>> brent below 50. oil hits a new five-year low. >> deflation dilemma. eurozone consumer prices are set to drop into negative territory. >> merkel meets cameron. the german chancellor in london. we are going to speak to one of her key advisors in an exclusive interview. good morning, welcome. you are watching "the pulse." i'm guy johnson. >> and i'm francine lacqua.

let's begin with europe's deflation by lemma. consumer prices for the eurozone are at the top of the next hour. our international correspondent hans nichols, joins us now with more from berlin. it looks like draghi's case for quantitative easing will be bolstered. >> that's what we expect. if inflation does come in at -0.1% draghi is going to have another argument for why he needs to start purchasing government bonds. on friday, we get consumer confidence. this is more the german case, the german theory of economy that most of inflation in decrease is largely due to the price of oil, which dropped over 50% in the last year. when we combine those two, the germans are saying you have a stimulative effect. this is jens weidmann's view of the world. he wants to see how lower oil

prices are affecting consumer confidence. then he can say, i'm finally comfortable with quantitative easing. how long can the european economy weight? it doesn't look like the ecb is willing to wait. even if we look at the core inflation, the number jens weidmann would prefer, it is still at 0.7%. still far below that 2% goal. >> does he have what he needs to convince the germans that now is the time for qe? >> you know, until negative numbers come in on just what the economy is doing in germany -- we just saw unemployment cross much better than expected -- until the german economy release hours, i expect you have not a split decision but a decision at the ecb that isn't unanimous. that is to say, the germans vote against quantitative easing. you have quantitative easing go

forward and it becomes the question, how long can you go if you don't have a unanimous decision? the federal reserve in the u.s. they were buying $85 billion in assets a month and their balance sheet grew to $4 trillion. the big question on quantitative easing, not just the when question, but how big? when we get to that point unanimity and the cohesiveness of the ecb does matter a little more. >> all right, thank you so much. now that january 22 date that is when the greeks go to the vote. that has whole other implications for mario draghi. >> the consensus seems to be that they announce it but don't give the details. >> that allows them not to buy greek bonds. >> let's put out our twitter question of the day.

are you scared of deflation? data out in the next hour provides me with an answer to this question. german unemployment at a record low, italian unemployment at a record high. if you are a italian, you probably are scared of deflation. if you are german, probably not. let us know what you think. >> the german chancellor, angela merkel, is in london today. she will meet with british prime minister david cameron this afternoon. ryan chilcote is outside number 10. immigration likely to be one of the big discussion points. >> absolutely. members of the german delegation that we've been talking to in the lead up to today's meeting have said that the german chancellor is prepared to offer a compromise. she won't budge on the idea of a number of movement within the european union, but she's prepared to offer support for the idea of curtailing migrant

access to welfare benefits when outside of their home country within the european union. the question is, is it enough to satisfy the british prime minister? he's under a lot of pressure. conservatives would like to see migrants be disallowed from getting benefits for their first four years outside of their home country. is the german chancellor prepared to go that far? we don't know. what we do know is, they've been very clear that they don't want anything that would allow -- would require major changes to european union treaties, particularly the kind of changes that would require ratification or referendum in the member states. one of the members of the german delegation was telling us, we've laid out our red lines for the british government. now we would like the british government to do just that. the best way to think of this

is, the beginning of a dance. it is quite clear that these negotiations are going to be extended. it may be the case that the german chancellor and the british prime minister can't indicate how far they get down the road today. >> ryan, thank you so much. >> let's bring in alan crawford the head of european government for bloomberg news. he is also the author of the book "angela merkel, a chancellorship forged in crisis." she is coming here, not ostensibly as the head of the german government, but as the head of the g7. but european politics is going to play a big part in this discussion. what message will she delivered to david cameron? >> she is consistent and clear that she really wants the u.k. to stay in the eu. she appreciates the british

mercantile tradition. she is very much in favor of this global outlook. that's why there is a statement released last night that they both want to push the conclusion of negotiations. at the same time, europe is never far away. she also understands that cameron is in a difficult position. she's reaching out to him. she wants to try and help him. to accept that hand of help is another matter. >> some things maybe you can renegotiate, but there are red lines that she won't go any further. will that be enough for negotiations to keep the u.k. in the block? >> that is the ultimate question. at the moment, i get the impression that the germans and the british don't quite understand each other's arguments. merkel is prepared to give cameron some aspect of

immigration but i don't think they quite appreciate how toxic the eu debate is in the u.k. i get the impression that nothing would be enough for cameron. he has to be able to tell his party and the country that he has managed to change the eu. merkel won't give him that. >> does that revelation, that realization come at some point for the germans? at that point, does the game change? is it unacceptable? is it unacceptable that the u.k. leaves the eu or is it acceptable at a certain level? if it is unacceptable, the cards the germans are playing are quite weak and they will probably buckle at some point. >> i think the germans have all the cards. i think that merkel has made it very clear that freedom of movement is a redline.

