>> greece becomes the first developed economy to miss a debt payment to the imf. european central bank will meet later to consider the consequences. merkel rules out any more negotiations before the weekends referendum. the eurogroup finance ministers will discuss a bailout for the indebted nation on a call today. meanwhile, thousands of passengers queue outside of the nation's banks. opening today to allow them to withdraw 120 euros. heathrow is named as the best option for new runway by the u.k. we speak to the airport's ceo

later in this hour. warm welcome to "the pulse"." i'm manus cranny. eurozone manufacturing is crossing the bloomberg terminal. mark: its highest since april. 52.2. the earlier reading a few weeks ago was 52.5 as well. bang in line with estimates. in line with what the regional economies have been telling us. germany highest since april. france beat the initial estimate. highest since april 2014. the only two that missed were spain and italy. not too much reaction in the

markets. have a look at the euro against the dollar. the euro coming off the strongest quarter since the first quarter of 2013. we're really asking a question today, is there any contagion from greece's missed payment to the imf? the answer in the currency markets is no. the answer in the equity markets is definitively no. the stoxx 600 is up. the last two days, the biggest two day fall since december. the bigger question remains what happens next? manus: no problem there. i'm sure you have got the answer. let's move to the top subject. greece has become the first advanced economy to miss a debt payment to the imf, after coming -- failing to come through with 1.5 billion euros. that was due yesterday.

the country finds itself outside the protection of the european bailout program and struggling on day three of capital controls. pensioners have been chewing this morning. thanks are opening today -- pensioners have been queuing thisr more on all of this, we are joined by guy johnson and elliott gotkine in athnens. hans nichols in berlin. guy let's get to you. what is the latest? i heard you were having a conversation with ahead of tourism and the phrase he cap using is, everything is ok for now. -- the phrase he kept using. rguy: people are getting more and more fraud. elliott will talk about the pensioners. the situation is getting more more difficult on a day-to-day basis for the people. they wake up in a different country this morning. one no longer under the protection of the institutions and one that is in arrears to

the imf. that is a place you do not want to be. last night, there was a pro e.u. rally in the square. it was raining. maybe the weather was fitting. we have polling out this morning. 46% on the no camp. 37% on the yes camp. people i am talking to are saying that the polling is in favor of the yes campaign. we are still negotiating it seems, but i just talked to another one, and many tell me even if it different program is accepted, the referendum will still go ahead. varoufakis will propose that later on. the feeling in greece here is t hat life is getting more difficult. it is very difficultto judege the political outcome. businesses are really affected by what is happening. manus: the ecb will have a

discussion today. we understand that there has been a request for an extension into the ela. the ecb reaction to this missed payment. they will have something to say about it later today. guy: they will have something to think about. i think we find ourselves with a very difficult story for the ecb to deal with. the -- being in arrears to the i left us change the nature of the game. it changes the relationship of the banks and their cap appeared and the ecb is going to have to make a very finely balanced judgment call on whether or not greek banks are still in the same position they were in yesterday and whether or not they need to increase haircuts on the collateral that greeks provide for that funding. if that is the case, there was a

serious concern in athens you could see some of the big four banks being put under pressure. and there is growing concern about counterparty risk and how solid these banks ultimately are in terms of their capital base and their access to liquidity. this is serious stuff. we are in capital controls at the moment. we are in credit restriction. if you start a seal failures -- i am not sure we are going down that road too far -- that is a very different story. manus: understood. let's cross over to elliott gotkine outside one of the banks in athens. capital controls. we have seen the queues. i came into work seeing the pictures of pensioners, to be able to withdraw 120 euros. this is a real humanitarian issue. elliot: this is a financial crisis and the humanitarian crisis as well, or at least the human crisis. this is national bank of greece

one of the larger branches in the center of athens. when i came here three hours ago this morning, they were -- there were lines of pensioners. the guy in t he pink shirt, came out, address the pensioners. some got angry. there were more on today when he explained to them. but everything has passed off peacefully. there have been arguments, but greeks are an expressive bunch as we know. inside the bank, busier than it was before, but pensioners going in and coming out with their money. 120 euros per week is the limit. the average is 665 per month. they are getting 30% less than they ordinarily will. the greeks not happy about the journal is camped outside, but they are taking their money out. they are limited to 60 euros per

day. there is a diverse range in terms of where sunday's referendum should go. i was at a rally last night speaking to supporters of the yes vote. yes to another agreement and perhaps more austerity in exchange for financial aid. it's a passionate voices in the main square. >> i hope they vote yes for a better future because -- yes is the best possibility for us, for the youth. because we are 25 years old. we graduate right now. and then this situation is the worst for us. for any job opportunities. >> absolutely yes. elliott: why? >> because we need europe. we cannot stay all alone. we cannot be out on the side of europe. elliott: what happens if greeks

vote no? >> catastrophe. this is what we think >> i am not supporting the tsipras position. i want to be part of europe with better conditions. but i don't think alternatio -- ultimatums are the key fto finding a solution. elliott: so you will vote yes? >> yes. because i go to save europe. to be european people. elliott: you are worried if people vote no, then greece will no longer be part of europe? >> i don't want -- i don't think things will be no. it will be yes. elliott: 1000 branches are open today. there is graffiti on the walls that says theinstead of the

drachma the euro. a sentiment not shared by the majority of greeks, i think. manus: hans is standing by. the creditors, where do they stand exactly? because you have got the same time we have missed this imf payment. merkel saying late yesterday afternoon -- i do not want discuss anything until these guys have a vote. a month ago, -- go to the vote and maybe tsipras has to resign. hans: merkel appears to be calling tsipras's bluff. finance ministers are meeting later today. they have a conference call later this evening to discuss the proposal. the greek proposal asking for 30 billion in additional funds to get them through their debt payments for the next two years. plus debt restructuring is a nonstarter. it would be crazy to talk about

additional financing. >> all the proposals have been rejected and the greek government has called a referendum and advise the people to vote no. in those circumstances, it would be crazy to extend the program. so that cannot and will not happen. the program has expired. hans: the greek side does still have a few cards to play. they can change the terms of the referendum. they can even call off the referendum. and they can also change with the recommendation is going to be. right now they are urging a no. they can change that. these are all potential moving parts in continue negotiations. although at the leaders level from angela merkel, it is clear it is not happening. at the finance ministers level among the euro working group, there could be and there are talks. we will update you throughout the day when we get more news there. manus: thanks. we will speak to you later through the show. thanks to all of you.

guy johnson, elliott gotkine, and hans nichols in berlin. here are a few events you may well need to know for the day ahead in this greek drama. first up, the german finance minister presents the country's 2016 budget. he has previously said the budget is safe, even in the case of a grexit. 4:30 p.m., eurogroup finance ministers have a conference call to discuss greece. merkel has said there is nothing to talk about until sunday's referendum. later in the day, we are not 100% sure but th -- exactly when, but the ecb governing board. they meet. emergency assistance to greek banks could be in question after the country's missed imf debt payment. that brings us to the twitter question of the day. is merkel right to rule out negotiations before the referendum? so join me on twitter. let's try and make some sense of

where we are. it is the cohead of medical markets research at goldman sachs. francesca, great to have you with us. this is amoving feast by the hour. we have missed the debt payment to the imf. nobody wants to call it a default. everybody is trying to hold us back from making more of this. goldman sachs's job is to understand risk. what do you make of this? francisco: it is a risky situation. we have highlighted greece as one of the riskiest places to watch for the outlook in the second quarter. i would say from here, there are two things that we are focusing on. one is the politics and one is the institutional steps. so the institutional steps means that the program has ended. the greeks have put forth as you were saying a request for a repackaging of the debt that is

expiring in the next year and a half. essentially asking the official sector roll over that debt. has also asked for forgiveness or restructuring of the existing liabilities. that is acceptable but it comes with conditionality's. a new program will have to be discussed, decided upon, passed by all parliaments, starting with the greek one. then there is the politics. obviously, when we say there is a referendum the government has taken the side of the no. but if the negotiations in coming hours were to leave room for something that looks more palatable for the government maybe the government in greece itself would move to supporting the yes camp. so that is the political dimension. but i think the institutional sectors are pretty safe. manus: the markets. mark summed it up very well. he said equity markets -- at the moment -- rather sanguine.

