francine: renzi's gamble. the italian prime minister stakes his future on the results of a referendum. banks in the balance. lenders teeter under the burden of bad loans as the political storm brews. jobs data usa. a december hike is priced in, but investors scour numbers for clues. good morning. i'm francine lacqua with "bloomberg surveillance." we're live from rome. we look at the political fallout in europe. italians go to the vote on

sunday. it is a referendum on constitutional reform, one that the government says will change .ow italy can reform matteo renzi has said he will resign if there's a no vote. what investors are worried about is the political stability of the future and what happens to the banks in case of political instability. i'm pleased to speak to two economists. one is a close advisor to matteo renzi. the other is a professor also thinking the euro will not survive. later, we speak to mario monti, caretaker of prime minister. we have a lot of businessmen. paolo scaroni. we also have linda forester rothschild. we will have plenty more from the day.ughout first let's get the bloomberg first word news from london.

here's nejra cehic. nejra: french president francois hollande has made a surprise announcement that he will not run for reelection. the decision paves the way for manuel valls to enter the 2017 race. hollande spoke at a hastily organized address from the palace. the power, being in power, the ritual of power, never made me lose my lucidity. i have to act. today i am cottages of the risks that such a move would have if it doesn't get widespread support. also, i've decided not to be a candidate in the presidential election. i wanted to tell you directly as promised. nejra: president-elect donald trump has picked general james mattis as america's defense secretary. mattis is a career u.s. marine and a hawk on iran. trump called menomonie, one of

our great, great, great generals. donald trump has kicked off his victory tour in cincinnati. he repeated his pledge to make america great again and mocked those who said he couldn't win the election. he claimed credit for keeping hundreds of jobs within the u.s. and reiterated his pledge to cut taxes. >> we're going to massively lower taxes and make america the best place in the world to hire, invest, grow, create, and expand. nejra: the liberal democrats have unexpectedly gained a u.k. parliamentary seat after sarah only won the constituency in a by election. the vote was triggered after in protestes quit over the government plans to expand the nearby heathrow airport. the result that may further complicate theresa may's effort to begin the process of leaving

the european union early next year. i'm nejra cehic. let's just bring you up-to-date with what is happening in the markets. we are looking to italy's referendum this weekend. also jobs data out of the u.s. coming later. downward pressure on european stocks. the stoxx 600 down, the ftse men lower too. what we are seeing is a pullback. the bloomberg dollar index heading for its worst -- its first weekly loss since donald trump's election. we are seeing a stronger yen against the dollar. looking at germany's 10-year bond yield, down three basis points. dayan bonds had their worst this year yesterday. we are seeing yields come down. 53.83.rude, wti heading for its biggest weekly advance in nine months.

brent crude, slightly weaker today. let's get back to francine lacqua in rome. francine: thank you so much. rome is really where it will happen over the weekend. we don't have the latest polls. we can look at the polls from two weeks ago and see a little nervousness on the markets. i'm excited to introduce our next guest. we will be speaking to yoram gutgeld, a key advisor to matteo renzi, and professor alberto bagnai, who is for no. we have opposing views. thank you for giving us your time. how would you rate the government's involvement in the referendum so far? i don't know if you call it a campaign, but has matteo renzi done a good job? yoram: we are campaigning. but government is campaigning. a lot of people feel this is an

important change for the country. because it is a constitutional change, it has a lot of technical issues and aspects. communication is important. it is important people understand what is at stake. we are going through a very intensive communication campaign. we talk about populist movements. we saw it with donald trump, with the brexit vote, but why does matteo renzi not represent that populist movement? charisma, hee has wants reforms -- why is he not being challenged? yoram: i'll tell you what the difference is. for populist movement, the problem is someone else. there is the euro, immigration. the position we hold and the holds, theter holds

problem of italy is italy. we need to fix our own problems. the reason why this change is so important is, it will allow the country and the government to keep pursuing, putting forward decisive reforms. and is why we need a simple clear constitutional system. francine: alberto, you disagree with this. alberto: i do, for several reasons. first of all, i don't really think the modification of the constitution put forward by this reform is so effective as the government pretends them to be. going backll that, to basics, the whole message of the reforms, the message which is understood either constituency, is that we will cut the cost of politics. costly, is something something that must be compressed. this is completely against what we know nowadays. we are not leaving a public debt crisis.

cutting public expenditures is not a solution. francine: let's go back to the basics. wouldtutional reform basically mean you have more power in the prime minister. we can't 63 governments in 70 years. do you not want to streamline the system so more could get done in terms of reforms? i'm for the streamlining and stability. the markets should not worry, and they are not worrying a lot about the consequences. we know that matteo renzi will stay there anyway, whether the no prevails or the yes prevails. i think it is true. i don't think the problem of loans more make more quickly. we have a lot of loans. the decision process of the government is relatively set

forward. when we had to introduce crucial reforms like the fiscal compact in the constitution, it was done in less than three months. yoram, one thing which i think is crucial, i hear people saying that matteo renzi will not step down. he's gambled his job on this referendum. yoram: what matteo renzi will do is up for him to decide. francine: he said, i will leave. yoram: i'm not going to speculate on that. if the reform does not go through, that means a major piece of the problem of the government gets a no answer. this will have political implications. think, just to explain to people who are watching this -- wem, what is at stake have a system that no other

country in europe has. we have two parliaments. they do exactly the same things. they vote all the loss. they vote confidence to the government. they have different electoral majorities and base. if you want to vote to the upper house, you arethey vote confidee government. they have allowed to go to the upper house only if you are above 25 years old. you are allowed to vote into the lower house if you are 18 years old. the fact that we have two parliaments with different majorities is causing government inability to take reforms through. we have several laws that have been voted by the lower house a year ago, reform of civil justice, fundamental for the efficiency of the country to attract investment, so forth, they are sitting in senate because we don't have a strong majority in the senate. we need to take away that unique feature of italian system.

it is simplify and. that is the crux of it. throught is pushing reforms. that is the key. francine: so you have a mandate to do something? yoram: staying in power to do decisive reforms. francine: one of the things people are concerned about is, if you have power to them someone that doesn't want to push reforms, it gives too much power to the government. >> there is a reason why we have such a system. we had mussolini back in the 1920's, which is something that made -- it brought about the opportunity of having a more balanced system. francine: 63 governments in 70 years, does that make sense? a very: it may seem unstable situation, but it was not. there was a continuity in the system, in the governance of

italy. we had the proportional electoral system and there were different coalitions that shared some of the goals. it was not so unstable as people claim that to be. francine: investors don't believe it is stable. italy is always pointed to as the problem child of italy. alberto: it is more than stability. it is accountability. the reform itself doesn't change the power of the prime minister. what it does do, it allows government to have a simple and clear parliamentary process. so that when decisions are made, they can pull through, and the government is accountable. what italy did not have for 70 years is accountability. nobody was ever responsible if things didn't go through. francine: you can see things are getting heated. we have to take a short break. yoram gutgeld and alberto

bagnai, stay with us. we will be talking more about the pros and cons of the referendum. we will talk about the banks. the problem is that you have -- you need capital, a rescue plan or increase in capital. if you have political instability, does it mean that as an international investor, you don't go into italian banks? vienna aheadve in of key austrian elections. this is "bloomberg surveillance ." this is bloomberg. ♪

francine: this is "bloomberg surveillance" live from rome.

the italians will vote on constitutional reform. what investors are taking this as. it is a stamp of approval or not on the current government of matteo renzi. we were starting a conversation. we have a person that is pro-, advisor to matteo renzi, yoram gutgeld, and a professor who thinks matteo renzi will not resign even if no prevails, and the people of italy should vote for no. alberto bagnai. we were talking about reforms, pros and cons. yoram, are you concerned about the banks. it took a lot of time for this government to deal with the banking system. does political instability jeopardize these banks? yoram: one of the most important reforms was a structural reform in the banking sector. we reformed the mutual bank

system,ith the voting finally getto mergers. the first merger was announced three weeks ago. we think the trend will continue. we've made the structural reform that will allow the weaker part of the system to get stronger. performance of italian banks has improved relative to a year or two years ago. still too low, but up. the nonperforming loans have stabilized and are starting to go down. the fundamentals are better than they were a year or two years ago. we have a situation in the market that is related to a large extent to what the ecb has required the banks to do, to shore up their capital structure and clean up the npl. we can talk about how fast that needs to happen, but the underlying fundamentals are improving. the banks, particularly monte

dei paschi, the biggest and most troubled bank in that sense, the bank itself is solid. doesn't have any short-term problems. francine: investors may not be that sophisticated. they may say, the no referendum is there, you have a political party, five-star, that once italy out of the euro -- i'm not going to be part of this capital raising exercise. yoram: stability is important to investors. that is obviously important. if i have to think about the vote on sunday, the real issue as far as i'm concerned is not what will happen with the banks. we think that will take care of itself. it is long-term ability to structuraly and make changes for italy to become competitive again. francine: alberto, do you worry about the investor reaction?

