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00:00QUANTITATIVE EASING. HOW WOULD YOU DESCRIBE, FIRST OF ALL, OVER, SYSTEMIC RISK IN EUROPE. WE ARE SEEING GROWTH, IT IS NOT BAD BUT THERE ARE RISKS REMAINING. FRANCESCO: ON THE ECONOMIC SIDE, THINGS ARE OK. THEY ARE NOT EXCITING THAT THEY ARE OK. I THINK GROWTH IS CONSOLIDATING. AND EVENTUALLY THE FORECAST OF THE ECB THAT THEY WILL GET BACK MAYBE CLOSE TO THEIR 2% TARGET. THEY SAID THAT MANY TIMES AND IT DID NOT COME. FROM AN ECONOMIC POINT OF VIEW, THINGS ARE QUITE OK. IN THE U.S., THEY ARE GOOD. AND UNEMPLOYMENT IS A BIT LOWER, GETTING CLOSER TO THEIR 2%. I THINK ON THE ECONOMIC FRONT, THINGS ARE MOVING IN THE RIGHT DIRECTION. AND, POLITICAL SIDE, I SEE A DIFFERENCE BETWEEN EUROPE AND THE UNITED STATES. FRANINCE: MEANING THAT WE HAVE APPOINTED SOMETHING THE MARKETS WERE NOT HAVE LIKE IN FRANCE, AND, THEREFORE YOU FEEL BETTER ABOUT THE POLITICAL SITUATION IN EUROPE? FRANCESCO: I THINK IF YOU HAVE TWO POINTS, YOU CAN DROP A LINE. IF YOU HAVE THREE OP YOU CAN START RUNNI -- IF YOU HAVE THREE POINTS YOU CAN START RUNNING A REGRESSION. WE HAVE AUSTRIA, THE OLD AUSTRIA, NOT THE NEW AUSTRIA. THE NETHERLANDS AND YOU HAVE FRIENDS. -- FRANCE. AND THIS SHOWS THAT THIS POPULIST ANTI-EUROPE IS A GROWING THREAT. THIS IS IMPORTANT. AND, OF COURSE, NOW THERE IS ITALY AND THERE IS AUSTRIA. SO, WE'RE NOT OUT OF THE WOODS BUT THE DISTRIBUTION OF EVENTS HAS BECOME MUCH MORE FAVORABLE. FRANCINE: YOU WORRY THAT THE EUROPEAN CENTRAL BANK BECAUSE THEY ARE SEEING STRONG GROWTH FUNDAMENTALS WILL START ACTUALLY WEANING DOWN Q.E. TOOS SOON, AND THAT WE SOMETHING UGLY EMERGING OUT OF ITALY, FOR EXAMPLE. FRANCESCO: I DO NOT FEAR THAT. I EXPECT THAT. I THINK MAYBE IN THE AUTUMN OF 2017, THEY WILL SAY THAT THEY WILL LINE DOWN THE Q.E., WHICH WOULD ALSO MEET THEIR OPERATIONAL CONSTRAINTS BECAUSE THEY MANAGED TO DO THAT BUT WE KNOW THEY CANNOT GO ON FOR VERY LONG. SO, I WOULD NOT BE SURPRISED IF IN THE FIRST HALF 2018, THEY WOULD COMPLETE THE TAPERING. THEN THEY WOULD USE THE SECOND HALF OF 2018 TO MOVE AWAY FROM NEGATIVE RATES. FRANCINE: WHAT DO YOU SEE IS THE ECB'S BIGGEST CHALLENGE? DO YOU EXPECT MORE INTEGRATION OF YOUR BECAUSE PRESIDENT MACRON IS ELECTED. HE WANTS TO DO THINGS ON THE DEFICIT TO GET FRANCE MORE LEEWAY. BUT THAT IS WHAT FRANCE WILL HOLLANDE TRY TO DO IN 2012. FRANCESCO: I THINK THINGS COULD LOOK DIFFERENT AFTER SEPTEMBER, AFTER THE GERMAN ELECTION. I THINK THERE IS GROWTH FOR A GAIN BETWEEN FRANCE AND GERMANY THAT WOULD HELP THE EURO ZONE AND MAYBE INDIRECTLY COULD ALSO HELP ITALY. I THINK THERE ARE TWO LEVELS, THE GRAND BARGAIN AND THE SMALL BARGAIN. THE GRAND BARGAIN IS UNLIKELY, BUT WOULD HAVE A BIG IMPACT. FRANCINE: WHAT DO YOU WATCH, THE DEFICITS? FRANCESCO: TALKING ABOUT REALLY BIG THINGS. AND TALKING ABOUT FRANCE OFFERING THE -- TO GERMANY OR MAYBE SHARING ITS UNITED NATIONS SECURITY COUNCIL SEAT WITH GERMANY AND HAVING SOMETHING IN RETURN ON THE IMMIGRA ECONOMIC SIDE. A RETURN OF THE KOHL-MITTERAND AGREEMENT. THAT IS UNLIKELY. THEN WE HAVE THE SMALL BARGAIN. SO, FRANCE DOES THING ON ITS ECONOMY. THE GERMANS CONCEDE SOMETHING ON INVESTMENT, ON FLEXIBILITY. AND THIS IS MUCH MORE LIKELY. BUT WOULD HAVE MUCH LESS OF AN IMPACT. FRANCINE: WE ARE VERY BUSY ON "SURVEILLANCE." PHONES RINGING. MR. PAPADIA, WHAT DO YOU WORRY ABOUT ITALY THE MOST? I KNOW THE BANKS OF BEING TAKEEN CARE OF. FRANCESCO: UNLIKE THE SITUATION PREVAILING IN FRANCE BEFORE THE ELECTIONS, IT IS NOT EASY TO FIGURE OUT A POSITIVE DEVELOPMENT IN ITALY AFTER THE ELECTIONS. BASICALLY, THERE ARE THREE SECTORS THAT HAVE THE SAME SUPPORT I NTHE ELECTORATE. AND IT'S DIFFICULT TO SEE THAT ANYTHING STABLE AND EFFECTIVE WILL COME OUT OF THAT. ON THE OTHER HAND, I DO NOT SEE VERY DRAMATIC EVENTS. ITAL-EXIT, TO ME, IS A LOW PROBABILITY. BECAUSE WHEN IT ONLY WILL BE CONFRONTED WITH THE CONSEQUENCES, SOMETHING WILL BE DONE IN ORDER TO AVOID IT. AND MAYBE THAT WOULD BE THE TROI TROICKA COMING TO ITALY. FRANCINE: IF YOU GO BACK TO THE LIRA, THAT IS DEVALUED AND YOUR EXPORTS BECOME VERY CHEAP. FRANCESCO: THIS WOULD BE OUR A REPEAT OF ITALY BEFORE EUROPE. YOU LOSE COMPETITIVENESS AND REGAIN AND THE MOMENT BIKE EVALUATION. BUT THAT IS NOT THE WAY TO RUN A

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Brugel's Papadia Sees ECB Completing Taper in 2018

Francesco Papadia, non-resident fellow at Brugel and former director general for market operations at the European Central Bank, offers his economic view of the Euro-area and expectations for the winding down of quantitative easing by the ECB. He speaks with Bloomberg's Francine Lacqua on "Bloomberg Surveillance." (Source: Bloomberg)

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