fx markets, the euro is fine. bond markets are moderately sanguine. 156 basis points for spain over germany. italy over germany around 150. it is not exactly ratcheting up. what does it take to ratchet those spreads wider in your opinion? francesco: our opinion is as follows. i think the market sees greece i n with these characteristics. it is a place where if the level of direct risk is pretty low. so if you have greek risk on at the moment is because you wanted. that was not the case a couple of years ago pierce secondly, -- secondly, there is a lot of hope that there is an appeasement. that is the political discussion we were discussing now. and thirdly, there is a perception that the ecb will come out and limit contagion

risks. so i would describe the market is basically frozen here. it has moves in lockstep's. we've seen bonds going from roughly 100 basis points, if you take italy versus germany, to 150. now we are kind of wiggling along those levels. my sense is that if we come to the referendum and we get a very close call or a note vote thnen this situation, your report is described continues for another week, that will be the cause for further spread widening. i think the market is not deep enough to accommodate a change a rotation and risk at this point in time. the question of becomes when does the ncb -- the ecb come in? my own sense is that they will come in only when the spread widening has occurred. so i would say a yield of

around 3% would be something that the ecb is going to consider as preoccupying but not before. manus: i'm just looking at yields at the moment. we're at 2.27. another .75 of a percent. the conundrum was this -- we have q.e., but that is restricted by the geography of europe. in terms of how much bonds they can actually buy. what would you expect? would you expect from london -- front loading of q.e.? francesco: look we also have to consider that the market is in a supply demand position which is favorable for spreads to remain contained. a lot of governments pay coupons this month. and the ecb is continuing to buy. so, the balance of new supply versus paper that is coming out of the market is favorable. now, if we do get in a bad state of the world for greece, i would describe that is continuation of

capital controls, further tightening, ela iou's paid by the government. that, as i said, i think will lead us to wider spreads. how does the ecb react to that point? i think they will have to go big. the reason i think that is in last year's market, we had investors buy ahead of the ecb, ok and buy with the ecb. in a situation where greece has defaulted and the risk of grexit would increase, i think people will sell to the ecb, which is a different landscape. so, they are surely big enough as buyers to limit the contagion and get pin prices, but i think if we do realize grexit which is an outside risk, for nowthen the institutional setup of the bond market in europe changes in my opinion. manus: we look for a bazooka.

he says it is fully loaded and ready to go. co-head of macro and markets research at goldman sachs. let's get you up-to-date with what else is on our radar this wednesday morning. china's factory output remains sluggish. last month despite monetary easing and attempt to shore up the local government finances. official pmi came in at 50.2 below an estimate of 50.4 in a bloomberg survey. it was better -- there is were sentiment among large manufacturers improved for the first time in three quarters for the bank of japan's index rose t o 15, up from 12 in march and ahead of economists estimates. that is -- that the index would remained unchanged. and bank of it was governor mark carney will set the semiannual

financial risk later this morning. they highlighted liquidity risk that the weakening global outlook as potential threats. we will bring you that news conference live and in full from 10:30 london time. ok, heathrow airport should be the site for london's first new runway in nearly 70 years. that is the recommendation from the u.k. commission released this morning. let's speak to christie jasper -- chris jasper. so why did they come down on the side of heathrow? this conundrum has gone on for a long time. how did they fall on heathrow? chris: pretty simple peculation really. davis decided the -- pretty simple calculation, really. davis decided that the benefits ultimately outweigh the greater problem of noise pollution than at get what.

-- at gatwick. he acknowledges in some senses gatwick is the easier choice. far fewer people live in the immediate area. but gatwick is not a hub airport and heathrow is. manus: they only have that mantle. we are a hub. i listened into the interview with the ceo of gatwick, and he said we are quieter, we will be more on budget. we are still in there. with a good shot. is that realistic? chris: all of those things are true, and davis is pretty complimentary about gatwick. and there is no suggestion that gatwick should not expand but he's adamant that if you have t wowo hubs, you get no aggregation effects. those routes to emerging markets that london needs to not become viable. you need to have all of your eggs in one basket to get people transferring between flights. manus: this is like defending

against abu dhabi order by. and the politics of this are not beyond anybody's notice. the mayor of london is opposed. we've got other major political voices. chris: that is certainly the case. and johnson is obviously an important figure -- boris johnson. a potential prime minister. today he is looking like an isolated force. we have had the cbi, the iod lineup behind heathrow. all of the u.k. airlines. in terms of the party political response the transport secretary's comments today saying they will now look at the detail but that this is a once in a generation opportunity. seemed to suggest that there may be a head of steam gathering behind peter. -- heathrwow. manus: once in a lifetime.

it has taken them a heck of a long time to make a decision about the business future for the u.k. chris jasper there on the heathrow decision from the airports commission. let's shift east and talk about manufacturing in china. sales remains sluggish. the official purchasing managers index of 50.2 was unchanged from mary. that missed -- from may. our chief asia economist joins us live from beijing. tom, this is mixing between the official and the unofficial. whatever way you slice and dice this, the cost between an inspection -- inspection -- expansion and contraction is not exactly rocking. tom: the main take away from the june pmi data is that the manufacturing sector is not getting any worse, but it is not getting any better, either. t officialhe pmi slightly above

50. the market pmi slightly below 50. both of them pointing to stasis in china's factory sector. manus: and we've just had a rate cut, the fourth in a cycle that began last november. i'm always fascinated to know is this about saving the stock market? maybe saving the world from the repercussions of that versus actually growing the chinese economy. or sorry, putting a floor onto the chinese economy. tom: i think the timing of the rate cut on saturday was really very striking. it came after two weeks of heavy losses on china's stock market. and, of course, that raises suspicion that china's central bank is more concerned about equity markets than it is about the real economy. in fact, i think that interpretation might be too

simplistic. and that is because business lead through from weakness in the equity markets weakness elsewhere, a collapse in equities hits household wealth. so it hits confidence and consumption. it hits company's ability to raise funds for investment. makes it more difficult to launch ipo's. it's hits value added in the financial sector. for all of those reasons, i think there is an argument for china's central bank to be concerned about the stock market not because they want to bail out investors that because they are concerned of a collapse in the market could snuff out what there is of china's recovery. manus: one of the great debates -- i know a lot of the bloomberg team have written about this -- we have a huge amount of margin trading in china. that has been reduced over the past six or seven trading days but that is going to have you, me mom, pop, gran and grandad