if you see the markets in turmoil, this can't be good. alberto: i would like to point ld has said itutge is possible to do reforms with the present system. he claimed that his government has made an important reform in the banking system. it was too little, too late. in five years, what we have italy are austerity policies that crashed the real economy. thehat way, they crashed profitability of the banking system. we had a huge rise in nonperforming loans since mario monti came to power. is the core of the italian problem, to reverse the trend austerity policies. the international investors -- francine: is the problem becoming competitive? we need growth in the country. alberto: we need to become more competitive, but after some 150 countries in the world, there is

a very simple and effective istem to adjust, which nominal exchange rate flexibility, which we don't have. there are different views than that. thanks to mario draghi policies, we are devalued so much against the dollar, that in case we recover our currency, it is a moot question whether we will fall farther with respect to the dollar. we need a realignment inside europe. otherwise -- francine: can you fix an economy by printing money? alberto: i'm not suggesting printing money. i'm suggesting something different. adjusting nominal exchange rates. francine: this means getting back your country, right? timeto: you cannot reverse . flexibility is in the future.

imf,hief economist of the in proposing reforms, in order to enhance the stability of monetary systems, put forward the role of flexibility. francine: that is a race to the bottom, yoram. yoram: i think professor bagnai's comments are interesting. in a wayt politician reflect some of the idea he put forward. , thedea he puts forward is problem is something else, the exchange rate. it is interesting to note that postwar, italy has had the best economic performance without creating public debt in the 1950's and 1960's when it had fixed exchange rate. the issue is the country. after 20 years where italy was

the star country of europe, we blew it. francine: because of what? yoram: we go back to the late 1960's, social changes, so on and so forth. aren't think our viewers interested in the economic and political history of italy. the point is that we make mistakes, this country. the political class at the time made deep mistakes. we've had 40 years of mismanagement, which we need to change. francine: is it an unreformable country? yoram: it is a reform of the country. we've made reforms. we need to keep doing those reforms. we need a constitutional system that guarantees those can go forward. right now it is not the case. we have important reforms sitting in senate because we don't have the same majority,

the same strength, in the senate. this has to change. alberto: it is difficult for international investors to understand what italy needs, and what the constitution allows. it is true that we had a wonderful economic performance in the 1960's and 1970's. at that time, there were two differences. the domestic banking system was regulated. the international monetary system was regulated. there were controls on capital movement. francine: we didn't have china then. china is an issue, of course. there is globalization. the real trouble is that we are not managing globalization. we gave up all the controls on international financial markets when globalization started. this makes it dangerous. it leads to an unstable economic

process. francine: is that how you explain the election of donald trump and brexit? are there fears from voters in italy that we saw in the u.k. in the u.s.? alberto: it is not just a matter of looking inward. will't think the u.k. prevent people from coming. it is more simple. it is distribution of income. since 40 years, the wage is falling and there is bad news. wages are the income of the majority. the majority sooner or later will vote against that system. in 10 seconds, your ideal solution would be to kick out germany out of the eurozone? alberto: it is not my solution. i think it would be rational for germany to leave the eurozone and i'm not alone in claiming that. francine: will the eurozone so i've?

-- eurozone survive? yoram: i think the eurozone will survive. the countries that benefit from fromnd italy has benefited the euro -- we had in 1993 a debt service. italy was basically a bankrupt country. in 1992, the italian government took directly from the bank accounts of italians what would be now over 10 billion euros to solvents the country. we benefited the euro, but entering the euro system, which meant a stronger currency, meant we needed to do the reforms that would make the country more competitive. we had to cut taxes, trim bureaucracy, reform the labor market. we didn't. we are catching up with 40 years of lost time. francine: if there was a vote for a referendum on whether the country needs to stay in the euro today, which way do you

think it would go? yoram: the majority of italians want to stay. alberto: i agree. francine: thank you so much. we will have to get you back in london. yoram gutgeld, thank you so much. alberto bagnai. we have plenty more guests coming up. we will speak to one of the most famous businessmen in italy and talk to mario monti, a senator. he was the italian prime minister caretaker of government and commission for competition in brussels. "bloomberg surveillance" continues. we will be looking at banks, at the stock market. be looking at banks, at the stock market. coming up next, we speak to a lawyer for constitutional reforms. live in rome, i'm francine lacqua. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua, live from rome. italians will vote on constitutional reforms. they may vote also on the strength of the government of

matteo renzi. let's get straight to nejra cehic with the bloomberg first word. nejra: french president francois hollande has made a surprise announcement that he will not run for reelection. the decision paves the way for men will valves to enter the 2017 race. hollande spoke at a hastily organized address from the palace. , the ritual ofer power, never made me lose my lucidity, neither on myself nor on the situation, because i have to act. today i'm conscious of the risks that such a move would have if it doesn't get widespread support. not to be acided candidate in the presidential elections. i wanted to don't you directly, as promised at the beginning of december. nejra: donald trump has picked james mattis as america's defense secretary. mattis is a career u.s. marine

and hawk on iran. trump called the nominee one of our great generals and referred to him by his nickname, mad dog. elect donald trump has kicked off his victory tour in cincinnati. he repeated his pledge to make america great again. he also claimed credit for keeping hundreds of jobs within the u.s. and reiterated his pledge to cut taxes. >> where going to massively lower taxes and make america the best place in the world to hire, invest, grow, create, and expand. anti-brexit liberal democrats have gained a u.k. parliamentary seat after ceremony won the constituency in a by election. the vote was triggered after a conservative quit his seat in protest over the government's plans to expand the nearby heathrow airport. the result may complicate theresa may's effort to begin

the process of leaving the european union early next year. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. thank you so much. we are back in rome. coming up later in the program, we speak to mario monti, one of the most prominent figures for the no vote. we will also be speaking to a businessman, one of the head of the conglomerates. now we need to speak to constitutional experts. we talk about the impact on matteo renzi. italy goes to the polls on sunday for one thing and that is to vote on the constitution. i'm pleased to welcome professor , universityone professor and expert on constitutional law. thank you for joining us. when you look at the constitution, what exactly is

going to change? the rhetoric, the communication, has turned ugly. it gives too much power to the people in charge. look at mussolini. the others saying, we've had so many governments that if we don't reform the system, nothing will ever get done. massimo: i think we should look at what the reform does here now and what is going to happen if the yes wins. the italian citizen is going to be deprived of his right to vote for his own senator, first. there's going to be too much concentration of power on the government at the expense of parliament, second. there is no strengthening of the instruments of direct popular democracy. and there is a considerable amount of power taken away from regional, local communities, and there's the danger of curbing

down popular dissent against controversial government decisions. francine: there are two lines of thought. one saying, the last 20 years has been pretty stable. the other saying, look at the amount of governments we've had. legal last more than a year. do you believe we need to make governments more stable? massimo: what about matteo renzi, who has been in power more than 1000 days without changing anything in the constitution? what is the problem with him? what is the problem with berlusconi before him? francine: has he been able to do that reforms this country needs? massimo: they should be worrying about the fact that electoral law on which this parliament has been elected has been declared unconstitutional. the one thing he should have done is to write down a new electoral law and go to new general elections. instead of that, he started a

far-reaching program of constitutional reforms with this parliament, still based on that unconstitutional electoral law. francine: do you think we will go to early general elections, whether the yes or no vote prevails? are we going to see general elections in the next three months? massimo: i don't think we're going to see general elections within any given short time. maybe there's a possibility if the yes because matteo renzi probably will think he's going to run on the recent victory for a considerable gain in his own personal power. nonot know wins -- if the wins, i don't think we are going to general elections. francine: is there going to be a mess? massimo: there's going to be more instability if the yes wins, i think. renzi may have an interest to go to new general elections soon. francine: and if it is a no

vote, you see a technocratic government? massimo: there's going to be a government, which is a matter of the president. happensoing to do what in all parliamentary systems. when the government comes down, there's another government going up. francine: thank you for giving us your time. let's get back to london. i think we have breaking news on turkey. nejra: we have got breaking news with erdogan speaking in ankara, saying that turkey is to open the path of investors with low rates. there's no way out but to cut interest rates, says erdogan. we've seen the turkish lira falling past a record. dollar up, lira down. falling 0.2%ira against the dollar. erdogan also saying the lira and , notshould appreciate

foreign currencies, and also saying turkey will foil this gain in a short time. the key line, there's no way out but to cut interest rates. francine: thank you so much. we continue our live coverage of the referendum, two days away. we haven't had polls because we are in a blackout period. we are talking to a constitutional expert. next, we talk about inclusive capitalism as we talk about optimism in europe in general. we will also be going live to vienna. they also have crucial elections this sunday. this is bloomberg. ♪

