Wilbur Ross — “The Angry Voters in America and Europe: How they influenced the political scene and the implications for the corporate world” (28 June 2016 ).

Introduction.

Wilbur Ross is the incoming United States Secretary of Commerce in the Trump Administration. He made the above speech in Cyprus (jointly organised by the Harvard Club of Cyprus and Bank of Cyprus).

There’s a video on Youtube of the speech and a rather haphazard phonetic transcript there. As I could not find the full text anywhere, I took that transcript and worked my way through, correcting obvious mistakes. Occasionally, the tape froze and, where necessary, I put in an educated guess as to what Mr Ross said. The main points he made about Brexit, the future of the EU and Russia were all quite clear though.

The speech was featured in the news at the end of December, mainly concerning his comments regarding Brexit, for example where he said,

“I recommend that Cyprus should adopt, and immediately announce, even more liberal financial service policies than it already has so that it can try to take advantage of the inevitable relocations that will occur during this period of confusion otherwise just Ireland and Frankfurt will likely be the main beneficiaries.”

As can be seen, Mr Ross was just suggesting as to how Cyprus should take advantage of Brexit. In his view, the financial service relocations from the UK are inevitable and therefore Cyprus should take advantage of it. Just normal, friendly business advice on how to make money if a competitor shoots itself in the foot as far as I’m concerned.

Another of his comments regarding the outcome of Brexit was what he said regarding Russia.

“The UK strongly supported sanctions against Russia. They will likely fall away and Mr Putin may very well initiate political or even military activity to take advantage of the disorder.”

Unfortunately, this didn’t come up for discussion later. It would be interesting if anyone else in the Trump administration held this view and what contingency plans they have.

He also went on to say about the future of the EU -

“If any other country does decide to leave the EU the whole structure would likely collapse and so would many economies. Because the stakes are so high, the EU cannot afford to give the UK a quick easy landing…”

This year we have elections in France, Germany and the Netherlands. The leadership of the EU will not want the strong far right eurosceptic movements there (Front National, AfD and Freedom Party) to make gains. They may well agree with Mr Ross that the very existence of the EU is at stake, especially given the views of President Trump (see below). These are very good reasons why the UK can forget about a Soft Brexit — pour encourager les autres.

As for President Trump’s views on the EU, Nato and sanctions against Russia, he’s already stated his some of his views in his interview in the Times-

What is your view on the future of the European Union? Do you expect more countries to leave the European Union?

I think people want, people want their own identity, so if you ask me, others, I believe others will leave.

What is better for the United States — a strong European Union or stronger nation states?

Personally, I don’t think it matters much for the United States. I never thought it mattered. Look, the EU was formed, partially, to beat the United States on trade, OK? So, I don’t really care whether it’s separate or together, to me it doesn’t matter.

Can you understand why eastern Europeans fear Putin and Russia?

Sure. Oh sure, I know that. I mean, I understand what’s going on, I said a long time ago — that Nato had problems. Number one it was obsolete, because it was, you know, designed many, many years ago. Number two — the countries aren’t paying what they’re supposed to pay. I took such heat, when I said Nato was obsolete. It’s obsolete because it wasn’t taking care of terror. I took a lot of heat for two days. And then they started saying Trump is right — and now — it was on the front page of The Wall Street Journal, they have a whole division devoted now to terror, which is good.

And the other thing is the countries aren’t paying their fair share so we’re supposed to protect countries but a lot of these countries aren’t paying what they’re supposed to be paying, which I think is very unfair to the United States. With that being said, Nato is very important to me.

Do you support European sanctions against Russia?

Well, I think you know — people have to get together and people have to do what they have to do in terms of being fair. OK? They have sanctions on Russia — let’s see if we can make some good deals with Russia. For one thing, I think nuclear weapons should be way down and reduced very substantially, that’s part of it. But you do have sanctions and Russia’s hurting very badly right now because of sanctions, but I think something can happen that a lot of people are gonna benefit.

So there we have it — President Trump doesn’t “really care” whether the EU is “separate or together”. As he believes the EU was ‘formed, partially, to beat the United States on trade’, I’d be more inclined to think that he would rather it were separate as that would be beneficial to the US.

As for President Putin and the EU, as we saw above, Wilbur Ross’s view was that Brexit could lead to a dropping of sanctions against Russia and that this could encourage President Putin to “initiate political or even military activity to take advantage of the disorder”. Not only that but if another country left the EU, he believed that “the whole structure would likely collapse and so would many economies”. I think it’s fair to say that if Mr Ross believes Brexit might encourage President Putin to flex his political and military muscles, then he would probably think the collapse of the EU might encourage him more. Meanwhile, his boss, President Trump, sees the EU, primarily, as a competitor to the US and doesn’t rally care about it’s future. As for the concerns of the Eastern Europeans fearing Russia, he is more concerned about them “not paying their fair share” into an “obsolete” Nato. To me, it seems, President Trump is primarily concerned with doing “some good deals with Russia” (“ nuclear weapons should be way down and reduced very substantially”) rather than reassuring his Nato allies. Of course, no-one will complain about a reduction of nuclear weapons but countries bordering Russia may be wondering at what cost.