the reality of leverage in the chinese market is that it is a quantum of the scale behind that in terms of institutional leverage. and that is the real risk in the chinese market, isnt' it? tom: yeah, i think their air -- there are two issues you mention and both are problematic. the first is the inexperienced investors piled into a rising market using margin finance that they probably could not afford and certainly did not understand. the bigger issue in the background is that china's businesses and local governments have just barred -- borrowed huge amount of money. even as the central bank cuts rates, they are not willing to take on more debt to fund new investments. manus: let's leave it there. see what more china does for the markets and for interest rates. let's leave china. up next, a member of greece's former royal family on his

country to work together to work out a solution. we will bring you some pictures of hong kong. your for the pro-democracy protests going on there at the moment. ♪

manus: welcome back to "the pulse" live in london. i am manus cranny. little bit of shocking news on the manufacturing front. mark barton has it. mark: 51.4, u.k. pmi. they anticipated a 52.5. that is below the previous figure of 51.9, which has been advised from 52. essentially, we have got a much weaker than expected figure. i was going to be tell you how this proved that the recovery is

gathering momentum. yesterday's gdp data almost confirmed that are the first quarter number came in at .4%, driven by consumer spending and corporate investment. the economy has grown for nine consecutive quarters but it is an uneven recovery. net trade is acting as a drag. it's still above 50, that is something. but it is below the 52.5 estimate which would've been the strongest in three months and below the previous month figure as well. i want to show you one chart. getting close. here's a question for you. you don't haeve to answer it hypothetically, what was the best-performing major currency in the world in the last three quarters? interestingly, it was sterling. this is the pound against all 31 major currencies in the world in the second quarter. so, finishing yesterday.

as you can see, every single one of them from the israeli shekel which feel hall half of 1%, all the way to the new zealand dollar -- they all dropped against the pound. post election you forwarded -- euphoria. today's manufacturing data certainly is not euphoric. manus: give me the function because i need to replicate it. mark: w.c.r.s. manus: you are a volume of functions. you're a better man than i. let's get you up to speed with some of the top headlines. a nuclear deal with iran appears to be within reach. talks of been extended by another week to allow time to draft the text of a final agreement. u.s. secretary of state john kerry and russia's foreign minister said the only someone block now is "procedural." and negotiations are moving in the right direction. president obama says the u.s.

will walka away if "it's a bad deal." governor mark carney will percent the banks semi annual assessment of financial stability risks later this morning. since last reported in december the bank of finland highlighted the liquidity risk -- the bank of england highlighted the market liquidity risk. we will bring you that news conference live on bloomberg. 10:30 london time. greece has become the first against economy to miss a payment to the international monetary fund. in the 11th hour the greek government asked for a new bresky package. angela merkel msaid they missed the request and there is nothing to talk about before the referendum on sunday. so as greece struggles to find a solution to its financial crisis, a member of the countries former royal family

told bloomberg that people need to put politics aside and work together. prince pavlos spoke with francine lacqua. >>prince pavlos: there. is extreme poverty on the street people are suffering this is where the emotion comes into where we are today. why are we see people on the street? because they feel that their future is in question over the next few days. greece has been through a lot of hard times in history and we have always found a way to get through it. we are a rpproud people. greeks around the world have done very well. back home, we need to reintroduce that same spirit but unified where people will look to thei neighbors and help each otherr out. government opened to a system where people can work for themselves and benefit from it. introduce people from abroad to come in, keep a touristic aspects. open our doors to foreign

investors, because we're wonderful people who love to have others come and visit us. i think right now my biggest hope is that let's keep communicating and let's work as a unified approach. does not matter which political party represent or are for, everybody thinks with their heart what is best for your country. now the difficulty on this referendum is getting people back to their towns and villages in time. when they can only get 60 euros out of the cash machine. so even mobility of getting people to vote yes or no is not an easy game at this stage. manus: let's get back to athens. guy johnson is standing by. you have a guest. guy: i certainly do. megan green. where she's the chief economist based in boston. nice to see you. do we fully understand the

implications of greece missing the imf deadline to make a payment? megan: i do not think the implications of this time greece going into arrears is a big deal. it's become a sideshow in the grand scheme of the referendum and greece possibly exiting the eurozone. guy: does it bleed through into the banking sector? because it kind of feels like the banks -- megan: i think it is all about the banks and about politics. in the event of a no vote, the missed payment could become more significant. and that the imf can greece declare in default. that could cause the board to decide that it is going to trigger the default clause. so the default could get much bigger. i think the ecb would then escalate as well. demand that some of these banks are not solve and care they need to be wound down. that could be a conduit for greece exiting and printing a

new currency because to resolve the bank, you need money. greece does not have any of that. guy: the ecb thus far has tried to walk a very fine line of on the politics front. it feels like it is getting more rules based, i.e. going back and saying, these are the rules. is that your impression? megan: i think mario draghi has been looking for political cover all along. he is done every thing he can to support greece. n that ito seems a good deal isw not coming, it is clear there is not a deal. in the event of a not vote, the ecb will retreat behind its own roles and say we cannot find these banks of they are insolvent. guy: how long do you anticipate capital controls be in place? how long do you think the banks will be shut. megan: if you consider that banks are almost out of collateral. even if there is a deal, it will take a long time for deposit to come back. banks have nonperforming loans

of over 40%. that is huge. they will have to provision against those. they do not have the money to do that. i think capital controls will only get stricter. you can withdraw 60 euro ss daya day. if everybody does that, banks will run out of cash in a week. guy: they are running out of 20's. megnan: the most you can get is 50. guy: let's talk about what a deal could look like. where's the middle ground? where is the compromise? megan: i think the compromise will have to come from creditors in terms of debt relief. they have to promise that or there won't be a deal. in order to get a deal, we need to have a new government. tsipras has lost merkel as an ally. the only way the creditors will seriously sit down with greece is if there is a national unity government. guy: that would fall onto the yes vote. megan: even tsipras has said he

would have to step down. i think they'd put together a national unity government. someone else would have to lead it. the creditors might be willing to negotiate with that government. guy: we had a rally last night designed to support the yes campaign, but nobody is stepping up and supporting it. mayor of athens is, but you still do not have this lightning rod, somebody to act behind -- where's the political leadership that's going to counter that? megan: it is coming from political parties that have been decimated by years of austerity and years of game and government -- being in government. they do not have much of a voice. because they are so unpopular given their involvement in the previous.. guy: d think somebody needs to emerge? do you think tsipras will move?

the politics feel very asymmetrical. megan: i tethey are. i do not know who can immerse to support the yes vote. i'm hoping maybe reason emerges. a no vote will almost certainly mean a greek exit, and i'm not sure voters understand that. guy: if i gave you a 50 euro note and told her to place a bet, which way would you go? does greece have a new currency? megan: i think the yes vote will win, but no matter what, it will be close. guy: plenty more to come. in meantime from athens, back over to. manus: as megan said to you, do the greeks understand what a no vote really means and the consequences of that? coming up on "the pulse" as the

u.k. airports commission says he throw should be the site of the southeast england's first new. we'll speak to the airport's ceo john holland kay after this short break. ♪

manus: you are very welcome back to "the pulse" live from bloomberg's headquarters in london. let's give you the top headlines the sporting.