what we understand is that if he chooses to ignore that he doesn't seem to be doing much so far, she can't help him any further. that doesn't mean the u.k. exits the eu, but beyond that, i don't think she can do much. >> at the same time, germany needs the u.k. in the block. that's fair, isn't it? >> i think the u.k. needs germany's help more. it depends on your outlook on the eu. the debate in the u.k. is entirely alien to germany as a whole. >> everybody is trying to figure out whether the germans are bluffing on greece. it seems that they are and the germans are going to figure out a way of making that work. you wonder whether you can

extrapolate that into the u.k. story as well. if it really comes down to it there's this realization that we are going to end up with a more unbalanced europe because france plays a much greater role and everybody starts getting concerned about that, then merkel and her coalition start saying, we need these guys. do you think there is that element being played here? >> i think greece is one thing and the u.k. is another. greece, i certainly think you could -- we haven't heard the final word from the germans yes. they are not going to interfere as long as there is an election going. that would be a massive gamble on behalf of the u.k., to expect the germans to give more. >> alan thank you so much. alan crawford there. coming up, more on merkel as she's set to meet david cameron

today. >> we are going to talk to a key advisor to angela merkel. ♪

>> welcome back to "the pulse." we are live on bloomberg tv and radio. >> germany's angela merkel is meeting with the british prime minister today. topping the agenda, the eu

immigration. and of course the state of the eurozone, economic recovery. let's now talk to michael fuchs. he joins us from berlin. he is deputy chairman of merkel's party. good morning to you. thank you very much indeed for taking the time to be with us today. we have two p.m. elections coming up in the near future michael. one is in greece, and one is in the u.k. if you are concerned about either of those, which one would it be? >> it is a difficult question. first of all, i want my friends in the u.k. to stay in the eu. it is very necessary that they are in. i can't imagine europe without the u.k. i'm afraid this could happen with ukip but i do hope that mr. cameron is capable to convince the voters to stay in

the eu. number two greece is the next one to come on the 25th of january f i'm right. i'm a little bit afraid that the socialist party is going to be the winner. what he said prior to the election is not what i like to hear. >> we've had reports over the last couple days that the german government is preparing for a greek exit. is that true? is it because one cannot have a plan b, or is the german government contemplating to let greece go? >> first of all we don't want to influence the election. one thing is very clear, all the credit we have given with the troika to greece are under certain conditions. if the new government doesn't want to follow the rules which

we have agreed with the old one then it will be difficult for us to maintain our promises to greece. it is just depending on what they want to do. it is not on us, it is on greece, the new government which is coming up after the election. if they fulfill what we have agreed with the troika with the measures we have taken, then there will be no change. it is the compact we have made with them to be fulfilled. there is no question. >> if they are not fulfilled are you prepared to see greece go? you said recently that greece is not systemically relevant anymore. is that correct? >> first of all, we want greece to maintain its contracts and to maintain its new systems. it was successful for greece. they are more competitive than

they have been in the past years. they had a primary surplus in 2014. i'm positive as far as development in greece is concerned. if the new government is pushing back to the old system, it is a different game. it is all up to greece, not up to us. nobody can throw them out of the eu. we want them to maintain what they have promised to do. if they do so there will be no problem. if they don't, then it is going to be difficult for them. it is the greek government which has to make the decisions. >> it will be so difficult for us. you think that greece is not systemically important for the euro and we are in a different position than a couple years ago. but this could be a disaster. if they decide to leave the euro, what does it mean for other countries that might vote for extreme parties?

>> first of all, the situation in europe has changed very much. we have esm in power, more than one billion euros available, and we have the banking union which is in power. i'm not afraid for any other country. but everybody has to know, only with reforms the eu can be successful. it has been shown in ireland, in portugal, in spain, and at his -- and it has been shown in greece. i'm positive for greece if they maintain the reforms. without reforms, no way. >> do you think the troika has done enough for greece? there was a promise, maybe a promise is buzzing it too far but there was a tacit agreement that if greece generated a

surplus, there would be more ground given when it comes to debt restructuring. that never happened. do you think the other side of the table has given enough? >> first of all, i think the troika has done a lot and we have given them another two months prior to the next part of the loan which has to be paid out. we have given them another two months to do these reforms. it was agreed with mr. samaras that he's going to make these reforms. now, everything is on hold. the troika put everything on hold until after the election. we have to see what is going to happen. if somebody's going to cut back on reforms, then we will not pay out any more money to the greek government. >> answer me this, how conceivable is it that we have a

greek exit? what it be the end of the european union -- the eurozone project? >> i just had some garbling. can you repeat your question? >> how likely is it that greece leaves the eurozone and does that mean the end of the project? >> it depends on the greek government. he has to see how he is going to handle the election. if he's cutting back on reforms and not paying anything as far as interest is concerned -- i remember very well and i know very well from history that what has been said prior to the election is not always what has been made in politics after the election. let's wait and see.

it is very difficult to predict at the moment. >> should mario draghi buy greek debt? >> we don't want to have qe without condition. omt might be possible, but not without any condition. that would lower all pressure to do reforms. to my understanding, it is important that we have reforms and all the eurozone. the world is not waiting for europe. we have to be competitive as europe. that is one thing which is very important. we should not lower the pressure to do reforms with qe. >> but if we don't get qe and we have deflation, we are stuck. >> first of all, deflation, why? maybe deflation becomes because of the low oil prices, which is positive for the eurozone as a

whole. it gives a lot of room to people. more money in customers' hands because of low oil prices. the situation is pretty positive for the people in the countries. >> michael, thank you very much for now. stay with us. sorry, finish your sentence. i keep cutting you off. >> particularly for the u.k. you are selling oil. but for all the countries which are depending on oil imports, it is very positive. >> michael, thank you so much for now. the chairman of the democratic union comes back after a short break. we will be talking about a possible u.k. exit.

