressure on the islamic state militia. what role do you see for nato to support some allies in this endeavor, and what do you think this should be a coalition of the willing only? welcome thatll, i individual allies have taken steps to help iraq. military the american ofion to stop the advance the terrorist organization, islamic state. i welcome that other allies have contributed in different ways. i do believe the international community as a whole has an obligation to stop the islamic state from advancing further.

haven'tds nato, we received any requests for a nato engagement. iraqiure that if the government were to forward a request for nato assistance, that would be considered seriously by nato allies. in that respect, let me remind iraqhat nato has assisted in the past. we had a training mission in the iraqi 2011 if government were to request resumption of such training activities, i am sure nato allies would consider such a request seriously. secretary-general, how much

more time can you give afghanistan right now? >> no reason to hide that time is of the essence. we need to know very soon -- >> secretary-general of nato speaking in south wales. ryan chilcote also in south wales at the nato summit. we are just getting in some details of what mr. rasmus sen had to say. earlier on, the indications are that we are going to see nato may be providing some sort of military backing or helping the ukrainian military in its conflict with the russian forces. how far do we know that goes? what is nato talking about here in its relationship with ukraine? >> i don't think it goes too far to be fair. like the european union, nato

consists of 28 countries that have to make decisions unanimously. what it appears is that they are prepared to say something with a declaration. as you heard, perhaps some kind of coalition of the willing that would be prepared to take things further. what ukraine is looking for is ,ilitary assistance, weapons and it doesn't look like nato is prepared to go that far. several get 2, 3, maybe countries that are. that might happen at this meeting. interesting comment about the islamic state as well. would nato be prepared to take separatelamic state from one individual countries like the united states is doing now? we know that britain is going to float the idea at this summit of a nato training mission, sending nato troops to iraq to train the

iraqi military. part of thefore of 2003 campaign. we heard the secretary-general say that if the iraqi government was to ask, nato was seriously consider that. i think that is progress on that front as well. >> ryan, we will be back with you later. thank you very much indeed. ryan chilcote joining us from newport in south wales. let's talk about corporate news. brick by brick, this is a company that has played a part in a lot of people's childhood development. lego has released earnings this morning. it saw global sales rise by 15% in the first half of the year. joining us from denmark, lego's cfo. his first interview of the day. just been talking

about what is happening in south wales and what is happening in ukraine. you are a business with a huge global footprint. you have a huge presence in europe. are you seeing any meaningful impact from what is happening in ukraine? is that having a meaningful impact on your bottom line? well, in the first six months of this calendar year, our business is up double digits in europe. not really seeing this come through into the sales of our products. we do have a significant business in russia and that continues to operate well. we are committed to ensuring that the experiences of lego are available to the children and consumers in russia. >> do you expect the second half of the year two feel a little more of it. we have seen significant volatility in the ruble. >> it is a tough one to call.

when a significant redportion of our sales occur around the holiday season. difficult to see whether this momentum is going to continue through. at this point in time, we are not seeing much of a fallback. more broadyour european picture looking like? we have the european central bank meeting later today, potentially taking action to deal with a disinflation array environments. incredibly high unemployment in many parts of the eurozone. what is business like in this region? >> we continue to see very robust growth across all european markets. not really seeing any particular markets falling away at this point in time. one of the situations where i think consumers are willing to pull back on the new car or maybe not go out for quite so

many meals, but it takes a lot to start skimping back on purchases for their children. we continue to see momentum for our business. --what other great events one of the great events you have experience has been the lego movie. talk about how meaningful that is in terms of changing perceptions around the business, changing your ability to market your goods and deliver a content-driven drive in the future. how big a selling point was that? had reported the on a localas up 11% currency basis in 2013. the 15% we are seeing in the first six months, was an improvement. that theuld say is products have performed really

