>> >> the president was determined hearing from many allies and partners and listening to the deep concern that day had faced with russia's actions to take immediateé0]#ñ'k3 steps to reassure to bolster the article five commitment that lies at the heart of nato. what we have done is produce a virtually continuous air land and sea presence in to the reaches of nato. in the immediate to send additional f-16 to poland and f-16s to the baltics and rotated chips into the black

sea and redeployed for a paratrooper division is to poland for training and exercises this week the president announced a new commitment to reassure the european security for the $1 billion fund that would allow us to keep equipment in europe and expand exercise of trading and to expand personnel to continuously rotate and increase assistance to ukraine moldova and georgia. it is vital day not be engaged alone and taken steps to encourage the partners to do the same to take part of deployment and irritation and we expect we can say all 28 members of nato participated. then by the nato summit respect to see steps to reverse the decline that has characterizedny5b the alliance in recent years.

so where do we go from here? first it is very important we get a grip to resolve the situation in eastern ukraine.

. >> and actively targeting and killing ukrainian security forces. you cannot have it both ways on the one hand take steps to deal escalate the crisis but at the same time under the surface take steps to

accelerate its sewage is vitally important we keep the pressure on russia excuse me to change course and that is what happened this week in europe with the g-7 and the european counterparts. hit -- she secured a commitment to a coordinated actions with the interference of ukraine and most importantly to a for readiness to intensify targeted sanctions with additional measures for further cost of a shot if proves necessary. what does russia need to do what is stopped doing to deal escalate the crisis to provide an opportunity to move forward to recognize the are results of the election and engage the government of ukraine and completely withdraw military forces from the border and stop the flow of militants

across the border and exercise influence leave the buildings and resolve differences peacefully and avoid it can do no military invasion are bogus peacekeeping or humanitarian intervention. if russia takes these steps it is important ukraine respond in the appropriate manner. the president-elect has a plan for what he calls peace unity and reform to pursue the national dialogue, the ceasefire, decentralization, amnesty to draw a separatist into the process. it should avoid pursue martial law, a disproportionate use of force or full-scale counterterrorism operations of it takes the steps that i outline. ukraine it will pursue

political economic reforms a special the corruption because don't forget what we started with at the root so much of the treasury will is a profound sense of disenfranchisement from the country fueled by the corruption in we have seen that needs to implement the imf reform program that is so critical to success. with some words of questions or comments, throat this crisis diplomatic relations have not ceased, we've remain in contact and we spoke today in normandy. we tried to make clear repeatedly our objective is not to weaken or contain a rush-hour or deny the relationship with ukraine but to uphold a basic principle ukraine's future

must be decided by the people of ukraine not by russia or the united states or europe or anyone other than ukrainian some solace. as can attest better than anyone president putin seems to use see the relationship with us on the basis of two decades of pent-up grievances of broken promises with missile defense, use of force and close above that nato is aimed at russia. but from our perspective it is not true nor our objective but ironically the very things that president putin claims to freer are likely to be precipitated by the action russia has taken. the president was very clear in march since the end of the cold war to build ties

of culture and commerce because it was in our national interest and we continue to believe is in the just to work constructively together it is hard to imagine most of the major to differ century challenges to be effectively addressed and olivetti clearly demonstrated for the did buteo exception. through the efforts to remove chemical weapons from syria. to and from afghanistan and after the boston marathon bombings. going for verge there is a way to get back if russia

will to escalate tensions by the steps that i discussed previously if they work for one the restores the sovereignty. there is a basis for moving forward within the mutual self-interest in space to overcome old and outdated suspicions that is the path the devastates would prefer to take but is that the path president putin wants to take? of the coming weeks and months we will find the answer. thank you very much. [applause]

>> laverty is getting ahead is microphone tea mind taking a few questions? >> thank you. i feel very comfortable with what you sketched out with the policy approach. i have one question how we deal with russia. when i was is in ukraine i heard of the leaders say to me repeatedly that ukraine should not be left alone to face russia and they felt too weak to handle future negotiations alone.