>> ok, we are also talking about the finishing touches on an suv that could roll off the assembly line sooner than expected. we will talk to the ceo of this business. ♪

>> welcome back to "the pulse"

live on bloomberg tv and radio. lacks busy day today. busy start to the year. let's look at where we stand. equities generally a little bit better-bid. it is interesting to look at what is happening with the bond markets. we have seen the german 10 year -- as you can see, we continue to see yields dropping. this morning, we've had some very interesting data. we get even more in half an hour. ask i find it incredible that we had that data really encapsulating the problem in europe in general. intel you and unemployment at a record high, german unemployment at a record low. >> that probably answers the next question we are going to ask you. are you scared of deflation? i wonder if the response is different if you are in berlin or rome. let us know what you think. join the conversation. michael fuchs will be back with

us in a couple minutes. ♪

>> welcome back to "the pulse" live from bloomberg's european headquarters in london. >> let's get back to our exclusive interview with michael fuchs, deputy leader of germany's christian democratic union. thanks for your patience. thanks for waiting for us to pay a few bills. let's talk about the u.k. angela merkel is here today. we are looking forward to her arrival. she's visiting the british museum, which looks like it could be an interesting visit. everybody wants to know about the germans' view of what is

happening with immigration. is your sense that david cameron is listening to uki[p far too much at the moment? >> i don't think so. david cameron has to make sure that u.k. is staying in the eu, and this is important for all of us. i cannot imagine u.k. being out of the eu. it is very important that he's doing that. listening to ukip is not a good lesson. angela merkel mentioned that we are not going to listen to those guys in germany which are demonstrating more or less every week on the streets against immigration. we need it. if you look into the democratic situation of germany, we are very much in need of integration into our workforce. >> michael, the approach of angela merkel and david cameron

has been very different. angela merkel slamming publicly the anti-islamist movement. do you see david cameron's approach as wrong, that he is pandering to extreme movements? >> i'm not the one to criticize your prime minister, because that is not my job if i may say so. we think it is necessary to have immigration, and to have a positive flow of people in europe which is one of the conditions of the european union. >> michael, we were talking to alan crawford who is the head of our politics team here at bloomberg. he wrote a book on angela merkel. he said something interesting just before we spoke to you. he said there is a gap, and that gap surrounds the understanding

of british politics. the germans are looking at british politics and they don't really understand the depth of the anti-eu feeling within the u.k. do you feel that german politics in berlin has a grip on what is happening here? do you think brussels has an understanding on what is happening here? >> that is one of the reasons that angela merkel is visiting mr. cameron today. as a matter of fact, i'm sure she wants to convince him to do his very best to maintain the relationship to the eu with the u.k. we want the u.k. to stay in. germany is in need of somebody who is looking into a market -operated eu, which is not easy for us. therefore, she is trying to convince him as much as possible

to stay with us. >> how hard will it be to keep the u.k. in the block and how much of a danger is it that these extreme parties are influencing policies? >> it is not positive that we have extreme parties. we have in germany a problem. look at france. that worries us quite some. ukip as well in the u.k. we should not come back to a kind of nationalism in europe. we have to stay together. europe is only relevant if we are staying together, if we have a common market together. i understand germany and u.k. have been always pretty much together for an open common market. that should not be hindered, no matter what kind of ideas.

>> michael, let's boil this down. why does germany want the eu -- the u.k. to stay within the eu? the common market is quite interesting. can i ask whether there is a concern in berlin about whether or not there's been too much french influence? i.e., the u.k. acts as a force against too much france. what would the eu look like post-u.k. exit? >> it would be not good for germany if u.k. is not in the eu. i understand, there was always kind of an alliance between berlin and london. we want to maintain this alliance. while i'm quite sure angela merkel is doing her best to convince even the british people that you should be with us in europe. >> how hard will that job be? >> [inaudible]

i think it is a difficult job but i think at the end of the day, british voters, they must understand that europe is something which is for all of us , which we have to maintain this kind of unity we have already. look at 70 years of peace in europe as something which is really to be maintained. >> the problem, michael, and this is what guy was talking about, people talking to each other in a different language. you want your prime minister to renegotiate the deals and the treaties with your have. -- with europe. how much can angela merkel allow? how much is she willing to give in? >> there are certain red lines. u.k. and germany are countries which are paying into the

european union. i think it is necessary that the u.k. -- you are a rich country, we are a rich country, and even france, to have these three pillars of the european union. we have to stay together and maintain the system. if europe falls apart, that is not good for each and every country in europe. two figures. after the second world war, there were about 500 million people in europe and 2.5 billion and the world. now, it is still 500 million people in europe but 7 billion in the world. the relevance of europe is not as big as it used to be. only if europe is united we are relevant. otherwise, we will fall apart. that is good for no country in europe at all. >> how do we square the issue of abn extreme party?

it is built on a number of factors and it is not common what the cause of these fringe parties are. there was some data out this morning. german unemployment was at a record low. great news for your country. italian unemployment was at a record high. that encapsulate the problem for me very clearly. italian unemployment at record high, german unemployment at record low. something has got to change here. how do we deal with that? >> first of all, we have to see what other reasons why we are on a record low. and why italy is on a record high. it is because of low reforms in italy. they withstand any reforms over the past 10, 15 years, and it is necessary to be successful, to be competitive, to do reforms.

that is what we did in the past 10 years. it was not easy for our people to accept. the italian people have to accept that they have to do reforms as well. only with reforms a country can be successful in the future. europe needs to be successful and competitive in a more and more competitive world. that's one of the reasons i think italy has to do its homework. >> michael, do you not think that italy is starting to do its homework? it has more reforms in the last year and a half than in the past 20 years. it may be slow, but the trend is towards more reforms. >> hard in may? -- pardon me? >> there are more reforms in italy, it is just taking longer than we would like.