factory output remained sluggish. last month despite monetary easing an attempt to shore up local government finances. official pmi for june came in at 50.2, below median estimate of 50.4 in a survey. an update on deutsche bank's overhaul has been delayed until the end of october. the new co-ceo who takes over as sole ceo next may made the announcement on the company's website. germany's biggest bank has already announced it's looking to scale back businesses to cut costs. london's heathrow airport has been identified as the best option for expansion by the airport commission. it finds a third runway presented the strongest case for a strategic and economic benefit. alternative plans to extend a runway at heathrow or add one at gatwick were seen as credible, but a report said both had weaknesses. the prime minister david cameron

will make the final decision. a german has signal she will stay at the luxury online retailer after it completes its merger with an italian rival. in a rare tv interview with francine lacqua she spoke about her experience starting as a retailer and the state of e-commerce. she talked about growing new markets and mainland china. >> we have been simultaneously growing new markets but in an organic way will we make sure our service and selection are appropriate. then when we have a market that reaches a certain threshold, we then focus on it and we have loc al marketing teams and we do local service initiatives and then those markets un surprisingly are where the pockets of welfare in the world. our biggest markets are the

united states and the u.k. we think they are very strong. and hong kong with an asian is super strong. francine: what about mainland china? >> well it depends on who you're talking to. we're not a hard good luxury company. we are a fashion company. we are about self purchase. in mainland china right now, the -- the c-co e-commerce transaction tends to be lower. thanks to the strength of some externally businesses out there. so the consumer is well engaged in e-commerce but the time will come when they will turn to e-commerce for different things. w;'e're seeing exciting strong growth in china. it is within -- within our top 20 markets five years ago.

it will be within our top 10 markets within the next year. francine: who do you most worry about? >> part of our dna is our sense that are consumer has so much choice. so that we always need to improve ourselves. we see ourselves as our biggest competition. the data we say, we -- the day we dsay we've done that, let's take a vacation, is a day that we will fall off the cliff. i think the brand's going direct to consumer is a fantastic thing. we see that the brands have to have a strong presence online. and we're a multibrand retailer. we live very well side-by-side. manus: great interview there with the boss and francine lacqua. let's shift gears. london's heathrow airport has been identified as the best option for expansion by the

airport commission. it found a third runway presents the strong as case for us to teaching economic benefit. we now speak to the ceo of heathrow john holland-kaye. john, good news for heathrow this morning. we caught up with your competitor at gatwisck. he says, we are still here with a contention. would you agree? do you think this is a done deal for heathrow? john: this is not just a good day for heathrow, it is a good day for the u.k. this is a planet last a make sure that britain remains one of the world's leading trading nation, and only heathrow can deliver that. i think this is the end of the discussion. we have debated this for three years. we have spent tens of millions of pounds on it. finally, wants a frolic and say that heathrow is the only option which will deliver the economic future this country needs. now we want to work with government to measure we can get on and deliver the benefits of expansion quickly. and the air force commission

also said that holding back he throws expansion is costing us 14 billion pounds -- heathrow airports commission also said that holding back has cost us 14 billion pounds a year. we want to be ambitious and make britain one of the world's great trading nations for the future. heathrow is one of the world's great airports. by expanding, we can keep britain at the heart of the global economy and when the race for growth. -- win the race for growth. manus: some would argue that you are in a challenge to position by some of the mainland european hubs and in the middle east. what would you say to your detractors on the? john: absolutely not. heathrow is the third biggest airport in the world and we connect britain to 75 long-haul distant nations. -- long haul destinations. 1/4 of all exports go to through heathrow. we need to change that.

expanding at heathrow will do that. we will have with an expanded he's are one of the world's largest, most efficient, best airports in the world. it will be good for passengers, sustainable, and good for the economy. we can compete and win against france and germany in this economic race with only one new runway at heathrow. manus: this is going to come down to politics. the mayor of london is most diverse in his, in what he things about heathrow. there is a lot of political play here. how are you going to overcome this political challenge? do you think this government will wake a timely decision and award it to you? or will cameron with her -- witherhither? john: the prime minister has taken a clearly by setting up the air force commission three years ago. he recognized -- the airport commission for years ago and he

recognize this is a matter of national importance. he set out a number of measures environmental as well as economic. airports commission -- we have changed so the prime minister does not have to. we now have a plan which can be delivered, and the prime minister has taken a political lead once. i think he will do it again because we deliver what he wants. bringing the country together making sure that scotland and northern ireland and wales all benefit. making sure that we grow our economy. that is the legacy of this prime minister. we should be ambitious as the prime minister is and get on and deliver heathrow expansion as quickly as possible. manus: but herein lies the conundrum. nobody denies for a moment that britain should be -- and. -- should be ambitious. everybody wants his country to grow but there is a shift in thinking about pollution, about air pollution, about the invite about -- tabout the environment,

about doing, good and ethical businesss and heathrow has struggled in terms of air quality and noise pollution. there are major issues in regards to expanding your site. it is not really the best for us as citizens who live for example, under that flight path is it? john: it is absolutely best. he throws quieter today than it has been for 40 years. we ---- heathrow is quieter today than it has been for 40 years. the real challenge is the m4, getting cars off the road. that is why the airports commission confirmed that even with expansion, fewer people impacted by noise today. meeting air quality targets, meeting carbon targets as well. we can deliver sustainably and economically. the debate is now over. now we need to move on and deliver for britain. manus: who benefits in the

commercial space? we understand we economically benefit, you the airport would benefit, but in the airline space, we know the beauty of terminal 5. we/v've seen revamping of the terminals. who can you get to locate more of their business with you, with his locked in? -- this locked in? john: i have 30 airlines who want to expand her business at heathrow or come in who currently cannot. the basic is -- the biggest example is easyjet. not just internationally but also within the u.k. they want to fly to inverness. that is part of the prize. helping to tie and part of the u.k. which has been cut off from heathrow because of the constraints we are under. we can change all that with expansion. we have huge demand for airlines because the demand is there from passengers. people in scotland, people in northern ireland and the west

want to be able to fly through heathrow because it is the best connected airport in the world. and with expansion we can do even more of that. it's an important supply route. if you think about the oil and gas industry at aberdeen, they need to get it to the other centers. they get there through heathrow. this is a vital trading arm for the u.k. manus: i think we have got your message loud and clear. john holland-kaye. the fact that easyjet might be having a few slots is music to my ears. john holland-kaye, ceo of heathrow airport. suv's, they've become some of the fastest selling autos. more and more super carmakers are moving towards them, producing them. but mclaren, they say it will never go there. we met with the ceo and asked him why. >> what we have been striving to do is ensure we have a good customer base, so that in a sense we are inflated from -- insulated from anyone market

that is starting to struggle for economic or cultural issues. first and foremost, we are a sports car manufacturer. our goal is to be the manufacturer and designer of the best driver cars on road or track. no suv's, nothing like that at all. it is really purely focused on the driver. but we are three tiers. we have our sports series. the most obtainable level of car. a car we launched in new york this european the super series car, the core is the 650s couper and spider. at the top end, we have the p1 and the p2 gtr, both vehicles have sold out right now. the most recent addition to the fleet is the 570s. the purpose is to bring to a broader customer base the technology and the driving characteristics of what mclaren

has offered previously, only at a much higher price point. if it comes to market in north america for $180,000. a top speed of 200 miles in our. -- an hour. a lot of the design is designed by the air flow over the car. the air comes through these ducts. you are taking air in to cool the engines that drives the car. the second thing it does, is it ducts air across the back. it also provides downforce to get better grip and handling of the car as well. so, you really need to look at this as something that' not just a piece of art. it is actually a piece of engineering. a lot of that design is there for technical reasons. manus: oh, to have the money to have a mclaren. joining me, bank of england governor mark carney will present his semi annual

assessment of financial stability risk. i wonder how much greece will play into that. but we have also got hans, the chairman of the -- is to do. what does he think about grexit? stay with "the pulse." ♪

manus: greece becomes the first developed economy to miss a debt payment to the imf. the european central bank will meet later to consider the consequences. merkel rules out any more negotiations before the weekend referendum. the eurogroup finance ministers will discuss a bailout to the indebted nation on a call today. thousands of pensioners queue outside the nation possible banks -- nation's banks. heathrow is named as the best option for a new runway in the u.k.