the question came up all the time. what about geneva or a repetition? should that happen and if so could that be turned into a process of the way for a? >> my question is president obama travel to europe to take part in a number of defense including the european countries and the bilateral meetings that took place and to date in

particular. so taking into account all of these events? or from one week ago? >> i will take as many questions says i can. over here plays. >> i have the $1 million question. [laughter] when senator biden initiated that it was clear for georgia to remove so could

you give some more specifics thank you. >>. >> i am actually falling upon the question i am understand the administration bow request $1 billion of extra appropriations for this initiative will live also request the darr appropriation for non security assistance to ukraine has done for georgia and russia? >> an american correspondent in berlin. i would like to rescue to say a few words i uss cooperation in responding in general with germany in particular?

>> i follow up on the last question in terms of are you a toe the weather gets cold? you talk about the job but with the crisis so are you concerned to in five months' time? >> you have tons of questions to responded five minutes or less. [laughter] >> with those recent weeks end with regard to the geneva track we heard the

same things the desire with the key european countries of the union. have two-room know that we are fully prepared but to the gentleman with the meeting saying europa there is any change in this situation? i hope yes but judge is not on words but on actions. there are some positive statements to be made but that would seem to be a bus line to recognize the president-elect of ukraine but the bottom line this depends on the action so we will test this in the weeks

ahead that the strongest interest is to escalate that we believe profoundly that also russia is what we would like to achieve. and for european security there is a number of things we would support and say are critical. and support for war exercises and training missions and direct support to georgia and moldova and ukraine. as the catalyst is is not so expect everyone tear gas to gdp but if we can reverse a

meaningful trend that is meaningful. and then regard to appropriations real looking very carefully and whether we gave further assistance that the results of the of leadership with our european partners over the next two years is very significant. starting with the imf. with assistance going for word. but we should emphasize this will not work if not a a clear indication of reform we have been down this path before with the international community but

the assistance did not produce lasting or meeting full results. we have a strong feeling this is an exceptionally critical moment but also of opportunity because of the commitment to and tracy the force that that represents that is changed to put pressure on ukraine to lew deliver and if that happens. it is good to see you. with regard to cooperation with germany in particular it has ben exceptional. one things that people don't see on a day-to-day basis is the court nation, cooperation between obama and his counterparts. he has been on the phone for

hours on end particular of a with chancellor merkle and the prime minister ante leadership of constant communication throughout the departments and agencies to produce exemplary cooperation. none of this is easy. there are competing interest among european countries and obviously the desire for a positive relationship with profound economic interest but from my vantage point we managed to remain remarkably united. chancellor merkle has been an extraordinary leader in this effort her voice and everything she has done with

russia, european colleagues this situation has been exemplary but absent her leadership with the colleagues in europe. different pressures being exerted and that is the great question. my belief is the answer is yes but to take significant steps in the coming months to put themselves in a position to sustain and resist competing pressures and influences. of the jury is out of this is different. but my sense is it will pay had the significant g7

ministers agreed to a series of steps including a basic stress test with all economies with the energy security and independence and the results are translated to diversify sources of energy and connections in europe and from the united states. so the jury is out so maybe the next time i can answer your questions. >>. [laughter] >> i know you have of very busy agenda with construction of the way to the executive offices. thank you for joining us. [applause]

>> [inaudible conversations] >> the international order i am delighted to share the first panel in jury shapiro for asking the to do this at a conference that i knew for

the past two years. and she is surliness stand several people knew her here on the piano and she would be very interested in the topic today not just because of the offense but she had such a strong passion for european foreign policy. we are fortunate to have excellent panelists for the topic looking at europe's role in the world not just the economy but everything that goes on about to get out of a financial crisis to robust growth to take on a greater role to complete the project by adding fiscal federalism in all the things over the last decade said they need to do do to be

competitive or in said japan's diol lost decade to get of political support to do what is necessary to fix and monetary integration. and after last week for the future with the pop in a the backlash the fare best trades -- the famous phrase sedona how to get elected once they do but maybe they cannot get the reforms through with some of the key positions. sauternes to each panel then to have a conversation with

you all for half an hour. some are we really out of the worst of the cursor is? rodrigo from here to reassure there is not a new crisis? with us deflationary spiral in the low economic world again. >> i apologize for not introducing the deputy director from european reform in the good morning everyone. is the lovely gesture and

then to set up and i use to argue this point to what she did not disagree but it was sen heresy for cali to argue- with the european integration could become a threat to the european expression. to start by the arizona economy in particular is still in such poor shape why is the threat cecil whole and why the choice does come down to more or less.