well across the whole product line. not just the lego movie products which provided a welcome boost, but some of the more traditional lines have performed particularly well. i think that underscores the great celebration of the lego movie around the whole creativity opportunity that people have to play with the lego system. >> should i start thinking about lego as a content company? in some ways, you may become a media company in the future. committedstill very to the traditional lego system in play. the physical, hands-on, minds on engagement of children and consumers is what we are focused on. what is important for us is that we complement that with 360 degree experience for our children. they want to get completely

absorbed within the brand. that includes providing content online, digital games, it really is very much a holistic experience we are looking to provide so the children can become completely engrossed within the lego system in play. >> how careful do you have to be as a business about who you work with? i imagine there must be huge numbers of offers coming in from different people around the world, different tv networks, different pop stars, a huge range of people must be interested in working with you. how careful do you have to be as a brand to maintain the purity of the lego brand? >> we have to be very careful to stay true to our values. our six core values are our guiding light. we do a lot of work with consumers as well to understand

what it is that is appealing to them and to make sure we do a good job of blending together those core values with what ever is topical at any one point or season. question, howal are the winning characters selling? our girls business is doing particularly well. we had a great complement to our lego friends line with lego princess in the first six months of the year. both businesses combined are doing really well. >> john, congratulations on the numbers. fantastic set of figures from lego. win cfo at the company. we are going to dig into the highest tech gadgets. i will speak with acer's president coming up right here on "the pulse." ♪

maxwell comeback. you are watching "the pulse." today's pulse number. 2033, that is when bowling expects china will be the world's largest air travel market. the company forecasts china will buy 6000 planes between now and then. they are also expecting the chinese to get in on making the planes in the future as well.

we are going to take a quick break. that was a very quick section, wasn't it? coming up, europe's largest clean tech initiatives. the companies competing to be the green economy's next big winner. details on that when we come back. ♪

>> in today's new energy, we talk about green innovation. europe's largest clean tech

initiative. two companies won the title of most innovative in 2014. joining us now is richard templar. good morning. the third year you have been running this? >> the third year we have been running the competition. >> the winners, why are they the winners? we consider them to be investable propositions for themselves and the proof of the putting is whether people do invest in them. last year's group, nine of them got through the stage where they should be investable. eight got investments of more than one million pounds each. >> a pretty good track record. what do we know about the winners of this year? >> the winners of this year are two very interesting companies. one makes the -- >> i love the story. >> they were one of the winners.

>> you basically lay the printer, you have a piece of paper like this, you put it in the machine and it takes the words off. >> like magic. it uses lasers actually which is tantamount to magic. was aner one that won urban farming organization called grow up, which i am very proud of. we have been training students to get then turned onto entrepreneurship and innovation in this area. studentsne of our for and she has already gone off and got her first million. at the same time, there was no way you couldn't recognize the fact that she is storming ahead with her colleagues. are nowe moment and you getting, are you getting more and more companies applying? year four, what is it going to look like? >> one of the most astonishing things is, you thought maybe we would reach a limit.

quality would drop. the complete reverse has happened. we have more applicants and they are higher quality. the sort of mood out there amongst startups of all kinds of ages getting into this territory. >> [indiscernible] >> we bring them all together to innovation festival which this year will be in valencia. we have units in six different countries. every one of them brings two. >> why not one winner? >> because choosing the best is a really imprecise -- there is a kind of, let's get them another chance. >> nice to see you again. richard templar. for those listening on bloomberg radio, the first word is up next. for our viewers, a second hour of "the pulse." we are talking about the ecb. martin wolf has written a book.

he is going to be joining us. we will talk about what is happening with nato, the russia story, all of that is on the story as well. see you in a moment. ♪

a surprise surge in factory orders out of germany. er."euro has been "a disast that is what author martin wolf says. "the going to discuss shifts and shocks," his new book. nato leaders are meeting in south wales.