>> what should happen if a no will prevail?

not much, i believe. renzi might stay on, i think, and we will probably go to an election next year, but only after they change the electoral law. francine: dallas paolo scaroni, ceo, talking about the benefits of reforming italy, and the pitfalls. political instability if there's a no vote, we don't know if that is true, but that is what the markets think. let's broaden out the conversation. it is not only about italy. what there is in the markets is fear that what we saw with brexit, with the election of donald trump, populism, will creep in europe with the french elections and this italian referendum. it is not only the italians that go to the polls. austria is going through a key election. there's also a populist party there. let's get live to jonathan in

vienna. thank you so much for joining us. first of all, we are expecting a close result. talk to us about what is at stake here for austria. jonathan: we are in a statistical dead heat. we don't expect any kind of firm conclusion to the vote until monday afternoon. won the may 22 vote, got 30,000 more votes the first time , and it will be a narrow margin again. jonathan, talk us through what it feels like in vienna. what happens if the eurosceptic person comes in to power? jonathan: interesting question.

partyt and the freedom have traditionally been the protest parties. austrians are first of all tired elections for a year now. more and more austrians feel like they've suffered economically because of some of the e.u. policies of austerity. unemployment has been rising. been falling. economic trends that we saw in brexit and in the u.s. motivated voters there. tobert has had the chance frame the debate. he's portraying himself as the bridge between vladimir putin in russia and donald trump in the united states. hofer and the freedom party are looking to develop more of a relationship with eastern european neighbors. the other is a very strong proponent of the european union. he emphasizes that austria's interest lie with its neighbor,

germany, where one third of exports are sold. it is still a hard argument to win, given the frustration of the electorate. bellen is put in a position of defending the status quo. francine: thank you so much, jonathan in vienna. let's broaden out the conversation to populism. voter angst that we saw with brexit and the election of donald trump. we are joined by the founder of the coalition for inclusive capitalism. lynn forester de rothschild, thank you for joining us. i remember a conversation in london before brexit and you were talking to me about inclusive capitalism. does this reinforce the need to make sure that voters do not feel left out by what is going on in the world? lynn: i feel convinced that if we had more inclusive capitalism, we would have calmer

elections and a calmer political situation. we started talking about inclusive capitalism shortly after the financial crisis. i mean business executives, investment executives, who realized that the growing inequality, the fact that the median income, which in the united states had risen by 13% from the early 1990's until 2000, was down 7%, that trust in government was down. we began to say, we in business have to be part of the solution, or else the politics will turn ugly. in fact that is what happened. i sort of feel like we are a day late and a dollar short. i also feel like we have to do this now more than ever. francine: how do you fix it. how do politicians reconnect with the voter? i'm thinking of here in europe,

but also the u.s. lynn: the main thing that voters want is job security. they want to feel like their children will be better off than they are. they want certainty of their way of life. sadly, the political system has -- made ehman bogeymen out of immigration and globalization and technology. we need to deal with those issues in a humane, intelligent way, that understands that we as societies are stronger when all of us work together toward the common good, which was essentially what adam smith said when he invented the concept of capitalism. wasim, capitalism inherently inclusive. but the basis for adam smith's

notion of capitalism was ethics and a concern for the common good. business, we who are investors, need to put our money and our practices toward activities that protect the workers, that give workers a decent life, that don't require all the profits to go only to the shareholders. we have to take care of our community and our planet. francine: does that comes through regulation or ethics of ceo's? that havereat ceo's great ideas but it is difficult to implement them if you have a share price and quarterly results. lynn: yes. we started a long time ago to let's begin to let's begin to a more inclusive way. so that draconian policies wouldn't come raining down upon us. it is unclear in america which

way regulations will go. but the promise of donald trump was the promise to that working person who feels like they've been left behind, and they are the people who elected him, so i am hoping he will find sensible policies to improve their lives. francine: i know you are close to the clintons. how did we, the media, the polls, not see this? why were we dismissing the donald trump popularity a year ago? lynn: it is a very good question. i think the core of it is that we were dismissing the sense of alienation from the establishment that media, business, politics -- we were all in this bubble of what is sensible. the liberal agenda.

not a liberal conservative way, but just the western way of life. we were not realizing that there were a lot of people that were willing to throw in molotov cocktail into the system to wake everyone up. this is a wake-up call. i'm hoping donald trump will in fact improve the lives of those people who voted for him. they deserve it. we will see what he does. but i think the media and all of us need to hold his feet to the fire that he does sensible things to improve the lives of ordinary workers. francine: does he have to unify the country? when you look at the united states, do you feel that the country that has been so divided , much like italy, much like brexit, where the conversation has turned ugly, and this goes against this inclusive capitalism that we talk about? lynn: absolutely. he must unite us. but we can only be united if we

have a common agenda. hopefully he will make it clear that his agenda is broadly-based prosperity. that is not taking care of the rich. that he's not a part of the crony capitalism that everyone is angry about. still do be seen if he does it, but he was elected to do that, so let's hope he does do it. francine: do you think it is a real inflection point for capitalism? you've been pushing this agenda for so long. have you been getting more calls, from an advisory point of view, or someone saying, let's start from scratch and see what we can do with capitalism right now? lynn: no one is saying, let's start from scratch. i have gotten a lot of calls saying, if people had understood the agenda, we wouldn't be in this mess. and i've had people who say, it is too late. the rich are going to become

richer and the poor are going to become poorer. there's that possibility that it will get worse before it gets better. i'm still hanging in, trying to find a way for business and government and investors to work together to have constructive policies for inclusive capitalism. help workers get better pay. help workers be qualified for the work that is needed. help take care of the planet and create value for shareholders. francine: is a globalization or the advance of technology that has meant people have been feeling left out? lynn: probably both. blameism has taken the for a lot of the reality out there that is really caused by technological advances. nowgs that robots can do are being done that way, not because someone in china is

making a cheaper piece of clothing. it is being done because of technology. as a society, we have to think about what we're going to do. we have 3 million people in america who are drivers of trucks or cars. if we go to a driverless car, which could be a very good thing for society -- less pollution -- what are we going to do with those 3 million people? we can't just wait until they rise up. policies asave business and private people and as government that constructively find a solution. francine: lynn forester de rothschild, thank you for joining us. you are one of the first thinkers when it comes to inclusive capitalism. i hope you come back on the show. that was lynn forester de rothschild, doing a conference here. for your market check, let's get back to london with nejra cehic. nejra: two things that we are

keeping our eye on, one is italy's referendum this weekend, and the other is u.s. jobs data. we are seeking a little bit of the trump trade losing steam. we are seeking downward pressure in stocks in europe. cac 40 down 1.3%. euro stoxx 50 down 1.2%. down almost 1%. if we see how the ftse mib is doing, also lower by 0.8%. in the fx space, the bloomberg dollar index is heading for its first weekly loss since trump won the election. euro is off by 0.1%. sterling, 1.2597. intraday, not a huge amount of movement. over the week, the dollar pulling back a little. in the fixed income space, yields coming down. this is after german bonds on

the 10-year had their worst day this year yesterday with that yield spiking up. it is coming down today. italy's 10-year yield down. italian cbs coming down on this gmm function of ahead of this crucial referendum. space,commodities downward pressure on metals. brent crude off by 0.9%. yesterday, we saw it hit its highest price in more than a year. a little more up pressure on gold. the theme is that a lot of those trump trades are losing some steam. turning to italy, i wanted to show you what is happening with options traders driving up the cost of protection on the ftse mib before this vote. investors had been pricing in a no on this referendum, building in their defenses against

potential turbulence in the world's third worst equity market this year. they are paying the most in more than two years to hedge against swings in the ftse mib index. the last time the gap was this wide, italian shares fell 11% in less than six months. thanks, which make up 1/5 of the ftse mib, have led the decline. we might see a bit of a temporary relief in italian stocks on monday regardless of the outcome because the positioning has been so bearish. take a look at this chart. it stocks looking the least attractive this year versus bonds with an earning yield of 2.3%. the ftse mib has become the least attractive this year. finally, i mentioned the dollar earlier. the bloomberg dollar index heading for its first weekly drop since donald trump's election. here's an interesting chart. thehows the macd,

short-term moving average line, has fallen below the so-called signal line. the gauge heads for its first weekly drop since the vote. bears may be taking control of this trade. francine? francine: thank you so much. throughout from rome the day. the focus is on the constitutional reform on sunday. we have to look at what happens in both cases. we haven't had polls for two weeks. if there's a yes vote, what does it mean for matteo renzi? will he want to call early elections? at this moment, the general 2018.ons aren't due until if there's a no vote, will matteo renzi lose his job?