So, what’s the point of me spending time transcribing Wilbur Ross’s speech and writing all this?

Wilbur Ross was relaxed and in a relaxed environment when he spoke at the Harvard Club of Cyprus. He gave his honest views about the possible future of the EU post-Brexit. It didn’t look like a very optimistic one to me with the political, economic and security chaos foretold.

Therefore, my main motivation is trying to show how at least one member of the Trump Administration sees how the future may unfold in a post-Brexit Europe. How this view, allied with President Trump’s own eurosceptic, “obsolete” Nato opinions and doing “some good deals with Russia” will, more than likely, not be beneficial for the political, economic and military security of the EU. The latter, especially, for countries in Eastern Europe.

My view is that the best way to stop this uncertainty is to stop Brexit. I have no problem with Article 50 being invoked to see what kind of Brexit deal may be on offer. However, this should only be done on condition that the UK can, unilaterally, revoke it if there is a bad deal. For reasons outlined above (and elsewhere) we should not pretend that the UK will get anything else than a Hard Brexit offered by EU27. They have very good reasons (security, political and economic stability) to make sure the EU survives. It is still not too late.

This conclusion though, is one more of hope than expectation.

John Rogan (January 2017)

(I cut out the introductions and thanks at the end. Anyone wishing to see and hear them, I refer them to the video. When Mr Ross made references to various reports, I’ve put in a link if they were easily found. Some were not however.)

Wilbur Ross: “Oh thank you for that very nice introduction. It’s great [tape pauses] this President, government ministers, good friends and, hopefully, clients of Bank of Cyprus. I’m delighted to have a chance to talk with you today, having had our partying in London interrupted by Brexit, I feel quite up to date to talk on the topic.

I must also confess that Pablo bribed me to come here with a wonderful dinner at his home last night and a couple cases of his extraordinary wine. So it’s not totally a non-profit activity today.

Standards of living almost everywhere in the world are near all-time highs but so is anger about inequality, immigration, terrorism and big government. Extremist candidates in the EU, Brexit, Donald Trump and Bernie Sanders are the responses.

Brexit will be the most expensive and probably the most bitter divorce case in the history of the world. The EU may lose £7.7 billion of revenue that it gets net from the UK. Six per cent of its total budget. Hopefully they won’t ask Cyprus for too big a share of the difference. Also the status of the three million migrants from the EU to the United Kingdom is also at risk and eurosceptics also want referenda in several member states.

The UK strongly supported sanctions against Russia. They will likely fall away and Mr Putin may very well initiate political or even military activity to take advantage of the disorder.

The EU’s 8.3 billion trade surplus with the UK also may be at risk [1]. Forty-five per cent of UK’s exports go to the EU and its main economic mainstay, eighty-seven per cent of the economy, namely financial and other services may lose their automatic passport to the EU.

Financial services themselves are 8% of UK’s gross value added, 3.4% of its jobs and £21 billion of its taxes. The residency of the 1.2 million UK citizens living in the EU may be at risk.

Scotland made defect to the EU. Strangely, this might actually save the UK £8.6 billion [tape stops] per capita £1600 more state aid than the English. [Where the tape stops, I’d guess he’s saying something like “Scotland, per capita, gets £1600 more state aid..”]

Northern Ireland may merge into the Republic of Ireland and leave the UK. Spain may finally take over Gibraltar.

The UK probably will have to negotiate trade and other treaties with many, many countries around the world. Foreign direct investment in the UK, almost $30 billion dollars per year, comes mainly from the EU and from the United States and that too will be at risk. So is London’s status as the world leader in foreign exchange trading and many other financial services.

At the same time, UK’s major political parties are both in disarray. The Conservative Prime Minister Cameron has resigned and the Labour Party will likely oust their leader Mr Corbyn. All kinds of petitions are circulating around in the UK including a novel one for London to secede from the UK and become a kind of Singapore off the coast of Europe.

All of this is likely to cause a recession and continue to weaken the pound.

I recommend that Cyprus should adopt, and immediately announce, even more liberal financial service policies than it already has so that it can try to take advantage of the inevitable relocations that will occur during this period of confusion otherwise just Ireland and Frankfurt will likely be the main beneficiaries.

The biggest problem for everyone will be at least two years of uncertainty. Once the UK Parliament triggers European Union Article 50. That provides that the exit details must be approved by at least 20 countries and those 20 countries must represent at least sixty-five per cent of the total population of the EU. If that doesn’t happen all of the UK’s treaties with the EU will be automatically voided. During the interim however, the UK will remain bound by all of the EU rules and regulations including those on immigration.

This is probably going to cause a further influx of migrants wanting to beat the deadline. So those who thought it would be an immediate end to migration I think are going to be shocked to see that it does the reverse.

But my guess however is that this two-year period will tend to paralyze business decisions because business can cope with prosperity, business can cope with adversity but it’s very, very hard for business to cope with uncertainty.

