♪ >> coming up on "bloomberg best" -- the most compelling conversations on finance and europe. the back-and-forth progress of rex it sparked constant debate. >> i want a free trade agreement with the european union. >> the situation after brexit would be worse for the u.k.. nejra: facing political turbulence. >> >> we need more vision, less bureaucracy. >> we can only risk sharing if we have the instruments to implement. nejra: it has been a year of transformation. four major banks. >> the buy word is long-term sustainability.

when you have to do a big cost-reduction program it is because you have not kept pace. nejra: it has been a year of transition for europe's central bank. >> we are not that yet there. -- we are not yet there. nejra: it is all ahead on this special edition of "bloomberg best." ♪ nejra: hello, and welcome. i am nejra cehic. on this special edition of "bloomberg best," we will look back. revisiting the years most interesting interviews with newsmakers, policymakers and leading figures in business and is brexit.re it the dominant story of 2017 in politics and business. negotiations over the uk's divorce from the european union not starting until spring. leaders in britain and europe were staking out positions and anticipating the economic impact. in january, theresa may came to

the world economic forum in davos. to lay out her vision which he discussed which bloomberg -- which she discussed with bloomberg. >> the message i brought here to davos is that britain outside of the european union, we want to build a truly global britain. a britain that is an advocate for free trade, free markets around the world and a britain that is ensuring we are taking those opportunities. i want to negotiate a good free trade agreement with the european union. i want the best possible access for trading and operating within the european markets for goods and services. i value financial services in the city of london. i want to ensure that we can keep finances in the in the city of london. that global britain will do that. >> the pound has gone down by about a fifth. you seem fairly relaxed with that. is there a level where with

parity with the dollar where you worry about the pound? >> we have seen different movements in the pound in the last six months. we have also seen through the other economic data is the strength of the uk's economy. the imf has made the point, we were last year the fastest-growing major economy. we had figures which showed unemployment coming down once again. we see a fundamental strength in the u.k. economy. i believe it is a good strength. i believe it's an economy people want to invest in. since the brexit vote we have seen major companies like google, facebook, making investments. softbank taking over in the u.k. making very significant investments in the united kingdom. >> a cheap currency was part of the incentive. was there a point where the cheap currency becomes a vulnerability? >> i think what people will look

at is the fundamental strength of our economy and opportunities in the united kingdom. this is an important part of our industrial strategy. looking at the economy for the future, looking at how we can ensure the environment in the u.k. is the right environment, the best environment to do in -- to do business and invest. >> you put forward a version of britain which is free trading, i look across the atlantic and see donald trump, who takes a protectionist attitude towards trade. what are you going to say to him on that? >> if we look around the world generally, there is a question about free trade. it has been questioned. it goes to what i was saying earlier, people feel globalization has been negative and left them behind. it is important for us to go out and give that message and show show responsible behavior by business. government is taking the right moves to ensure that economies work for everyone. also, show people the value of free trade.

trading around the world's enterprise, is the engine of growth, the engine of our economies. ♪ >> this needs to be an open negotiation. the aim is not to punish the u.k., but when you are a member of the club it is better to be to be out.e -- than the situation after brexit will be worse for the u.k., and not as good as it is today or before. >> give me a blueprint. i don't want to jump to conclusions. you are right. say there is no deal, what industries will suffer the most because of this? >> frankly, i refuse to speak about no deal. why? if you start talking about your plan b it means you do not believe in your plan a. i am convinced we can make it if we negotiate on principles. what are the principles?