if he does step down, will he be able to form some kind of coalition, or will we see a technocratic government? who could be the head of that? underpinning all this uncertainty in the political sphere is what happens to the banks. we have one, possibly two banks going through a capital increase. coming up, we have mario monti. he wants people to vote no. we also speak to the ceo of one of the biggest conglomerates in italy. "bloomberg surveillance continues with tom keene from new york. ♪

the italian prime

minister stakes his future of .he results of a referendum the political storm brews. in.december hike is priced good morning to everyone from rome. tom keene is from new york. i'm francine lacqua in rome. it is a beautiful day. i would say that nothing is guaranteed at the moment, even though we get a very strong yes vote on sunday. it is unclear whether we do get political stability. the fallout is not as huge as some commentators have mentioned , but it could be the first step in a politically unstable italian environment. tom: a really extraordinary friday and weekend ahead.

the italian referendum, the austrian vote on december 4, you wonder where we will be monday and tuesday within our political economics. francine: you are absolutely right. let's get straight to the first word news. sebastian: president-elect donald trump took a victory lap last night. he spoke to thousands in cincinnati and said he would level the playing field on global trade. mr. trump: we will compete in the world, we want to compete in the world, we will compete in the world where it is a two-way road, not a one-way road. the advantages are going to come back to our country. donald has picked retired general james mattis to be the next secretary of defense.

a surprise blow to britain's prime minister theresa may. the anti-brexit liberal democrats have gained a seat. the least popular leader in history has had enough. willois lond -- hollande not run for another term next year. that opens the door for his more popular prime minister manuel valls to run. global news 24 hours per day. this is bloomberg. tom: we are going to try to touch on the many stories. let's go to the data.

extraordinary bloomberg terminal chart this morning. i'm going to call it quiet, but what a number of days. yield, 2.42%. on to the second screen please. the vix. 2-year.an cover the heado of the mexican central reside. the mexican peso blew out yesterday, weaker. let's go to the bloomberg to look at the bond rout. blackrock, ishares. .his is the belly of the curve i'm doing the belly of the curve because it is friday after thanksgiving. ,ou've got the financial crisis

that the financial crisis of early 2009. low over theman right side and you can see how in the 7-10 equated year duration right now. that is carnage, it truly is, as different asset managers look at lower prices and higher yields. there is no one better to talk to this about that carl. it is now a bond rout. does it change the behavior of cherry yellen? -- chair yellen yellen? the fed is looking to hike twice next year and three times in the next year after that.

you see the prospect of higher inflation and fiscal stimulus from president-elect trump and thinks leading people to that the fed can move more aggressively next year. but when we see this move in the bond market, that is telling you that the market is doing some of the heavy lifting for the fed. tom: the heavy lifting is enough to study the mathematics in the bond market of the yield curve. there is a point where there is enough asset loss, where it begins to gum up the financial system. i would suggest we are not there yet. that have in our head yield that begins to really signify stress? carl: we have to look at real growth of the economy and the cost of financial stress. there is still a very wide gap between the two.

tom: one more question before we go to francine in italy. the effect of the bond rout on italy, as well. has it been a top line move or a real yield move? carl: i think it is a combination of the two, which made obedience or you were looking for. we are also looking for faster economic growth. critical, how the bond rout must affect the beleaguered banks in italy. francine: and you wonder what the causation is. it also may be caused by what you are seeing in europe. the banks are absolutely right is the main question. let's take a step back so we go through the process. so what they are voting on his constitutional reform. vote onwho gets to

what, does the senate have more power than the lower vote on what, does the senate have more power than the lower house? what comes after if he steps down? terror --e a caretaker government. an investor, do you want to buy some of the banks that need capitalization efforts? then you have the smaller banks that need some kind of rescue plan and that could be delayed. to the health of the banks of a time when they need to be stronger and they have lots of political instability. >> we make mistakes. the political class at the time it made deep mistakes, which basically put the country in the

situation that it is now. we have had 40 years of mismanagement that we need to change. right, that was one of the key advisors to matteo renzi. he was important because i had a debate because does between someone who wanted yes for the referendum and someone who wanted no. he argued that you need to centralize more of the power to push reforms through. the key advisor to matteo renzi said they have reforms on paper, but they are struggling to get because of the checks and balances among the two houses. comes down tot overcome by events and the level of overcome by event. chart, highlighted by "the telegraph" in the last hour. this is the flow of money by the

central bank of italy out and it has accelerated from 150 gazillion euros down to 355 billion euros. i'm sorry, francine, it is almost greece-like. is an important attention for all leaders of italy, isn't it? yes, i don't know if it is greece-like. it is a country with potential, it is a country that manufactures, it is a country that has exports. the problem is that you need to convince investors that you will get better. was onelem for greece of tax receipts, which we had here, but italy has lost competitiveness. it is only through competitiveness and reforms that we start growing. i would not link the two so badly.

investors are not as sophisticated. that is another point the government thanks. tom, we will be back with plenty more tomorrow, we will be speaking with the former caretaker prime minister of this country of italy. oneill also be talking to of the most important conglomerates in italy. ♪

tom: job stay in america. tom keene in new york. rome forlacqua is in

the weekend. sunday is a huge referendum. francine: i'm not, but i wish i was. the turnout for this election going to be like our election? francine: i don't know. if i would know it would be much easier. this is quite a complicated reform that people don't really know what they are voting on. is is thatcern people want actually show up and vote and that would get skewed toward the no vote, which is seen more as a popular vote. you is soshot behind damn gorgeous. ,t reminds me of that movie what is it? "a condo with a view"? extra on makes

semi-conductor equipment that could have military applications. two days after pledging to cut oil production, russia reports that output is close to a post-soviet record. it popped 11.2 million barrels per day last month. russia is the world's largest energy exporter. brexit is bringing christmas blues for a number of britons. a survey found that holiday spending will be affected by the decision to leave the european union. that is the bloomberg business flash. tom: thank you so much. joining us from london, stephanie baker. is an active day as we try to get to the weekend.

what an interesting secretary of defense. let's begin with cabinet 101. how unusual is a general as a secretary of defense? stephanie: it is quite unusual insofar as he only retired from the service in 2013 and that is the biggest issue facing his appointment is the issue of civilian control of the military . to get confirmation, he will throughget a waiver federal law that requires defense secretaries to have at least a seven-year gap between active duty and serving as defense secretary. some democrats have said they will oppose him because of this, but he enjoys the enthusiastic support of john mccain, the chairman of the senate armed services committee. i don't think that he will be blocked from being confirmed. why are we waiting so long on secretary of state? i had this question four times

yesterday, isn't this being done in a bit of a rash relative to other transition times? stephanie: i don't know if it is a rush, but it is certainly very chaotic and haphazard. seeing isthing we are that a lot of his appointments don't agree on major policy issues, so iran, russia, nato. mattis holds a very different view on russia then trump and michaelmp and michael flynn. i think he views russia under putin with a degree of suspicion and does not agree with the policy of what you might call appeasement that trump has followed toward russia and has warned of the dangers of russia's so-called expansionist policy in the way it has behaved in ukraine in syria. likewise on dado, he has hasered -- nato, he

differed on the issue of trump calling nato obsolete. he worked as the supreme allied commander for transformation and nato. this is the other issue with secretary of state. will he pick someone who agrees with mattis or is on the line with mike flynn, who has called for closer relationship with russia? there anyone on wall street that donald trump is not talking to? we understand he is meeting with gary cohen of goldman sachs this weekend. stephanie: yes, that is very interesting. if he does point cohen, we will have two former goldman sachs partners in his administration. which would be extraordinary. i think he is talking to a very wide range. cohn would surprise me, but that has come up. he has spent a lot of time in washington talking to a lot of different regulators and he has

a very high-profile, so that would be a very interesting appointment. tom: i was flabbergasted by the president-elect's statement yesterday of consequences to corporations if they take jobs out of america. i believe i've never seen a threat like that from an executive or an executive elect official. what will be the outcome for american investment corporations if they have "consequences" from the white house if they make investment plans? stephanie: well, trump seems threats,rised that his that they followed his advice in indiana, i think it shows the power of words. i don't know what he can actually do concretely and whether that could be applied widespread. on this isting thing

what they want to do on tax policy, which is try to bring american earnings back through tax breaks, temporary tax breaks , and whether or not that will encourage more investment in the u.s. tom: superb summary. stunned at the language of consequences to american companies. let the get this straight. those he isbout going to get consequences for malaysia of all of his marginal investment is going to abroad, right? carl: this shifts the short-termism incorporate see suites that we have been criticizing for the last 10 or 20 years, but has really come into focus more recently. there are tax incentives and whatnot, but also the import tariffs approach and so it

marginally raises the cost of taking these jobs overseas. let me tell you one thing. i hear lots of commentary in the press, the manufacturing jobs are coming back anyway doubled that there are lots of associated jobs, engineering, soiln, that stay on u.s. if you keep the big effect sharing activity on u.s. soil, as well. there is a much bigger economic benefit that a lot of individuals estimate. tom: these are the consequences if you have carl riccadonna on job stay. day.jobs day -- jobs coming up, john mikel quite. look for christine lagarde in the 1:00 hour this afternoon. ♪

the view in rome. it does not get more beautiful than the view in the eternal city. tom keene wishes he was here. talking about political systems, elections in france. late last night, we heard that the current president françois hollande will not seek to be re-elected.

