>> silvia, can you describe how we're going to hear the decision? >> well, i sort of became a hotline to my producer in the press room where the audio is being transmitted and where also a press release is being handed out. we might get a live picture from inside the courtroom via another line where you can at least hear it in german and i will listen into it. one way or another, i'll get it either the via picture you've got or via my little audio from inside the press room, inside the court. >> certainly we'll be following back here as soon as we get those flashes on the wires. just remind people what we're basically waiting to hear about is whether there will be a temporary injunction against moving forward with the esm. this is not necessarily moving forward on itself. >> mark is with us from monument securities. as we wait, silvia is poised. there's an assumption from

investors this goes through on the nod. but actually i've read that judges don't even know what they're going to do until they get in the room and deliberate. >> we'll see what we see on that front. i think the most important thing that people need to understand is any constitutional court ruling in germany is not actually about the thing they're ruling on. it's about whether the due process of democracy in the federal republic has been observed. and so the primary concern here is what sort of stones in the road are they going to put into -- are they going say this needs to be debated again in parliament, or what other conditions are they going attach. >> strings attached. these are the judges now coming out. so we think we're about to get the judgment rule. we're going to allow silvia to listen in, if indeed we have the audio. the strings attached are going to be -- >> that seems to be the focus

this morning. >> do you suspect that will be the key? >> that is the key, but i don't think it will surprise us. >> the president of the german federal constitutional court is andreas bascul -- hopefully i'm not butchering that. no audio yet there. you can see them with the red ropes and matching hats. nice analysis this morning at the role he is playing here. ambrose pritchard writing in a sense, this court is the only functioning supreme court for all eu citizens. so to exactly to your point, even though the market expectation is for the court not to stand in the way of the esm, some this morning disputing it. >> he's clearly reading -- this is frustrating because he's clearly reading the judgment and we can't hear it. only the people in the courtroom can hear it at the moment.

so this judgment -- it's kind of interesting. we know it's happening. we don't know what it is yet. so we have our producer in the courtroom, and as soon as she understands what it is, she's going to run out to silvia, tell silvia and she will tell us. so this is the way this has to work. >> sadly, yes. but that's due process rather than sensationalism that we tend to have in modern digital media. >> i've never actually seen something without actually knowing what she saying. i wouldn't know what he's seeing anyway. >> i'm trying to see what's going on behind you. let's show viewers. i'm not trying to neck with ross here onset. it's important to watch these levels ahead of the ruling. they're up almost half a percent. what i'm actually quite curious about is if we start seeing movement there -- we've seen it drift to the upside in the last

couple minutes. but again, no sound, no word actually as to what is being said in that constitutional court right now. 7348 is the level here as we approach this ruling. >> what is ruling is this constitutional court, going back to the ambrose article, they talked about there are certain fields that must always be under german control. and it's the same rules that the english civil war was fought over, who is in procontrcontrol purse, fundamentally. >> yes. if there's going to be a federation of european states, there's going to have to be a complete new treaty. until that european treaty is put in place, this court will remain the ultimate arbitor.

and i can't see a federation treaty being put in place for a very, very long time. >> he's talking about getting a template out by 2014. i mean, getting a template out -- >> and then there's arguing about it for a very long time. >> yeah. the other thing is actually whether you need -- the european commission is now talking about -- we now have audio. let's get silvia to listen in to what he's saying. [ speaking in german ]

>> he's basically reading out at the moment what the actual complaint was about. [ speaking in german ] >> silvia is listening in. according to silvia, he's reading out the original complaint. we haven't yet got to the judgment section of this. silvia, i'm relying on you to tell us when we get to the judgment point. >> yes. at the moment, he's reading out the actual complaints. >> we'll keep an on the euro, which appears to be pointed lower in the session.

we'll keep an eye on the reaction. >> we're just getting reports that the euro is falling a little bit. but he hasn't actually said anything yet. so we'll wait. this is kind of exciting. we don't really know. the thing is for risk assets, we've been beat quite a lot going into this decision. >> i think what people need to remember in all of this is the anticipation of this ruling, the anticipation of last week's ont decision, the anticipation of fed qe, leads us to the situation where they've all got to happen. any stumbling blocks -- and even if it all goes through and we even get qe3 and the timeline, there is a risk of selling on the fact, particularly as part

of this move has been basically just absorbing the huge mountain of cash that has accumulated on the sideline along with a big unwind of all those very negative positions on the global economy and indeed on the eurozone. >> yeah. and what was also interesting s is -- nobody's talked about greece. presumably, we still can't contain -- we still don't know how that will pan through. >> certainly the omt is designed as fire wall for italy and spain. given it's not really in place in terms of are they actually applying for assistance and do they accept the conditionalities

and we don't know what the conditionalities are going to be. it seems likely. nevertheless, it's gone very quiet around greece. greece must stay in at pretty much any cost line has been largely dropped. >> and we're just playing a game here. they will keep fudging. greece will change some conditions. greece will continue to meet them. >> without a resolution that is fundamentally the name of the game. >> we're still listening. as soon as we have the ruling, silvia will come straight to us. she's listening to this ruling. >> the market reaction as we wait for detail here, ross, has been a bit sporadic. we're seeing the risk gradually come on. the german constitutional court has begun reading its verdict. silvia is listening in.

>> if they're reading to the verdict, let's listen to him and put silvia's mic up so she can react. [ speaking in german ] >> we still have to hold our breath, because what the presiding judge of the german constitutional court is still doing is he's still reading out the lengthy list of complaints with all its different paragraphs and that will take maybe another five minutes and he will still read out who is present in court from both parties, and then he will read

out the judgments. so we still have to wait, i'm afraid. >> okay. so at least five minutes away from that. mark, we've still got -- we have still got dutch elections going on as well today. we talk about the german constitutional court as the blocker here, but there are other political processes going on. >> those elections are very interesting. i think the latest polls show a very sharp swing in the party running second, away from the socialist party that has never been in government and has a very euro skeptic line. they've criticized pretty much every decision back towards the old lay boy party, which is probably more centrist than people in the uk would associate with. and it looks as though the pro-european parties are gaining ground. so the question then becomes how long will it take to forge a government. at the moment, it looks like it's going to be an attractive

process. the most important thing in terms of the netherlands is a whole lot of domestic issues. like for instance will they get the housing market going again. the netherlands has the worst ratio in all of europe with 107%. they need to turn that housing market around if they're going to turn the economy around because it's it's notably lagged a lot of its former deutsche mark former peers, and without that, there's going to be a lot of unhappiness within the dutch economy and then you get the risk of this anti-euro sentiment rising again. >> it could be several minutes, if not longer than that, before we hear the verdict. at the moment, the judge is reading out a list of complaints and those present. we'll keep an eye on that for you, of course. in the meantime, it's also been a big morning as the european commission president has been outlining plans for an

integrated banking union for all countries overseen by the ecb. julia chatterly is following this story for us from strasburg. what are you learning? >> reporter: it was a very presidential speak. he talked about kraegt a federation of nations, perhaps involving an eu treaty change. he also talked about a blueprint for a fiscal union. so it actually extends far more than we were expecting this morning than the proposals for a supervisory mechanism. he's also talking about going on from there and looking at the need for a fiscal union and a political union. and you can't separate the three. what i've seen from the memo this morning, though, as expected, wide powers for ecb. he seemed to justify the need to further increase the powers of the ecb, suggesting the problem has been they have made decision at eu summit and stepped away from them.

plenty of discussion to have on. this i'll be back later on. >> thank you so much for following that this morning. as we await the final verdict from the constitutional court, let's check in on markets, ross. >> yeah. we are a little bit mixed. we are still going through the process here, waiting for the verdict on the esm fiscal pact. let's bring silvia up so she can listen. [ speaking in german ] >> they threw the injunction out.