good morning to our viewers in europe. good evening to those in asia. welcome to those waking up in the united states. i manus cranny. this is "the pulse." greece tops the news bill again today. let's talk about the economy. it has missed its debt payment to the imf. it has failed to come through with 1.5 billion that was due yesterday. the company finds itself outside the protection of the european bailout program and struggling under a third day of capital controls. greek pensioners have been queuing outside the banks to collect a maximum of 120 euros. for more on all of this, we are joined by guy johnson and elliott gotkine.

they are both on the ground in athens. hans nichols is in berlin. guy let me get straight to you. guy: the latest is that this is a country that finds itself outside the protection of the institution. that is not a place that it wants to be. despite that, the latest polling seems to suggest that the no counts have it. people in the know tell you that that polling may not be reflective of the reality. you may see some more pulling later that may reflect the yes cap rally -- camp rally. there was a rally last night to support membership of the eu and the eurozone. while mr. tsipras is currently supporting the no campaign the mayors of athens and

thessaloniki are supporting the yes campaign. >> we want to stay in the core of the eurozone. we hope that this referendum will not dictate -- i can assure you that i am frustrated. we are going to have a victory with yes. guy: monday felt quite calm. tuesday, tensions started to rise. wednesday, people are starting to feel quite nervous about their economy and what is going to happen to them on an individual basis. it is starting to hurt and the banking sector is right at the center of it. manus: how much hangs on the ecb reaction? greece has missed its payment to the imf. every day that goes by, the collateral of the greek banks comes under pressure.

guy: you can call it what you will, to be honest. we will find out from the ecb a little bit later on. the ecb is increasingly concerned about the solvency of the greek banks. if it feels that there is a problem, it may increase the haircuts that is pushed on -- are pushed on. if the haircut increases, it may cause serious problems for the banks. people are beginning to wonder just how fragile the banks are and whether or not they have a sustainable future in their current edition without the government finding some way of recapitalizing them. we will wait and see. it is going to be a very interesting couple of days for the greek banking sector. if we get a no vote come sunday i think we see the whole story accelerating and we see action

from the ecb. the ecb is finding it difficult to stay apolitical given the rules system that operates under. manus: let's turn to elliott on the streets of athens. youwhat is happening at this stage? elliott: as you can see, we are outside a branch of the national bank of greece. this is one of the large ones -- largest ones in athens. we have been seeing pensioners coming in and going out, presumably with their pension. they are allowed to take out 120 euros per week. that works out to about a 30% cut per month to the average greek pension.

the large number of pensioners were lining up this morning waiting for the bank to open up at 8:00 a.m. local time. people are queuing up to get their 60 euros-worth of cash out of the cash machine. everything seems to be going pretty normally and pretty uneventful on the surface. we don't know what is going on inside the banks and how they are faring in light of all of the other things. the lack of the bailout program now that greece has left -- defaulted. on the surface, things all seem pretty calm although some people do seem a little bit more on edge then they have been earlier in the week. manus: elliott, let's leave it there. there is a real sense of the humanitarian side of the story. mark we have got some movement in the markets. we have a report -- we have got

to be careful with this potentially. tsipras may be prepared to negotiate. give us some reaction. mark: the ft says that tsipras is prepared to accept the bailout conditions. he has put forward this suggestion, this idea that he wants to have a two-year bailout from the esm, angela merkel essentially. there will be a conference call of finance ministers that will take place earlier this evening. there has been a market reaction. this is the stoxx 600. it was already higher. you can see the movement. i have been asking one essential question today. do we have any contagion from greece not paying the imf its 1.6 billion euro payment? the answer today when you look

at the equity market has to be a categorical no. have a look at the euro as well. i have a chart for you. the euro was down by about 0.6% against the dollar. it rose by 0.6 percent on monday. look at what happened. the euro almost broke even on the day. it is down by almost 0.1%. the ft said tsipras is prepared to accept all bailout conditions. he has asked for this two-year eight extension. merkel waved it away. when you tap the esm there have to be conditions. if he is willing to except those that has to be a game changer. a lot can happen in a few minutes. manus: mark, you are quite

right. let's get to hans. hans we have this potential situation with tsipras prepared to move, but angela merkel made her position really clear yesterday. there is nothing to discuss and you have a referendum. this is brinksmanship at its best, isn't it? hans: angela merkel said that she will not be drawn into the negotiations until the referendum. one way to open up that line of communication is to call off the referendum. what the ft is reporting is that mr. tsipras has accepted all the conditions. we know the latest offer from mr. ujuncker. that does include a lot of prior actions. this would have a fair number of things that greece needs to do. importantly, i don't suspect

that it has fundamentally changed in germany -- they need to see a vote in athens before they themselves take a vote. if you had to release any new money, you would have to have a vote here. we would have to confirm the reports and then see what happens politically. likely a vote in the athens parliament and then one followed here -- and they are on vacation next week, the german parliamentarians. the german parliamentary schedule could be the next deadline. manus: let's leave that there. we are going to bring in our guest from fidelity in just a moment. you are very patiently sitting there waiting to get in this discussion. i want to go quickly back to guy in athens. this would be capitulation. this would be you turn off the scale -- u-turn off the scale. guy: it might be.

it depends how it is spun. mr. tsipras may find a way of doing that domestically. we are in this dual track situation, where the referendum may still happen and the government may still support the no, but it could still support a new package coming through. it sounds incredibly politically convoluted and complex and is one of our earlier guests put it, slightly delusional. we have this idea that the government in athens is going to carry on supporting the no camp but they could end up supporting some sort of an additional package that is ultimately hashed out with the creditors. it does sound like an incredibly crazy situation but if anything has told us much over the last couple of months, it is that

greek politics can certainly generate such scenarios. i think we have an awfully long way to go before the end of the week and a deal is still possible, but increasingly it looks like we are going to go to that referendum and the greek people are going to get their say on the original program that was put forward. manus: thank you very much for that. guy johnson in athens. elliott gotkine on the ground in athens. hans nichols in berlin. let's bring in my guest the head of pan-european equities at fidelity worldwide. we are living our two hour in this. i'm not expecting you to have an immediate answer on this. we have that ft story that tsipras would accept the conditions. my what a turnaround. look at these equity markets. we have paris, frankfurt, italy up over 2%. what do you make of this? >> i think that it is a fluid

situation. i think if you take a step back what you are really seeing is the naivety of the government. it is sort of flip-flopping in its views from one view to the next almost kind of like a chess player that has the inability to think several moves ahead. one of the things that might be influencing the thinking of the greek government is that by announcing a referendum they have actually opened the door to the possibility that a yes vote a vote to stay in the eu and zip resulting in the collapse -- ends up resulting in the collapse of the greek government . that leaves the door open for a technocrat government who would negotiate a deal with the european leadership and that would be quite a benign scenario. from a political perspective, i wonder whether tsipras -- manus: what if he does a u-turn

here? paras: i think it is unlikely that he can survive in any context. you have people who want them to be on the radical side. that is why he is campaigning for the no vote. on the other hand, you look out the window and see what is happening to the greek people and see how difficult the decision is going to be for the economy. at its heart what it advertises itself difficult it is to be a populist party in government. almost your best position as a populist party is in opposition, because then you can influence the agenda of the ruling government. the inconvenience of government means you have to compromise and that is not an easy thing for the populist parties to do. manus: it certainly is not. given the mandate that he was given was to end austerity.