françoisval rating of hollande is so low that he hardly stood a chance of winning. somes, and it does signal discontent with the establishment. he realized that if he was a candidate, he would ruin any chances of a socialist candidate in the next elections. his popularity is 4%. to curb theed unemployment rate in france, but that was too late. tom: caroline, help the ugly american here. is the left dead in france? >> at the moment, you can say that the left-wing is very divided. many observers did not want

hollande to be a candidate because that would have meant the death of the socialist party. you have the prime minister manuel valls who said he is preparing to be a candidate. the socialist primaries will be held at the end of january in france. he will not be alone. you also have some very radical left-wing candidates running. tom: thank you so much. coming up, our conversation of the morning. this is bloomberg. ♪

good morning. it is a new york city looking at many, many different stories, not only the trunk transition, the president-elect in

indianapolis, but so much on a global basis. i'm tom keene in new york. francine lacqua is in rome. i want to go to carl. we are down 10% in price from the election. -y, as well.rout belief that we can sustain our economic growth? carl: as we move into 2017, this backup in yields, whether it is 30-year, 10-year poses a stiff headwind for things like

housing, motor vehicle sales, big-ticket purchases. this is going to slow the economy down. on this job stay -- jobs electronicsident going to have the wind behind walkings he going to be into the wind? carl: the market is not posing a headwind. i think he is benefiting from increasing economic momentum. we saw q3 gdp growing. that we are getting to the point where we are starting to see some wage pressures materialize in the economy. such a critical theme of his campaign was wage stagnation and the problems in the rust belt. those problems are starting to correct themselves before his

first day in office. tom: we will get that wage data within the jobs report. bill gross will join me and david gura on radio. in london, here is sebastian. sebastian: a new report warns that climate change and chemicals and sediments in the water was a greater threat to australia's great barrier reef. the report comes from the australian government. the new york times says the report may understate the cost of protecting the great barrier reef. president-elect donald trump spoke to thousands in cincinnati on the first stop of what is being called his thank you to her -- tour. jakarta, indonesia, more than 100,000 people rallied to demand the suspension of the city's christian governor. he has been accused of blasphemy

. in italy will decide the fate of prime minister matteo renzi on saturday. he says he may resign if a constitutional referendum is not approved. that it would make it easier to pass legislation. this is bloomberg. francine: thank you so much. we have to get back to italy and this crucial referendum. it is crucial because markets are seeing it as a sign of stability. what the voters in italy will actually go to the polls to vote -- ourconstitutional constitutional reforms. let's talk to the caretaker prime minister. thank you, the senator for life,

for joining us. you were based in this hotel in , whateek of transition was it like? you remember that one week? call and thatat we? >> there was such a condition of emergency that i was able to get the support of the president of the republic to put together parties whose leaders had not spoken to each other for years and they all independently supported my government, which had the highest parliamentary majority in republican history. you are now one of the most popular figures for the no vote. what is it like to govern italy? is italy reform of all?

>> of course. that thebelieve present constitution is a key obstacle to reform. what is key is the unwillingness of italian politicians to take unpopular measures when they are needed. situations have brought suddenly a sense of national responsibility, we have seen that it is possible to govern and two very quickly and smoothly do that even. you do not believe that the current political system means that tough decisions and tough reforms cannot be pushed through, you

think it is the lack of courage by politicians? >> yes, indeed. it is always possible to setamline the institutional up at this is the objective of the constitutional reform. the point is is that that objective may not be achieved. why? well, i think that it may have been preferable to scrap the senate, to which i belong, givingher, rather than to it a new composition that would be the reflection of the political class at the regional and municipal level because it will be actually composed of regional counselors elected to the senate by the regional ofncils and a few mayors major cities, who probably are not going to have the time to show up in the senate. it so happens that in the last 15 years or so in italy, most of

the cases of incompetent government and corrupt have been taking place at the regional and municipal level. that'm not convinced projecting this italian politics onto the national stage and giving them some relevant powers achievep streamline and sound decisions. i believe we don't need more accelerated lawmaking. we need to produce fewer laws, but better laws. one thing of it trying to explain to a global audience is this country has had 63 governments in 70 years.

that must be a hindrance to competitiveness. >> of course. past, it was ahe .hange in prime minister i'm all for political stability. italy, we'd to keep in mind that this is not a general election. mr. renzi is not up for approval of reelection. it has not been reckless for him to call this referendum, as it was for mr. cameron to call the brexit referendum, which was not a necessity. in this case, to introduce this constitutional change, he had to. maybe where he has been a bit reckless is in putting his own political future on the line.

water ins put a lot of his pure tuscan wine, but still there has been a perception that it might leave. it should be clear to everybody that in case the no wins and he leaves, which i believe he will not do, but in case it did, it would be his own responsibility and choice. you do not think that prejudiced or matteo renzi will leave in the case of a no vote, but he has again set it in the case this week. >> he says this intermittently because he probably knows that it played negatively for him to on, but he knows that to some people who don't like

very much this constitutional change, it may play in favor of the yes to say that if the no wins, he goes. last time we spoke, you were saying you're not concerned about the banks. what would you say to international investors right now? >> very accurately, we see a .ittle bit of market sanction this is nothing comparable to what was the case five years ago. the ecb is offering its istection and what is true

that the situation of a number is not good.nks if this referendum has not dominated the policymakers' attention for the last year and a half or so, it might have been possible or desirable to tackle more aggressively the situation of those banks. but i do not expect political instability and i do not expect sustained market turmoil. francine: thank you so much for joining us. tom, i'm going to hand it back to you in new york. it was a fascinating conversation to hear that the italians should vote for no, but he does not expect political instability of the no vote were to come up. francine lacqua and london.

job stay at 8:30 this morning. we will speak to bill gross of janus capital after the jobs report. really looking forward to that report and the discussion about the bond rout. from rome in new york, this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in rome. tom keene, as always, in new .ork a lot of the political class year is telling me that even if there is a no vote, it is not

necessarily automatic that matteo renzi actually resigns. markets are little nervous ahead of the vote. tom: within the nervousness, telling me -- tell me the linkage of the italian banks that will occur on sunday. do they wake up monday morning with a different plan? francine: not necessarily. there are two different points. there are two different types of banks. the one bank that will go through a capital increase, that is monte dei paschi. the problem is very simple. if you are doing a massive capital increase at a time of political instability, you may decide not to participate in the capital increase.

the general ease bank -- some of the banks need a rescue plan based on political instability. we may not get an immediate rescue plan if there is political instability. tom: i would say it is led by think ofthe people this debt. francine lacqua in rome. me in newdonna with york. i believe there is a jobs report this morning. does anyone care? does mr. trump care? carl: there is less of this immediate scrutiny. we are looking toward medium-term outlook and what the pace of tightening will look like.

it is not a cliffhanger. it is not a cliffhanger. tom: i will steal from anybody at any time. this is the number of people not in the labor force you want a job. this is down here, the green line. then we have a lot of people looking for jobs. these people, i'm going to suggest, the margin voted for senator sanders and senator trump. we are not back to the nirvana of 2000 seven for a huge body of america. carl: we are not back. if you look at the green line, that is about one million potential workers. if you look at the ranks of the unemployed, there are about one million workers on that front, as well. tom: why is vice chairman fisher and vice chairman riccadonna telling me we are fully employed? carl: we are getting very close

because the economy is creating 2.5 million jobs per year. the well is 2 million workers. tom: the 2017, we will make up that gap? carl: we will punch up -- bump up against serious lines in the labor market? tom: time, you are suggesting? carl: not a lot of time. that is going to be a 2017 story. the green line is not full employment. we are the cost --getting to a very lean market. tom: what are the quality of the jobs we are creating right now? the zeitgeist is that we are not good jobs. carl: that is not correct because most of the jobs lost during the great recession were lower quality jobs. fittingly, most of the jobs created subsequently have been lower quality jobs. we will continue this discussion.