good morning to our viewers in europe, good evening to our viewers in asia, and a very good morning to those just waking up in america. right. let's go to newport, south wales. that is where world leaders are gathered for the nato summit. they meet today after the russian and ukrainian president announce they are working on the deal to stop the fighting. ryan chilcote is at the summit. the secretary-general. what did we hear? yeah, the secretary-general saying that the alliance is surrounded by an arc of crisis. the first on the agenda is a busy agenda. they're going to hear from the ukrainian president. then the alliance is going to look at how they can assist that non-nato country. as an alliance, i am not sure exactly how much they are going to do, other than a joint declaration. however, we can expect on the

sidelines a coalition of the willing saying they are prepared to provide arms. that is not something the alliance would do, but we might get some individual countries saying that they will send weapons. it does appear that there appears to be unanimity is the desire to protect the eastern european and baltic countries. that was telegraphed by the secretary general. rapid deployment force,4000 troop strong that will not be based in the baltics but could be sent there. finally, we are going to hear about the islamic state in what nato is prepared to do to counter it. as an alliance with her the secretary-general talk about how forraq was to ask assistance, it would get serious consideration. can expecti think we

a pretty robust conversation about what the alliance should do ahead of any requests from the iraqis. the brits went to propose a nato training force for the iraqi military. we had that in the wake of the 2003 invasion. that ended. the waterare testing to see if the nato countries are prepared to have something on the table again. last nighte french announcing that the first -- will be delivered to the russians. that transaction will not go ahead. how big an issue will this be at the nato summit? will nato find a use for that ship? >> there was a lot of discussion going into the summit about that, whether that was something that would be useful for nato. let's not forget this was a $1.2

billion for the french and they do not want to kiss that money goodbye. one of the reasons they were so reluctant to give up on selling those warships to russia. so, i do not know exactly what the nato countries will propose. but it is something that has been discussed going into this. for sure, i am sure the nato countries will be giving president hollande a pat on the back. the ukrainian president was very happy the french president had done it. those eu sanctions that the eu says they will introduce by tomorrow at the latest. etrochenko getsia

here, everyone is going to look for clarity as to what was agreed with the russian president. what can the nato and the eu expect from those talks that are supposed to take place in bela rus tomorrow. her head,s scratching not just the markets yesterday as result of those announcements we got out of russia. i think many of the world leaders are. you heard the secretary-general saying what matters is not with the russian president says he's going to do, but actually happens on the ground. he said that's what counts. concerned,e is russia is still destabilizing the situation in ukraine. >> there is a golf course behind you. i can see a bunker and there are a few other hazards the offers will have to face. what are the logistics and what are going on down there? >> yes. this is a big affair. nato summits only happen once every two years. the brits have done a serious

job to care for it. i'm on the 18th hole. we can show you. that on the left, we can get a pretty good view of it, it is an jet.fighter there is also an armored vehicle and a tank. so the french do not get to sell their weapons to the russian, but certainly lockheed martin and general dynamics are happy to show off the weapons that nato countries can buy. 60 world leaders coming here. even though there are only 28 member countries in nato, there are a lot of countries that have associated relationships. they are all here. 15,000 meals to be served over the next two days. it is a big bonanza. ato has beenhile, n looking for sort of a reason to exist. clear during the cold war. the offense in ukraine seem to be validation for nato. but nevertheless, they want to

make a show of it when they have an opportunity. >> thank you very much, indeed. right. let's move from what is happening in nato in south wales to frankfurt and what is happening with the ecb. jacksonaghi's speech in hole shocked the markets when he said we would use all the available instruments needed to ensure price stability in the near-term. let's talk about the near-term. what action are going to get from the ecb? let's take the temperature of the markets. manus cranny joins us. how hot is today in terms of the specter we have been looking at the suite. a red hot day. this is a warm-up? >> i think today is a warm-up act, but markets are red hot. i want to show you the french government bonds. we are at a record -- another day, another record low on 10-year government borrowing

costs for 2014. a record low. why? that is a country that which has bond market runway ahead of what it should be doing. inio draghi has unleash q.e. the form of rhetoric and not about action. small signatures towards a bigger move. that could be a movement on the refinance rate. unlikely, according to our survey. 51 out of 57 say there will be no change. fine-tuning the virtually free money you're going to get -- for the targeted. get banks to save up more. ubs was here this morning. middle of europe are the answer. ubs saying that this morning.