markets are moving, one day we are up, the next day we are down. overall, the stoxx 600 has had the worst quarter since 2012. the currency has held up remarkably well. where does europe fit into your thinking at fidelity with a currency that has not hit parity? has your perspective changed on europe? paras: not at all. we have a view that what is happening in the equity markets and europe is no different. actually, these top-down factors are actually playing less of a part in terms of driving the move of individual share prices over time. if we look at some of the biggest share price moves over the course of this year, what we find is that there are not banks going up or banks going down or anything that was affected are the macroeconomic environment. actually, the impact of mergers

and acquisitions activity -- idiosyncratic factors are driving stocks much more than the top-down factors. manus: the other major story we are running today is where to put your money globally or where money is being put globally i should say. the u.s. is number one. japan, china, and hong kong now garner 26%. china, what a volatile market that is. where does asia, japan, china, hong kong fit into the fidelity thinking? paras: obviously, we are global investors. we look at companies across many regions. when we look at certain markets at the aggregate level, one of the things we will think about is are there technical facts that are driving the market where we are attached from fundamentals? you look at a market like japan obviously massively influenced by all been on mix. -- abenomics. manus: it seems that the reform

story -- i was going to say trumping the end story, but maybe i am speaking too soon. paras: i think there is excitement about the reform story. it is similar in china. there is excitement in the financial -- on the financial sector reforms and the drive to increasingly open up the financial sector and remove capital controls by increments. that has created a wave of interest in the market. often, these are very long-term evolutions. manus: is that what has happened in china? a meteoric, a stratospheric rally. with a 20% bump on the downside, some would say. i am being disingenuous -- a 20% retracement. it sounds you are quite optimistic about china. paras: absolutely.

taking a long-term view, i think one has to be opportunistic about china. there was a material development over the week. it is going to influence the shape of its own economy and the global economy. we can look to the future and see china as being a much larger part of major indices over the course of time. the way their stock markets tend to work as they tend to latch onto long-term things and price in the benefits and a short-term way. we need to find which of those individual companies or situations have the right characteristics to sustain over the long-term. manus: i wish we had longer today. unfortunately, greece has trumped you, it has trumped me. come back and talk to us shortly. thank you so much for joining me this morning. we have greece, we have airports . heathrow, it should be the site for london's first and new

runway in 70 years. that is the recommendation this morning. let's speak to bloomberg's aviation correspondent, kerry london. it seems that the report goes to runway number three, even though they sort of bow their head to the possibilities -- bowed their head to the possibilities at gatwick. >> a really firm recommendation after years, as you say. the main reasons seem to be sort of what sir howard davies says -- he specifically thinks there is a lot of pent-up demand at heathrow that the airport will increase passenger numbers sooner.

there was some concern that gatwick would certain more european routes. the other point was that heathrow might be financially easier to pay for. manus: kari the main points where gatwick comes out ahead. we chatted to the ceo of gatwick and said, we are still in with a shout we would be ahead on budget, i had on time, better environmentally. give me a sense of where the report focused for gatwick. kari: it is very interesting. sir howard davies said i'm a this is a recommendation -- said, this is a recommendation. if gatwick can make a better pitch, maybe that will happen. the point were gatwick does seem to be ahead of heathrow is the noise pollution. because of our gatwick's

situation, there are fewer people. [indiscernible] manus: kari, we are going to have to leave it there. we are losing a little bit of sound with our bloomberg aviation correspondent on the davies report that heathrow should get a third runway. coming up, as greece struggles to deal with its debt speculation grows over its possible grexit. we have had breaking news that tsipras may indeed -- this is according to the ft -- that tsipras may be ready to accept all the bailout creditors' conditions that were on the table last weekend, with only a handful of minor changes. hans-werner sinn let's get his opinion. he is the chair of the ifo. that is up next on "the pulse." ♪

manus: let's get back to mark barton. welcome back. this is "the pulse." we have got a little bit of market reaction. mark. mark: we have. look at the stoxx 600. this is an ft report. according to the ft tsipras will accept all of the bailout conditions that were on the table this weekend with only a handful of minor changes. this is according to this letter that tsipras sent late tuesday night and that the ft has

obtained. it is a two-page letter. it was sent to the heads of the european commission the imf and the european central bank. it elaborates on tuesday's surprise request for greece's surprise bailout --greece's bailout. manus: i want to interrupt you. the greek government is prepared to accept creditors proposals with changes. we have the ft story. the great government -- the greek government letter to creditors has been obtained by bloomberg. let's toss it to hans-werner sinn he is joining us now. he is the head of the ifo economic research institute. a very good morning and warm welcome to "the pulse." what a very big u-turn. should tsipras except the creditors'proposals? hans-werner: the proposals are

there. the proposals are no longer on the table. they have been withdrawn. there will be no further negotiations before the referendum. manus: is that how europe should act? is that responsible? people are queuing outside atms for 120 euros. these are exceptional times. is that the right way for europe to act? hans-werner: these are exceptional times. i don't know. these are complicated negotiations over months. i am not a politician. the point is that we are coming to the end of a long story. greece has been bankrupt for quite a while. we have delayed the truth with more and more money. 330 billion euros of public funds. 185% of gdp has been flowing to greece and the situation has not approved.

to the contrary, unemployment is now higher than it was five years ago. it is a fundamental question that has to be answered now. what will be the future of greece and where will it be? manus: sir in recent newspaper reports, you suggested that greece's future might be better served outside of europe on their own, with their own currency. how do you see that panning out? hans-werner: yes indeed, i think it would be better to forgive the greek debt. they cannot repay it anyway. and allow them to temporarily exit the euro, have the truck my -- drachma devalue. we have studied 71 countries that defaulted and devalued up to 1980.

you know, and three quarters of the cases, after one year, there was already strong growth again. this is the possibility for greece to recover. more money does not bring unemployment into jobs. manus: the european central bank is wor -- bankers will meet today to discuss whether to extend the liquidity to the greek banks. the greeks have asked for an extension in liquidity from their sources last night. is that even possible? greece has not defaulted on the imf. hans-werner: given that it has defaulted the banks are no longer really solvent. the ecb is just able to provide credit to bridge over a temporary liquidity crisis.