>> there are more reforms in italy. it is something which will not work from the first day. greece started two years ago to do reforms. last year, already it has been much more successful than in the past. look at the situation of the greek tourism industry. 3, 4 years ago, it was too expensive to go to greece. all the germans went to turkey. this has changed already. it shows if reforms are going to be made, it is a success. this has to be understood by the people as well. it is not an easy job. first of all, it is rather harsh to do these reforms. it was harsh for the germans as well. >> the germans have the advantage of doing it at a time of global growth which made life a lot easier. we have a duration problem here. we have an issue that reforms

are slow but people are suffering. greece has a huge number of children living below the poverty line. parents are horrified by this. you've got high unemployment. reforms take a long time. these countries are suffering now. isn't it the case that we need to help them in the short term to allow reforms to take place in the long term? we need to do things now and we need to do things later but it is getting the sequencing right that is important. >> yes, but we are doing it with all the credit which we are providing to the greek government already. at the same time, they need to do reforms. it doesn't make sense if we opour in money all the time when it is a never-ending story. >> michael, give us a sense of your biggest concerns. we talked a little bit about a possible greek exit. you want europe to stay together

but you say greece is not since typically important -- not since ystemically import into the euro. what worries you the most? >> that's a good question. first of all, i am pretty much afraid about the ukraine situation. i really hope that russia is coming back to the table and that some movements are going to be made. it cannot be the case -- from germany ticky of his -- to kiev is closer than from germany to london. the ukraine dilemma is very bad and we think that angela merkel has to convince mr. putin to change his attitude towards ukraine. there has to be some reforms to be made. ukraine is something which worries us most.

then we have the drama in middle east with isis and all these various movements even in palestine and so on. there are a lot of things to worry about. >> what do you spend most of your time talking about at the moment? what are you spending most of your time on? >> if we are talking about international politics then of course it is something with russia. because of the german industries not really happy with the sanctions -- although the german industries must be thankful they understand perfectly that human rights are more important than any business, and therefore they understand our sanctions. on one hand, in germany we do have some internal problems. our energy system is not really

very competitive in a more competitive world. so we are working on energy. >> michael, in all of this whether it be russia, greece the u.k. your chancellor is seen almost as a powerbroker. do you think it is more likely that she leaves greece or that she lets greece go, then let's the u.k. leave? >> that's very difficult to predict. i can't give you an answer to say what she's going to make on the 21st of january, if that is going to be syriza to turn the whole thing back to the old side. we have to wait. to predict something today, i don't want today are. >> michael fuchs, thank you so much. deputy chairman of germany's christian democratic union

party. >> and testing to talk to michael. we mentioned the conservative u.k. party. the u.k. has a general election. we will be talking to all the parties across the political spectrum. >> coming up, the sport-utility vehicle bandwagon. with fuel prices dropping, is it time to own an suv? bentley is about to roll out one of their own that costs as much as 180,000 euros. the ceo joins us next. ♪

>> welcome back. you are watching "the pulse." >> oil prices have continued their descent in the face of a global supply glut. one expert told us the winners and losers are becoming increasingly clear. >> the man on the street may well be looking at petrol at a pound a leader. -- a liter. allison baker, u.k. head of oil and gas. from both the u.k. perspective and from those that are net importers of fuel i think we will see some gdp growth uplift. i think our expectation of $60 a barrel could mean 2% to u.k.

gdp. bus companies will be expected to see, not necessarily immediately, they will see some lower feel costs as we look forward. they will certainly be winners. the investor community has picked that up. cheaper fuel costs should mean airlines' costs come down. there is sn expectation that holidays may be cheaper. the energy stocks have been badly hit both in terms of investor sentiment, but also around expectations of dividend yields. cash flows are constrained through a lower oil price. there are many companies who th rough the shale boom redefined themselves by supporting technologies and services to those companies.

they will be potentially losing out. economies that are highly dependent on oil and gas when the prices continue to slide, it is not going to support economies which are in a very fragile situation. take venezuela for example. they balance their budget to the over $110 a barrel. russia iran, even the saudi's can't on a long-term basis sustain oil at $55 a barrel. many are speculating at the moment. >> coming up, the eurozone cpi numbers. we want to know what you think. are you scared of deflation? tweet us what you think. we've been going through some of the figures earlier on in terms of unemployment. you probably have a different answer if you are in rome or in berlin. >> this morning, what we saw was

record german employment effectively, a record low german unemployment and a record high unemployment in italy. that's going to be a very different story if you are looking at inflation. that number is coming at the top of the next hour. we are watching that very carefully. tweet us what you think. ♪

>> welcome back to "the pulse" live on bloomberg tv and radio. >> let's talk a little about sainsbury, one of the big british grocers. numbers out this morning, tesco numbers out tomorrow. caroline hyde is tracking all the action. >> the stock has been quite volatile. four quarters, we have like for like sales declining. we saw sales fall off 1.7%. there is a little bit of relief coming in. people have gone to online and it is all about trading up. one step that amazed me, 57 million men's ties sold. that is enough for 89% of the u.k. population. >> i have to say, i have more

than one. >> it evens out. i don't even have one. >> i may have more than two. >> there is a caveat. they haven't done as badly as has been expected. last year, their share price was the worst since 1989. but they are warning that things aren't getting easier. price inflation is here to stay, they say. they have the fourth quarter likely to continue on a sales decrease. >> [inaudible] >> this is what everyone has to work out. they are pulling in one billion pounds over the next three years, which means 300 million pounds in the next quarter. half of that over the entire year. it has a lot of catch-up to do in terms of price. when people start analyzing the quality, they go to the price. >> caroline, thank you so much. caroline hyde with the latest on

the sainsbury figures. >> let's get some news from crude. bentley out with numbers this morning. 2014 sales up 9%. 11,020 cars. let's talk now to the company's ceo. he is wolfgang durheimer. very nice to see you, wolfgang. great to see so many of those nice cars behind you as well. 2014, we know, was a very strong year. what about 2015? what can we expect in the year ahead? >> well, we are just seven days into the new year. happy new year's to everybody out there, especially the bentley customers. we are looking back to the record year of 2014 with 11,000 money bentleys -- 11,020 bentleys sold around the world. the growth is driven by china