[ speaking in german ] >> reporter: some strings attached to it. they have thrown out the temporary injunction. but they are putting some strings attached it to. they say the esm -- germany's esm participation will basically be restricted to whatever germany has signed up for now. ly have to see the judgment in paper because they're reading out paragraphs now. >> right. what we're getting is it does not exceed $190 billion without the aprooul proval of the lower parliament. they must assure the liability does not exceed the $190 billion euros without approval of the

lower house of parliament. the euro has risen slightly after this verdict. your immediate reaction, mark? >> i think that conditionality is an important one. it tells us why the ecb has gone down the omt route. without actually passing an increase in germany's contribution to the esm, there was no possibility of it being increased. because if germany's not going to increase its contribution, no one else is. >> that caps it around the 400 billion mark. >> exactly. on that basis, someone else is going to have to step up. we've all identified the fact that the sum would never, ever be large enough to rescue either or both of italy and spain, and on that basis, of course, someone else needed to step up to the plate and i'm sure that part of this ruling was already nodded towards merkel. >> we're seeing a bit of profit

taking. the euro is slightly weeker. if you look at the xetra dax, now flipping into into the red. we are seeing a bit of a retrenchment across the board. silvia is looking through it. we do have the text. the ibex 35 up half a percent. must ensure german liability does not exceed 190 billion euros without government approval. let's get to silvia, who's been looking at the ruling. silvia? >> reporter: yes. basically, what i've said in bad translation, refuse the applications for the issue of a temporary injunctions with a proviso that the esm treaty may

only be ratified if at the same time it is ensured under international law that first, the limitations of liability set under article, sentence 1 of the esm treaty, it's the amount of payment obligations arising to the federal republic of germany from the tree toy the chair. basically what we said before, no increase in the capital that the german government is signing up for. that's the 190 billion liability they would be signing up for. and the interesting one is in the addendum to the ruling, you know that this was only the ruling of the temporary injunction. they say extend and review admissibility of the main action. this is what this is really about. the court took almost three months to decide on a temporary injunction, which is kind of a joke in itself. they say we can't just throw out a temporary injunction on something that is so important because we have a main case here. we have to judge as well whether

this esm in essence is in breach for the german constitution. here they're saying diverging from the usual extent of review, the senate did not restrict its review in the present temporary injunction proceedings to a mere weighing of the consequences of its decision. instead, it performed a summary review of the acts of assent of the accompanying laws under the aspect of whether the violations of their rights, which the applicants admissible can indeed be established. a summary review of the legal position was required because with the ratification of the treaties, the federal republic of germany will enter commitments under national law with consolation, would not be easily possible in the event that violations of the constitution should be established in the principle proceedings. if a summary review on the temporary injunction proceedings were to establish a high probability that it is indeed the alleged violation of the

precept of democracy, which article 79 paragraph 3 of the basic law lays down, the identity of the constitution, a serious detriment to the common good would result in the temporary injunction not being issued. in other words, what we see now is pretty much a prejudice of the main case. the court, that's my interpretation of it here, judged here today that the esm is not very likely to be in violation of the german constitution, hence they can throw out the temporary injunction now and look at the main case later, because they already think that we'll not have to stop the esm in the main complaint. >> mark? >> yes, i mean, basically they don't want to put too many stones in the road. but if anyone wants to make any adjustments, we're going to have to go through a very laborious process.

so basically we're maintaining the status quo. nothing is being undone. but the political process in europe is front and central all around, whether you're looking at the omt, which which is really now dependent on political decision because of its conditionalities. >> silvia, what we've done here is approve what's in place, but frankly if we need to go any further down the road, we're going to be back in this process again. basically said we can do what we've currently planned, but any more than that, we're going to be right back here, yes? >> reporter: well, as a bottom line, i think that's what the constitutional court said in all the rulings it had before. that's what angela merkel has done in essence over the past few months or so. whenever a decision is being made in brussels, she has to go back to the german parliament and let the parliament approve it or disprove it.

the complaints that parliament had is that we get informed too late, we don't get informed to the right extent that we should be informed and we don't have enough time to actually weigh the consequences. last time around, i think they had to pass something like a hundred little laws in one afternoon. it was like a law legislative marathon and many said we didn't even know what we were signing up for. so i think that's one of the complaints. it will certainly keep tying any german government down more and more to the parliamentary process. and the constitutional court is drawing one line in the sand after the other. but by the same token, they obviously find it very difficult to stop legislation that has been passed by both houses of parliament with essentially a constitution changing majority. we have not only 2/3 majority, we have three quarter majority with some of the legislation that has then been thrown back.

from a mere legal point of view, they have problems with throwing something like that out. also they do weigh the consequences of what that means to germany's international position inside the eu and as we are proceeding further down this road to more europe. but one thing is quite clear, i think the german finance minister said this many times before, we're getting to the point where we're so much reaching the boundaries of our respective constitutions that we have to talk about constitutional changes, proper constitutional changes and not changes through the back door and that might actually spell referendum. >> okay. yeah. let's bring you back to the market reaction. on those points that silvia was making about fundamentally they've already decided on the secondary point, the amendments, we've got euro dollar up at a session high.

the ibex is doing very well at the moment there. the banks are up. the banks are responding. and spanish bond yields not doing too badly as well. we've seen the ten-year continue to fall a little bit on the extended news. >> and i'd like to quickly pose this question to mark, which is that there are two things people are focusing on right now. one is the market reaction, which is increasingly turned risk-on in the last couple of minutes. the other is this issue of this $190 billion string attached to the ruling. how significant is this? does it limit at all in your view the ecb's fire power here? >> no. the ecb's fire power is not really con citizen getingent on this. it does limit the other part of the ecb's plan, which is to have

the esm in the primary markets. >> that's what i meant to refer to. >> to some extent it will limit that without a doubt. you can always weight these things. spanish government can issue debt to its banks, which are being rescued by the esm. so really it ends up putting the ecb on the hook for a lot of peripheral financing, assuming the italian spanish governments accept the conditionalities attached to its program, which i don't think it's necessarily something that someone should assume without a lot of arguments going on and thus a lot of market volatility. >> i suppose the key thing is if the esm is limited to 500 billion, the esm, is the ecb only going to go as far in buying as the esm is allowed to go? >> not really, no. when you look at the terms of the omt, there's no

preconditions. on the other hand, that doesn't mean there's not going to be any post conditions. >> what you're saying is all the heavy lifting, basically we know what's capped on one side, the ecb is going to have to pick up a much bigger amount of slack. >> more than likely, yes. >> mark, you're going to stick around. that's where we are. right now the constitutional court has said they can go ahead. that was a fascinating process and i think you coped admirably, silvia. >> we'll be right back. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today