it must be about citizens, the movement of citizens. there are 4 million people from the eu who work in the u.k. london is among the 10 biggest french cities. third, the financial aspect. fourth, we will be capable of discussing the future and the future of our relationship needs to be very close. this must include a trade deal. ♪ >> this idea that britain is going to crash out of europe and become some low tax deregulated, offshore harbor of the european union, it is not going to happen. the risk we face is if we do this hard brexit, the economy will suffer. public services will be under threat. you actually might end up in the a labour

government further left than any government has been. i would still like to see a more rational debate on brexit and diver from the course we are on. >> i never thought the credit risk would be a labour government. >> i know. >> i have been very frank about this. >> you combine a hard right populist punch in the form of brexit, and you are going to do the country some damage. ♪ >> can you see any situation where we would have a second referendum on brexit? >> we having considered a second reference. we don't know when the general election will be. what we want is parliament to be able to hold the government to account and what it is doing, challenge the bill as it goes through. this bill is everything i

disagree with in the way parliament should be run, parliament should be there to hold government to account. this bill has enormous powers over the secretary of state. in which he can override parliament, and that is wrong. >> you don't think there will be a change when we see the deal? --we are not complementing contemplating a second referendum. >> and on the transition side, do you see a transition is something that can be achieved now by the government, or is it something that takes time to negotiate? >> i think it is important to get that market down now. it is going to be a transition, otherwise we are less than a year and a half away from leaving the european union. if there is no transition agreed until march, 2019, which investing thate relies on market access to europe, there is going to be enormous uncertainty. the danger of the cliff edge, so i think we should set that up now.

we made that very clear during our many meetings in brussels with michel barnier. and others on the negotiating team. >> do you think the eu transition would say yes? >> the feeling i get is many recognize the sense of having that because britain is a big , economy, one of the biggest in europe. there has to be a good trade relationship. i don't think anybody wants to see ourselves in the direction of some massive trade competition between britain and the eu in the future, which is why we want this tariff free trade access. ♪ >> the quest for clarity on brexit remains a prime concern for all of europe heading into 2018. coming up next, we will continue our review of 2017. a buoyant economy and a series of important collections gave a new energy to integration.

>> we must make our institutions more flexible. nejra: this is bloomberg. ♪

♪ nejra: this is "bloomberg best 2017 in conversation: europe." 2017 began with plenty of anxiety. in france, far right candidate was polling well in national elections, and many feared a populist search across the continent that could further weaken the european project. it was on the minds of global leaders like jamie dimon who shared his concerns at davos. >> one of the things i worry about brexit, the effect on britain and the gdp in the u.k., it is about what it says for the long-term health in europe. the wishful thinking, that brexit would cause the european

union to look at what went wrong and fix it. what went wrong has gone wrong for everybody, not just britain. it looks like they are doubling down. >> europe is not fixing in response to brexit? >> you have the same political things about immigration, who controls the laws, how much power goes to brussels, how much inflexibility and capital you will have. i am hoping they do it. the eurozone may not survive. that is a complex answer. >> it is a pessimistic view. >> unless they change. they are going to have to change to be more competitive globally. they are doing ok right now. they're growing 1% plus which is ok. i say this out of respect for the european people. they are going to have to change. it may be forced by politics or leadership, we will have to see. ♪

[applause] nejra: emmanuel macron's victory was a encouraging sign of strength. while far right parties did make gains in france and germany this year, a robust economy helped swing the momentum back. here is what top political figures had to say on bloomberg television in 2017. >> i am a firm believer in europe, and during my election campaign, a lot of people told me, you are crazy. you are pro-european and you think you can win in france? defending europe, i believe it is feasible because people understand we need europe in this current environment because we have european values. now the challenge to how europe, with united states and china, that is not the case today.

informing the main weakness in europe is the lack of projects and ambition. we had an approach during the last decade trying to fix crisis at the very last minute without any perspective on projects. europe is the relevant scale. in order to deal with energy. i do promote european emerging markets. it is critical we have french leaders, and european leaders, and europe has to be stronger. the same for digital, security, defense. investment in economy, what does it mean? we have to fix tenuous objectives for europe. we have to decide some convergences and some investment

decisions in order to reach the subject. we will have to change treaties but we need these new ambitions. for my generation, there is one alternative. do we want to dismantling of of europe?antling we discussed using years of brexit and now it is all about brexit. now we have a lot of tensions in europe. in a few months or years, you will have other countries raising, and thinking i am not comfortable with bureaucracy. with this europe without any vision. with constraints. so, we need more vision, less bureaucracy. >> i think we have a good opportunity to get more for european development. i discussed some days ago, we

are ready to make any reform only in line with the primary law. as soon as we get amendments to the primary law, we can do more. as long as we are bound to stick to the given primary law, we have to make more dynamic integration, but pragmatic in a governmental way. if we agree as soon as possible corporations, whatever, in common european law as soon as we get amendments. we will work in this direction.