with 22% up last year. our single strongest market is still the u.s. leading the whole world's bentley sales. we have a very strong europe and also middle east. we are fighting in 2015, the year where the first bentley suv will see the market. it is on its last testing phase right now. the product will be ready for market entry in the fourth quarter of 2015. further on, we are heavily investing in our home base. we have an 840 million pound investment program. we are creating a new design center and investing heavily in our production site to get ready for the future. this shows you how optimistic we are for the future to come for 2015. it is a little bit too early to predict what's going to happen

this year. >> there's quite a lot of excitement surrounding the suv. you say it will launch in the fourth quarter of this year. how much will it cost? >> well, the suv market at present is the strongest growing market worldwide. it grows three times faster than the total automotive market. we think with a pinnacle suv that we will be the most exclusive, the most powerful and the most expensive one. we have a good proposition to continue our success story into the future. the car will come with an extraordinary engine. it will be a high-performance engine. it will really be the pinnacle of the suv market in the future. >> do you have a date when we are going to see it? >> well, let's wait and see.

i'm not here today to give you the details when we are launching the product. it will be in 2015. today we are here to announce a record year in 2014 and look back to a very successful year to a very successful 12 months that we had in bentley motors. that gives us the faith and the financial power to invest into the future and bring more new products in the upcoming season. >> wolfgang, if we just focus on suv's for a second, they are outperforming in terms of sales growth, how is that possible when carbon emissions are becoming stricter? >> well, i think there is still a very strong luxury market around the world. high netwo -- high net worth individuals are a fast-growing population.

we have a lot of people that invest a lot of money. our average customer that owns a our average customer has eight cars in his carpark. when they go skiing in the future i think the bentley suv -- >> wolfgang -- we are going to leave it there. thank you very much indeed. we have data coming out of the eurozone. we have a much more negative number then we were anticipating. significantly worse than expected. let's take a look at that how it's expecting the various assets. >> we were expecting a -0.1 figure. we got a -%0.2.

-- -0.2%. >> a quick look at the bond markets. we have already seen a record low for the german tenure t-- ten year. hans nichols joins us from berlin. he is our chief international correspondent. >> my read is that anyone who wants to gang up on the germans for withholding quantitative easing has another argument and a bigger argument. it is not only negative, but a surprise on the negative side. however the question is how much of this is being driven by the drop in oil?

this is how the germans have a built-in argument for deflation. they are arguing that this is all just oil related and because we have cheaper oil, that acts as a stimulus to the economy. i did a great interview with michael fuchs in berlin. he argued that when you look at the stimulus effect from oil prices, you are looking at 10 billion just for germany. it all has to do with oil and we have to see what the effect of oil the stimulative effect of lower oil prices, is going to be -- that is their argument going forward. do we have core inflation numbers as well? >> my colleague is checking on that number as we speak. [laughter] i have to say that i find that argument -- there is some substance to it but it is not

as if inflation was not already falling into this number. >> i have an answer. core inflation, year on year 0.8%. instead of the 0.7% we were expecting. >> to explain the divergence on that it is most likely oil related, right? you have the headline that is much lower and core that is higher. maybe the price of booze has dropped precipitously. i doubt that that explains that. i think it is mostly about oil. what the germans are going to say is that core inflation is humming along and even taking up. the deflation number can all be explained by oil and every bit of that that brings prices lower on the oil side is money in consumers pockets.

that is why the germans are going to hold out for another round of data. that is why they make the brakes on this. >> this is a huge number. i know it has to do with oil but just looking at it, it does not paint a really good picture. >> it is a reality for a lot of eurozone countries area -- countries. jonathan ferro is always on these kind of things. he is sitting next to me smiling, looking at this number. >> i see the ecb with an inflation target of just below 2%. i see and ecb -- an that is

nowhere near that target. mario draghi has a mandate. the great collections is one thing. -- greek elections is one thing. within per for all countries the stalling wages and the consequences of reforms how do you fight that? this is not the united states. a lot of the lending happens through banks. they are not lending. the ecb is in a rock and a hard place. >> it is a growth demand story. >> it is the story we saw in japan 15 years ago. how do you stop the spiral? >> inflation expectations are

reflected in bond yields. they are not expecting growth to come about anytime soon. they're expecting a yield of below 0.5%. the ecb can carry on slapping down the euro. >> energy was by far the most massive component of this. it was -0.63%. in the states, the fed is going to look at energy. the ecb cannot do that. >> they can't. and also there has to be a consistent approach to this. a number of years ago when energy prices were going the other way and inflation was above 2%, the bias was pretty clear. they hiked interest rates. you can't call it transitory

when it suits you and then not when it doesn't. that does not make sense. >> they have been talking it down. at some point, you have to deliver. but at the moment, they have delivered on certain issues. >> when it goes back to the core issue in europe -- forget monetary policy for one minute -- go to demand. governments that have the capacity and space to deliver demand should do that. i'm talking about germany which has a budget surplus. >> did you hear, michael fuchs? >> you have a labor market that is strong. but that is very short term. at some time, the longest -- longer consequences of the eurozone are going to bite them. >> i actually don't agree with jonathan at all. this is longer-term. >> a year down the road, say oil

bottoms out at $40. say it goes back to $65 this time next year. you have the exact opposite effect coming through. it is whether or not the story gets embedded between now and then -- that is quite interesting. you have to look through the energy story. what we are seeing is a very big drop. markets are overshooting. how do you correlate that with the reality of the economy? it is about sections now and that is really important. it is so hard to gauge, measure and understand. >> it is one of the most difficult things central bankers have had to deal with since the beginning of time. let's turn to the aig chief economist. we are having a debate about