So I think the paralysis of business decisions will be the single most threatening part to both the EU economy and the UK economy. But my guess is that the worst of the currency and equity market plunges is probably behind us but there’ll be continued volatility as news flashes develop. There’ll be gains there’ll be disappointments, there will be rumours, there’ll be political initiatives on one side or another. So there’ll be no end of news items to influence market patterns.

The very likely EU recession and UK recession will not be a huge problem for the US but they will slow it down somewhat and they’ll also have a slight negative effect on the economic growth of the world outside those countries.

If any other country does decide to leave the EU the whole structure would likely collapse and so would many economies. Because the stakes are so high, the EU cannot afford to give the UK a quick easy landing and a major near term test will be whether the German regulators approved the pending merger between the London Stock Exchange and the Deutsche Boerse and whether the French continue to block refugees from using Calais to enter the UK.

The US has however a big geopolitical risk because the UK has been the major US ally both in the Mideast and relative to Russia.

Turning to the US [tapes stops “the Welfare System(?)”] is causing serious stresses, particularly between working class and non-working people. Since President Johnson’s Great Society began some decades ago, more than 300 agencies and programs have been created by the federal government to deal with the indigent

None of those has ever been analysed for a cost-benefit effectiveness but almost all of them have been expanded and now a record 37 plus per cent of working-age people in America neither have a job nor want one. Adding in those who are involuntarily unemployed, more than forty per cent of the working age population depends on government programs for their livelihood.

Eighty per cent of those who lack a high school degree have dropped out of the workforce and so have one eighth of the college graduates. Since the US spends only one eighth as high per cent of GDP on adult training as other OECD countries, these people are trapped and there’s relatively little they can do to advance their state in life.

Meanwhile the lower paid portions of the sixty per cent who are employed are angry about their share of the burden. Many of these people also are religious conservatives who are upset that forty per cent of the babies being born in the United States are born out of wedlock and children of the teenaged single mom without a high school degree will have a hard time achieving upward social mobility. So there are now our second generation and even third generation welfare families.

People trapped in this way are as unhappy with their condition as the ones immediately above them. Neither group feels that their needs are being met by the government. These root problems spill over into the immigration debate as well and that debate is further complicated by people’s fears of terrorist activity.

Lower interest rates have not helped the less affluent because they generally do not own the real estate and portfolio assets whose values have been boosted by easy money.

In fact low rates have done hundreds of billions of dollars more damage to the income of elderly savers than they have been benefit to these expenses of younger borrowers. The elderly therefore have their own specific grievances with the system.

These societal stresses have created the US version of the politics of anger.

Until Brexit, the US had the oddest politics ever. Both putative nominees have far more negatives than positives in all of the polls. This is the first time in my rather long life that I can remember both candidates having more than sixty per cent negatives. It’s a very unusual springboard for presidential election.

During the primaries Bernie Sanders, a self-professed 1930’s socialist, came very close to defeating Hillary Clinton and Donald Trump, in his first serious bid for public office, destroyed 16 prominent Republican contenders. Once again the politics of anger are at work.

A Clinton presidency would look a lot like the Obama presidency so I don’t need to explain to you how that would look and feel, instead I’ll try to outline what a Trump presidency might look like.

The details of some of his positions are still evolving but Trump’s strongest appeal is to working-class, relatively uneducated whites. The same types of people who voted for Brexit. His stated positions are an amalgamation of liberal and conservative ideas. He is generally xenophobic on immigration, defence and trade issues and he’s anti elitist at the broadest levels but he is more liberal on many social issues such as sexual preferences.

Both his specific ideas and the way he articulates them have made him controversial with many Republican Party leaders and at present he is running behind Hillary Clinton in the polls but four months until the election are an eternity in American politics. Probably they’re an eternity in the politics here as well.

Trump’s political challenges are to capture some of Sander’s voters who are more anti-establishment than they are ideological and indeed somewhere between 35 and 40 per cent of them in the exit polls during the primary indicated a preference for Trump over Hillary Clinton.

How many of them will actually follow through with that could very likely be the deciding factor in the election. If one third of them actually came through with their promise, that would be ten per cent of the democratic vote. That would equate to about five per cent of the total vote. In this election is unlikely to be won by five per cent majority so, strangely, the way that the Sanders followers break may well be the deciding factor

The other wild card in our election is there are two independent party candidates One put up by the Greens and one put up by the Libertarians. In the very first poll since those candidacies were announced, they took a total of sixteen per cent of the votes based on the polls. I doubt that they’ll end up taking that much and it’s totally unclear at this early stage from whom they will detract more votes but they again, like the Sanders people, might well be the deciding factor in the American election. So keep your seat belts fastened there’re going to be a lot more bumps before we get to November.

Now last week Donald Trump changed his campaign leadership and began to change his tactics but it’s too soon to measure the results of those activities. In contrast to both Hillary Clinton and President Obama, Trump supported and actually feels validated by Brexit. He indeed has been talking about [the] UK not being the last one to pull out of the EU. I’m not sure how well qualified he is to judge that but it again is another appeal to the anti-establishment vote and since he was right in the British situation maybe we should take it seriously.