martin feldstein coming up in a bit. lots to talk about with professor feldstein on this business day. the referenda been rome on sunday. mr. trump in his transition. a new secretary of defense stated. jobs day on "bloomberg daybreak." stay with us from rome and new york. this is bloomberg. ♪

tom: good friday morning, everyone. "bloomberg surveillance" from rome, italy and new york, united states of america. thrilled you are with us. response for the huge to our interview yesterday with kenneth rogoff. now, to our bloomberg business flash. .ebastian: thanks, tom wells fargo is breaking with u.s. rivals on corporate governance. the bank will require there to be a separate chairman and ceo after sales turned into a national scandal.

bond fund billionaire bill gross warns that the trump valley -- rally is built on a false promise of growth. the benefits from such fiscal stimulus is likely to be temporary. we will speak to bill gross later today. that is your bloomberg business flash. tom: thank you so much. file this under watch what they as we gotat they say, to the italian referendum. everybody writing on this. how about this for a morning must-read? dynamics.e caused a reflation has spike in global borrowing costs,

hitting italy especially hard. francine,of a sudden, in rome, where you are overcome by events, is there a feeling of a linkage to trump reflation? do you feel that in italy? francine: not really. ambrose is absolutely right. it can be italian sovereign bonds. if you look at the spread, germany and italian sovereign bonds, this is italy being the benchmark, it is about 1.6 basis points. four years ago, it was a 5. yes, it does hurt them, but you are not overcome by events because the ecb is standing firm. even if there is a little bit of loss from the bank, it is not the end of the world.

we are in a vastly different place. said.ell we want to make clear, folks, that many of the sensitive included -- improved for italy. carl, forget about the economics, the vast battle, it is about mario draghi. mario draghi is absolutely critical to italy's good, isn't he? carl: absolutely. the ecb qe program is providing a backstop or safety blanket, as , from worsening deterioration and conditions. tom: my rosetta stone fails me now. there is no such thing as a free lunch in italian. [laughter] is helpingaghi italy, who is he hurting? ?ho is paying the price

who is paying the ticket? somebody in germany? carl: by keeping rates lower, they are keeping the currency weaker and that is helping german exporters. i don't know that germany is really paying the piper here. what i would argue is that pensioners and people with higher interest rates are paying the cost. tom: karl, thank you so much. we will continue our coverage through the morning. carl say wage dynamics are key. the consequences of a president-elect, marty feldstein in our next hour. this is bloomberg. ♪

italy and then austria. in the next three days, critical votes in europe. will the people support the

elites? francine lacqua is in rome. the president-elect elects to travel in indianapolis. some jobs moved to mexico, some jobs stay in america. this morning, the jobs report at 8:30. in this hour, martin feldstein of harvard on presidential bluster and the cold, hard -10 economics. this is "bloomberg surveillance ," live from our world headquarters in new york. francine is in rome, italy, and extraordinary shot of rome as the elites confront this referendum on sunday. we just spoke with the former prime minister, mario monti. much more on that through the hour and all day into the bloomberg.re on francine, annexed ordinary friday. tell me what the streets of rome

feel like as we go into this historic weekend. francine: as you can hear, the bell is tolling, it has been for five minutes. the bell's tolling for the italian political class but also for the banks. on italians go to the polls sunday to vote on a constitutional reform. the prime minister has put his job on the line. if he does decide to go, we do not know what comes next. that puts extra pressure on banking stocks. tom: we will have much more on this through the morning. right now to london. here is sebastian. sebastian: president-elect donald trump took a victory lap last night. he spoke to thousands in cincinnati on the first stop of what is called the thank-you to her. tour. thank-you in themp: we compete world, we want to compete in the world, but where he -- but we

will compete in the world on a two-way road, not a one-way road. the advantage has come back to our country. sebastian: donald trump has picked retired regional james mattis to be secretary of defense. former secretary of state kissinger is in a position, going to china to each -- to ease tensions. xi jinping is trying to figure out how much of donald trump us china batching -- of donald trump's china bashing will follow him to the white house. the anti-brexit liberal democrat sarah onlyy gave -- one in a london district that overwhelmingly backed staying in the european union last june. and the least popular leader in france's modern history has had

enough. francois hollande will not run for a second term next year. he said he is pushing -- he said he is putting the country pus needs ahead of his personal ambition. apparent -- is an there is an uphill battle. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am120 countries, sebastian salek, and this is bloomberg. markets are quiet on this friday before the jobs report. features like the euro, 1.0645. on to the next screen, please. , 14.41. of the vix i would note the german yield has been lower as well. of mexico hass

resigned as the head of the central bank. the peso much weaker yesterday afternoon. over to the bloomberg to show you what i was joking about a week ago -- the joke is not now. it is a bond rout. thank you, blackrock and their ishares. the yellow circle is the beginning of the crisis. the red circle is the lehman low with price down, yield higher. then we show on the right the equivalent bond rout. we are getting to a percent change move in price, a percent change move in price that is beginning to approximate what we saw in early 2009. we have so much to talk about this morning, including francine, in italy. we are thrilled to bring you of theartin feldstein national bureau of economic research and of course at harvard university. there is a point where the markets take over and tell people like you what to do.

are we at a point where the bond vigilantes can give chair yellen guidance? bond vigilantes are finally showing themselves. whenever i have been on this program for the last two years, i said those long-term interest rates are just unsustainably low. they are the result of monetary policy, but at some point it is going to turn and we are going to see a normalization of long-term rates. tom: let me begin with ec-10. it is the belly of the curve. i did that for thanksgiving and for the expanding belly of the curve. at media likes to look 20-year and 30-year and all the emotion of that. how far out the years -- how far out the yield curve does any fed influence?

it was not something that the fed has ever really done on scale before. at the bond carnage, and there is going to be price decline. there is a point where we should put yield analysis to price analysis. institutions do that as well. harvard's and dominant do that. pension funds and we will do that with our own retirement accounts. are we near that, where price declines affecting american behavior? martin: i would hope so. i think it is a warning. we are just beginning to see some of the price declines of the long end of the curve. but there are some that will not be moved by that because they did not mark their folios to market. saying imagine them thank god we get some positive

yields, maybe it will go higher later, but it does not matter. the price decline i do not have to reflect on my books. tom: we'll speak with professor feldstein in this hour about some of the president-elect's rhetoric yesterday. and to rome.italy francine lacqua is in rome for sunday's referendum. is there a lot of campaign at the airport? is it as ugly as an american election? francine: it is not as ugly because there is not as much money as there is in the u.s. remember, it is not a general election. it is a referendum. but you are right, there are various parties of people who want no, who want yes, who are organizing rallies. the head of the five-star movement is going to key cities to talk to his supporters.

the government is doing the rounds of the networks to muster support for their reform that they think would transform into a republic that is much more governable. so a little campaigning, but we are not talking about u.s. style. it is not about personality. they want it to be on the reform of the constitution. whether people decide to come and vote on sunday and what they will interpret this referendum as is another question. tom: francois hollande steps aside and france. between all this is the austrian vote, i believe on december 4. populist italian vote as we go on to austria and the critical elections in the netherlands and in france as well. francine: the problem is that the electorate at the moment is confusing everything and anything, which is why this referendum is only really meant

to change the constitution with how much power the senate has her that may be interpreted as a vote of confidence in matteo renzi. first of all, this is what people do when they get asked a referendum question, and also because matteo renzi has said his job is on the line. the problem is that waiting in the wings, you have the five-star movement, and this is has a very- rome young and beautiful woman as the head of that movement. it is an opportunity for the five-star movement, very euro skeptic, whether they have a chance to get in. there would be various steps before this comes to fruition, but this is along the lines of what happened to brexit and trump. we would see some kind of populist anger.

tom: what is mr. draghi's best outcome of this vote on sunday? for the moment, he does not get involved in politics. he is italian, so we know that he is probably watching this very closely. he is trying to keep the eurozone together. he has a massive bond purchase program, which is why you were looking at spreads and some of the southern bond yields in italy. they are capped thanks to all of this ecb liquidity. his outcome, his best possible outcome is keeping civility, which could mean a no vote. i am not sure, but he wants stability so that he does not have to pump up that program. tom: we will continue with francine in rome. she will be there on monday as well, to pick up the debris of the referendum. we will go to martin feldstein of harvard to get his perspective. and then as we moved to 8:00 and

ofto 8:30, william gross janus capital. stay with us from rome and from new york, this is bloomberg. ♪

from rome,illance" italy, and new york. we are thrilled you are with us. yes, on the american jobs day -- we will do that later. much going on this friday. right now to london with sebastian salek. russia has reported their output is close to a post-soviet record. russia put out 11.2 million barrels of oil last month.