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germany can ratify the esm, but only under certain conditions. >> jose manuel baroso unveils an ambitious plan, adding it is time to put an end to peace meal

responses to the crisis. >> the last four years, we have made bold decisions to tackle this cry sisms -- crisis. >> and hype and speculation of the new iphone hits fever pitch. we're just hours away from apple taking the raps for its latest and greatest smart phone, apparently. the german constitutional courts approve the esm. we have one of the great conundrums, uk unemployment. the jobless claim is forecast to be flat. the three months to july unemployment contracted by 7,000. the rate 8.1%. the rate was supposed -- >> look at sterling.

the details of this report are all above expectations. average early earnings at 1.9 versus 1.8%. >> this is one of the -- here we are in a double dip recession in the uk, and the unemployment picture is the complete polar opposite. mark, which of the unemployment data, which continues to improve, and the gtp numbers, which one do you think is more reflective of the state of the british economy? >> i think gdp numbers are somewhat closer. i think the real point here is of course people look at the surface unemployment numbers, particularly the fls numbers, and say employment is increasing. but a lot of the increase in employment is actually in part-time jobs and self-employment. the actual full-time permanent jobs pace of increase is not bad for where we are, but it's not as good, and we still got a chronic youth unemployment problem at 23%. so you really have to bore down

into the details here. i think there may also be some disto distortions from the olympics. >> the details of the report for the most part are a little bit firmer than people were expecting. >> which begs the question, james, you compare the employment ratios with gdp, it's just strange things going on with companies and productivity. >> and the other thing to bear in mind is unfortunately work force data is lagging, so it's telling you what things were like. the gdp is telling you what things are like. leading indicators are pointing even further downwards again. so we are bumbling on the bottom really i think at best in this environment, and vulnerable to anything that comes on. >> any more on that point? any more from the bank in november? >> i think the case is becoming

weaker simply because the bank is really depending ever more on the fls. >> mark, good to have you on. thanks very much for steering us through. we have a lot about banking coming up. pretty much near the session eye. we have pulled back a little bit from those highs. it was down two tenths just before that decision. >> with the exception of equities, almost coming full circle before the rulings. ibex is stronger. ten-year yields are falling. so to some degree, applause here from the periphery. the gilt is firmer as well this morning, 1.81% there.

>> and the dollar, nearly up to 129. we're up to those high levels. the other one to point out is with sterling, at 161.114 this morning. a little bit weak across the board. >> the german constitutional court ruling is just one piece of the union today. jose manuel barroso is also outlining plans for an integrated banking union for all eurozone countries that would be seen. take a listen. >> the single supervisory mechanism will create -- and the proper banking authority which will restore confidence in the supervision of the banks in your area. it will be a supervision for all banks. supervision must be able to look everywhere, because systemic

leaks can be anywhere. of course, which th is a system that fully engages the national supervisors. >> julia chatterly is following the story for us. she joins us from strasburg. were there any big surprises in his remarks? >> reporter: no, i don't think there was. he did mention the idea of getting a blueprint for fiscal union, political unions. so i do think not unsurprising, but it is quite early for him to be talking about that, particularly when we're talking about the supervision of eurozone banks. countries like germany suggesting that they don't want all the 6,000 eurozone banks. so perhaps not surprising, but a little early perhaps. but the details that i've seen, it is pretty much as expected and we have had several leaks over the last few days as we heard there, all the banks will be included. germany is going to have to say something about that accountability of the ecb. this is going to be one of the key questions. how do you separate monetary

policy and the role there with the accountability that is needed on a political basis for that supervision. they're going to have to report to the european parliament and to the eurogroup to give that level of accountability. they're going to be very important because they represent the 27 european union countries and not just the eurozone countries. so it's how those two things work together that's going to make the european banking authority very important indeed. they also mentioned proposals for a deposit guarantee scheme and for a bank resolution mechanism. these are what bring us closer to the fiscal union site, so there aren't details that aren't just referring to the banking union, but i think what's ultimately clear is there's going to be plenty of discussion in the european union and how this place out. >> thanks very much. i'd like to put this issue now to our guest, james ferguson, head of strategy at westhouse

securities. how quickly do you expect the proposals to move forward and what are the implications going to be for european banks? >> i think at the moment, the pace is really pretty fast for a european situation. maybe that informs us as to how panicky they are in the background. but we're getting several developments coming through quite fast at the moment. the important thing is to look how far behind this we are. we've got the combined monetary policy, but we haven't got the combined fiscal policy. that didn't seem to be a problem at first, but now we have to have genuine fiscal transfers. the germans are effectively ratified in its decision. the germans are effectively saying we'll send you money, but you must behave in return for this money. we must have -- >> even the germans don't seem happy about not retaining some

sovereignty over their banks, especially the regional banks. >> as far as the germans are concerned, they're the pay masters here. they don't want anyone lecturing them about their banking issues. they know so. their smaller banks don't stand up to close scrutiny. they really preferred the suggestion that maybe the smaller banks weren't going to be included in this brief and now they are. >> but this is a proposal, right? it's got to be agreed by the heads of state as anything that comes out of the european commission. the question is when you get into negotiations, what falls by the wayside? >> yes. at the moment, i think most of the countries of the european union are lined up against germany. even france is probably on the other side of the fence. so everybody basically agrees with each other that yes, we should agree that germany pays. >> practically speak, then, because we're facing so many different things coming down the pike for banks, including basel 3 at the end of the year. they're trading quite cheaply. how does all of this together

change your fundamental investing view on the sector? >> i would argue they're not trading cheaply. they're trading cheaply compared to a book that isn't true, and isn't a true reflection of the condition of their balance sheet. so that's really the issue that we've got here. everything that we know about what has happened so far in this banking crisis was that the banks basically extended themselves too far. their loan book got too big compared to their deposits. too big compared to their capital. which is where they've had sovereignty issues. as far as the european banks, i thought it was interesting listening to barroso saying we've done huge things. they've done very, very little. they haven't shrunk their books at all. their cumulative loss realization is barely above normal levels. compared to america, which has done massive amounts, compared to us where we've done significant amounts, continental europe has done nothing.

>> are these zombie banks? >> when the eba itself did a stress that's last summer, it found dexia to be the tenth strongest bank out of nine banks. i think that tells you what you need to know. >> mark was making an interesting point earlier about let's assume now we get some program going for spain. we get esm. we know what it's going to be limited here. all works out providing things don't get worse. and so can things still get a lot worse from the banking? >> this is really the problem with europe, and the big difference with europe and the way they've made policy decision and what we saw in the anglo saxon communities. there were people that could take proactive decision. they tended to be coincidence because they weren't aware of what was happening. they thought it was a liquidity crisis. in the european case, basically

all they can do is be reactive. even if they're reacting quite quickly, they're reacting to stuff that's already happened. what we really need to worry about is what's yet to happen. and the condition of european banks is uniformly precarious. there is no obvious strong area in europe at all. >> at all? >> at all. not germany, not france, not italy, not spain. there isn't an obvious strong banking area among the majors. even some of the noneurozone countries, like the scandinavian countries are in the same spot. there's nothing strong we can use to lynch pin or anchor this to. >> stick around. let's remind you what has happened in the last half-hour here. germany's constitutional court has announced it will let the government ratify the pact. any increase in exposure to the bailout fund will need parliamentary approval. the court has thrown out complaints against the esm and the fiscal pact saying they are largely unfounded. it's also ruled that the esm

must be approved by both houses of parliament. that's rejecting a confidentiality clause in the treaty. the euro/dollar hit the session highs. just below 1.29 level. >> we're almost back at 1.29, 1.30 levels on the euro with everything that's happened. >> there's also a very odd dollar component to that. and it's also -- we've got to get more qe. we'll take a short break. still to come, japan's latest machinery orders coming better than expected. it doesn't act up to very much. more on that and we'll talk about the uk bank sector as well. at merrill lynch, we understand the importance of your goals.

