This is exchanges of Goldman Sachs, where we discuss development, shaping markets, industries in the global economy, I'm Jake Seaward an additional reason. This pod cast on Cuba had of corporate communication here? Goldman Sachs today will be taking a look at what is happening in Europe from the vantage point of one of its strongest operators- Germany. My yesterday's your cookies coat, CEO of Goldman Sachs in Germany and Austria, you're welcome to them thank you so were approaching. An election in Germany that some commentators have cast is low, boring specially relative to some of the recent elections in Europe. Boring election brings with it some stability, which no doubt welcome to some investors. How would you characterize the state of the jury market environment. Today, as we approach, the selection will certainly

characterisation of the election is boring, has its merits. The amount of consensus that the major parties have in Germany is very, very large, which I actually consider as something good five c the election. that we have had in France or ITALY, with some very large electoral votes going to xenophobic party anti european parties actually have to say I am quite happy living in a country where the consensus is for european integration. No one's talk about leaving the Euro zone. There is over all. A very positive welcome culture towards immigration, so in that sense having a broad consensus in those directions, I would say, is positive and it does give a lot of stability, which investors, of course find us something good given the stability and longevity of the miracle regime are Invest is looking for anything particular this election, just the coalition partner she might bring on border they expecting pretty much steady state in terms of policy in the area.

patient has towards steady state and according to the pollsters who has, we know, have been quite wrong in the past, but just believing the pulsar is, the only question is who will Merkel governed with, and it's just a question of. Does he continue the current grand coalition with the social Democrats or does she for something a bit more unconventional, namely a coalition with the free Democrats and very likely the greens. Grange Germany has the largest current account balance in the world that close to three hundred billion dollars. That's been touted domestically is a sign of strength, but some trading, partners, notably the United States, have criticised that surplus as somehow artificially boosting german industry and hurting others. Countries ability to export. What's your tea on that issue from a german perspective. First of all, of course, it's a free market and the fact that

consumers are buying german goods abroad and more corporates are buying. Machines from Germany is a positive sign to the industry that is quite competitive and President Stone from raised a lot of attention when he added an interview right after being coming elected, or he said that there is Mercedes driving on Fifth avenue, but that in parallel, he'd like to see more several. is driving around in Germany, which is probably not gonna happen, at least not an equal amount, but It is an issue in Germany that is being taken quite seriously because, of course, the benefit of large current accounts or a plus when the economy is doing well, is reflected in much deeper problems or crises when the global economy is not doing well, so Germany does tend to be there. Very sickly call- and I do think that in Germany, that is seen as something that we have to

do something about in one of the initiatives that the current coalition government had is to increase domestic demand for, ample by introducing minimum wages for the low income segment by working on a project or a series of projects to increase public investment in education and infrastructure such as roads and things that will basically boosts domain demand. Also, we have a substantial increase in activity in the housing sector going on in Germany at the moment, so that's there is a lot of attention on promoting domestic demand as well to remediate the negative impacts from being too dependent on the extremely economy one place for seeing some capital inflows is there's a lot of interest from asian buyers, particular chinese buyers in a german middle stand and some other family owned businesses. They have really been the bedrock of Germany street over the years. That is it

in other countries, occasionally but of a public debate around the wisdom letting domestic assets fall into the hands of foreign investors. Where does that debate? Stand and in our german business people in power, missions reacting to that interest by asian buyers and good german companies? There is a lot of positive attitude towards the german chinese economic relationship. Germany exports a huge cars machines into China. So in that sense I think it's just the other side of the metal that, of course, just like german companies invest in chinese companies in order to facilitate penetrating the chinese market better. I think it's quite natural that chinese companies also have an interest. expanding in Germany, so a priority. There is nothing negative about it. Of course, it's always a question of due diligence, thing every transaction and making sure that the buyer, we have long term interests

Overall, the initial negative reaction that was sometimes there in the public has moderated quite a lot on breaks it. We don't seem not much closer to any real certainty, but there's one certainty, is that Germany will take on a larger role in european markets. Once the UK is left. I be curious to hear your take first, Someone runs. Our german operations were liable to be a little bit bigger than we have in the past and then a business person who will obviously have to continue working with clouds on both sides of the english channel. Of course, the shock in Germany was very, very tangible. After the break that result came speaking with friends and clients, for the brakes and election. Everyone was shocked at the fact that a country like the United Kingdom could make such a decision. The fear, overweight. The hope, because, of course, the consensus of

pro european integration is very, very strong and losing the United Kingdom as a partner in building a deepening of Europe is a very negative hit. and so in that sense I would say, the consensus in Germany is not necessarily saying, while this is great but fantastic, because we can attract more financial industry to Frankfurt, the consensus in Germany is more. We ve lost the very important european ally whose decide to go it on their own? Fortunately, I think that the Good NEWS is that the initial fear that there would be other countries choosing the same direction hasn't materialised at all. Quite the contrary, right both not mention that with the election of Mccrone in France and produce being the election in Germany goes as the pollsters predict. Two of Europe's most advanced countries and largest economies will be led by pro european leaders. How might that impact discussions

financial market reform in the EU or hopefully positively em. If you look at european history, the biggest advances have always been made when Any and France have been on the same page of agreement and deepening and made strides forwards, whether its shape, to scour Helmut Kohl me to all, even though the leaders may have been indifferent camps, politically speaking, the fact that they agreed on the fundamental of integration and deepening of Europe. Has really been the game changer than when the big reforms are. The big steps towards deeper integration came. So in that sense, I think there is reason to be optimistic now that France has a very strong poor european leader dependent on food.