despite the talk of economic recovery and by policy makers the crisis is over that by extension remains in a very serious mass. is worth remembering the arizona economy is three percentage point smaller than and was. even in the u.s. and defend it breaks down we see some truly terrible numbers the economy is still 7 percent smaller. not to go over 20 percent smaller than it was with the result of unemployment has come down a touch with people was drawn from the labor market and much higher than that.

and over 40 percent were 50% that we see some truly shocking numbers. fortunately it is the results of mismanaging the public finances. of this is the case with the central problem we saw is a huge capital flows to places like spain that is the adjustment mechanisms and those run-up to the crisis

and too high for germany's economy. and to push up the wages was the financial crisis had to resulting in big crisis basically the economy stopped and baum to in the banks were sitting on the bonds then that depressed economic conditions the so called sovereign bank bidder for one talks about in europe. nolan spots the link between the governor in the bank and what it can do. but the adjustment mechanism was projected a very large and diverse currency with the very different economy.

so the shock hit them very differently than others. but they cannot devalue the currency and they don't have the of last resort no bank will step in to buy their debt. so without a currency and a central bank with goods and services capital labor highly integrated moving to where they could be used most productive way. but there isn't much integration and capital is

very slow to be allocated very slow to move from one part to another. we have save people emigrating from spain but the majority of those people are in countries outside. so very few have gone to members of the year rose some. and has hampered the adjustment for the inflation rate which makes it very hard for countries such as

spain and italy to engineer the exchange rates weld getting on top of the debt burden while inflation is such a risk. it is also of in a naked manner while in a slump and tear exaggerate the likely impact of structural causes. so with those asymmetric shocks to become a the weapon of choice but it is. cyclical. rather than in the raid the session so with the internal devaluation it is dangerous.

first low inflation and led a low deflationary makes the hard to reduce real wages. take spain 80 to reduce real wages but not bewitches to adopt it is almost impossible. and it decreases the real value of debt public and private. it raises real interest rates and can bleed consumers and businesses and third, at fiscal multipliers means the impact of public spending when interest rates are close at zero bank governments have the negative impact. now blood is needed with

that backdrop? and accommodative fiscal policy. and i would argue a higher inflation target at least temporarily during a 4%. in to facilitate the exchange rate more government investment that have the scope to do so. said its short-term the long term it is hard to see how this could work with the proper one against the alone fiscal backstops from the national bubbled to the federal the fall that the

bank depositors across the country. also as an asset for the banks to hold. . . price stability and growth and employment. the problem with everything i have just said is that that requires more, not less.

but as time goes on it is becoming harder to make the case for more. anyone following will see and can appreciate that. europe increasingly is defined by the constraints that it places on governments rather than the opportunities it provides them with to improve the lives of their electorate. and the longer this continues the greater the likelihood that we see a serious anti european backlash : not just against the euro but against the e.u. more broadly. there are two solutions, a jump forward within the eurozone with politics resuming at the federal level or a return to a european union without a single currency and let individual countries manage their economies as they see fit. the problem is that the latter ruction will be hugely

destabilizing and would require capitol controls, defiled in several countries, measures to deal with the ensuing financial crisis and an agreement about how to deal with legacy getting contracts. usually complex stuff. it will be a big crisis, but if a more federal europe is impossible. we will be better to get on with this before the politics turn seriously nasty. thank you. >> thank you. fascinating. simon, you said that the, you know, you outlined what, i think, is a good sort of solution for your problems and a number of areas, everything from monetary policy of fiscal policy is all the politics, and you said that one of the reasons that that cannot happen is because there is not enough support for more europe. another reason maybe it can't happen is because germany in particular and the ecb and many of the leading thinkers in europe want more europe but