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welcome back to the program. are you looking for a job with good prospects, lots of travel and a flashy office in the heart of city of london? why not apply to be the governor for the bank of england. an ad for job will be opinion lushed in "the economist." the successful candidate will have to face a grilling, never give interviews to the press and

tell whoever is running the country to get their house in order from time to time. that at least has been on the docket of marvin king lately. also advertised in "the economist" was positions for the olympics. keep an eye on those listings. they often tell you who's moving around. in any case, that has prompted us to ask this morning what should disqualify someone from being a central bank governor? what should immediately disqualify someone from that assignment? get involved in the conversation. let us know. you can tweet us or reach us directly. ross? we continue our focus on banks, this time in the uk. the british parliamentary commission is hearing its first public evidence. prime minister david cameron announced the inquiry in july. findings are due to be reported this december. becky is outside the houses of parliament. remind us what this inquiry is supposed to be establishing. >> reporter: it's not an inquiry, it's a parliamentary

commission on banking standards, came in the back of a series of banking crises and scandals. the commission was called just before the summer recess for parliament. over the summer, they've been taken written submissions in advance of the first public hearing, which is today. it's just started, waiting for the first expert witness to start speaking. it's sir david walker up today. interestingly enough, she the new chairman at barclays, right at the center of this scandal. but actually he's speaking today in a different capacity. back in 2009, he came out with a report on corporate governance in banking, so that's one of the key piece of evidence, because we are looking very closely over the next few weeks amongst this commission at the standards around banking, the culture around banking. early this morning, i spoke to one mp who's a liberal democrat who's one of the members of this

committee and also on the treasury select committee to get his views on what this commission is trying to achieve. here's what he said. >> how do you get banking in the high street that people trust that is giving good mortgages to people at good rates, how do you get them serving smes? we've sort of lost touch with all that. that to me is absolutely fundamental. in that, we're going to be reviewing the governance structures, whether the ring fence is sufficient. all of these issues. but the absolute core issue is bankers are meant to help service commerce, not be a barrier that gets in the way. >> reporter: so this commission will be looking at regulation and potential policy changes around uk banking. they'll report back with proposed legislation, coming into christmas. december 18th is when they're expected to report. lots more evidence expected to be reported. >> thank you so much. james ferguson is still with us. there's so much going on with the uk. what is interesting is we're trying to -- the uk is setting

up its own regulations, whether we're heading into direct conflict with the what the eu might be proposing because they're going to rip up the eba and have extended powers over uk banks, whether we're heading for a collision here. >> if europe's problem is that everyone has the same policy but all have different fiscal policies, different tax rates, we've got the same issue potentially brug here with banking.ewing here with banking. if they have to be bailed out by the taxpayers, which tax pay sne ers? maybe we should make the decision whether that's necessary or not. we're starting to get to real nitty-gritty problems in europe. that people are make decisions on behalf of other people. the person paying is not the one making the decision and this is likely to lead to more fractious developments more than more unity. >> yeah, which is, you know, which is where the politics are going to be. and this is the problem for

investors. this is politics, politics, politics. it's actually got nothing to do with trying to sit down and do some fundamental analysis of where the bank sheet is. this must be making life very difficult for investors. >> i think there's sort of a technical overlay on the market, which is where the traders are responding in a knee jerk fashion to different bits of news and usually the news, if they interpret it as being more help from the state, they take that as being positive, whereas i think investors are sitting back saying is this really the case? for example, is it a given that more health in the state is positive? the regulators messed up on the banks pre-crisis. the state hasn't really done much apart from that. qe is the only think where investors think that is a definite positive. >> yields continue to go lower in italy. spanish ten-years are down 1.56%. there's a direct correlation

between those yields and those banks. >> when the ecb made their decision a week or so ago about the unlimited amount of potentially short dated bonds, we immediately saw a sharp jump in the price of spanish and italian bonds. we also saw a drop in the value of short-dated bonds. whether we're going to normalize rates and pull them together. but that means that the strong yields have to go up just as much as the weak yields come down. >> james, always good to see you. thank you for joining us. following the german constitutional court's ruling this morning, still looking at detail as a result of that. dow jones reporting the german court will rule on an injunction against ecb bond purchases in its ruling later. this ruling was for a temporary injunction on the esm to move forward. the next ruling is expected in december. the german constitutional court is to give its final verdict on

the legality of both the esm and the fiscal pact in december. a ruling on the injunction against ecb bond purchases is also in that main ruling later. folks, it's not over yet. nevertheless, the tenure in spain is moving higher. 5.6%. italy's ten-year did touch just below 5%, a six-month low. and the cost of protection against a fault cbs swaps, and those countries moving tighter in by about 15 basis points. we'll keep an eye on that italian yield as it continues to flirt with that 5% level. ross? meanwhile, voting is under way in the dutch general election. we'll be live from the hague tomorrow to bring the latest developments. mark was previewing that one earlier for us. in japan, it has shown some science of strength in capital spending. up 4.6% from june, much higher than expected. japanese manufacturers have been putting off big purchases, given the slowdown in demand for

exports. the data may take a built of pressure off policymakers. shares for oki electric have short circuited. a scandal has led to loss of nearly 400 million dollars. sales were lower than reported. the president of the union is being dismissed and the company is considering further charges. let's get more on the japanese activities market. ben, thanks for joining us. slightly better data today. much reaction or not to that? >> it was a positive surprise. i think we were expecting like 2% for these machine orders and they came in above that. i think the issue with what's driving japan actually is the same as what's driving global equity part,s across the board. i think specifically for this number, you know how it's going to relate to the stocks, we saw

it had a great domination at the nikkei, but it's not this one positive data point that's going to turn the ship around in japan. >> and of course, it's interesting when we do see positive data, it tends to support the yen, but i like the point you're making, which is that fundamentally when you look at the electronics sector in japan, this isn't a strong yen issue. it's really a product issue. >> yeah. obviously the yen is basically a production cost, and a pricing issue, but the issue if it's pricing, the real problem is not that these products are expensive to buy from offshore. it's that these products are not in demand. japan has been developed in the play station, nintendo that sort of thing, throughout the 90s. but now the real technology that's in demand is obviously principally from apple and samsung. it's not so much that these are expensive to buy, it's that

nobody wants to pay a premium. they're pretty much commodititizing the entire product range they have. >> what does that mean? what's the implication then for these companies? the equities are already -- they have sold off quite a bit. where do they go from here? are there any names in particular that investors should be cautious of? >> yes, yeah, certainly. i think from a long-term point of view, should be cautious about all of them. sony, sharp, canon. take your pick. anything that produces consumer electronics and competing in terms of production costs against those companies, either manufacturing in china or in asia at much lower rates and much better exchange rates, but also the likes of apple. so the longer term -- we're not saying these things are going to go to zero immediately, but certainly they need to be much smaller companies than they are now. they've got too much capacity and simply not enough demand. they don't have any edge in

terms of products. if you look at the way the market is pricing all of us in, i think we'll continue to do so. >> sorry, ben, i don't mean to cut you off there. we appreciate your time this morning. ben collett is ahead of japan exwities for louis capital markets. bernie lowell will be joining us live shortly and he'll be talking with the former china central bank advisor. you don't want to miss that. >> just a reminder what is on the agenda tomorrow. the reserve bank in new zealand will announce its policy decision first. indonesia and the central philippines banks also announce their statements later in the day. coming up as well, investors in apple just a few more hours to wait for the tech giant to unveil its latest giant. the showcase at 1900 ct in san francisco will be for the

much-anticipated iphone 5. all waiting for 5. >> waiting for 5. take a quick look at the various expectations and rumors as to what we might see in this device, starting on the right there for maybe a bigger four-inch screen. on the left, an important point. verizon employees forbidden from vacations at the end of the month. you can read into that what you will. in the meantime, we're also taking a look at apple shares. >> i'm kpieexcited about the nine-pin connecter. >> see you back in just a few moments. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race.