Selected, both Schulz and Merkel are a very, very pro european. The hope is very high that the deepening of the reforms will be on top of the agenda for both sides. One reform the gotta live attention before breaks it vote, at least in the financial sector. To some extent the corporate sector the prospect of a capital marketing and yet the idea being that european economies little too dependent on bank lending and that there should be more as there is. The United States more dynamic ability of finance middle get me a larger corporates through the capital markets. Where does that debate? Stand is the potential once we get the election, that was his more activity on that. It's the only solution that could resolve the earnings problems that the European Finance sector has we definitely need a deeper integration and we need more diversification of sources of funding for the corporate sector, which can actually Bennett.

The banking system and the economy were hall, and I ought to me as a whole exactly to broaden the base and, as we saw in many countries, the bank Lending Channel works well when the sun shines. But when crises come, you see the bank lending contract quite sharply, and we saw that in Spain we saw that in ITALY we saw that in Greece and many of the countries that were afflicted by the crisis and it really deepen the crisis quite substantially, the was no real alternative existing, so the concept of capital markets Union, while it's not top of the list on the poor pillar agenda in the election campaigns, neither in France or Germany, or not at all sure that excites the populace. It's not top of minds rallying the broad discussions I mean in the debate between Merkel and Schulz. The only televised debated then really come up as a topic, so in that sense you see that it's more of a topic that the experts understand and the experts

want to move forward, but neither positively nor negatively. It's really a topic that moves the broad electorate, in the regulatory environment, more broadly market makers, like all men, face a somewhat complicated regulatory regime in United States in Europe. In the wake of the financial crisis, for a lot of good reasons, as that choice, and climate civilian. Do you see any real tracks behind the effort to harmonise regulation across Europe and America that getting any traction today of ways absolutely so yes and the regulatory regimes both for banks and insurance companies with the Basel process and solvency to really has achieved the goal increasing financial stability, increasing the capitalization of banks, increasing transparency and sent trading behaviour that is more on transparent, then use, then

on over the counter venue saw. I think a lot of what was defined at the G20 summit. Two thousand nine in Pittsburgh has actually been implemented, as always with these big mouth, means. The pendulum always swings a bit further than properly intended initially and now, a lot of the things that we're dealing with our discussions with regulators about unintended consequences. For example, one of the biggest topics that I discussed with clients in the real money, acid manager, insurance industries. Has the regulation increase led to a reduction in liquidity of financial markets that could be harmful if we ever have another crisis. Let's talk about the financial sector, the banking, bring. Europe responded your difficult, thereby raising significant capital somewhat later than the United States, but there's been a lot raised there. Still, some certain about the long term trajectory of banks in the EU. These

nothing in the near medium term. That gives you a sense that were moving towards a healthier environment in the banking sector of first, of course, the interest rate I'm an overall is not necessarily favourable to bang generating earnings, as we know for many decades, Low interest rate environments are those where banks struggle the most and in Europe. Of course, we ve had almost a decade, long close zero rate environment ultra low in that sense, ultra low exactly so that does make the operating environment for banks difficult and the other aspect that is peculiar to Europe versus the. U S, of course, is the fragmentation of banks and the difficulty to really do a cross border business thanks are one of the few industries in Europe were there no real freedom of movement, for example, a bank that has more deposits, then loans in Germany

can't freely Lynn the excess cash that it has to corporates in ITALY. That would be just like a californian bank not being able to lend to corporate and Nevada, which at some point in the U S excessively state wide bank regulations existed, but there was good reason for the US to abolish them in its made the? U S, bank market, a very big uniform market, which Europe isn't. So I think european banks are still suffering from some of the inefficiencies about these. He bees contain a pre daffish approach to ass, it purchasing problem interest rates, of course, and in Germany that's got a lot of criticism for the impact tat on savers, Germany, being a big saving country. Give our in a sense of where that debate stands today and what investors in Germany in Europe expect from the easy be going forward, while, first all with all the negativism that is

prevalent in Germany about the debate around these he be. I do think there is a broad consensus that we owe a huge amount of gratitude to Mario Draghi for taking decisive moves in two thousand twelve, when truly Europe was reeling towards the brink? And if you put yourself back into the time before, Mario Draghi gave his now famous and will do whatever it takes speech had that continued, we don't know what would have happened. The consequences could have been quite dire, especially on economies in ITALY, Spain and powerful Europe. So I think point a is: he did stabilize the system in a massive way in a format that really very, very efficient, because at the end of the day his credibility was so strong that he actually didn't have to implement the measures that he knows. Markets just below.