whether we should worry about inflation or we should be more relaxed because of the oil prices. what is your take? >> countries like germany should not worry about energy. with low inflation, you can buy more stuff. we have italy and france where unemployment is extremely high. they cannot afford to buy more stuff. inflation rates are a problem there because it could lead to deflationary problems. >> qe is the way that we tackle it? >> i think it is the only tool the ecb has left so it is the only thing they can still try. i think qe will work to the extent that it will not lead to more lending, but it will weaken the euro further. this is probably the best relief the euro zone economy can get right now. >> give us the inflation figures

we have just had crossing -- given the inflation figures we have just had crossing, is it given that we will have the announcement of qe from the ecb in january? >> i think it is. if you look at the inflation meant rate -- rate. i think it is a given that the ecb has to announce something on january 22. i think doing nothing on the 22nd of january would be a serious move for the ecb. >> one year out and oil prices are back up to $65 -- the inflation prices look very different. how much of a mockery will that make monetary policy? >> not as much of a mockery as

when the ecb hiked interest rates when markets were very high. it is not only about negative inflation rates, but about the stagnating economy. they are looking at nonexistent growth. they will do everything they can to restore growth in the euro zone economy. >> qe is not -- we are correlating qe and inflation at this stage because the data just came out and it is negative. we should be correlating qe with growth. i know that they are all linked. >> i think right now the ecb's confidence is not a single needle. it has more. they are concerned about a stagnating economy.

you cannot isolate growth and inflation. you have to look at both of them. i think the ecb is really worried about growth and nonexistent growth and of growth starts to pick up again, then we will see inflation gradually increase again and we will see energy prices rise again. i think the biggest concern for the eurozone is nonexistent growth. if we don't tackle this, we will get political consequences across many eurozone countries. that will clearly have a big hit on the fundamentals. >> and yet, it is not a mandate. carson, stick around. we have plenty more to talk about. back with us after the break. ♪

>> welcome to put bank." -- "the pulse." >> we have been talking about the eurozone data. carson, i find myself in an interesting situation. i am looking at an oil price being driven lower by supply and i am wondering how i correlate that with a eurozone story that is being driven by a lack of demand. we could have low oil prices for

a while. we could see up for demand and oil prices still say low -- stay low and therefore inflation still staying low. how does the ecb react to that scenario? >> i think they would take a very laid-back approach to that scenario. the low-energy price has no negative impact at all. it would be fantastic if this could continue. if we see demand picking up in the eurozone, energy prices staying low i think that is something the ecb would let go for a while to see that the recovery gains ground. >> talk to me about what the ecb is going to do on january 22. you are expecting some kind of qe. is there going to be announcement of qe? there is the tricky situation

that the greek elections are three days later. what does that mean about greek bonds? >> the ecb cannot escape the corner without announcing qe -- quarter without announcing qe. i think it will take a more general announcement. about a broad asset purchasing program. they will not deliver further details because they do not want to announce that they are going to buy or not by greek bonds three days ahead of the greek elections. the next meeting will be in early march. they can say, yes we do start qe, but wait until early march so we can present the details. that is with the ecb did already. they give a first idea of what

it could look like and then the meeting afterward, they follow up with more details. >> the fact that they are going to announce something is already priced in. they are going to have to announce something in size. are they going to hint at the fact that this is going to be big? >> i think right now probably the biggest challenge for the ecb is just to fulfill expectations, to fulfill what is priced in and not to disappoint. i think they will not announce any number, but what they could do is kind of reemphasize or strengthen this intention to increase the size of the balance sheet. i think if they would strengthen this commitment, it could be enough for markets to really believe and make this qe announcement very credible.

>> what is your biggest concern? we talked about growth. we talked about your expectations for the ecb. we talked about oil prices. how much of your -- are you thinking about the rise of extreme parties? >> i think that is the biggest risk. just kind of opening this can this week is already a very bad thing. it is a loose situation. after the greek elections germany and the rest of the eurogroup will make some concessions toward greece. we will get some kind of debt relief. the other european countries which did reforms will also demand something. in germany, we have voices saying you should not make further concessions. it is a very dangerous political situation.

shows the effect we have done a lot in the eurozone to strengthen the union it is still in an unsustainable construction and something more has to happen. >> would all of those things be euro negative? >> the main thing right now is the ecb action -- the lack of growth and we will get a further drop in the euro. >> the objective is definitely to get growth going. you are saying that qe is unlikely to work through the banking channel, but it will work through the fx channel. if the politics or negative, it not only augment that story? >> it clearly is. the wishful thinking argument would be that we are going to get this further weakening,

maybe even undershooting of the euro, which leads to a pickup of growth in the second half of this year which then would lead to the exchange rate and make it more euro positive. that is the wishful thinking argument. you could come up with a more devastating scenario for the eurozone. that is the best case scenario. we believe in muddling through and that helped by lower energy prices and a weaker euro. >> thank you so much. the ing chief economist. >> how mary was the christmas? -- merry was the christmas? we will tell you after the break. david cameron into the car on his way to the british museum, where he will meet angela merkel. ♪

>> welcome back. as the decorations are stored away it is time for retailers to see how they fared over the holidays. >> caroline hyde has more on the numbers. it could have been worse. >> could have been worse.

many braced themselves for a decline of 3%. it was about half that. it does seem to have overstepped the mark because people traded up. sainsbury is known a bit more for its quality. it did well online and at its local stores. the fourth quarter is also looking challenging though. for sector oh was up -- proseco was up 30% on sales. but they are being realistic. when you hear much they're going to fight on a price competition issue, they could have pressure. >> we will compete toe to toe

with our competitors on prices. we announced in november price investments that will be phased over the second half of this year and the second half of -- first half of next year. we will make sure that we remain best from price and what remains a tough market. >> if they have to step up to the mark and invest in prices. that is what they will be analyzing. tesco is going to have big worries about that as well. >> it is going to be a week full of sales analysis. thank you very much. caroline hyde with the latest on sainsbury. >> we will be back in a couple of minutes time. you can follow us on twitter.