i think it is pragmatic to move in the direction to get more efficiency for europe, in this way to convince the people in the european member states that europe matters. that europe is the right solution for the future. >> don't you have to move in the direction of shared that -- shared debt responsibility? european bonds seems to be the only way, if you really want a deeper closer europe? >> if you have seen the advice i've given, the former governor of the bank of england has made things more difficult. my answer has always been we can if we haveharing instruments to implement common decisions.

if you have common risk without common decisions, it is wrong and you will end in economic disaster. >> in spain we have the ongoing issue with catalonia. the lombardi issue in italy. is this going to intensify? >> this is a challenge. we in europe must find ways to combine the overall systemic dimension with the national and local dimension. we need all of these dimensions, in a harmonious way and we need to reshape our instrument in europe to make that happen. yousef: what else can europe due mitigate the risks of that? or address them properly? >> there are some european challenges which required european responses, like migration, like security, like jobs. there are national responses which are insufficient.

we need to integrate them with a higher level of policy. yousef: there is a lot more work that needs to be done in order to slow down that trend we are seeing for further autonomy. these are structural problems. >> there is a window of opportunity to deal with them because the european economy is growing at a healthier rate, and there's lots of job creation. this is not enough. we must reform our institutions and make them more flexible. ♪ nejra: much more ahead as we revisit the top coverage on bloomberg in 2017. up next vladimir , putin and his relationship with donald trump. later on, conversations with executives at europe's most prominent banks. >> like the rest of the industry trading in the markets business was muted. nejra: this is bloomberg. ♪

♪ nejra: you are watching a special edition of "bloomberg best," highlighting conversations from 2017 in finance. i am nejra cehic. it was a busy year on the global stage for vladimir putin. he met with donald trump in hamburg. he met with china's president xi

jinping. in october he shared a stage in moscow with other world leaders at the russian forum on a panel. there he addressed the controversial topic of his relationship with donald trump, and the state's relationship with the u.s. >> our personal relations, almost none. we saw each other one time. we had a couple conversations on various issues of mutual interest. we also discussed the syrian issue. by the way, we see eye to eye on certain things. on issues we are cooperating with the americans on many tracks. yes, there are certain problems. certain confrontations. our approaches are different but we are capable of coming to solutions, to coordinate our approaches.

as to our relationship, you can judge for yourselves. manyhave become hostage to occasions, certain forces are using russian-american relations to address the internal political problems. we are passionate. we are waiting for this process to come to an end. i hope the fundamental interest -- the nonproliferation of weapons of mass destruction, crime, our cooperation in the resolution of conflicts -- i've been working tirelessly on those conflicts, and solutions to those conflicts.

the fight against terrorism, for example. cybercrime, these are fundamental interests that will change the nature of relations for the better. >> do you think donald trump is a hostage of the american political system? that seems to be what you said. >> i believe trump, his character will never be hostage to anyone. >> what would your advice be to him? to work jointly in interests of the american economy. to work jointly in the interest -- we know real friends are interested in establishing cooperation.

we will continue promoting ties irrespective of the current political situation. nejra: we've got more of 2017's top interviews just ahead. later in the program, central bank officials discuss the complexities of the year in monetary policy. coming up, pain and gain in the financial sector. the head of the biggest banks speak freely. >> there is good volatility and bad volatility. nejra: this is bloomberg. ♪

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see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. ♪ nejra: you are watching a special edition of "bloomberg best," wrapping up 2017 by replaying the top interviews. challenges facing european banks were the subject of much discussion. let's look back at how the leaders of some of europe's biggest banks describe the state of their institutions and the industry. >> we never want to run the bank just chasing after market share. teh buy word is long-term sustainability. revenues are important. we need to make sure we are relevant to france. -- to our clients. invest in systems and people.