He’s also said that he would redo America’s deal with Iran and he would also redo many of our trade agreements with other countries including the pending Trans-Pacific partnership.

I believe that he would negotiate changes favourable to the US and that those would reduce our chronic trade deficit. I’m a free trader at heart but in truth many of our specific trade deals have not been particularly advantageous to the US. NAFTA is a case in point. Our exports to both Canada and Mexico have gone up considerably since NAFTA was agreed but it is equally true that we continue to experience trade deficits with both year after year. For example, our trade deficit with Mexico just in the month of May 2016 was $527 million and that’s not an unusual month for that deficit. In the first four months of 2016, the US trade deficit with Canada was $2.7 billion so I think those two countries probably have some of their trade with US at risk if Trump becomes President.

The gross trade figures look very large but are somewhat inflated because lots of components are exported from the US to Canada and to Mexico, assembled there, and then shipped back so this is kind of the double counting in that activity. If he can reduce our trade deficit, that obviously would strengthen the dollar relative to other currencies.

He undoubtedly will make the borders of the US more secure and undoubtedly will require more extensive background checks on immigrants. Immigration is wildly controversial both between the Parties and within the Republican Party. So it’s not clear what he’ll be able to do through Congressional action as opposed to using Executive Orders as President Obama did a lot in terms of immigration.

He also will be very supportive of the military and will take more aggressive stands with the leaders of other countries. Since he is viewed as, at least, a bit of a wild card, he will have an advantage in international negotiations because his counterparties will be a bit afraid to push him too far.

I do not believe that he would end the US role as the good cop on the world beat, but I do think he’s right and will insist that other countries pay a higher percentage of their national defence.

The US spends more on defence than the next seven countries combined. Why should defence be a 40% higher share of US GDP than of the UK and France? And why should it be triple the share of GDP of Germany Italy Japan and Canada? I don’t think that will continue under Trump.

Trump will also push for tax reform, generally speaking in the form of lower taxes, although it’s a very unclear what changes will be possible. The Washington lobbyists are so supportive of each of the deduction loopholes that it’s not very likely that there will be comprehensive tax reform. Fine tuning is much more likely.

He will be also far less influenced by environmentalists and unions than Hillary Clinton would be and almost certainly will roll back the most extreme of the Obama Executive Orders especially as they relate to hydrocarbons and labour relations.

Trump strongly supports North American energy independence and was glad to see that the courts again overrule some of Obama’s anti-fracking Executive Orders.

His position on immigration has created a particularly large amount of controversy in the media. I think, in many ways they’re missing the point by focusing on these specific details that he’s mentioned. To me, the key is not whether a wall is built or its dimensions nor whether people professing a particular religion or come from a particular country of origin should be barred from entry, the real issue is whether or not every country has the right to secure its borders. Indeed Donald believes countries have the obligation to do so. To argue otherwise would say that those who defy US immigration laws or wish to enter the country to do harm to Americans should be permitted to do so. He will really be against those bad ideas

Trump has been endorsed by the National Rifle Association because he believes in a very broad interpretation of the Second Amendment to our Constitution which gives citizens the right to bear arms. Therefore, our gun laws are not likely to change under a Trump presidency.

A lot of what actually does happen will depend on the makeup of the new Congress. Republicans probably will retain a majority of the House of Representatives because of the very big majority they now have and also because the way that the Congressional districts have been gerrymandered by both Parties. Virtually all of the seats are safe seats. There are only a small handful that are truly up for grabs. But in the Senate the number of Senate Republicans up for re-election in so-called battleground states that could go either way. If that number is twice as large as the existing majority of three that the Republicans have in the Senate. Therefore unless Trump were to win by a large majority, Democrats have a good chance to regain the majority in the Senate and then we would have the spectre of a split Congress and we’ve all seen the kind of fun and games that that has produced in recent years.

Trump will also have to contend with citizens within his own Party as well as divisions between the two Parties. But regardless of the mix in the Congress, he will lobby very hard to get his way and he historically has succeeded in lobbying politicians to help his business interests. So he’s more likely to make deals with the Congress then President Obama was. And one of the great things about the American system is that there are so many checks and balances that changes tend to be incremental rather than dramatic.

The problem with that is this will not end working-class complaints and may mean that the politics of anger will continue to flare up throughout the next administration and so will the class warfare that’s been going on for the last few years.

Much of this volatility will spill over into the markets because every trading desk has less capital to deploy than it did a few years ago. So small changes in investor sentiment tend to produce exaggerated end results in the markets. But volatility creates investment opportunity if you’re brave enough to deal with it

We’re seeing this now in the market volatility around Brexit. At the end of the day the US market likely will continue to be viewed as the safest refuge for global investors regardless of who becomes President.