russia is the world's largest energy supporter. -- energy exporter. -- the chief operating officer, kevin johnson. asultz will keep the job executive chairman of starbucks. wells fargo is breaking with most of its u.s. rivals on corporate governance. the bank will now require a separate chairman and ceo. --t comes after years of when he and the chairman sat down in october. that is the bloomberg business flash. thank you so much. now let's get straight to malan, where we are talking to one of the most recognizable businessmen here. the ceo of a conglomerate group that really has interests in

many different industries. to welcome him. great to speak to you, as always. what exactly is at stake in this referendum come sunday? sorry, but i have bad audio. i could not hear your question. can you repeat, please? francine: of course. i was asking you what is at stake. are you worried that a vote for no in this referendum would lead to political instability in italy? isi think what is at stake immediate political stability for the next few months. i think a no vote would create political instability and uncertainty about whether we would go for early elections or whether the term of the government would go up to the

string of 18. and i think a yes vote would be would be an encouragement, which would be in for investors looking at italy that the country is serious about reforming. has tried government to do some. businessman, do you worry more about the instability that would come with a no vote, or do you believe that the reforms being put on the table right now would make italy a much stronger country in the longer-term? yeah, i think the country is in a delicate in a delicate situation. it has been growing at a much slower growth rate than the rest of europe for the last 10 years. it is facing a delicate situation in his financial

industry. there are a number of large transactions, of capital increases of some of the largest italian banks that have been announced. i think instability would be particularly bad and dangerous at this juncture. so definitely i think this could problem in case of a no vote. and i think it would also be a lost opportunity because this government and our prime minister has put a lot of emphasis on structural reforms, and this is an important reform for making the country more agile in terms of its decision-making process, and i think if voters were to turn it and, it would be a bad sign i think it would be very difficult for somebody in the future to test again the country

and the voters on those types of structural reforms. rodolfo, i liked the word you used there, "agility." does this go back to the need for italy to be more competitive, and how do politicians and the government do that? has ao: i think italy major competitiveness problem. there is an annual survey of business competitiveness that just came out a few days ago in which italy ranked fairly badly, one of the worst countries in europe. and i think this is due to a bunch of issues related to, you know, a legal system which is very slow, to the legislative process, which is very convoluted. and in general, this is not a business-friendly country. and i think what this government

has tried to do is to attack some of those issues. i would hope that they continue in this program. , if i had tothat complain about something, it is that they have not done enough, but certainly that they have not done too much. this is what is at stake. this is a choice of change versus conservation, and i hope that the country will vote for change because we badly need it. benedetti,odolfo de thank you very much. one of the partners at italia asset management. he laid it out, sing for the moment that italy is not business friendly, and we need to accelerate competitiveness, and you do that by giving the

government the ability to move quicker with stronger power. the ability of remaining in power for longer. tom: francine in rome, and we will hear about jobs day as well here in america. coming up later on bloomberg television and radio, john micklethwait, in conversations the pristine lagarde, in 1:00 -- with christine lagarde, in the 1:00 hour. this is bloomberg. ♪

tom: what a friday, what a

weekend it will be. getting ready for your weekend, looking at the jobs report. bill gross will be with us this morning at 8:30. let's get to martin feldstein on something i want to talk about that is outside the jobs report. bring up the chart, anthony, if you would. this is u.s. investment. ken rogoff spoke about this briefly yesterday. the green line is where we used to be. it is an average two-day line, where we used to be. how do you spur investment incentives? how does president trump do that? martin: we have done that in the past with tax incentives. if you have a more favorable tax environment for investment, you will see more investment. investment tax credits, accelerated depreciation -- those are the kinds of things that have moved the investment rate. tom: you invented are most

esteemed economic group, nber. martin: i did not invent it. tom: stop. i am telling people that you invented it and made it better. and then a guy down the river took it over. what would he say is the best tax incentive republicans can do in washington? invite jim toould come in. i think he and i would agree on these issues. i hate to put words in a colleague's mouth, but i think jim and i agree that taxes are an important situation to businesses. tom: do we need a director credit tax investment, ge, this, you willo get this direct investment tax credit? martin: we do that. we have very high tax rates in the corporate sector, and we have a system that encourages

multinational companies to leave their funds outside the u.s. i think that is going to change. ' think we will see companies incentive to bring their funds back and to invest them. the key thing is, if they bring them back, will they invest them? that is why we need a two-handed way of dealing with this. tom: michael mckee is in washington, and he will join us withll, and particularly michael mckee's abilities on greece and italy, francine lacqua is in rome. i am going to get onto "surveillance" downtown to do work with david gura on bloomberg. mohamed el-erian later this morning. this is bloomberg. ♪ generosity is its own form of power.

you can handle being a mom for half an hour. i'm in all the way. is that understood? i don't know what she's up to, but it's not good. can't the world be my noodles and butter? get your mind out of the gutter. mornings are for coffee and contemplation. that was a really profound observation. you got a mean case of the detox blues. don't start a war you know you're going to lose. finally you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. francine: this is "bloomberg surveillance." lacqua, live from rome. joining me in the next hour, is michael mckee.

we have a busy day. it is not only about potential political instability that we may see in italy and on to france, it is about job creation, gdp growth, and how the fed and janet yellen was see this jobs data today. tom keene has gone to do an event. michael mckee joins us now. if you look at -- everything is linked. talk about globalization, but when you look at houston almonds, brexit, political angst in italy, everything is linked. notael: we have globalized just the economy but politics. the whole idea of voter unhappiness about the inability of the state to generate better living standards for everyone has resonated from the u.k. to the u.s., and now it is on the ballot in italy. francine: certainly, so we will have more on that. let's get straight to sebastian salek in london. sebastian: voters in italy would

decide the fate of matteo renzi on sunday. he says he may resign if the constitutional referendum is approved. he and supporters argue it would make it easier to pass legislation. in jakarta, indonesia, more than 100,000 people rallied to demand the attention of the city's christian government -- of the city's christian governor, who has been accused of blasphemy. president-elect donald trump took a victory lap last night, speaking to thousands in cincinnati on what is being called the thank-you tour. he mocked critics who said he had no way of winning. he has picked a retired marine general to be the next secretary of defense. he left the marines in 2013 41-year career.

global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am120 countries, sebastian salek, and this is bloomberg. michael: thank you. let's bring in marty schenker, bloomberg's senior executive editor of government and economics. marty schenker, i want to start with you and start with general mattis, who is going to be the new head at the pentagon. this is unusual to bring in a military man to run the military. by tradition, presidents have avoided that. by statute, you have to wait several years for retirement for him to get a cabinet position. they will need a waiver for that for him to serve in that capacity. michael: does it suggest any way conduct himself?

marty: i think it does suggest something. he was first president -- he was first appointed by president obama. they quickly split over aggressiveness in the middle east. as donald trump has said, he is going to defeat isis and this is the guy who is going to have to do it. michael: if he is going to spend more money, that will have to change dynamics of the u.s. budget. the defense department has taken a hit in recent years. marty: absolutely, but i think it is very important that we not let the spending on defense continue to shrink. defense spending is down to a little over 3% of gdp. not only that, it is expected to keep falling over the next decade to 2.5%. that will make it lower than anything we have seen since world war ii. that is not enough for the resources needed for the navy,

for the air force. it is not enough for the personnel that we need. so i think we will be spending more money on defense. marty schenker in d.c., how many wall street bankers is donald trump going to surround himself with? we also understand he is speaking to gary cohen of goldman sachs. marty: that's right. we have reports that he was be to the transition team this weekend. hime are reports about talking about the office of management and budget. it is the people donald trump feels comfortable with. he feels comfortable with people who are very wealthy. i do not think he even considers that when he is making these picks. francine: is it different to what we would have thought

donald trump -- or who we would have thought donald trump would have picked two weeks ago? he seems to be going mainstream or at least centrist. marty: there is no question that he won on a populist theme, he won on a theme of going outside washington. many of these picks are truly insiders, although they are very conservative in some cases. but they are not out of the mainstream. michael: that raises an interesting point, marty feldstein in new york. if donald trump is going to be in the mainstream, what is a programam economic these days? what would be acceptable on capitol hill for most of the? martin: i would hope the basic ideas of reducing tax rates, both personal tax rates and corporate tax rates, would be central to that. i think it is more of a stretch, but i hope they will focus on the fact that the budget deficit

and the size of the national debt have gotten out of hand and that we have to turn that around and start shrinking the deficit and start shrinking the size of relative to debt gdp. those would be key things for any republican congress, any republican politician. but, marty feldstein, how can you shrink the deficit if you want to put a plan in place to reduce infrastructure spending by $1 trillion? marty: i don't think that is going to happen. if you look at the details of what the trump campaign said about the so-called trillion dollar infrastructure program, they said in the written material and in his speeches this was to be a budget-neutral policy. it was not to be keynesian government spending.