also in equity sales, we are trying to build up the numbers. that also works under the new mifid ii rules. >> where will you build up the numbers? where is your business, because of brexit everyone is wondering if it will be focus-based? >> on the advisory side we want to build our industry sectors. a lot of hires in the second quarter have been in the u.s. there is a lot of global expertise in the u.s. london will be an important venue for us. we will try to focus a little more on continental europe and in particular, germany where we have been investing to strengthen the roots of the bank. >> what will you guess your business will look like in london? >> i guess that eurozone clients will gravitate to doing more business in the eurozone. going outside the european union, there is a modicum of risk. they don't tend to book in our

tokyo branch today. they will probably will gravitate to europe. we have to respond to the way clients react. it is difficult to do anything other than put ourselves in a position where we can do that. we really don't know. >> this is completely in the restructuring of barclays and setting up new organizational to -- new organizational sector to reflect what our regulators have asked us to do. we have barclays. below that group we have two entities, barclays u.k. which is our u.k. consumer and small business bank, and barclays international which is the diversified transatlantic consumer and wholesale bank. there is a new organizational structure. they are both supported by a service company. we have 81,000 employees. this is a new structure where we have a wholesale bank and a consumer bank, but they are separated. >> talk me through the trading side. deutsche bank's numbers

are dropping. how did you do? >> like the rest of the industry and the corporate and investment bank, trading in the markets business was quite muted. volatility was low. like most of the industry, and our market business, we had revenue loss. in the mid-20 level when you net out adjustments. manus: what is the toleration for subpar?lders >> i think we have a goal and objective to deliver across capital, that is why we are setting a target for ourselves that in 2019 we will deliver a return on equity of roughly 9%, and 10% in 2020. the corporate and investment banking have to make a significant contribution to that. we recognize the strategy of barclays is to be a diversified global financial institution where we have a profitable

consumer and small business bank. verye u.k. we have a profitable business. our u.s. business is growing about 10%. we just announced yesterday the co-brand with uber. that is a great opportunity for our u.s. car business. it is on the back of winning the mandate from american airlines last year. we will grow from a variety of sources by getting the corporate investment banks to an acceptable level and profitability is also a goal of this management. >> next year is the final year of restructuring. as you said in your introduction. we feel our strategy is working. we're focused on wealth management. to give you a number, we believe personal financial assets grew by $26 trillion in the last 10 years. 17 in emerging markets. nine in developing markets. that focus is justified in

paying off. we have wealth management and investment banks, right side investment bank, strong side. it is progressing well. so, one can never, should never be too happy. as far as we are concerned, we think in a year and a half of work we have good progress. >> talk about cost cuts. you are targeting 17 billion, what comes after that? >> we did 1.9 billion of that savings in 2016. 2.9 billion, we believe that is very competitive in the industry compared to our peers. my belief, any organization should improve productivity. a big restructuring was to reach a plateau from which we could evolve, that is apace the world economy is evolving. if you're not doing that you are falling behind.

fundamentally when you have to do a big cost reduction program it is because you have not kept pace. 2% and him.osts by -- per annum. >> i think the volatility is a sensitive issue for us around -- we are one of the leaders in the fx market. the market is clearly affecting business. in general, i would say when we talk about volatility, it is like cholesterol. there is good volatility and bad volatility. what we are missing is a bit of constructive positive volatility. we don't want destructive volatility. in that sense, you can see more

and more investors, and other forms of investments. >> do you bank on healthy volatility in 2018? is that what kicks it up the curve? >> we are prepared to manage any kind of market conditions, and it is very important for us not to go into wishful thinking about the environment. it is a very challenging environment. although, of course, we seek gdp growth, the forecast is set to be revised up again. but the geopolitical situation and the macroeconomics situation is very complex. we are entering a very challenging quarter in terms of seasonality. i think we stayed focused on executing our current strategy, and that is very important for us. nejra: we will go back to finance later in the program.