I also must make an official disclaimer. The views I have expressed in my own not necessarily those of the Bank of Cyprus or of the Trump Victory joint venture between the Republican National Committee and the Trump campaign although I am a trustee of that group. In fact since my wife Hillary is right here, I should admit they’re not necessarily her views either.

Now I’ll be glad to take a few questions if you don’t make them too hard.”

Host: “Thank you very much for such an enlightening speech. We now welcome a small number of questions for our guest speaker. A microphone will be provided to you in order to hear your question clear and loud.”

Questioner 1: “Hi Mr Hourican [CEO Bank of Cyprus] had said prior to Brexit that his intentions of entering LSE [London Stock Exchange] were regardless of the fact that whether there will be a Brexit or not. So, has anything changed?

Wilbur Ross: “Could you repeat?”

Questioner 1: “ Yeah, there was the intention of the Bank of Cyprus entering London Stock Exchange yeah and Mr Hourican had said prior to Brexit that regardless of the outcome of the referendum that his intentions were actually to go to England. Has anything changed?”

Wilbur Ross: “Well I think some of the people who went in favour of Leave are now quite amazed at the negative reaction that the media have had and the markets have had. I think there’s a little bit of a sense of regret

I think they also didn’t quite think through how hard it’s going to be to make it through these next two years and I think the Cameron administration frankly didn’t do a very effective job of making the case of what would happen in the event that Leave won.

It also feels like the Leave people themselves didn’t think they were going to win because they don’t seem very well prepared for what’s going to happen next, so that’s accentuating the confusion. So I don’t think that the Leave people actually have gotten so far what they were hoping for even though they won the vote.

And I really do think that if I’m right in my guess that there will be more immigration in the next couple of years than there would have been. I think they will be absolutely astonished because. well one of the rallying cries was give us our country back. That was really a code for we don’t want immigrants from Eastern Europe. And so I think they’re going to be quite shocked that their very action was somewhat counter-productive.”

Questioner 2: “Ok, two questions if I’m allowed. The first question is what do you recommend based on your long experience the best way to deal with the politics of Angel[? Maybe Angela Merkel] and second what do you advise Cyprus and Cyprus businessmen and policymakers to do to respond to Brexit? Both the challenges and the opportunities that are created.”

Wilbur Ross: “Thank you. Well I think for Cyprus, it’s a potential opportunity. And, as I mentioned, I think every big financial institution that’s now based in the UK and has been using the guaranteed passport to use to operate within the EU has now got to figure out a new solution for how to deal with that issue.

It’s true of the mutual funds. It’s true private equity. It’s true of hedge funds. It’s of insurance companies. It’s true of banks.

So there is going to be some change. My guess is that lots of folks will be starting right this week to put plans into effect because it takes a while to move people and figure out what you’re doing.

So that’s why I said in my talk if I were Cyprus, I would try to come up with something that would create a news flash to encourage these institutions who are going to relocate some people from London to relocate them here.

I think it’s a God-given opportunity, but a very brief one, because they’re not going to sit around very long. They’re going to figure out what their move is. [tape pause]

Dublin has a good head start because so many financial institutions have back offices or other activities there and Frankfurt simply because it’s such a financial powerhouse.

So I think there is an opportunity. There is also, I met a little earlier today with the Transport Minister here and he already has had some success attracting shipping companies and ship management firms to Cyprus. Well those two will be having to rethink what they’re trying to do and it may be easier now even than before to get some of those to come.

And, then finally, if and when relations are truly normalised with Iran, Cypress could very well be a very logical jumping off point both for fun people, financial people wanting to deal in Iran, people wanting to have headquarters in this region.

So I think that as is true of any adverse activity, that there are some potential good things for Cyprus. The one negative that I can see is that, to the degree that UK really does go through the recession that I think it will, next year’s tourism might be a little bit affected. This year’s it’s too late. They’ve already booked their charter flights and, I gather it’s very hard finding hotels in Cyprus this summer. So this one, it won’t be this year’s problem but it could be a next year’s problem.

But then, the final issue is, since the EU budget now is going to be so little bit constrained by the loss of its net revenues from the UK, they’re going to raise the tolls for everybody else and so no doubt they’ll come to Cyprus looking for something.

Yes sir.”

Questioner 3: “I’d like to thank you for a very comprehensive detailed explanation of what is occurring. As a democrat in belief, I’m glad to see that this is coming from a republic.

Now the, my question is how can the legitimate causes that was the real causes of the anger be addressed? Yes, sorry

My question is how can the causes of the anger, which are legitimate causes, be addressed?”

Wilbur Ross: “Well that, that’s the hardest question that anybody could ask. So how try to give an answer? I don’t think there’s any immediate silver bullet to the problem but there are some things we could do.

US spends a smaller percentage of its GDP on adult training than any other OECD country.

So one of the problems with people being out of the workforce is they don’t have the skills for the jobs that exist. So increasing the training would be a good start.

Longer term, I think we need educational system reform because education is really the ticket for people to improve themselves. Our schools our high schools and lower schools really do need some reformation.