damn right, so in that sense stage one I would say he deserves a huge amount of credit for that, of course. Now the consensus in Germany's that probably the course of the wish monetary policy in general, and the systematic purchases of government bonds in particular, has probably gone too far and very likely that hold aid will resolve itself quite clearly, not by a decision that is being made, but simply because the bonds that these beacon by will soon run out. That's a little bit about the. What a sector the industry is. Obviously one must fastening industries today when you think about the transformation of technology and how consumer preferences are changing. allow the big automakers we're just in Frankfurt and the unveiled their visions for the future in their next models. Investors seem cautious,

Where's of german car makers have been declining this year, while the benchmark Dax is up one of the reasons for that, and you think the automakers can find their way forward from here will in Goldman Sachs you they have actually declined too much, so we ve just upgraded the automotive sector, specifically some of the german automakers, because our fundamental view of the research analysed at Goldman Sachs up look at the automotive sector think that the market actually over reacted to the negative news of the issues around diesel engines. So that sense, our view is the earnings power of the german car. Make still quite substantial with earnings basin, as were seen in the context of the international automotive fear in Frank, for at the moment, they are using that profitability to invest massively into building electric. Cars and making them best in class.

All of the automakers really announced very, very aggressive plans to grow their electric car fleet in a quite substantial, I guess the question is similar to what we have here. Can the legacy automakers really invent the the future- is that going to come from Conversely, in California based car companies that are really starting afresh, I don't really know, listen trust these western. Actually, I bet you know the one of my favorites quotes from our energy commodities, analyse chief curry is, never underestimate the power of combining large pools of capital with engines tea in engineering. That was his point where he very very intelligently predicted the growth of the shale industry in the United States, and I would see the german automakers have at least the same potential to become very very credible and very good players in electric cars, because those two factors capital

engineering ingenuity really exist in Germany, so in that sense I would be optimistic that the door Carmakers actually find a way to compete in this market as well earlier this year. The firm how this second annual analysed impact fine competition and our junior employs the firm pitch are monsignor employs unmaking a donation to an innovative nonprofit. The winner this year was a team wonder base analyse, but they were added. On behalf of an organization based in Berlin, called Cairo Open, higher education. That's connecting refugees in which Germany has a lie, to the german higher education system, a big deal for Chancellor Merkel, talk about the role that journey playing how that's played out the economy and what role is Gorman playing in helping on the refugee crisis. Germany demographically, has only one hope, namely immigration. If look at the demographics of Germany, there quite unhealthy

Yonder domestic bases, so Germany, actually for many decades, has relied on immigration. To keep our demographic balance in a positive way overall, I would say the immigration that we ve had from Europe from Southern Europe from Eastern Europe from Will Europe, and now, more recently from the Middle EAST and Africa, has the potential to have a positive impact? The key question is, of course- and that is the much more challenging issue with the current number of immigrants is to educate and to integrate those immigrants into the labour. More and the education market, and the aspect that cure on has is absolutely fascinating, namely saying we bypass or increment the formal education system with I, of course, is an online methods of reaching students that Arden

not necessarily benefiting from the public sector education in one of the things which Germany's working on, but not there, it is a period of time where asylum seekers and in the administrative process of being recognised or not recognise, takes months, if not yours and whether waiting there's no reason why they hang it on a movement and let us go, you can't look exactly ass. Brilliant work has a lot of massive online courses that has the huge amount of potential globally, but specifically targeting this immigration population, for that and incremental with personal interaction, can be a huge opportune. So, looking at what role do you see for Germany, both within the EU and on the international stage? Given the recent dynamics in Europe? Will I think,

The key and the most obvious thing is to work with the major european countries, and France in particular, but also ITALY and Spain, on figuring out a smooth way to manage by exit. That is a huge, huge challenge. For the next few years and, as I said, Germany has a lot more to lose than to gain by the departure of the UK, so managing that process his challenge number one and then the next big thing and that will work in parallel as deepening of the European Union, particularly where it relates to four what's very relevant, is the whole banking system and how deeper integration of the banking system can add. Stability to the european growth process and add funding and financing and lending to the european growth process. Your thank you very much for joy today, fastening discussion. Many thanks. That concludes this sort of exchange. Goldman Sachs

We hope you join us again. Next time this spot gas was recorded on September thirteenth, two thousand. Seventy, this podcast should not be copied distributed, published or reproduced in whole or in part. The information contained in this podcast is not financial research, nor a product of Goldman Sachs, global investment research. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the

accuracy or completeness of the statements or any information contained in this podcast and any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this pot cast are not necessarily those of Goldman Sachs and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this pod cast. This recording should not be relied upon to evaluate any potential transaction. In addition, the receipt of this pod cast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too that listener, nor to constitute such person a client of any Goldman Sachs Entity.