an exclusive look ahead to 2018. with ubs investment bank president, but first we some of the year with the central banks, regulation, and easing out of qe. >> as long as is necessary, we will implement the monetary policy. nejra: this is bloomberg. ♪

♪ nejra: this is "bloomberg best." i am nejra cehic. we are looking back at the year in european business and finance. let's turn our focus to monetary policy. in 2017 the ecb prepared to pare back stimulus.

gently so as not to upset markets. policymakers based delegate decisions on a host of issues. here are some of the most interesting conversations. >> the ecb started to discuss unwinding the qe program. how fast should the ecb move with this unwinding of the qe program and tightening of monetary policy? >> let me first say our monetary policy is efficient. as you mentioned, we have negative inflation. a bit more than one year ago. we expect for this year an average inflation of 1.5%. it is partly due to energy prices. also to the fact that progress of implementation of monetary

policy gives results. but we are not yet there. our target is the midterm inflation self sustained close to 2%. as long as necessary, we will implement the monetary policy. but what we have to, and what we started to do, is to adapt the intensity of monetary policy to the progress, our inflation target, and toward economic recovery in europe. if you remember, what we did last march when we reduced monetary purchases of qe from 80 to 60, and we announced one month ago that clearly we would not reduce further interest rates. in the future, this would be our decision next fall. we will go on adapting the intensity of monetary policy.

>> should the policy be tightened before we hit the target? >> what we look for is are we close enough to our target? gekko -- sustained sustained? >> is a transient, or is it for the long term? it is not yet the case, so again, we will adapt intensity, but you spoke of winding down. this is not a debate. >> should the ecb be downsizing more quickly given the state of the euro zone economy, even though inflation is below target? >> i made a decision last week. >> was it the right one? >> i think it is the right one. there having -- halfing

volume we are buying, starting with next year, for nine months. this reflects that we see that the economy is improving substantially. but we are not yet there. where we want to be. nejra: you are not yet there, but do you think there should be a more clear end date set for the stimulus? or is it better to keep that open-ended at this point? >> there have been discussions about this. there was a clear majority view that one should be flexible, which does not mean in my view that we have to go on forever. i think at some time there will be a reducing and some kind of mandate. date.n and -- an end it is too early not to have this discussion. nejra: the issue of scarcity is a big one.

do you see any risks of scarcity in the bonds you are buying? >> not really because we are buying a strong variety of bonds -- not only government bonds, also in the private sector. we look directly at this, we are aware this is something we have to be careful. but we have had this discussion many times before. i have nothing to buy in the long run. we managed to do this, and i am pretty sure at this lower volume we will be able to fulfill our tasks. matt: we had such strong growth numbers coming out. at least the core. germany had a percent gdp growth in the last quarter. and we have banks that are suffering from this low interest rate environment. isn't it time for the ecb to pull back on this extraordinary stimulus and start to normalize rates?

>> i'm standing here as the chief german bank supervisor. from a bank supervisor perspective, you are very right. we are seeing lots of damages of this low interest rate environment, but from a monetary policy point of view we have to think about other things. there are conflicting messages we have to send. i am the bank supervisor, and persistently long at interest rates are a problem. but maybe, there comes a time when monetary policy is reacting to this, and to changes in the economy because it is strong. 4.6% in the second, 4.7% in the fourth. eventually price pressures will pick up. matt: we are seeing coalition talks having difficulty here in berlin.