They’re not preparing kids for a technological society. Most high schools, public high schools have dropped high school math and high school physics from their curriculum. ..And I asked some of the people from Washington why, why did they do that? And the, because Washington is the big thunder of schools. And the answer was, well, the students found it too hard.

Well, even in my day the students found it too hard but in the old days when you found something too hard, the answer was you worked a little harder and then it got easier.

So I found a remarkable answer. And when I said what I just said to you, the response from the government fellow was “Wilbur that’s a racist comment.” It certainly was not meant to be.

So I think education, both retraining for adults and fundamental education for young people is very much the way to ultimately solve the problem.

There are probably also all kinds of reforms in our system for helping the indigent. For example, a well-intentioned piece of legislation was to phase out their welfare and other benefits, food stamps, as they began to make income.

Well they got the numbers all wrong. So, at some stages of beginning to make an income, you have almost a hundred per cent effective tax rate because of the benefits they have to give up. But why would anyone in his right mind give up benefits and do nothing in order to work and not make anything materially more. So there are some structural things that we could do that would help encourage people to get back into the workforce but I think, more fundamentally, it’s the educational issue that is the real solution.

Again so, okay here.”

Questioner 4: “Mr Ross, here.”

Wilbur Ross: “Where are you?”

Questioner 4: “It has been an absolute pleasure listening to your speech tonight. My question is simple. Would you expect history repeating itself? And the repeat of the phenomena of the National Socialists like in the 1930s in Europe?”

Wilbur Ross: “Well if what you’re referring to, the Neo-Nazi movements, I hope they don’t really reassert themselves.

Other question.”

Questioner 5: “Mr Ross, do you expect any changes to happen in policy in the EU brought about by Brexit because, obviously, the European states are taking in what’s happening. I mean they’re seeing that Brexit was not possible but now it has been possible.

They haven’t dealt with immigration. They have a lot of disparity of economics between the North and the South. There is the German hegemony, economic hegemony over the rest of the European states. Do you think that they are receiving these messages and we will see policy changes in Europe?”

Wilbur Ross: “The general question was do we see policy changes coming in Europe? Now I think that it’s clear that whatever else comes out of Brexit the momentum toward more and more arrogation of government power to the central core and Brussels is going to slow down. Then maybe even reverse itself.” [tape glitch]

[And what] intrigued me, the Pew Center for Research a very respectable American institution took a survey of each of the EU countries about a month ago and they found that a majority of the voters felt that the EU was too intrusive and this is a majority in Germany in France in Italy in Netherlands in just about every one of the countries.Host: “Thank you very much for such an enlightening speech. We now welcome a small number of questions for our guest speaker. A microphone will be provided to you in order to hear your question clear and loud.”

Questioner 1: “Hi Mr Hourican [CEO Bank of Cyprus] had said prior to Brexit that his intentions of entering LSE [London Stock Exchange] were regardless of the fact that whether there will be a Brexit or not. So, has anything changed?

Wilbur Ross: “Could you repeat?”

Questioner 1: “ Yeah, there was the intention of the Bank of Cyprus entering London Stock Exchange yeah and Mr Hourican had said prior to Brexit that regardless of the outcome of the referendum that his intentions were actually to go to England. Has anything changed?”

Wilbur Ross: “Well I think some of the people who went in favour of Leave are now quite amazed at the negative reaction that the media have had and the markets have had. I think there’s a little bit of a sense of regret

I think they also didn’t quite think through how hard it’s going to be to make it through these next two years and I think the Cameron administration frankly didn’t do a very effective job of making the case of what would happen in the event that Leave won.

It also feels like the Leave people themselves didn’t think they were going to win because they don’t seem very well prepared for what’s going to happen next, so that’s accentuating the confusion. So I don’t think that the Leave people actually have gotten so far what they were hoping for even though they won the vote.

And I really do think that if I’m right in my guess that there will be more immigration in the next couple of years than there would have been. I think they will be absolutely astonished because. well one of the rallying cries was give us our country back. That was really a code for we don’t want immigrants from Eastern Europe. And so I think they’re going to be quite shocked that their very action was somewhat counter-productive.”

Questioner 2: “Ok, two questions if I’m allowed. The first question is what do you recommend based on your long experience the best way to deal with the politics of Angel[? Maybe Angela Merkel] and second what do you advise Cyprus and Cyprus businessmen and policymakers to do to respond to Brexit? Both the challenges and the opportunities that are created.”

Wilbur Ross: “Thank you. Well I think for Cyprus, it’s a potential opportunity. And, as I mentioned, I think every big financial institution that’s now based in the UK and has been using the guaranteed passport to use to operate within the EU has now got to figure out a new solution for how to deal with that issue.

It’s true of the mutual funds. It’s true private equity. It’s true of hedge funds. It’s of insurance companies. It’s true of banks.

So there is going to be some change. My guess is that lots of folks will be starting right this week to put plans into effect because it takes a while to move people and figure out what you’re doing.