>> we will see you very shortly. ♪

>> welcome back to bang -- "the pulse." the bank of england has released minutes of meetings held by its quarter directors at the height of the toward thousand eight -- 2008 financial crisis. they show concerns about a lack of experience to do with the prices and worries about the banks.

they were given codenames to heightened secrecy at the meetings. the documents were released as a part of mark carney pass efforts to increase transparency -- mark carney's efforts to increase transparency. >> searchers are closer to finding the black boxes in the airasia crash after they found the jet tale. -- tail. the aircraft crashed en route to singapore. >> south korea's defense ministry says that north korea has doubled the size of its cyber warfare unit. north korea now has 6000 skilled cyber warfare experts working in a bureau known as 121. 99 states recently imposed new sanctions on north korea and response to the massive cyber

attack on sony pictures. >> to the markets. it has been a busy morning. let's find out what is going on. >> the equity markets are experiencing a little bit of a rebound. they are now up 0.9%. i look at germany. i look at unemployment. i see two worlds. record low unemployment in germany. record high unemployment in italy. the inflation rate is -0.2%. here is the debate. if you include oil, if you include energy prices into that inflation number, you have deflation into the eurozone.

if you strip it out, you have a little bit of inflation. had to the central banks -- how did the central banks handle this? do they look at it as transitory ? or do they look at the word consistency? they hiked interest rates when energy prices were higher years ago. the bond market is telling you something else. the bond market is saying, i don't expect growth to stoke inflation anytime soon. this debate is going to roll on until january 22, when the ecb meets. everybody will talk about whether they will pull the trigger on qe. then anybody -- everybody will talk about whether this is going to have any impact whatsoever. >> as you speak, the greek 10

year has climbed above 10% for the first time since september 2013. >> i like this little thing called the greek election. angela merkel is in london today to meet david cameron this afternoon. ryan chilcote joins us. >> members of the german delegation that we have been talking to in the lead up to the talks later in the day have indicated that the german chancellor is prepared to offer a compromise on the issue of immigration. we understand from her delegation that she will month budge on the issue of freedom of movement within the european union, but will give some qualified support for the idea of curbing access of migrants to welfare benefits. we know that the conservative party would like to pay cap at

four years -- migrants would have to be outside of their home country for four years before they are able to access benefits. we have been led to believe in the u.k. that the germans might be prepared to accept a compromise of a couple years. that is not the only issue. the germans don't want any changes to the eu treaty. that would require ratification by all the member states. the prime minister of this country says that the reform he wants would require treaty changes. >> how does this all fit in with the referendum that could come even earlier than 2017? what is the line going to be on that?

>> at a minimum, he needs to be perceived by the public as fighting and trying to curtail immigration. he fell far short of his own expectations that he would cut net migration. we are four months from the elections. the already said -- he already said that there would be a referendum by the end of 2017. he said he is prepared to move it up. obviously, he is under a lot of pressure to deliver on that and cut some kind of deal. people talk about a sweet spot in the middle of 2017 right between the french and german elections whereby those countries would be prepared to do a deal may be -- in terms of

renegotiating britain's relationship with the european union. it is very much in the prime minister's interest to sort this out before that. he would love to get through that as quickly as possible should he be reelected so it does not dominate the next term of his leadership. >> thank you very much indeed. >> as david cameron and angela merkel look for common ground our next guest argues that the british look underestimates the influence it has on europe. peter, great to have you on the program. good morning to you. how are angela merkel and david cameron going to get along today? immigration is what they will be talking about. are they going to see eye to eye? >> the problem with this debate

in britain is it is always a battle. but david cameron and angela merkel agree on much everything. they agree on economic reforms. david cameron set out a series of demands and these demands have been agreed by the member states, by the brussels commission and by the council of ministers. this is the success that they're not speak its name. -- dare not speak its name. the issue is about one of immigration. it is not just germany that agrees with britain noncontrolling migrant benefits. austria, denmark sweden. they all have the same migratory pressures on them. germany had nearly 800,000 migrants coming in last year.

we had 200,000 and we are throwing it all out of the pram. all of these countries have agreed that migration benefits must be tightened up. this is not the jockstrap tight immigration country in all of europe. you go to germany, you have to register. if you want to buy a house of copenhagen, you need to live there for a while. we don't even have exit checks in this country. the problem lies not with brussels, but with britain. consequently, angela merkel and david cameron can agree that there should be a tightening of the benefit system in member states of the european union but david cameron could step to the plate and say, we could tighten the system in britain, too. >> why does he want a treaty

change? because that is a problem for all of those countries and they are not going down that road again because they have seen a problem with treaty changes and the referendums that follow them. >> he thinks that treaty changes required to do with economic reforms governance reforms and about migration. i say none of these things require treaty changes. his own fresh start group of conservative members of parliament without a report saying, dave, you can achieve these things. >> why he doing this? >> look, there is an election coming up. he has to sound tough and if he must fight. >> if he is saying, we need a treaty change and then does not deliver, that too many terrible spot. this is someone who thinks there really needs to be a treaty change. >> what he is talking about his

major treaty change that requires all member states to rectify it. this is not the way to go if he wants any reform. he knows that. there is another thing -- minor treaty change. in order to tinker around with the eurozone and create more budgetary coordination, they may need minor treaty changes. the type that do not require referendums. that is his option. if angela merkel wants a treaty change and he says, ok, i will agree with that and we will have treaty change there is some merit in that. >> there seems to be a suggestion that british people with -- except staying -- acceortpt staying in the eu if

there were an improvement in the relationship. if what you are saying is true and the treaty changes something that can be done, why are we talking about this? >> it is amazing. the people in the polling say they will approve huge -- staying in the european union. if there is renegotiation and reform. >> why we talking about that? >> we talk about reform and we talk about renegotiation, than we talk about repatriation, then we talk about treaty change. you talk about treaty change and there are right ring -- wing tory mps.