obviously, it is a solvency crisis, so i don't think it has a right to provide credit. you could argue that it is now obligated to withdraw the existing credit, but that would be a harsh measure. manus: if that is a harsh measure, than i suppose the risk there is that europe would face serious contagion? would europe face serious contagion if the european central bank withdrew its support for greek banks? hans-werner: it has withdrawn further support already. greece is in a terrible situation. as you said, there are lines in the streets. it is a mess. it cannot live this way. but what is the way out of the mess? pouring more money at this economy from outside or allowing it to become competitive? i think the latter is better for greece and everyone else. manus: so, allow greece to exit and issue its own devalued

currency, sir? could it have the euro? if we have grexit, as you suggest, can greece have an devalued euro geographically? hans-werner: the euro banknotes which have been issued cannot be collected. they are there and they are useful for the time being. if greece exits, it can only exit into a virtual drachma. over a weekend, over a week you would change all contracts, wage contracts, price contracts, total credit contracts into drachma. manus: i'm going to have to interrupt. we are waiting for mark carney to begin his presentation at the

bank of england, sir. thank you very much for your time, hans-werner sinn president of the ifo economic institute. let's cross over and listen to mark carney, the governor of the bank of england. mark carney: the greek crisis intensified. the situation remains fluid. it is possible that a deepening of the greek crisis could prompt a reassessment of financial risk in markets. the united kingdom is relatively well insulated from the direct consequences of the events in greece. u.k. banks' exposure is relatively small to the size of their capital basis. the footprint of greek banks in the u.k. is tiny compared to the economy. our economic exposure to the euro area is considerable. fortunately, the euro area

economy is stronger than a few years ago. deficits have been reduced. moreover new institutions and policy tools have been developed to limit the possibility for contagion. euro area authorities have made it clear that they stand ready to do whatever is necessary to ensure financial stability of the euro area. the bank has worked closely with treasury, the fda, and our european -- fta, and our european counterparts to put contingency plans in place. we will take any reactions -- actions required to safeguard financial stability in the united kingdom. looking at greece, some risks have receded in the past couple of months. others have increased particularly those around emerging economies. while the resilience of the institutions of the core -- at the core of the financial system

has strengthened, risks are shifting to the infrastructure that underpins them. greece aside, risks stemming from advanced economies have diminished. risks associated with inflation have reduced. the outlook for u.s. growth remains firm, supported by robust growth in real incomes. in the united kingdom, the burden of household debt has continued to fall modestly and distribution has improved. despite this progress u.k. income ratios remain high by historical standards. after having slowed last year the housing market is slowing -- showing signs of returning. the committee judges that the policies it introduced a year ago, policies which insured against a marked loosening in standards, those policies still

remain warranted. at around 6% of gdp, the u.k.'s current-account deficit is very large by historical and international standards. the risks associated are mitigated by the currency positions and the long-term nature of the capital flows that are financing it as well as by the fact that the deficit is not combined with a rapid growth of domestic credit. however continued smooth financing of our current account deficit depends on the credibility of the u.k.'s macroeconomic policy framework including our openness to trade and investment. the bank's 2014 stress test assessed what could happen to this economy if in an extreme scenario, these assumptions were called into question. as i said a moment ago, risks of increased in emerging markets. over the past year, economic

growth has slowed notably in a number of emerging market economies, including in china. following a rapid buildup of indebtedness, chinese policymakers now face a challenging balancing act between sustaining growth, managing financial stability and increasing openness. more generally vulnerabilities have increased in a number of emerging market economies following a long period of capital inflows and rising private indebtedness. the combination of a weaker domestic economy, the strengthening of the u.s. dollar and an eventual rise in u.s. interest rates may threaten the ability of those businesses to meet obligations. u.k. banks direct exposures to emerging markets in china stand at around 3.5 times their core equity tier one capital. the bank will assess the vulnerability of u.k. banks to

emerging markets it's part of its 2015 stress test. manus: we are going to break away from mark carney. he started his address on financial instability with regard to the u.k.'s exposure to grace -- that is limited -- greece. that is limited. i interrupted you in the middle of hans-werner sinn. we have seen some fairly dramatic reaction within equity markets and foreign exchange. mark: let's have a look at the map. this is the tsipras flip-flop. things are changing by the minute. this is the stoxx 600. we have risen as high as about 1.33%. in the last couple of days, this is an index that has fallen by over 4%. every sector was down in the

last couple of days. it was the biggest quarterly drop since the second quarter of 2012. it puts that news in perspective. have a look at the italian 10-year yield. after greece does it -- after greece did not pay the imf its payment, what has been the contagion threat? this chart perfectly illustrates that. this is a three-day italian 10-year yield. the yield rose as high as 2.72% which is right up here. ever since then, the yield has been creeping lower. we are now down to 2.2 4%. in the last three days, the yield has risen a mirror 0.09%.

the yield has crept lower and lower today on the news that tsipras wants to reconsider the bailout with conditions. we have looked at the stoxx 600. i want to show the euro. it rose on monday, it fell on tuesday, look at it today. before we got bad news down by about 0.5% against the dollar. look at the move in the euro since 9:47. what are we now? about 10:39. the euro has come back down again to 1.1125. it has been an extraordinary 25 minutes or so. it shows that everything is so fluid and financial markets. coming back to the big question today. how did the missed payment to the imf affect markets? not at all. what a rally we are having today. manus: absolutely.

this is the flip-flop of alexis tsipras. when would the ecb get involved in the bond markets? we have talked about what you and i have touched on a couple of times. how can you borrow? what are the rules? goldman's was saying that the ecb would only get involved if you hit that kind of barrier like 3% for italy over germany spain over germany. what a dramatic turnaround. mark: shall i show you some of the spreads, manus? manus: absolutely. this goes back over the past five years. every time we look at benchmarks, they were the spreads, the credit swaps. mark: have a look at this spread manus.

this is the spread between italy and germany. that is the difference in yield between the italian 10-year and the german 10-year. i have gone back to 2010, the heart of the crisis. right now, the spread between italy and germany is 1.43%. in march, that spread was as low as 86 basis points. that is when the ecb began its bond buying program. that is when we saw negative yields across the european spectrum. since then, because of the improvement in the euro zone economy, because of the rebound in oil prices, because of the pickup in inflation, because investors started to believe that this is an economy that probably has put deflation behind it, that spread started to narrow. i am just sitting here with you -- was sitting here with you in

2011 and 2012. we were talking about spread on a daily basis. let's remind ourselves how high the spread was in 2011. 5.52%. 552 basis points. the ecb is not going to intervene in these markets until the spread probably widens to 3%. right now, it is only at 146 basis points. back then it was at 552 basis points. we are so far away from those days of 2011 when me and you used to be screaming on a daily basis about greek prices bond insurance, and the spread between the german bond curve, the italian bond curve, and the spanish bond curve. this is big news. let's not push this aside. this is very big news coming out of tsipras today, wanting to reconsider the bailout a couple days ahead of the referendum.