>> the tiny, dysfunctional market. >> please don't blow a bubble in the blackrock strategy movie ecb. >> carney reference this. it is not big enough. take actionou could within the markets and get leverage. you get a much bigger reaction then the money you put in. nevertheless, is that the answer? >> i'm not an economist nor a quantitative analyst in terms of the highest leverage within the small and medium enterprise market. you think about why focus on abs? according to mario draghi, they can be clean. see what you're buying. it is a healthy product. >> as long as it's --

>> look, could he do something around the financing rate? at least, showing us they are on the road to something bigger. could they do something with the price of money to the banks? that would all be action because to not take action -- i had a conversation at paribas -- would be solid. he has raised the hopes and expectations. look at the euro-dollar. tisovercrowded. it's overshorted. essence.he whole mario draghi has lived vicariously from the movements of others. by the spending of the bank of japan, the spending of the bank of england. he's not a man you would want to go to dinner with. "taking stock >

to dinner probably go with him but that is an entirely different matter. it was his birthday yesterday. happy birthday. more talk about that in detail later. stay tuned to bloomberg. we're going to bring you the boe later on as well as mario draghi's press conference. tie for if he got a new his birthday. we will continue the conversation. "the shifts and shocks," a special conversation with author martin wolf about the lessons we have yet to learn from the financial crisis. he will be joining us after this break. ♪

14 minutes past the hour. you are watching "the pulse." let's take a quick look at the currency markets. before we head into that ecb rate decision and marriott draghi press conference. on thedle spike earlier generated by some significantly better than anticipated factory orders coming out of germany. flying in the face of the recent data we are seeing out of that economy. 10-year hitting fresh lows. we continue the process of flattening out the european

yield curve. we are seeing it across the board from bunds to oat's. the curve continues to flatten. let's talk about what else we're going to see for the rest of the day and where we go from here. is more easing on the way. let's get some insight now. martin wolf, the author of the new book that is out today here in the u.k. got to wait a week if you want to read it in the united states. "the shifts and shocks, what we've still to learn from the financial crisis." good morning. >> good morning. >> it is appropriate you are here on ecb day. the central bank is meeting today. to discuss what to do next. 289, where i think you

summarize it nicely. "the euro has been a disaster. a project intended to strengthen solidarity and weaken germany's economic domination of europe has achieved the opposite." you talk about mending a bad marriage. can mario mend a bad marriage? >> perhaps one should think of mario as the marriage counselor itse aim is to keep together. his job is to keep it from a lapsing. he did in the starting job in 2012 with his "do whatever it takes." panic get rid of the from the debt markets. he bought them time. of couresse, he cannot deliver n

his own growth. he cannot manage demand effectively because this monetary policies are circumscribed by the politics. and the result is, unfortunately, a long delay. the euro zone economy is close to 3% smaller than it was before the crisis in 2008. eurozone demand in the is down five or 6%. stagnant.asically even germany has been affected because these are its most important next four markets. >> what you thin ik is the root cause. in some ways, it has changed. where are we now? it's really difficult to answer this but i suppose there are two main things that are obvious. et the aggregate level, as i'v

mentioned, aggregate demand is weak. that is largely because the private sector is very battered. they're not willing to spend. the governments are in retrenchment mode. then, of course, there is a second problem. huge, internal competitiveness problems. some countries are still very un competitive. you are fighting over scraps of demand. and the weaker countries do not get enough of it. to exporte not able successfully. spain has done well. italy and france, not so much. it's a szero-sum game. the competitiveness problem is dramatic. finally, inflating both of these things together is too much debt. the banking sector is very weak. that links these two together. >> we will talk about them in

