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The British Prime Minister faces European leaders in Brussels today, | :00:00. | :00:18. | |
as two more credit rating agencies downgrade their outlook | :00:19. | :00:20. | |
And South Korea announces a massive $17 billion stimulus plan | :00:21. | :00:28. | |
The government says Brexit is one of the reasons why. | :00:29. | :00:40. | |
Welcome to World Business Report, I'm Sally Bundock. | :00:41. | :00:43. | |
Also in the programme: VW is expected to announce | :00:44. | :00:45. | |
a record-breaking settlement in the US, over its rigging | :00:46. | :00:48. | |
A European Union summit gets under way in Brussels in a few hours' | :00:49. | :00:59. | |
time, and the UK's decision to leave the EU is top of the agenda. | :01:00. | :01:02. | |
It comes as Britain's economic standing has suffered a fresh blow. | :01:03. | :01:05. | |
Two credit rating agencies downgrading its prospects. | :01:06. | :01:07. | |
Fitch says fears about the impact of the referendum on Britain's | :01:08. | :01:10. | |
public finances had prompted its decision. | :01:11. | :01:11. | |
Standard Poor's has also stripped Britain of its last remaining | :01:12. | :01:14. | |
Moritz Kraemer is chief ratings officer at Standard Poor's. | :01:15. | :01:30. | |
The institutional set up and the governance standards of the UK are | :01:31. | :01:38. | |
no longer of the shade that we believed before in terms of | :01:39. | :01:43. | |
predictability, stability, and effectiveness of policy-making, as | :01:44. | :01:48. | |
it is now much harder to actually foresee how would governments react | :01:49. | :01:50. | |
to certain financial stresses that it has been before. So we really | :01:51. | :01:55. | |
reassessed our view of the institutional capacity of the UK | :01:56. | :01:59. | |
government to react to financial crisis, if and when they arise. | :02:00. | :02:01. | |
Central bankers from around the world are also meeting | :02:02. | :02:03. | |
They will discuss how to deal with market volatility | :02:04. | :02:06. | |
In terms of the economy of the EU, economists are now trying to weigh | :02:07. | :02:11. | |
up how it will be affected by the UK's decision to leave. | :02:12. | :02:14. | |
Trade is one area that is vitally important. | :02:15. | :02:16. | |
Last year the UK exported $294 billion worth of goods and services | :02:17. | :02:19. | |
That is according to the UK's Office for National Statistics. | :02:20. | :02:25. | |
Over the same period it imported more than $383 billion in goods | :02:26. | :02:28. | |
That leaves a trade deficit of $89 billion, meaning | :02:29. | :02:35. | |
there is an imbalance, with the EU exporting a lot more | :02:36. | :02:38. | |
Germany could be one of the biggest losers if trade between the UK | :02:39. | :02:47. | |
Britain is the country's third-biggest export market, | :02:48. | :02:52. | |
Holger Schmieding is chief economist at Berenberg Bank, | :02:53. | :02:59. | |
Nice to see you. So first of all, give us your take on the impact | :03:00. | :03:15. | |
Brexit will have. We have mentioned Germany as a key market, sorry, the | :03:16. | :03:22. | |
UK as a key market for Germany. Just talk us through some of the impact | :03:23. | :03:27. | |
it will have. Yes, of course. Any disruption of trade with Britain | :03:28. | :03:30. | |
will have an impact on the German economy. But Germany is exporting | :03:31. | :03:35. | |
mostly good and it is highly unlikely that trade in goods such as | :03:36. | :03:40. | |
trade in cars and machines will be significantly disrupted. So the | :03:41. | :03:44. | |
impact on Germany will likely be low from that angle. What matters more | :03:45. | :03:48. | |
at the moment is the uncertainty about the future of Britain, and | :03:49. | :03:54. | |
uncertainty is simply bad for business, especially bad for | :03:55. | :03:57. | |
businesses that sell investment goods, which Germany is a great | :03:58. | :04:05. | |
exporter of that. So the uncertainty which the Brexit decision has | :04:06. | :04:08. | |
created is a bigger impact than the immediate risk of trade. A lot of | :04:09. | :04:14. | |
people are drawing conclusions about the impact on the UK economy, we | :04:15. | :04:17. | |
have heard about credit agencies as well. What are people saying about | :04:18. | :04:21. | |
the European economy, and the impact on, say, that side of the water, as | :04:22. | :04:28. | |
it were. First of all, Britain exports are much bigger share of its | :04:29. | :04:33. | |
GDP, 30%, to the EU, than vice-versa. That is, the mutual | :04:34. | :04:38. | |
dependence between the very large area of the EU and the comparatively | :04:39. | :04:42. | |
small area of written is that the impact of any disruption on the big | :04:43. | :04:48. | |
area as much, much smaller -- Britain. So if the UK now goes into | :04:49. | :04:52. | |
stagnation or recession, which is quite possible, what we would see on | :04:53. | :04:56. | |
the continent including Germany is a comparatively modest dent to growth, | :04:57. | :05:03. | |
and Germany may lose this year 0.2% of its GDP due to the uncertainty | :05:04. | :05:09. | |
created by Brexit. Regrettable, but it is not really a big problem. | :05:10. | :05:13. | |
Thank you very much indeed. Let's have a look at that meeting of | :05:14. | :05:18. | |
central bankers and economists which will be taking place later. | :05:19. | :05:20. | |
Among those attending is the former president | :05:21. | :05:22. | |
of the European Central Bank Jean-Claude Trichet. | :05:23. | :05:23. | |
He told our correspondent Theo Leggett what he made | :05:24. | :05:26. | |