manus: it is going to take a little bit more before he invokes the wrath of an already ignited european central bank. mark barton on the markets. thank you very much. let's roll back to athens. guy you are standing by. tsipras flip-flops -- this is potentially tsipras saying that i am prepared to backtrack. is this political suicide or is this pragmatism for his people? guy: do you know what? i would not call it flip-flopping. everything in his mind is a negotiation at this point. everything is pushing us toward some sort of a final solution which he thinks is possible to achieve for greece. it is really difficult to tease apart exactly what is happening here. there are some cynical journalists who say this is just

spin. i can understand that point. there is another point of view, a probably more pragmatic one that says, here is a guy who says he knows he has got to keep the talks open, who says there has to be middle ground and he is just trying to find the best option for the greek people. he is just trying to keep talks alive. i would probably lean on the latter of those two things. i don't think he is caving or flip-flopping. i think this is part and parcel. think of this as a process, a negotiation, a game of poker -- call it what you will. this is where you are. you have a bad hand and a good hand, you play it as you will, you are playing the person opposite you come at this stage. tsipras is keeping the game going long enough to find some sort of a deal that works for him politically domestically back home, and for the greek people. manus: yeah, that is what it all

comes back to. whether it is game theory credibility -- that all comes down to they have been negotiating for five months and the finance ministers did not have a document in their hand until last week. let's get back to mark carney. let's listen in again to the question-and-answer session. mark carney: the direct exposure is minimal. whether it is our banks are businesses, there is personal exposure. there are british people holidaying in greece. they have some exposure there. the direct exposure is minimal. it becomes a question of what happens more broadly to risk appetite in financial markets and, ultimately, for businesses and households as a consequence of that. now, the possibility of an intensification of the greek

crisis has been known for some time it has been known for a number of years. the intervening years in our judgment, have been well spent. new tools have been developed in the euro area. most importantly tools for the european central bank. they have demonstrated a willingness to use those tools. new institutions have been developed in the euro area, as well. there are was a reaffirmation -- there was a reaffirmation of the euro finance ministers to use those. there has been a buildup in the banking system. they are more resilient. we have contingency plans in place, we have coordination. the point being, there are a series of defenses in place. those defenses may be tested depending on how events unfold but to the extent to which those

are effective a persistent impact on risk appetite and, therefore economic activity is unlikely. our job is not to take that for granted obviously. more broadly, as the bank of england, is to make sure we read from those defenses -- reinforce those defenses. >> i apologize. mark carney: you did ask on china. much bigger exposure to the world's second-largest economy fastest-growing economy. there is a lot of positives about that. in the bigger scheme of things

the evolution and orderly evolution and transition in china to an economy more driven by domestic demand than foreign demand that has a more open financial system and economy -- manus: let's leave mark carney there. he was answering one of the journalists and response to -- in response to the u.k.'s exposure to greece. let's bring in hans nichols. we got this letter from tsipras saying potentially that they would accept the terms offered by juncker last friday night. merkel said last night that she was not up for negotiating anything before the referendum. here is tsipras saying, you know what i am actually prepared to backtrack.

sort of almost prodding merkel. if you don't speak to be now, this could be your fault if we have to drop out. hans: tsipras send a letter to the eurogroup. he is negotiating with the finance ministers. merkel's comment continues to be true. we are still waiting for how this return of serve, this return offer from mr. tsipras is going to be received by his creditors. we are still looking for all of the details on what exactly the modifications were that mr. tsipras said. he accepts the creditors' proposal with some changes. depending on how much and how significant those changes are and whether or not they are acceptable to the creditors is the key question. we have to wait until we hear from the creditors on whether or not this is a credible offer and whether or not the modifications

are indeed minor or they are significant, especially on the vat. we know they are going to ask for some sort of discount. creditors have always insisted that needs to fly equally -- apply equally. they are also making some changes on the pension payments, on when they send out -- pay that out. the same schedule or sequencing still applies. germany is still going to demand that the change is voted in in the athens parliament and then you could potentially have a vote in germany. the german parliament goes on vacation on friday. then they are out pretty much the entire month of july. they can come back or delay their vacation or delay their recess, but you would need -- no matter what you have come a you

still need some sort of validation in athens followed by a vote in germany. manus: of course, we will discuss this more. the european central bank meets in regard to liquidity. let's go back to mark carney. he is saying that the u.k. is hoping for the best come are preparing for the worst on greece. mark carney: in terms of what we have been doing, andrew bailey and i have attended the meetings -- that is part of a broader set of discussions with other authorities, including the fta as well as the treasury domestically, to be court native -- to share information. let me say one word on some of the things we have done and i will pass to andrew. there are some greek institutions that operate in the u.k. there are branches of four greek banks.

one branch via luxembourg and one subsidiary here. we are the primary authority for the subsidiary. we have supervisory oversight -- not supervisory -- we have an ability to affect certain changes in liquidity management of those institutions. we have anticipated this possibility. they have anticipated the possibility. in certain things, we have stepped up our degree of scrutiny and monitoring and protection for the individuals in those institutions to the extent we can. we recognize that the responsibility for the branches the ultimate responsibility is with the greek authorities -- it

is the great deposit scheme and the ultimate supervisor -- >> that is right. we stepped up to very close monitoring. i think the answer to your question is probably cyprus two years ago, in terms of the nature and level of our activity. i think the other thing i would add is you might expect that on the other side of the coin the one u.k. bank that is actively involved in greece is hsbc. as in cyprus, the measures taken by the government affect all banks operating in greece whether you are a great national bank or a foreign bank operating in greece. we are in close touch with those institutions. the devil is always in the details with this sort of thing. as you can imagine, we are in close contact. mark carney: i want to make one

last point. there have been regular dialogue with the ssm and the eba to relevant european institutions here to ensure as much consistency as possible for all the jurisdictions outside greece that are affected by these developments. >> that is important. as you know we have been supporters of the correction of ssm for the reason, as i have set a number of times that we want to do have an effective partner as a supervisor. we are seeing the benefits of that. >> governor, at the end of your prepared remarks -- manus: let's pull away from mark carney were they are still having that discussion.

there are breaking headlines. we have the team standing by for you. we have hans nichols in berlin. we have mark barton in london. schaeuble saying that the second greek letter is not a serious basis for consideration. this comes down to the ecb. hans: the immediate criticism is unlikely to give them any room to do anything on ela. we are back in the thick of negotiations. we have capital controls already. we still don't know whether or not there will be a failed bank down the road if the ecb yanks ela funding. we have this remarkable specter of all this taking place with a referendum looming in four or

five days. the greeks can always pull the referendum. then you can continue to have finance ministers meet. if schaeuble says this letter lacks clarity and he is not overly impressed by it, that means we are still quite a ways from an agreement. manus: we have a headline coming to the bloomberg terminal. the eu creditors still see a greek referendum as an issue. could it be that tsipras changes his position, pulls the referendum? of course, schaeuble saying they need to throw -- show credibility. the eu creditors still see the greek referendum as an issue. that is the red headline. it is still up in the air. hans: it is still up in the air. if they have the referendum, it

could be a bigger issue for tsipras. if the yes vote wins overwhelmingly, tsipras is going to have an even weaker negotiating position. the finance ministers are saying very thin issue. they may be hinting to tsipras that they want him to pull the referendum. manus: the statements and counter statements will flow through the day, i'm sure. mark barton, take it away. the euro is actually dropping now. mark: bloomberg matched the story about the -- from the ft. this is an index that has fallen 4%. the yield on the 10-year has only risen by 10 basis points. in one stage on monday, it rose by over 60 basis points.

markets are rallying on the news. that is the simple story. manus: "surveillance" is up next. tsipras may be prepared to backtrack. a lot to play for in europe. join us tomorrow. ♪

announcer: this is "bloomberg surveillance." tom: good morning, everyone. "bloomberg surveillance." we welcome all of you to new york city on greece. the new reality in greece. we will go to erik schatzker and hans nichols in a moment.

america prospers. we and janet yellen consider a better job economy. the kids have stopped watching tv. mtv is so last decade. good morning, everyone. we are live from our world headquarters in new york. it is july 1. we have raking headlines. suresuresure bull says flat-out he needs clarity from greece and right now. we will keep you updated through the morning as greece spreads right now. much more on the american economy. a thursday jobs report. right now let's get to top headlines with vonnie quinn. vonnie: eu creditors are set to still see the greek referendum as an issue. the element that could and the