So that’s why I said in my talk if I were Cyprus, I would try to come up with something that would create a news flash to encourage these institutions who are going to relocate some people from London to relocate them here.

I think it’s a God-given opportunity, but a very brief one, because they’re not going to sit around very long. They’re going to figure out what their move is. [tape pause]

Dublin has a good head start because so many financial institutions have back offices or other activities there and Frankfurt simply because it’s such a financial powerhouse [2].

So I think there is an opportunity. There is also, I met a little earlier today with the Transport Minister here and he already has had some success attracting shipping companies and ship management firms to Cyprus. Well those two will be having to rethink what they’re trying to do and it may be easier now even than before to get some of those to come.

And, then finally, if and when relations are truly normalised with Iran, Cypress could very well be a very logical jumping off point both for fun people, financial people wanting to deal in Iran, people wanting to have headquarters in this region.

So I think that as is true of any adverse activity, that there are some potential good things for Cyprus. The one negative that I can see is that, to the degree that UK really does go through the recession that I think it will, next year’s tourism might be a little bit affected. This year’s it’s too late. They’ve already booked their charter flights and, I gather it’s very hard finding hotels in Cyprus this summer. So this one, it won’t be this year’s problem but it could be a next year’s problem.

But then, the final issue is, since the EU budget now is going to be so little bit constrained by the loss of its net revenues from the UK, they’re going to raise the tolls for everybody else and so no doubt they’ll come to Cyprus looking for something.

Yes sir.”

Questioner 3: “I’d like to thank you for a very comprehensive detailed explanation of what is occurring. As a democrat in belief, I’m glad to see that this is coming from a republic.

Now the, my question is how can the legitimate causes that was the real causes of the anger be addressed? Yes, sorry

My question is how can the causes of the anger, which are legitimate causes, be addressed?”

Wilbur Ross: “Well that, that’s the hardest question that anybody could ask. So how try to give an answer? I don’t think there’s any immediate silver bullet to the problem but there are some things we could do.

US spends a smaller percentage of its GDP on adult training than any other OECD country.

So one of the problems with people being out of the workforce is they don’t have the skills for the jobs that exist. So increasing the training would be a good start.

Longer term, I think we need educational system reform because education is really the ticket for people to improve themselves. Our schools our high schools and lower schools really do need some reformation.

They’re not preparing kids for a technological society. Most high schools, public high schools have dropped high school math and high school physics from their curriculum. ..And I asked some of the people from Washington why, why did they do that? And the, because Washington is the big thunder of schools. And the answer was, well, the students found it too hard.

Well, even in my day the students found it too hard but in the old days when you found something too hard, the answer was you worked a little harder and then it got easier.

So I found a remarkable answer. And when I said what I just said to you, the response from the government fellow was “Wilbur that’s a racist comment.” It certainly was not meant to be.

So I think education, both retraining for adults and fundamental education for young people is very much the way to ultimately solve the problem.

There are probably also all kinds of reforms in our system for helping the indigent. For example, a well-intentioned piece of legislation was to phase out their welfare and other benefits, food stamps, as they began to make income.

Well they got the numbers all wrong. So, at some stages of beginning to make an income, you have almost a hundred per cent effective tax rate because of the benefits they have to give up. But why would anyone in his right mind give up benefits and do nothing in order to work and not make anything materially more. So there are some structural things that we could do that would help encourage people to get back into the workforce but I think, more fundamentally, it’s the educational issue that is the real solution.

Again so, okay here.”

Questioner 4: “Mr Ross, here.”

Wilbur Ross: “Where are you?”

Questioner 4: “It has been an absolute pleasure listening to your speech tonight. My question is simple. Would you expect history repeating itself? And the repeat of the phenomena of the National Socialists like in the 1930s in Europe?”

Wilbur Ross: “Well if what you’re referring to, the Neo-Nazi movements, I hope they don’t really reassert themselves.

Other question.”

Questioner 5: “Mr Ross, do you expect any changes to happen in policy in the EU brought about by Brexit because, obviously, the European states are taking in what’s happening. I mean they’re seeing that Brexit was not possible but now it has been possible.

They haven’t dealt with immigration. They have a lot of disparity of economics between the North and the South. There is the German hegemony, economic hegemony over the rest of the European states. Do you think that they are receiving these messages and we will see policy changes in Europe?”

Wilbur Ross: “The general question was do we see policy changes coming in Europe? Now I think that it’s clear that whatever else comes out of Brexit the momentum toward more and more arrogation of government power to the central core and Brussels is going to slow down. Then maybe even reverse itself.” [tape glitch]

[And what] intrigued me, the Pew Center for Research a very respectable American institution took a survey of each of the EU countries about a month ago and they found that a majority of the voters felt that the EU was too intrusive and this is a majority in Germany in France in Italy in Netherlands in just about every one of the countries.

I think that itself should have been a little bit of a wake-up call to the EU but for sure the Brexit is a wake-up call because it threatens their very existence and you’re probably aware that the members of the EU Parliament make considerably more money than the members of the UK Parliament so they have good jobs that are at risk.