no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners. ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today ♪ la la la la la la la [ male announcer ] dow solutions help millions of people by helping to make gluten free bread that doesn't taste gluten free. together, the elements of science and the human element can solve anything. solutionism. the new optimism.

welcome to "worldwide exchange." germany can ratify the esm under certain conditions. >> jose manuel barroso unveils an ambitious plan, adding that it's time to put an end to piecemeal responses to the crisis. >> despite all these efforts, our responses have not yet convinced citizens, markets, or our international partners.

>> speculation over the new iphone hits a fever pitch. we are just hours away from apple taking the wraps off its latest and maybe greatest smart phone. a former central chinese bank advisor is calling for lower rates. we'll be speaking with li daokui live from the economic forum. you're watching "worldwide exchange," bringing you business news from around the globe. we now the dow jones industrial average yesterday was at 2007 highs. take a look today, poised to add to those gains as germany has stood clear of allowing germany to rule on the esm and the fiscal pack moving forward. the nasdaq and s&p also poised to rally here this morning. keying off the attitude that we're now seeing in markets across the globe.

the ftse global 300. we're now up 5033. now decidedly higher. the ftse 100 is adding three tenths of a percent. the ibex 35 now one and a quarter per cent over that 8,000 level. >> and seeing yields go lower as well. let's show you where we stand. surprised to see bunt futures taken down. here we go. just below 5.6%, but they are lower on the session. ten year yields did nudge briefly below the 5% level, but we are closing the spreads, of course, with germany. we're targeting below 400 basis points. all important, of course. hard despite the fact that we did see employment data come in stronger than expected.

another fall in the claimant camp. as opposed today that to remain flat. as far as your dollar is concerned, nearly up to 129 this morning where we have continued the rally going into the constitutional court. aussie dollar -- the u.s. dollar has been weaker across the board. sterling dollar has been up at four-month highs. all this in reaction to germany's constitutional court announcing it will let the government ratify the esm pact, although it has set conditions namely that any increase in exposure to the bailout fund will need parliamentary approval. that exposure is capped at $190 billion euroros. silvia joins us from there. your assessment? >> reporter: well, one could broadly say as expected.

there was a slight tendency towards the court will throw out the injunction but will attach some strings to the esm going forward and that's what happened. they threw out the injunction and they said okay, the string attached to it is you have to inform the parliament at every corner and this $190 billion is essentially the lid on it. in a broader sense, they also gave us a sort of idea of where they're going to head with the main complaint because we know this is only the temporary injunction. what's still on the table are a wholestring of main complaints against the esm, arguing the esm is in breach with the german constitution and what the presiding judge here said that probably the esm is not in breach with the german constitution. they took a closer look at this. that's why they had enough reason to throw out the injunction today in. the main courts, they still have to judge. they also will look -- when they

look at the main complaints -- the complaint that has been thrown on the table for temporary injunction by one of the euro bailout opponents, who said what the judges also have to look at is indeed whether the latest omt program of the ecb changes the whole scenario and is in breach with the constitution or is illegal. they will look at that in the main course. but they've thrown out the temporary injunction on that one. at the moment, i think relief for the markets, but it's only one stop further on the road. >> all right, silvia. thanks for that. joining us for more is chief international economist at img. just get your reaction to this. slowly, the plan, each little step, we're getting over it. we're getting kind of what we thought we were going to get. does that continue? >> well, hopefully it continues. there's a lot of things to happen over the next couple of

months and this is one of the things that could have derailed us at a very early stage. i think entirely appropriate that market should respond with a small sigh of relief, but no more than that. a lot of other things to whack us off course as we move towards the end of the year. >> that may be the case. but are those things largely priced in at this point and does it matter? just to come back to the euro for a second, a dollar 30 here, if we punch through, it will be very interesting the see what that means for some of the more struggling economies in the eurozone. >> yeah, it's funny, isn't it? because you're getting to get some good news and the market response is exactly the opposite of what most of the eurozone really needs, which is a weaker currency. we can talk about the esm ruling and banking supervision and common deposit insurance and all this stuff. in the end, it's growth that the eurozone is lacking and very few of these things really touch on that at all.

>> we have just had an auction out here of tea bills for italy. the average yield .7% is lower again from the may auction as well. had 1.69. it was 2.7% on august 13th. at the moment, we don't have any concerns at the moment about funding. and so we're enabling the processes to continue. so what will make things worse again? >> well, we've got -- today i think we've got the dutch election. that's probably going to go okay. doesn't look as if we're going to get a particularly more euro skeptical parliament there. but we've got obviously the trick is yet to decide on more bailout money for greece. got to come out with his next plan, his vision for a genuine economic union. it's always possible that causes

germany to start frothing at the mouth again. a number of things along the way that can trip us up here. but good news today. >> all right. i'm joined by you in new york. i know it's a bit early for you. but it's nice to talk to you. >> is that where i am? >> i don't know, you tell me. in new york, yeah. >> rob sticks around for a little bit more. waiting continues to be a hot topic. the vice president has not been seen publicly for over a week, fueling speculation of a leadership power struggle. yesterday, a foreign ministry spokesman said beijing had nothing to add on the subject. jinping has skipped several meetings. there's only one man really for

this, that's the evergreen bernie lowe. great to see you. is your back okay, bernie? you're here, so i guess your back's feeling all right. >> i'm okay, i'm okay. a lot of people have my back here. i don't think who has jinping's back. you're absolutely right. that question has been raised a lot here. not because there's anything wrong with people having a back injury or health issue or something like that, but the deafening silence on the part of the chinese foreign ministry or really the pushback. they were asked by one questioner at a regular briefing and the question was a little tongue-in-cheek. they were saying is jinping still alive. and the spokesperson said i hope you have a serious question to ask me next. anyway, so the mystery really does go on. other mist rysteries abound.