i regard talking about treaty change is a mistake. i think he can say, two years ago i stood hero bloomberg 28 member states agreed with my demands, i will present my negotiations to the british look . -- like -- public. >> thank you so much for that. >> we mentioned the conservative and the u.k. parties. the general election is coming up on may 7. we will talk to all the parties across the political spectrum in the coming months. >> will 2015 be the end of passwords? ♪

>> welcome back to "the turco -- "the pulse." sam grobart takes a look at a few projects -- products looking to put an end to passwords. >> a number of companies want to replace your password with something much harder to steal your biometrics. we are all like snowflakes. we have unique physical

characteristics. your future password could just be your own body. if you want to feel like you are in him -- eight "mission impossible -- a "mission impossible" movie, use myris. it scans your eye with an infrared camera and you are good to go. the company claims this is many times harder to fix and a fingerprint reader. they just announced plans to build that into laptops. this band identifies you by your heartbeat. snap it on your magnetic wrist -- it will read the electric

activity of your heart and can identify you by the shape of your electrocardiogram way of. the canadian startup that makes the device is in the early stages of development. you would not need your wallet or even your phone. but your phone is pretty much an extension of your arm at this point, let's be honest. last but not least, forget your password. just take a selfie. an image of your face is taken and then 2000 and's are analyzed to confirm that it is you. right now, the technology is integrated into an app that lets you log into websites. the company wants to make their biometrics compatible with atms

and even starting your car. depending on your point of view, looking at your own face on the cell phone camera could be excruciating or wonderful. >> it is also easy to get a picture. >> that is the point of changing your face. i like the idea that people will be walking around pulling funny faces getting into their phones. >> coming up what to a fox, a tiger, and a phoenix have in common? we will have more on that story next. ♪

>> good morning, everybody. the bank of england has released hundreds of pages of documents from meetings that took place during the 2008 financial crisis. why are these pages being published now? >> it is of a drive by mark carney to improve transparency at the central bank. he made a big announcement last month about the overhaul of transparency. >> what does it show about how

the u.k. was ready to deal with the crisis? >> it shows that the scheme was not set up to deal with this sort of thing. as the crisis war on, -- wore on it became clear that there were problems with different functions and institutions. then we ran into a situation where all of the oversight was at the central bank. >> there was a certain amount of james bond by discussing all of the banks with codenames. >> larkin, phoenix, and tiger are some of them. you can see that there is a plan i and northern rock -- panic at northern rock. there were concerns about, will be the next to fall? they wanted to give everyone codenames, so that if anything

else leaks out, they would not be able to identify them. >> a lot of it did come out. >> well, it is out now. [laughter] there was a concern about leaks. there is a senior member of staff who they thought could be a member giving information about meetings. there were other concerns about communications. one monetary probably -- policy minister was chastised forcing how he might vote at upcoming meetings. and that is not done. >> it is interesting reading. >> i'm glad we did not have to do it. >> you can just read the story at bloomberg.com. >> we read it for you. [laughter] >> what else are we watching for the rest of the day? let's find out. hans nichols joins us. our international correspondent. washington, the fed minutes everyone is focused on that now. >> we could get a great deal of

information when these fed minutes are released later today on just when the u.s. may have their first interest rate hike their first one since 2006. these are from the december meeting, when they initially said they would turn to being patient on when they will raise interest rates. one thing that will not be in those fed minutes your guys secret codenames. i would like that eventually for the sake of democracy and the sake of the european union. i think we all know what francine's coded name is and that is excellent driver. >> excellent driver? >> out of all of our secret names, yours is the best. it will be unveiled on twitter shortly. >> hans' is hansy. but we are not going to go without one. [laughter] >> -- with that one.

[laughter] >> in europe, it is looking like a little bit of mayhem -- even more than we were expecting before hand. >> it came in at -0.2%. and the expectation was -0.1%. we will watch how this ripples throughout the market. it is crucial to see what euro-swiss franc does. this makes the january 22 meeting of the ecb all the more interesting. >> angela merkel is over here and i guess we are watching that meeting between her and david cameron. they are going to the british museum, potentially looking for a new director for the humboldt as well. >> talking about immigration. we might have a british director in germany. thank you, hans nichols. that is it for "the press." >> "surveillance" is up next. join us on twitter.

have a great rest of the day. ♪

>> oil continues its dissent. german yields plunge. merkel meets with cameron as markets place cash under the

mattress. greeting 2015 with enthusiasm. what must they do to win november 2016? surprise as the economy improves. america is less and less disabled. good morning, this is "bloomberg surveillance." we are live from our world headquarters in new york. it is wednesday, january 7, i am tom keene scarlet fu and brendan greeley. i wrote that script 20 minutes ago and markets already recovering off at ecb comments. >> at the same time, the euro continues to weaken. some kind of action could happen in january with black let's get to the top headlines. >> let's start with those who want the ecb to jumpstart the european economy. just got more ammunition. the inflation rate fell below zero for the first time in more than five years. prices declined