And my guess is that they will follow Mike Bloomberg’s famous statement, “what are the three things that every elected official recites to himself or herself before they go to bed at night?”

Number one I must be re elected, number two my party must stay in power and number three, I’d better not forget the first two. So I think the EU leadership will remember Mike’s three rules or if they don’t they’ll be replaced.”

Away in the back, a lady.”

Questioner 6: “What’s different now that these angry voters have been able to change or to reshape the world? Is it that that they are angrier than they used to be because inequalities are bigger than they were, let’s say, a few decades ago? Or is it democracy or the media which makes it easier for these angry voters to shout out?

Wilbur Ross: “I’m not quite sure I understood the question. Could you repeat please?”

Questioner 6: “Yes, I’ll repeat. Why is it that these angry votes have been given the chance to change things and this wasn’t happening in the past, a few decades or even longer ago?”

Wilbur Ross: “If I understood you correctly, you’re talking about the voters having more of the chance to voice their thinking.

Well, that they just did in the UK and it was surprising that’s one of the few referendums that any UK government has ever put up for public vote. Normally big decisions like that are made by the elected officials and, when you think about it that’s really why they were elected, to make the big decisions on behalf of the public.

I think what happened during the last campaign [General Election 2015?], Mr Cameron was faced with this UKIP, these eurosceptics in the UK and with somewhat of a revolution on the part of members of the Conservative Party and I think he did it to try to assure that he would become Prime Minister again.

I think he had remembered Michael Bloomberg’s three rules and at the time he probably felt given that the UK economy was improving. As you’re probably aware, it’s been one of the better performing economies in Europe so it isn’t as though it was a bad economy but what nobody counted on was this refugee crisis. Nobody counted on how that would trigger all sorts of ethnic issues, all sorts of volatility on the part of the public and I really think that it was the refugee compounding the immigration issue, that is what led to this even though a lot of people say no, no, it’s that just we want to recreate the old Britain.

So I think that’s how it came to be.

Ok.”

Questioner 7: “Good afternoon my name is (?). Thank you for your speech and your thoughts and your time in Cyprus.

My question is, where do you see capital markets focusing their money investing now? Which region, which sectors to make the best investment in times of volatility and uncertainty?

Where do you see capital markets, investors like yourselves focusing investments in times of volatility?

What regions of the world, what sector?

Wilbur Ross: “My compliance department would punish me severely to make stock recommendations.

I’m sorry I can’t do that.

Ok, there has been a very patient man right here.”

Questioner 8: Thank you for your speech.

My question is that I feel a great deal of the unrest is driven by a sense of inequality reflected in pay at the corporate level compared to the man in the street and those gaps have grown quite dramatically.

Is there an argument for encouraging corporations to pay more tax?

Wilbur Ross: “But there is inequality and there always has been inequality but the Milken Institute put out a very interesting study [3].

There have been these complaints that since 1975 most of the gains in GDP in the US have gone to the top five per cent of the population. They did a calculation that if you held the top 5% percentage the same that it had been back in 1975, forty years ago, that would mean $5000 more for each family in the bottom 95%. So even that kind of quite massive redistribution isn’t a huge absolute number.

And, in fact, the more interesting thing about it to me is that number is about one-fourth of the difference that the people who don’t have a college degree would have earned if they got a college degree. Yet the cry is for redistribution not for educational reform.

So I think solving the problem is maybe the wrong solution to the problem.

The inequality is there and it has gotten worse under the recent activity because the easy money pushed up real estate, pushed up securities and the poorer people obviously don’t have those kinds of assets. So there was no way for them to benefit from it.

But I think the inequality gap is very importantly influenced by the educational gap.

Think we have time for one more question.”

Now this is an official government question now I’m getting worried.”

Questioner 9: “There are lots of angry voters also in Cyprus., reflecting on the past is the past elections.

One last advice from you. What do you advise the Cypriot people and the Cypriot government from where we stand right now?

Wilbur Ross: “Well, so I said I think that Cyprus could make an opportunity out of this situation and I hope that the country does because you’ve been through such a horrible period and got through it and now things seem to be going quite well here.

I was very impressed with the tourism statistics more airlines, more incorporations, more deposits flowing in. That feels like a pretty good environment to me.

So I think now the trick for the government is to continue the momentum forward and hopefully some degree of stability in the government would really help that.

It’s not for me to tell people in Cyprus how to vote but you see what uncertainty and confusion is doing to Great Britain. No reason to bring uncertainty and confusion on yourselves.

So I think stability and staying the course are ultimately the best strategies for Cyprus.”

I hope that answers your question. Thank you.”

End.

[1] It wasn’t clear if Wilbur Ross meant Euros or Pounds here. I had a look to try and find out more but couldn’t.

[2] Report — “Frankfurt hopes that the London Stock Exchange and Deutsche Boerse merger will lead to it taking billions of pounds of business”.

[3] Sorry, I couldn’t find this on the Milken Institute site. If I find it (or someone lets me know) then I’ll add it.