a lot of questions over can china, will china meet its growth projects. premier one said don't test our resolve. we've got 160 billion u.s. dollars in budget surplus already this year. we can do it. we can spend our way to stimulate the economy. so chinese economics, the eurozone crisis, very big concerns here. but one man making waves here is a former advisor to the people's bank of china, and now an academic, and also director for the center of china and the world economy. the doctor says that the budget deficit situation is actually worse in america if you add in the unfunded social security, medicare, medicaid obligations and it would be actually worse than europe. you made a lot of waves with that. how do you reckon? >> i don't think this is a very controversial statement. i think it's an already known

fact among our academics, the analysts of the american and european economies, the public finance situation in the u.s. is actually worse than europe. and to me, the worst part is that in europe, the leaders are cornered. they have no alternatives but doing reforms. however, in the u.s. at least for the past 100 years, zero reforms in the area of public finance. i do hope the next president will pick up the issue and do it right away. otherwise the whole world economy will suffer. >> the health care system, medicaid, medicare, the public entitlement system, the government finance medical initiatives, those are top issues in the election. they are talking about it. they are debating it. they are presenting their cases. you could argue -- i mean, they are doing something about it. the math doesn't work that way. they don't necessarily bag unfunded social security pension liabilities and government health into the same bag. i mean, the math is done a little bit differently in the

united states, you having done a ph.d. at harvard. they are taking care of the problem, aren't they? they are in the process? >> well, they are talking about it. i don't think they are doing any meaningful things, because in the u.s. political system, you really have to have the president, the white house, and the congress working together. and currently, the two parties are not even talking the same language oftentimes. so i do hope whatever the outcome of the presidential election in the u.s., the two parties, the administration and the parliament, the congress should work together. >> yeah, their philosophies are farther apart than ever. it's two different americas. what are you saying then? you're saying with the prospect of still a possible qe3, that a serious debasement of the dollar devaluation -- almost like a deliberate devaluation of the dollar is going to enter the conversation here? is that what you're alluding to? >> no. what i'm saying is the u.s. financial crisis is a monumental, historical event. the consequence of this can only be dealt with through a

fundamental reform, simply printing money can only delay the problem. cannot solve the problem. so my biggest worry, actually, is that when the europeans are done with the reforms, the world's international -- the world's financial sector will focus their attention upon the u.s. members, and the numbers are not as pretty as the europeans. >> what is the fix then in america? what is the reform? what are items click, click, click one, two, three in order of priority? >> i really think one way or the other, the americans have to make hard decision. either have to increase tackization, one way or the other, by introducing new taxes or they have to cut substantially their entitlement expenditure. one way or the other. >> you see you're talking about two different things. the democratic camp, the obama administration would be for raising revenues through taxes, but cutting entitlements is something that's sort of the domain, the province of the romney and ryan ticket.

basically you need a third party. >> as an outsider, i don't care about which direction. you have to choose one direction. the worst part is standing still, doing nothing. that's the worst part. >> let's get back to china briefly. i think that premier one, he was very strong and delivered the message very resolutely to the foreign audience when he said we're going to meet the target. don't waste time thinking about this. we are resolute about it. you actually think that china can do better than the premier. you think he's actually understating what the year end vigor is going to be. >> sure. for the time being, the chinese economy actually is pretty good. the picture is pretty good, right? but the issue is not about this year's growth. not even next year's growth rate. can easily check up to over 8%, even 9%. the real issue is for the coming

decade, for the leaders, will the chinese economy be able to continuously grow like it has been for the past 30 years? for me, critical year, the coming three to five years, from the reforms, have to be done, fundamental and tough choices have to be made. >> it's been a pleasure. thanks for all your time. do you know where jinping is? >> as much information as you have. >> you want to go hunting after this? we're ready to wrap here. let's go take a good look for him. >> back to you in jolly old england. >> thank you very much. the hunt for ji. we will leave that for you. great interview. i could listen to dr. li quite a bit more. >> i felt like he talked as much talking about u.s. fiscal policy as china's, pointing to the challenges that both of them face. >> former pbac advisor talking

about u.s. economic and political policy. that's what "worldwide exchange" is, folks. >> that's right. that's what it's all about. that's the world we live in today. 4:00 a.m. is the new 7:00 a.m. in the u.s. it does seem, though, as if you're in the u.s. trying to follow these world events, you have to be up so early to be on top of the news flow. let's see actually the impact that the german constitutional court ruling has had. as we thoed break here, the dow jones industrial average is poised to add about 40 points this morning, just despite being at multi-year highs. the nasdaq and s&p also in the green this morning. we'll be right back. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad

we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners.

you are watching "worldwide exchange." these are your headlines. germany's highest court says they can ratify the esm but under certain conditions. >> barroso unveils an ambitious plan. and hype and speculation over the new iphone is hitting a fever pitch. first, though, this important news to bring you this morning. the u.s. ambassador to libya and three other embassy staff were killed in a rocket attack on

tuesday in the libyan city of benghazi, this according to a libyan official reported by reuters. it was not clear if the ambassador was in his car or the libyan consulate when the attack occurred. the libyan ambassador and three staff members were killed when gunmen fired rockets at them. this is what a top official in benghazi has told reuters this morning, the u.s. ambassador to libya and three other embassy staff killed tuesday in a rocket attack. meanwhile, the fed begins a two-day meeting today with a decision expected thursday, 12:30 p.m. eastern in. the wake of last week's disappointing u.s. jobs report, speculation has grown the fed might announce qe3 at this meeting. will include 2015 for the first time. ben bernanke will hold a news conference at 2:15 p.m. on thursday. you can see that right here on

cnbc. meanwhile, still with us is the chief international economist at ing who has gone to new york, but is keeping european hours just for us. thanks for that. so your view, rob what is going to happen and how close a call is it? >> i don't think it's that close a call, actually. i think the jobs numbers pretty much sealed this. when we look at the minutes of the previous fomc meeting, they gave a very strong indication that if we didn't see a substantial and sustainable improvement, then some further monetary accommodation will be likely pretty soon, i think to paraphrase what they said. well, we haven't seen that. the jobs numbers are the key thing. that's what the fed really cares about right now. it isn't like the last time and they're trying to prevent deflation from taking control. it's just this total dissatisfaction with the rate of growth, the progress of the u.s. economy. so something substantive military easing is necessary. might not be qe3. could be cuts to the interest

and excess reserves. might announce something like a version of the bank of england's funding for lending. so i think everybody thinks a frontrunner is qe, but they could do a week on that. the other important thing is whether they change the forward guidance. you mentioned the 2015 forecasts. do they push it back even further? >> do they do that? >> i don't see why not. i obviously think i should be running the federal reserve, but if it were me, i would probably broaden the assets i'd be looking at. treasury yields are so low. and are they really bogging down the other market yields that you really want to try to address and get the stimulus through to the economy. the real problem now is actually whatever they do, what impact is it going to have? going a little bit more directly to the economy. >> that's certainly the case they'll want to make. easier to go over the public that way versus financing the

deficit. rob, thanks for your thoughts on that this morning. the fed begins that two-day meeting, we'll hear from them tomorrow. coming up next, the european commission's plans for a banking union are revealed. how are they going down with investors? we'll discuss that next. ♪ [ male announcer ] how could a luminous protein in jellyfish, impact life expectancy in the u.s., real estate in hong kong,