one of the problems is discord over sharing financial risk in the euro area. as the bank supervisor, how do you see financial integration going forward, banking union working without a european deposit insurance scheme? >> i don't see any political risk coming from germany in these negotiations. the banking union is on its way. don't forget it took us a short time for bank supervision. we were quick in installing a resolution board. we do have some harmonization. client00,000 euros per her bank. it is not that we are not harmonized, what we don't have is a deposit insurance scheme. we have a national deposit insurance scheme. we don't have the integration we would need, but eventually once we are ready, we need to harmonize policies before we go

there. look at insolvency laws for example. some european member states it takes a half a year to foreclose on a mortgage, and some it takes more than 10 years. at the end of the day, once you have this economic integration, we will also have common insurance scheme. the banking union is well on its way and making progress, and working rather well. >> what about the underlying inflation picture for next year? do you see it turning out a little stronger than you thought at the beginning of the year? >> we will see. as you know, our projections, we forecast for next year, after 1.5rates of 1.2 this year. that is the result of the first part of the year where the

effect on the price of oil and other commodities will bring down inflation in the euro area. in the spring, we may have inflation around 1%. that is statistical. inflation will resume the path where it has been right now for the year. the average of 1.2. again, in 2019, we expect another increase in inflation. , all indications, excluding a big event internationally, all indications are the recovery will continue for longer and that will put pressure on wages and prices going forward. it is a gradual process. we see it going in that

direction according to our geoff davis. -- to our objectives. ♪

♪ nejra: welcome back to this special edition of "bloomberg best," summing up 2017 with a focus on europe. let's look to the year ahead. -- imf or dix the eurozone

the imf predicts the eurozone will share and abroad global expansion. monetary policy should continue toward normalization, and european banks are bracing for new regulations known as mifid ii. francine locke was set the scene for 2018 in an exclusive interview. >> it seems we have a more organized and constructive process. that inevitably is a positive piece of news. the next step is to continue on this pace, given the banks need to make a decision by early next year on what they will do next, and having good guidance where we will land by the beginning of next year. that is quite important. >> how do we know the government will take financial services as a priority? there always seems to be a problem with timeline, that you need to make a decision earlier than you have answers to your questions. >> i think the government does take financial services seriously.

i think the timeline is often misunderstood because everybody looks at the deadline. for us to get there, the transition is long. all financial institutions will move at the same time. course will be flooded with requests or changes. for us, we need to start ruling on our process by the beginning of the year. >> are people positive about the future? >> i think financial services, you get a bit more negative. our clients in the corporate world are more positive. you are seeing growth accelerating. from 3.5% to 3.8%. let's see if momentum keeps up. next year will be more difficult. the general economic environment is constructive. for the corporate sector. >> talk about the deal last

night, how do stricter rules agreed on impact your activities? >> a lot of this was anticipated, and everybody has been preparing for it. what came out last night seems to be on the looser side. the more positive side. in general, the output floors are going to be less tighter than we expected. slightly negative for europeans, while positive for americans. the new approach to risk is again a slight negative for europeans, a positive for the americans. i think clarification is what we wanted. we got a lot of clarification, we did need to go to the details to see what it means.

having clarification in an environment where we have a long transition of implementation, it is what we asked for and got. >> talk to me about mifid. there are winners and losers. does it mean you can hire and expand? in trading, the new rules leave vacuums. >> as we look to 2018, all the things we said imply a relatively benign mifid impact. nobody really knows because it launches on the third, and we all have our scenarios. you could have a negative mifid impact which would affect dramatically the research firms. you could have a more mild one, and everybody has their best guess. we think it is going to redefine the way we approach our clients in a way that has not happened in the last two decades.

we think it will differentiate very much between leaders and followers. it will differentiate very much between the people who offer service versus and people who don't. we have been preparing for that for the last three or four years. if we are correct, we think there will be a negative impact on margins. some volatility around how this is limited. -- how this is implemented. the net positive for firms that are higher market share, better service, higher quality execution. we are trying to be in that market. nejra: that wraps up our special edition of "bloomberg best." i hope you have enjoyed these conversations. we look forward to bringing you more news analysis and , interviews in the year ahead. becky for watching.

-- thank you for watching. i am nejra cehic. this is bloomberg. ♪ . .

♪ scarlet: i am scarlet fu. this is "bloomberg etf iq." where we focus on the access, risks, and rewards offered by exchange traded funds. ♪ scarlet: the republicans' long-awaited tax cut has the dow jones etf taking in cash like it is november 2016. and bitcoin etf filings, we look at what regulators want to see. bullish on china and the internet.