Well, first of all, of course I am very sad because I was hoping that | :05:27. | :05:39. | |
you would remain with triumph, or at least win. And I think it is a | :05:40. | :05:44. | |
sentiment of all Europeans, without any exception. So it makes the | :05:45. | :05:50. | |
decision of the British people even more appalling, with the dice is | :05:51. | :05:56. | |
rolling on the integrity of the countries, not only the long-term | :05:57. | :06:00. | |
strategy of the future, it seems to be very hard to be bleak -- very | :06:01. | :06:08. | |
hard to believe. How much does it matter for the rest of Europe? What | :06:09. | :06:14. | |
are the risks? First of all it is an immense problem for the UK. It is a | :06:15. | :06:17. | |
problem for us to the extent that the UK was a member of the European | :06:18. | :06:22. | |
Union, and of course the GDP of the UK falls down, if we have a | :06:23. | :06:26. | |
recession, it is a problem for us. To imagine that the UK living could | :06:27. | :06:31. | |
create an existential problem for the EU or for the euro area, the UK | :06:32. | :06:38. | |
does not belong in the euro area, seems to me to be a vast over | :06:39. | :06:43. | |
exaggeration. What is the worst that could happen? I think that the main | :06:44. | :06:48. | |
problem would be for the European populist, quote unquote, namely | :06:49. | :06:55. | |
extreme left anti- European and extreme right anti- European, to | :06:56. | :07:02. | |
call for themselves either dismantling the present institution | :07:03. | :07:06. | |
of the European Union... I don't expect many of them to ask for | :07:07. | :07:10. | |
leaving the European Union, but at least they would call for another | :07:11. | :07:15. | |
one which would perhaps be more vocal. And I would say that in the | :07:16. | :07:21. | |
euro area I see absolutely no country in the euro area asking to | :07:22. | :07:25. | |
change something and to leave the euro area. They did not do that | :07:26. | :07:34. | |
after Lehman Brothers and after the Greek and Portuguese problem, and we | :07:35. | :07:44. | |
were 15 at the time of the collapse, and they stayed and four new | :07:45. | :07:48. | |
countries entered that area after Lehman Brothers. | :07:49. | :07:49. | |
South Korea is the first country to announce an economic | :07:50. | :07:52. | |
South Korea will propose a supplementary Budget of around | :07:53. | :07:55. | |
$8.49 billion to Parliament, as it shields itself | :07:56. | :07:57. | |
from the potential fallout from Brexit and weak growth. | :07:58. | :08:00. | |
Nice to see you, it has been a while. Interesting because the | :08:01. | :08:18. | |
markets were boosted via this news, won't they, where you are? It is | :08:19. | :08:23. | |
about calming down the markets, they are too volatile and too excited, so | :08:24. | :08:27. | |
this is a huge amount indeed that the government hopes will cushion | :08:28. | :08:30. | |
the impact from Brexit and the weak economic growth that you mention. | :08:31. | :08:34. | |
And all the money from the supplementary Budget will be coming | :08:35. | :08:37. | |
from surplus funds carried over from last year and the excess tax revenue | :08:38. | :08:42. | |
expected from the first half of the year. And the forecast is that the | :08:43. | :08:45. | |
stimulus package will boost GDP growth to about 0.2 to 0.3% in 2016. | :08:46. | :08:51. | |
Other policies include nationwide discount sales, diesel owners | :08:52. | :08:56. | |
getting incentives and consumers being -- consumers purchasing new | :08:57. | :09:03. | |
appliances, getting incentives. It is not just to calm financial | :09:04. | :09:10. | |
markets. The Chinese Premier Li Keqiang has warned he will not allow | :09:11. | :09:15. | |
rollercoaster ride in his markets. Li Keqiang, who is at the economic | :09:16. | :09:20. | |
Forum in Tianjin, says the government will sustain risks when | :09:21. | :09:26. | |
balancing its markets. The likes of India have come out with statements | :09:27. | :09:29. | |
saying they will do whatever they can to calm down these markets thank | :09:30. | :09:34. | |
you so much, very interesting. We will look at the numbers in just a | :09:35. | :09:39. | |
moment. Let me just tell you about VW, which agreed to pay $15 million | :09:40. | :09:45. | |
in settlement claim stemming from its diesel emissions scandal. It | :09:46. | :09:48. | |
will be the largest consumer class-action settlement ever in the | :09:49. | :09:51. | |
United States, but it still requires a judge's approval before it can go | :09:52. | :09:56. | |
into effect. The proposal involves the Federal Government and lawyers | :09:57. | :10:01. | |
representing the owners of around 475,000 VW vehicles, and they will | :10:02. | :10:06. | |
be compensated, the vehicle owners, as well. Let's show you financial | :10:07. | :10:09. | |
markets. Another story that has happened in Japan today: | :10:10. | :10:14. | |
Takata chief executive Shigehisa Takada has said | :10:15. | :10:16. | |
he would resign once a new regime is found for the car parts supplier, | :10:17. | :10:20. | |
finally bowing to calls to step down over a long-running recall crisis. | :10:21. | :10:23. | |
Takata is seeking a financial backer to help it bear to costs | :10:24. | :10:26. | |
of a massive global recall of potentially deadly airbags. | :10:27. | :10:28. | |
you can see Japan up quite strongly. A mixed day for markets in Asia but | :10:29. | :10:32. | |
Japan and other markets given a boost by that news from South Korea. | :10:33. | :10:35. | |
That is how things ended on Wall Street. Look at the NASDAQ, the tech | :10:36. | :10:43. | |
heavy weighted index down, and the Euro trading day. -- trading | :10:44. | :10:44. |