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uk parliamentary commission into banking standards is hearing its first public evidence today. the newly appointed chairman has been speak. he's come out with a few comments already this morning. it needs to be much more challenging broader environment. says the culture and conduct must take priority. this has been set up in the wake of the libor issues. >> it drives me a little bit crazy to read that. that's fine, but we're fundamentally talking about profit making institutions. either they're profit making institutions or they're not. it's frankly their sort of role. their existence is to make a profit. >> that's the question about banks. also banks serve a social purpose. >> right, but -- >> there is a wider systemic social purpose. >> but they have to decide which

is their priority. >> here's the point, right? banks, traditionally, were the enablers of profit for others, and then they decided that they were becoming the profit story themselves. >> yes and no. yes, but at the same time, if they are not profitable, they cannot -- >> not being profitable, though. they sit in society. they sit at the heart of a fully functioning society. if there's something wrong with them, society has a problem. >> they have to make money or they can't continue to exist. we need to continue this discussion in the program. the european commission president jose manuel barroso has outlined a plan for all eurozone countries overseen by the ecb. this happened earlier today. take a listen to what he had to say. >> the single supervisory mechanism proposed today will

create the reinforced -- the proper -- which will restore confidence in the supervision of the banks in your area. it will be a supervision for all area banks. >> julia, i noticed you didn't say anything there about whether banks should exist for profit or social good. what did barroso have to say? >> reporter: well, his speech was far more broad than just the idea of a banking union and this supervisory mechanism within that. he talked about the need for a federation of nations. he also talked about more power rather than less. these aren't new themes, but he did mention the fact that there tends to be a lack of follow-through from the eu summits and that's certainly been a case in point, perhaps using that to argue the need for a proactive force like the ecb and what we've seen in the last few days. and what we did get in the details of this supervisory force is a massive transfer of power to the ecb in terms of their overview of the banking

sector. so we have to look at now what they can do. they can buy unlimited bonds. they control monetary policy. they also control fiscal policy to some extent. and now it's set to supervise the banks, too. so this is going to be one of the key questions going forward, the rise and the rise of the ecb and just how they are held accountable. plenty of discussion to go, not just within the eurozone nations, but also more broadly with the entire eu 27 countries. next key date, not that i want to wish our lives away, october 18th and 19th, the eu's leader summit at that point for more discussion. >> julia's been tirelessly following this story for us. thanks very much. here's a quick question now to rob. you're in new york. what's the significance in your view of the bank union proposal that you've heard this morning and of the european union moving forward with it? >> well, i think the banking supervision proposal was really one of those boxes that had to be taped, because ultimately, i

think what they really want to get at is a common banking deposit insurance scheme. without the banking supervision angle to that, i don't think they were going to get the buy-up of important countries like germany. it's sort of interesting, because maybe it starts to break some of the link between government sovereign debt problems and the bank sector as well. on the one hand, you've got the ecb coming in with their own program to try and get yields down. oern on the other hand, you've got moves through the supervision which hopefully prevents banking runs, so it's all going in the right direction. >> that explains the market reaction we're seeing this morning. rob joining us from 30 rock. >> he's got a full day ahead of him. still to come, apple is bearing more fruit. but will its latest gadget be as sweet as many hope? 5 is nearly with us. plus, what will mark

zuckerberg have to say about facebook's share price? we'll have that when we come back. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today ♪ la la la la la la la [ male announcer ] dow solutions

help millions of people by helping to make gluten free bread that doesn't taste gluten free. together, the elements of science and the human element can solve anything. solutionism. the new optimism.

welcome back to "worldwide exchange." i'm kelly evans. >> and i'm ross westgate. here are your headlines from around the world. >> germany can ratify the fiscal pact but under certain conditions. the constitutional court throws out complaints against the

eurozone's plan. >> jose manuel barroso unveils an ambitious plan for all eurozone banks under ecb rule. he's added it's time to put an end to piecemeal responses for the cry sisms. >> over the last four years, we have made bold decisions to tackle the systemic crisis. but despite all these efforts, our responses have not yet convinced citizens, markets, or our international partners. >> hype and speculation over the new iphone hitting a fever pitch. we are just hours away from apple taking the wraps off its latest smart phone. you're watching "worldwide exchange," bringing you business news from around the globe. investors and apple fan boys have a few more hours to wait for the tech giant to unveil its

latest gadget. here's a recap of all of the rumors that we've seen, even of what some analysts are expecting from the new iphone. predictions include a larger screen, a four-inch screen, faster connectivity via the lte network. improved camera and importantly battery life. let's take a quick look at the innovation of apple's launches over the last decade or so. it's affected share prices straight up. as you can see back here, even during the financial crisis, apple continued to launch new devices. i believe the original -- what was the original? the ipod was launched in 2001 during the recession. remember back to the ipad launch in january 2010, apple shares

traded low originally. it's something to keep in mind. it's also important to keep in mind just what kind of a run-up we've seen here. there are some who say hedge fund performance is basically having more to do with how well apple has performed than with generating any alpha themselves. in any case, as we look at the backdrop for this launch, joining us now is the principal red team global. what do they need to show today in order to keep a floor under shares and not disappoint the market? >> well, in the short term, i think probably there will be likely a pullback just because there's not much that apple can do that hasn't been rumored that will probably be delivered. but i think the important thing here is whether or not apple will deliver the kind of monster upside in terms of subsequent uptake that will exceed expectations. >> what sort of -- what is the expectations for uptake then? just remind us.

>> well, there's been a variety of different estimates, but the street seems to be expecting somewhere between five to six million to be the estimate of first weekend sales, and probably something around ten to 12 million for the first quarter, which would be to the end of september. and there's a good chance that they'll probably be able to achieve that. >> what's fascinating, to take a step back here, is to look at the impact that these sales are going to have. so mike just mentioned ten to 12 million in the first quarter. if we take, say, eight million in the fourth quarter, we're talking about a gdp boost. a boost that will literally show up in gdp. mike, how many iphones might apple sell? because we've heard some speculation from suppliers, perhaps, that the pace of orders hasn't been quite as significant as people were expecting. >> yeah, that's possible. a couple of the launches have

had similar hiccups in terms of supply chain. but as for the gdp contribution, i think that's really just math. at this point, the market in the u.s. -- i wouldn't say getting saturated, but certainly getting fairly broadly penetrated for smart phones. so for some extent, for gdp to go up, it would have to be a net gain. in this case, when apple wins, somebody else tends to lose. >> you wouldn't get that gdp gain if it was incremental to what they were already going to spend. >> right. and also, people will probably forego -- i mean, in a rare case, it will probably be food. but in most case, it's probably other discretionary items for the iphone, which considering the wireless fees is a fairly major investment, particularly in this economy over the next several years. >> what happens to prices of the older products? are they going to come out with a bigger discount? >> no, actually, apple is

surprisingly -- and i would say actually astoundingly, for a hardware company, still many years after the initial iphone launch, preserving its economics, which means its margins. they get about 600 or so u.s. dollars for each phone sold and that still seems to be preserved. they don't seem to have pressure pressure necessary to have to discount. they will probably discount oilder models but those are late into the production cycle. so to some extent, that will still contribute a healthy margin to apple's bottom line. >> mike, very, very briefly, are there other things going to come out that can still give stock a lift? >> well, i think china is probably one of the biggest catalysts, china mobile, which has yet to come, and it's a huge carry. we have a new ipad supposedly on the wings of the smaller one to compete with amazon and into that category.

and of course, overall growth of the iphone 5. there's been predictions that they'll sell something like 200 million units of iphones over the next year. >> mike, thanks a lot. mike joining us from toronto. >> 200 million. that's a lot of devices. and you and i still don't have one. two of the few people left in the world, it seems sometimes. still to come on the program, we'll head back out to germany. we're going to get more reaction as the country's constitutional court has given the go-ahead -- at least implied go-ahead for the esm. stick around. bob...