detail and talk about the policy solutions that surround them. where we go from there. the internal evaluation, to your second point, with competitiveness and the need to regain competitiveness in peripheral parts of the eurozone has been something that draghi's been keen on. you are not. >> i think it is a necessary consequence of joining the eurozone. when i analyzed the euro in the 1990's and i talked to friends of mine in spain and italy, i asked them, do you understand your joining the gold standard. this is the gold standard -- without the adjustable exchange rate. getshould you competitiveness problems, you will have to deflate. that is what will happen. we know how that works. it is agonizingly painful, very slow. and of course, while it is

happening, your deck gets bigger because your debt is denominated in the currency against which you are trying to depreciate. you are of which, trying to depreciate. your debt levels get higher. some countries have been better than others. well regaining competitiveness of the because of increased productivity and staggering unemployment problem. the high unemployment is a mirror image of their success. but that is the first thing. you are stuck with deflation, and deflation makes everything agonizing. it gets much more difficult for them if in addition the central bank is not able to maintain the level of inflation in the eurozone at all. . if it was successful, the euro would have 2% inflation and germany would be on 4%. that would be the mirror image of what happened before the crisis. as we can see, it is not happening at all. >> draghi hinted at jackson hole

that we need to address the issue of austerity. angela merkel made some phone calls as a result. is that the only way we can balance out this story now? if the eurozone is a largely closed economy. if you are going to create the ability of the eurozone to deal with some of the changes it is going to, you need to have a demand source. is germany realistically the only demand source we can get? as a result of which, it is policy going to have to change at some point? >> well, germany, i think, have always thought -- it's going to be part of the solution. dragged kicking and screaming. think about the external side. the euro zone in aggregate has done quite well on the external side. has improved by 3%>

in order to generate enough demand to offset the weak domestic demand, the balance of the eurozone has increased at a rate of more than 1% of gdp a year. that would bring into being -- eady, the largest surplus region and the world. move up to 8%. since it has a floating currency, the currency will go through the roof. if you like, it is what i described as turning the eurozone into a big germany. it's too big. but then you'd look at the internal demand. if they're going to promote internal demand, yes, germany is part of the solution but i'm afraid they're going to have to allow more fiscal expansion and more effective use of the credit mechanism for the private sector

than they have been able to do so far. neither of these things work when they are in contraction mode. i hope they might persuade themselves that what they need is a huge investment. fiscal deficits are bad. public investment is good. public-private investment is good. maybe they could finance that. there are certainly people looking for investment opportunities. thatt's cleraar to me command has to be generated within the eurozone, and i cannot think the private sector is going to generate it all on its own. >> i'm focusing on the eurozone. how long does this last? do you think it ultimately hangs together? >> if the adjustment goes well, and it could, i think it could last until the next decade. it might start looking really

reasonable in the 2020's. does it hang together? it probably does because they are so terrified at the consequences of a breakdown. it hangs together as sa bad marriage. >> stay with us. martin wolf, the author of "the shifts and shocks." ♪

>> you are watching>> "the pulse ." hence nichols is at the tech fa

ir in berlin. great guests coming up. the gadgets it is important to check in with what the pc market is doing. we will talk to the president of acer.

>> good morning. welcome back. you are watching "the pulse" in london. let's talk about tech. samsung is planting its flag in consumer electronics at one of the world's largest tech fairs. it released a virtual reality headset. a phone and a new smart watch. will any of these products take off?

>> i think this is a very nice ecology. interesting apps. it is not something gimmicky. it will be something that will be useful. phones -- issmart successful in the overall market. mainstream. i do not think this product we have seen today is going to be a game changer. it seems like here's another product and this time we have -- it's not necessary to put that in there. i do think there is an opportunity for wearables. we have seen the numbers.

they have been growing. that's definitely key. it's a different product than google glass. it's a different approach. it's something that a little more towards the gaming and entertainment consumer. a consumer product. google glass is development projects. in that sense, it has the market there, but very limited. strategy is wearables and to build that out. they continue to build on it. >> let's get straight to our international correspondent hands nichols. -- hans nichols. he has another great guest with him. over to you.