disagree with those steps. you know, they disagree about the eurobond and quantitative easing. there has been pretty significant philosophical gaps and economic policy between germany on the one hand and the united states and other countries on the other hand. i think it is a tough question. even if there is support for european immigration, even if there are people in key positions to want to be forward leaning, there is this deep philosophical, you know, disagreement about whether not you can do these things. i would like to turn to a professor of international economic governance at american university and really try to out put this question to you that if we -- we are where we are in economic terms. there are these solutions out there that many people believe what have a big bang a fact of really being game changers and

kick starting growth, but they are exceptionally unlikely because of german opposition and also because of rising sort of populism and the difficulty in getting it through in terms of a treaty change. what does that mean for the next sort of a decade in european economics? if we cannot do what simon sort of outlined and that there is unlikely to be a collapse of the currency union for all of the reasons that people are afraid of what the alternative will be, what is the middle option? how bad is it? is it not quite as bad as we think? what can they do within the constraints that they have? >> well, thank you. i am pleased to be part of this panel and happy to celebrate the life and work of clare o'donnell let me approach the questions

you have posed to me with three bullet points. and i will preface this by saying that on this 70th anniversary of the allied landing in normandy, the united states is still tied to your, i'll be it thankfully in a different way. this country, i think, has an abiding interest in the success of european integration. i have been a consistent supporter of european monetary integration in particular, and i want to see it succeed. i say this because we will talk about the problems associated with europe and the barriers to success. we do this in the spirit that it is in our mutual interest across the atlantic to overcome them. i have three main points. the first is the jumping off

point. jeremy shapiro and talking ahead of this conference suggested i make this comparison to japan in the decade of stagnation. i will begin with that. europe is not japan, but the stagnation displays some worrying similarities. second point i will make is that the european central bank shows a path that differs from the federal reserve and monetary policy. ultimately going to the institutional context kirk -- characterized by political fragmentation. the third point will be that europe will need to do more than it has yet agreed if it is to stabilize the area permanently. in the long run and would need to find a way back to the nobel out clause. i will use the american example. so with respect to the comparison to japan there are important differences.

the parallels are ominous. europe wants to avoid them. in japan how we saw the bursting of an asset price bubble, imposed losses on the banking system, regulators exercise forbearance, moderate policy behind the curve, deflationary allowed to settle land which created further losses for the bank and perpetuating a downward spiral. italy has already suffered a lost decade in terms of growth. low inflation makes the debt deeply problematic, and it lee has, at best, only one-and-a-half of the famous three arrows that japanese prime minister of day has used, fiscal policy, monetary policy, and structural reform. structural reform being the one aero it has at its disposal. essentials, structural reform in

italy. the yield kind of increases in growth over the long term. ben bernanke warned japan about this downward spiral that i just talked about early in the process, and his advice was not heeded. the european central bank also shows a past that was different from the federal reserve. yesterday's announcement in frankfurt does not fundamentally change that picture. the institutional context is the reason for that different chores, and that is the subject of the second point. the interaction between monetary and fiscal authorities was famously modeled three decades ago. a contest between fiscal dominance and monetary dominance under fiscal dominance the government sets the policy, fiscal policy independently of monetary policy. so deficits, debt, and inflation

are i, may be very high under the fiscal dominance scenario whereas they are low on their monetary dominance. now, and the euro crisis this took the form of chicken. creditor governments could create a financial facility and bailout the debtor for the ecb could buy bonds. the two actions were close substitutes, at least over the short to medium term, and each side was better off if the other made its concession first, so each had an incentive to wait. we see this pattern repeats itself repeatedly between the spring of 2010 in the summer of 2012. the upshot is that the ecb delayed taking aggressive measures much longer. so the ecb won this contest. monetary dominance prevails. inflation is extraordinarily low the european central bank as an overachiever.