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you're watching "worldwide exchange." >> welcome back to the program. are you looking for a new job? how about one with good proce prospects and lots of travel in london? why not apply for the governor of the bank of england? the successful candidate will have to face grillings by the uk treasury select committee, never give interviews to the press and tell whoever is running the kun troy get their house in order from time to time. they're taking applications, folks. maybe it's time for ross to send his in. >> well, yeah. i think we should just do that. i think one of us should apply. you could apply for the job. we'll see what the process is

like, right? >> and then we can let viewers know how it all pans out. >> maybe that's the plan only here on "worldwide exchange." plenty of reaction to germany's constitutional court announcing it will let the government ratify the ecm, with set conditions. namely that it will need parliamentary approval. we're hearing from the eu's junket. it will take place october 8th and up and running, as planned, on january 1st on 2013. eurodollar today. we're now above 129. you can see how we've rallied since the ecb in the middle of august. now getting back towards a 130 target after trading so long between that sort of 118 to 1.22 level. the euro/dollar is being lifted. yields continuing to fall down this morning. bund is a little bit high. we're closing the spread as well. we had a good auction today as

well, 12-month tea bills from italy. we saw yields down on that auction for the lowest since march earlier this year. so spanish yields 5.6. an italian tenure did dip just below the 5% level earlier, but certainly squeezing the gap in between two. that's where we stand in terms of reaction. let's get a recap outside that constitutional court. silvia joins us for more. investors seem to be fairly pleased about it. what's your assessment? >> governors of the bank of england telling governments -- maybe i should apply for the job. back on a more serious note. there is a sort of sigh of relief. i think one can fairly say in retrospect that it was widely expected that we indeed saw the constitutional court throwing out the injunction, and adding some strings attached to how far

the german government can go down the road. but first of all, relief that yes, it can go ahead. the devil is so often in the details. the strings attached to it, that's no peanut, so to speak. we have to wait and see how far carved in stone this $190 billion for the german -- essentially for the german share of the esm liabilities is beginning to be. but if it is, then it could turn into a problem, because if tomorrow or the day after, spain and/or italy applying for some bailout protection, then of course, they drop out of the -- essentially out of the liability cake and the german share goes up. at that stage, already, the esm would be hamstringed and god knows what happens to the program then. so it remains interesting. but today, i think relief is the buzz word of the moment. >> yeah.

absolutely. silvia, for now, thanks. that's a good job outside the constitutional court. looks like apple all white building. >> we're going to need a dictionary to help viewers with all these acronyms. >> my favorite tweet, another brick in the wall. let's hope it's not in berlin. >> oh gosh. >> i like that. >> indeed. you're watching "worldwide exchange," folks. these are your headlines. germany's highest court says the government can ratify the esn and the fiscal pact. but under certain conditions. barroso unveils an ambitious plan. >> and hype and speculation over the iphone. new iphone hitting a fever pitch.

it's not just apple we're focusing on today. facebook as well. mark zuckerburg spoke at length about the social networking job at his first major public appearance. julia was in the audience for the frank discussion and has filed this report from san francisco. >> facebook shares as much as 4.5% higher. a conversation with michael arrington. the stack down nearly half since may, zuckerberg said he didn't care about the company's investors. >> the stock has lost roughly half its value since then. >> just get right into it. [ laughter ] >> is it awkward? if you could have done anything differently with hindsight, would you have? >> well, i mean, the performance

of the stock has obviously been disappointing. >> zuckerberg discussed the company's missteps, saying that his biggest mistake was facebook's mobile interface, saying it should have built its android and apple ios apps as native code. but now he says it's a major opportunity, one that facebook has just started to capital iesz on. >> literally, six months ago we didn't run a single ad on mobile. so i think it's easy for a lot of folks talking about the stuff that we're doing to really underestimate how good, how fundamentally good mobile is for us. that's one of the main things -- it's the first time that i've spoken since the ipo publicly. it's one of the main things that is misunderstood right now. >> one thing facebook won't be getting into is the phone business. zuckerberg dismissed several times the rumor of a facebook phone. one potential business he did discuss getting into was search, saying that facebook already

hosts a billion queries every single day. from tech crunch in san francisco, ross and kelly back over to you. >> julie there with the first public comments that we've heard from mark zuckerberg. ahead of the u.s. open, european shocks are up. the ibex has the best performance, up a percent. >> similar story for u.s. futures, which have moved higher this morning. dow jones industrial average is implied to add about 50 points, taking fair value into account. the nasdaq adding 15. 2007 levels still potentially going to see an open to the higher today. but let's take look at what's on the agenda today in the u.s. could it derail that positive mood? they're expected to rise 1.5%.

the usda releases its latest crop report. that's also at 8:30. at 10:00, july wholesale trade is out. inventories are expected to rise .4%. speculation is growing the fed might announce qe3 at this meeting. it will also publish its latest economic forecast at 2:00 p.m., which include 2015 for the first time. ben bernanke will be hosting a news conference thursday on cnbc. dow now at its highest level since december of 2007. global optimism is feeling the rise. let's put this to john langenfeld, he's here in london,

onset with us. welcome. >> good morning. >> we've seen a significant number of event risks cited as the reason for low volume in the market. we're now starting to check some of these box. in your view, are we moving past some of the key risk factor here with this german constitutional court ruling? do you expect that to support equity performance? >> still too early to tell. the market is reflecting that the economy has a better outlook, but the economy has slowed over the last three months globally. you look at most of the major pmis out there, they are at or below 50, signaling a contracti contraction. there's still some risk out there. >> what's your year end price target? >> we don't have year end price targets on the s&p, but my sense is if we can get some certainty out there in terms of policy, in terms of tax and give corporations the ability and a confidence to make decisions on investments and hiring, that is what's really going to free up the economy to move higher. >> certainly over here, jon,

it's been really tough for investors. trade is great for investors because everything's been about politics rather than being able to look at a company's earnings. what is going to happen with earnings as we go into third quarter? >> you know, ironically -- or maybe not so, in the baird universe, we had our second largest cut in estimates across our universe of coverage here over the last ten years, second only to 2008. we had almost 40% of our company's estimates come under downward earnings estimates revisions in july. that's pretty significant. the question is has that set the barlow enou low enough. >> are we missing this giant train wreck in front of us? are we all being far too senguin? >> the policy is going to work its way up. not only in the u.s., but in

europe and abroad. >> so just to go back to the point you were making about earnings estimates -- >> yeah. it was a pretty broad range of reductions. over 40% of our companies saw earnings estimate reductions. >> what i'm saying is what does that now mean for what's coming up, and valuations? >> yeah, absolutely. i think it reflects a slowdown we saw in the summer. i think that's a mid cycle slowdown. as long as we get the fundamental underpinnings of growth over the next six months, we should be in pretty good shape from that perspective. >> do estimates still have room to fall in 2013? >> i think they to. they'll come back to some of these policy tax decisions. >> jon langenfeld, thank you so much. >> we've got our european guests in new york and our new york guests are here in london. >> "worldwide exchange." >> that's the way it goes. that's it for today's program. continue all the countdown to the action state side with "squawk box." from kelly and me -- >> have a great day and we'll see you back here tomorrow. >> cheers.

germany's highest court green lights the participation this the bailout fund. mark zuckerberg makes his first public comments since the company's ipo. apple is expected to unveil its latest iphone today. bestill my beating heart. it's wednesday and "squawk box" begins right now. good morning, everybody. welcome to "squawk box" here on