>> thank you. ofm joined by the president africa, middle east, and europe for acer. mr. rossi, thank you for joining us. you have so many products, but i want to talk about the pc market. is it coming back? >> yes. we are very excited. we came last year with a negative trend. this year it is rebounding. we are talking about an overall but with different speeds in different geographies. we are seeing a good consumer traction back finally. so, finally, we are seeing the pc market comeback. >> is that businesses mostly or consumers? >> both. even in western europe, the consumer businesses back to double-digit growth. we are excited because acer dna is in the consumers. >> how much concern is there

about the situation in ukraine? >> the concern at the moment it didn't jeopardize our plans, but we looked at it with concern and much interest. >> you have some new products. we are talking hybrids. the tablet and the pc. >> we need a lot of time to talk about all the new products we announced in berlin. we have a new lineup of two-in-one devices from 10 inch to 12 inch. we are launching a new group of smart phones. we are launching many things. we are very excited, very innovative with a lot of products. >> talk to me about smartphones. you have a whole range from high-end to the lower end. there has been some talk about you guys having a smartphone that would be less than $50. >> we are working with a lineup. we are arranging for the premium devices. we announce that next year we are going to come with even more

accessible devices like below $99 and below $49. that is the plan for next year. we have a very good mainstream offer. we are penetrating in different markets. >> let's talk about the different markets, especially in the pc business, how do you see growth in africa? >> africa is growing. at the moment, we see growth in western europe and in africa. we see a difficult time in eastern europe and this is connected to the tensions in russia and ukraine. ofeneral, the wave penetration of tablets has moved from western europe or the tablets are falling down to a little bit eastern europe. this is affecting the pc. we are confident that that next year that will be over and we will have overall even a better picture for the pc environment. >> that's a bet on what happens

in ukraine. >> that is my view. i prefer not to,. >> the one thing that you do have a bet on is google chrome. where do you see that taking off and emerging markets? >> acer is super successful. we have 40% market share. in the western europe chromebook is penetrating in selected countries. some timeeed to save chromebookle taking off anin europe. >> we talked about google and chrome. what is the operating system for the future? is it microsoft? >> we are agnostic. we play with microsoft and we play with others. >> thank you for that. guy, we just heard agnostic,

play nice with everyone. everyone is going to get along in the sand pit here. we're going to take peoples toys and have some fun and see if we can break them. >> our special correspondent hans nichols, and the president of acer. up next, we are back with martin wolf. he joined his earlier in the program. he has his new book out in the u.k. today, "the shifts and shocks." still got to figure out when it comes to the financial crisis. in the previous segment, you're talking about the eurozone. limitations of the currency that exist in europe have been laid bare. we need to see further evolution if this is still to hang together. there is another currency union that is a question now. we have a referendum coming up

in the u.k. about whether or not scotland will stay with us. there is a belief in scotland that somehow we can maintain a currency union even post-independence. how viable is that? s> my answer to that, it i possible to have a currency union between the rest of the u.k. and scotland provided the institutionsar are run by the uk, and are subject the rest of the u.k.'s government's law. final decisions on the objectives of the central bank and regulatory law. and scotland by treaty simply accepts it. what we cannot have is a structure that is based on accountability of the core institutions, regulatory institutions, the central bank which are more of the same to more than one government. we've seen that creates disorder and chaos. if you think what would've