rather, it was to be a series of tax credits to encourage private as mrs. -- to encourage private businesses to do these things. i do not see how private businesses are going to make a profit by owning roads or by owning bridges or by owning -- so i think we are going to see them backing off from those claims about a massive infrastructure program. we do not need it to boost demand. the economy is already essentially at full employment with rising wages, so we do not need a demand boost. i think maybe we could give each other bridges for christmas or something like that. marty schenker, this town was all about getting rid of deficits. for the last six years since the republicans came back in power in 2010, the tea party, the whole thing. even if you do not do the infrastructure but you do the tax reform, you have a big hole and the budget. how will that play with those formerly austere republicans?

marty: this is the tension between the trump administration and paul ryan. there is no more passionate budget talk and paul ryan. they are going to have to come to some agreement on how you can increase spending on the military, which donald trump has and, and infrastructure, make it revenue neutral along with tax reform. that is going to be a real challenge. michael: marty schenker, thank you very much. he is bloomberg's senior executive editor of government and economics. coming up today after the jobs report on television and radio, our old friend bill gross of janus capital. he has interesting things to say about donald trump's economics. york, 1:30 p.m. in london. this is bloomberg. ♪

francine: italy for a history. look at the live shot. this was created by julius caesar and the emperors that came into place. in 2016,urselves now looking at a referendum. it is politics -- one of the countries in europe that has seen political turmoil. we look back at julius caesar , vaste emperor, the vast empire that they created. you think italy has really gone downhill from bank. this may be an attempt to reform italy's government, that this constitutional reform would put italy on a stronger footing to

deal with any more political and stability. michael: the problem is that you have all that history. the italians went through the experience in the 20th century of a real strong man, and there is fear that that could come back again if the referendum is passed. it is a difficult choice for them. mostine: it is, because people do not actually care about the constitution. why would they? it is clear that the market is anxious that they take this as a vote for or against the government. we will have plenty more from italy about the referendum that starts on sunday. let's get straight to the "bloomberg business flash." carnival cruise lines will face tough scrutiny over the next five years. is accuseduise lines of illegally dumping waste at sea.

the colonel unit faces five years of court suspension. gdp -- economists -- with weak private the men and slow government consumption. brexit is bringing in christmas gloom for a number of britons. holiday spending will be affected by the country's position to leave the european union. leftns will spend slightly -- slightly less on christmas gift this year. >> of course italy is reform of all, and i do not believe -- of course italy is reformable, and i do not believe that the present constitution -- that the president -- francine: that was mario monti. years ago almost today, he

was asked to reform the government. to form a technocratic government. it might have confused things about the fallout from this referendum. whoever the president chooses may be in a similar situation to what now senator mario monti had to do five years ago. luck would have it, mike, that us.monti said right below michael: this is more than just a referendum on the constitution. this is a question of where does italy go from here. does it give more power to a prime minister? then you have the question of how italy votes. they have to come up with a new voting system, and what you have been talking about all morning about the banks. whoever comes into office is going to be juggling a lot of balls. we may be talking about matteo

renzi. francine: this is the key question. the problem is that you do not really know what people will vote on. you are not really sure if there is a no vote what comes next. the thinking here is, let's say there is a no vote. we do not know because we are in a blackout and tell. but let's that because we are in a blackout -- because we are in a blackout period. who comes in his place will be the million-dollar question. let's get back to our economist on the set in new york, marty feldstein. we were talking before about countries that are reformable, countries that are not, and job creation in the united states. what needs to happen in europe for this region to be better, to do better so that investors stop asking whether the eurozone will stick together or not? marty: europe is in terrible shape. it has been in terrible shape for several years.

there is hardly any economic growth. there is a flirtation with deflation. there is no policy beyond what the ecb is doing, and i think they have done everything they can, but it is really not working. so you need structural reforms. you need changes in labor market rules, changes in rules for product markets, and that is not happening. i think what you have is paralysis. michael: how much can a resurgent united states -- if there is fiscal stimulus here and growth picks up for however long -- how much does that help europe and other parts of the world, particularly with reflation? marty: very little. these countries have to fix their own problems. does notthat, the u.s. have excess capacity. it is not that we are going to go from being in a deep bowl to toing back -- in a deep hole

coming back rapidly as we did in the reagan years. strong policies in the u.s. will help. they may increasehelp. they may increase investment, they may increase the quality of jobs. but it is not going to spill over into the rest of the world in a significant way. francine: marty, you see and a lot of people in charge think it is an anglo-saxon view thinking that europe is a mess and is un reformable. italy has planted the seeds of some reforms. is the problem with italy one of timeline, that the markets and the international community expect europe to go much faster with reforms than it actually can? marty: this is 10 years we have been talking about reforms in italy. yes, they have made some minor changes in labor laws, but it is really very small. so when my italian friends describe to me some of the

changes that have been made, i think, boy, if that is all they have done, there is a long way to go. thetheir focus is in performance. you look at the growth rates, look at the fact that the deficits continue to grow in italy, it is really a mess. michael: how long can that go on ? it has been decades. do they need to change immediately? do not.o, they they continue with growth, high unemployment, more than 10% unemployment rate, higher for young people. suffering, but how long will they politically be willing to do that? movement, longar and say give us a chance to do something different? let's pull out of the euro and be able, which is what the five-star movement is arguing for -- let's pull out of the euro so we can become more competitive.

i think the public may, at some point, say we want to do something very different. is with marty feldstein us in new york. coming up later today on bloomberg television and radio, our editor in chief, john mickelthwait with a conversation the christine lagarde, director of the international monetary fund. that is 1:00 p.m. in new york, 6:00 p.m. in london. this is bloomberg. ♪

michael: good morning, i'm michael mckee in washington. francine lacqua is in rome. around the world, forex traders are watching the italian referendum and the u.s. jobs report. there is not a lot of movement anywhere as we wait for the data and the vote on sunday in italy. you get your biggest move perhaps in the euro-japanese pair. 3/10 decline. the mexican peso relatively

stable, even though donald trump said he would build a wall yesterday. coming up shortly, "bloomberg daybreak: americas," with david westin in julie hyman. david: we have jobs, european risk in italy. mohamed el-erian will be here, talking about jobs, the consequences of a global economy, but also about european political risk, and the trump rally, which some people are expressing doubts about, including bill gross, who will be here with you, mike. apart, take those explain the consequences. and finally, a special interview with the prime minister of ireland. he will be here, john micklethwait will be here interviewing him. and i think it is called a tee shot -- michael: spell it. david: i will not do that. michael: in the meantime, we still have marty feldstein with

us from the national bureau of economic research at harvard university. we are going to get, according to the consensus, 180,000 jobs, which is more than we need for the long run addition to the labor force. the labor market seems to be relatively strong, but there is one area everybody will be watching for the next four years, and that is manufacturing jobs -- donald trump saying he is going to ring back the manufacturing assembly line work that is the ticket to the middle class for so many people. can he do that? marty: he can bring back some by some policies, but that is not where a better lifestyle is going forward. if you look at the manufacturing jobs now, production workers, people who you are talking about in your question, it is less than 10% of the labor force. 2%,f that went up by 1%, that would not change things. the good jobs are in services.

i look around here at bloomberg, there are a lot of good jobs, a lot of people doing interesting things, well-paid things. it is not manufacturing. we ought to get away from this fixation with manufacturing and recognize that -- and particularly with the production jobs in manufacturing because that is a very small part that is being replaced by technology. --ncine: but, marty actually, that is exactly what i wanted to ask you. i was reminded that there are 3 million truck drivers in the u.s. if we ever had driverless cars, they are going to be without a job. how do you retrain the american workforce? marty: the american workforce keeps retraining itself, keeps finding new jobs. they go to employers who say, you are a bright guy, a bright gal, i have a way of giving you a job in which you will be able

to learn some new skills and earn a good living. so the people who are working here at bloomberg were not born into this industry. they came here and they learned to do things. so i think it is a mistake to think that the current mix of jobs has to continue indefinitely. michael: marty feldstein, thank you very much for joining us. from harvard university. iu are in new york today, and am in washington, d.c., where in about 30 minutes we will have the november payrolls report. 100 80,000 jobs are expected. francine lacqua is in rome, where on sunday italians will vote on whether to change the constitution. "bloomberg daybreak: americas," up next on television. "bloomberg surveillance." ♪

♪ david: welcome to "bloomberg

daybreak," it is jobs day. julie will get us started with the markets. are not seeing a lot of strength in the equity markets especially when you look at the ftse 100 and the dax. it is a commodity led selloff and some caution and of the u.s. jobs report. patternook at the trend , it is consistent to other asset classes. a little bit of a thirst for safety this morning. the euro is falling versus the dollar. 1.2%,oil prices down the 10 year yield is actually going lower. david: thank you so much. friday, economists a they think 180,000 jobs