happened in the crisis if w the goucher with another governmente to negotiatewe had with another government. i want the central bank to deal with british crises in response to my government. not in negotiating with a foreign government. it,he scots can have provided that they accept less influence over the monetary regime. >> so, independence without independence technically. >> in monetary areas. i will not talk about other aspects. in fiscal, that might have a little more. in the monetary sphere, they can have a currency union provided they understand they would effectively have less say than they do now. >i'm certainly not speaking to the chancellor or the liberaly party. they may be bluffing. the lesson of this crisis is one central bank, one government,

one currency. >> one thing that central banks need to do is understand the nature of the banking system and be more atune to what is going on. thee were clearly gaps in regulatory framework which did not allow us to fully understand what was happening within the financial sector. again, back to the point about scotland. we would not be able to understand the banks and the nature of what the banks are doing fully if we were to have some sort of a currency union. >> this was the point i was making. we could if it is clear that we were doing the regulating. that the bank of england and the conduct authorities would continue to regulate. and we would have a strict requirement that if the problem arose with the scottish government, and how much the scottish would raise. .here would be no sovereignty

>> when you look forward to what happens, and we try to understand how we get ourselves out of the problems we find ourselves in. the banking system is central. we rely on the banking system a great deal here. as the mechanism of our idea of a fluoride of things. what is wrong with the way we are treating banks? what is wrong with the way that we are relating banks? whip re: i guess assets?-- how do we need to improve how we treat our banking system? >> i suppose my view is we actually, we have to in europe -- we have to take assets out of the banking system. what the ecb is trying to do is right. did it way the americans before the crisis. it is a big, collocated

transition. the banks are too big. the concept is so huge they are undercapitalized. they cannot take much risk. to get do take risk, into terrible problems. this is a fundamentally dysfunctional system. i think we have to accept -- i do not think the eurozone has accepted -- that they are going to have to move toward radically different financial system. that is another really difficult transition. i discussed this in the book. >> gave me the broad brush of what the financial system would look like. >> the banks would be 2/3 the size. the capital markets will be faster and more important. they would always we have to pay be properould have regulation. people would givinvest directly in assets. the banks, meanwhile, would become truly european. one economy, you have got to have a banking system which is european. i think that requires a fiscal bank. it requires a certain degree a

fiscal union, which is another no-no. but every other country has a fiscal backstop. we have a banking system that is smaller, more european with a stronger backstop and you have much more aggressive, more capitalul, deeper markets. it is a big transition. it is the direction the u.s. has gone but it a much better, more sound way. >> the deepe capital marketsr. that poses risk. what lessons can we learn from the united states about how we do that in your? what would we want to take and not take? >> the critical thing is that you would have to declare the intermediaries to take the risk. what they did in the shadow banking system is replicate all the weaknesses of a banking system outside the banking system. in this case, what we would have to do is if you want to invest in bonds, you buy a bond.

pimco is systemically sound. people hold the bonds through the fund. that is a valid structure because of the bonds go down in value, so does the value of your holdings. what you cannot do is create a highly leveraged made. -- a highly leveraged intermediary which is taking risk and promising safety. at, you have to ensure that they have lots of capital or there is complete 100% pass through the risk to the owner. the equity risk is borne by households in all economies. not per 10 there is someone else out there, god knows who -- do not pretend there is someone else out there when god knows there is no one else. >> would corporate balance sheets be more effectively used. the cash not being used effectively at the moment. >> the core problem here is our

private sector wants to save more than it wants to invest. if you think we are old, we are rich, we have declining populations. we do not want to invest. we want to invest in the dynamic economies. but they do not want to import the capital because every time the import the capital the financial sector blows up. the risk sharing risk. we have a ludicrous situation in rhe world where the poo countries are exporting capital to the rich countries who do not know how to use it. sameorporations are in the situation. that is another source of weakness in our economies, which 's difficultk that to fix. but the financial sector is easier, but it is a big shift. dependent ondibly these banking institutions and they are not viable. >> any sense of optimism? all this can be fixed but you

have to have bigger ambitions. what we try to do is take the old system, put little tweaks regulation,unts of little more capital and hope it will go away. that is not the way it is going to work. >> martin wolf, thank you very much for your time. martin wolf, the author of "the shifts and shocks, what we are still to learn from the financial crisis." let me show you today's pulse number. 2033, that is when boeing expects china to be the largest travel market in the world. they expect them to buy 6000 p lanes. we'll take a break. ♪

>> let's check on the markets because the potential for fireworks is what rbc is saying. 12:45 we get the decision. did marry her draghi wet the markets appetite -- did mario draghi whet the markets appetite. that we will see more quantitative easing. that is what many are hoping for. that is why markets are cautious. stocks flat. a little bit in the red. to see that next steps being taken. we have negative deposit rates. will he bite that bullet. will we see bond buying.

most think no change. no change for the bank of england. health care the highest performer. that gives you a flavor of what is happening on the stock market. on the bond market, merrill lynch says 45% of all government bonds out there yield less than 1%. one of the key protagonist -- germany. u.k. currently going into the u.k. get. -- the uk debt. the bond market on the move. we will now go to break. the key stocks that are moving. standard life, one to look out for in the u.k. ♪

>> welcome back. you are watching "the pulse." the currency markets are waiting to see what happens with the ecb later on. 1.3147. absolutely flat. what is draghi going to deliver? it is the question that everybody wants an answer to. nato. manus cranny is on ecb watch. ryan chilcote has the latest from nato. manus, let's start with you. actuallyhope the ecb

deliver something. something is better than nothing. in yesterday's program, jpmorgan. the markets have priced in action. in what form? look, it is anybody's guess what the man could say at 1:30 london time. it is going to be important in terms of whether they open the door to asset-backed security program to a targeted lending program. by showing some part of their hand that there's going to be substantial progress in the direction of easing. >> keeping the markets on board. progress is going to be made. >> record lows in the french government bonds markets. 45% of global bond markets are trading below 1%. is that correct? value of risk? i don't know. i am not a positive analyst but

that seems rather an indulgent figure for a rather indebted japan. should the ecb not act, they would accused -- be accused of going down the road of the bank of japan and not dealing with the situation. that prospect is on the table. >> ok. manus, we're going to wait and watch it, this live. the new conference live in full later on. in the meantime, let me take you to south wales to ryan chilcote. what if we got for the rest of the day from nato? >> well, they've got a busy day. they kicked it off with the secretary-general talking about an arc of crisis. two things on the agenda -- the crisis in syria and iraq. what nato can do to counter that. but also, the crisis in europe in ukraine itself. speak.nko is due to

aders will 60 world le want them to clarify what he has agreed on with the russian president and what we can expect from the talks tomorrow when it comes to finding a political solution that could lead to a cease-fire o r a permanent cease-fire. the europeanget, union is still threatening to impose sanctions against russia. they're going to want to hear from president parychenko if that is something they still need to do. >> ryan, any news on the french warship? what can we expect on that front? canou know, hollande expect a lot of congratulations. the ukrainian president already thanking him for canceling or putting on hold the sale of those warships to russia. what now happens, what did the

french do without that $1.2 billion, that is one of the issues that will be discussed. more on that later today. >> thank you very much, indeed. right. of england the bank rate decisions and then the mario draghi press conference. ♪

>> this is bloomberg "surveillance." >> president obama faces challenges on two france. he and david cameron declared they will not be cowed by

islamic militants. can they trust putin's plan for peace in ukraine? the dollar strengthens and global stocks fall before the central bank's decision. can you work out too much? questions about crossfit. good morning. this is bloomberg "surveillance," live from our world headquarters in new york. thursday, september 4, i am scarlet fu. joining me, adam johnson and brendan greeley. tom keene is off. >> tom keene is looking out for the little one. >> wanting her to school. a tenderlance -- >> side of tom keene. sent my two daughters to school yesterday. one of them was so excited, the other was too cool for school. >> sounds about right. it is a morning brief. >> action