too much of an overachiever given that it is under shooting its monetary price stability mandate and deflationary as a possible threat. but ecb behavior is important to be a function of the strategic interaction of government and the political fragmentation. so this takes me to the point about fiscal policy. the euro area has chosen to apply fiscal discipline in a centralized fashion. and i think this path is fundamentally unworkable. if they your own needs to find discipline and a decentralized way to be politically sustainable on the long run. to think about this, consider how different u.s. rules are from the fiscal rules of the your area. the fiscal compact in europe has been introduced into national law, but the process was initiated by the center, by the

community institutions. in some cases underdress. and the united states wills' limiting debt accumulation or adopted autonomously by the state's, and this has implications for domestic political ownership. second, community institutions play a leading role in enforcing no rules whereas the u.s. federal government has no such rule. congress cannot legislate for schools. the u.s. model for the states rests on multiple layers of rules that the state level combined -- and this is really important -- with a no bailout norm. by contrast euro area member states have been bailed out. the next generation of proposals in europe for dealing with fiscally dysfunctional states is likely to embrace more intrusion into domestic politics and

policies. the rescue fund and interests of the schools can go hand in hand. >> when we say interested the schools, you mean going into a country and basically trying to determine the policy or spending or structural reform, and it's pretty serious interference. it is not a technical -- >> exactly. it is really people and capital city riding the budgets of these countries. >> yes. absolutely. it is not just the size of the fiscal deficit that is coming under scrutiny, but it is also the elements of the budget that achieve those deficit targets as well as the dead target as well.

so a good example of this is this next generation of proposals, the proposal now a couple of years old in which he advocates federal government's by exception. and which would apply in the case with the recommendations of the commission counsel are for collective action of the deficit and not a implemented. in that case countries should propose an increase for a specific country or they should be able to impose an internal devaluation. and so the important thing to recognize in the comparative context is, this represents the degree of intrusion and complexity. in the united states i would

argue we have a more favorable environment for this kind of thing now we do in your. there is no support in u.s. history. there are not examples and other federal institutions, and i think it is now more likely to succeed. there are two or three logical implications that come from less . the -- this approach to europe as taken risks of repeat of the showdown between the union on the one hand and the member states on the other. we already see this conflict moving again between the commission on the one hand and italy on the other followed soon by france and then possibly spend. my alternative to the strategy i would call a good back to article 125 which concerns -- contains the no bailout costs. the u.s. experience teaches that strengthening of the federal and

constitutions protect the union from contagion when the center denies requests for a bailout from member states. a robust fiscal, established credibility for no bailout norm here by defenses on the part of the union from blackmail on the part of fiscally irresponsible some federal units. if california were ever to come to the federal government and ask for a bailout this would be out of the question two years ago it did not look so good. such a request would be out of the question. california is a wealthy state, but also because the union have protected ourselves from contagion. the other states and the union are less vulnerable than germany

and austria are to a default. so the implication is that europe should put a more robust fiscal union in place in order to restore the protection that many, especially germans, about that they had. this is paradoxical a stronger fiscal union contributes to decentralized fiscal discipline, but that is kind of why this is interesting. from this perspective the european stability mechanism is an anomaly among federal systems to read other federations bailout from time to time, but i am not sure if there are any that maintain a large standing for this purpose. the es and is supposed to be permanent. arguably rules are needed more

for the center to protect against the temptation to rentals requests will bailouts more than they are needed for the state's. and so this is the last point. if the euro area succeeds in moving to a deeper fiscal union the institutional solution should be first to convert the es and from a sovereign support facility to a banking union fiscal the backstop. second, to reestablish the nobel of costs. this is the formula for solving the problem of maintaining defenses for the union without creating fiscal and moral hazard . let me leave it at that. >> it's terrific. i would like to move on to the political aspect. obviously the economics is

highly political. we have had five or six years of this crisis now, very low growth . very low inflation heading toward deflation. at the end of the existential phrase. really concerned that there is no sort of time for robust growth or to deal with some of these issues. the sort of brings us to last week. we saw rise and movements. i mean, it's still very much in minority, but it was a strong sort of signal. i would like to turn to david, the washington bureau chief for the economist, but prior to that the bureau chief for the economist. you're seeing it on both sides. what is your assessment of the

elections cannot if you could speak about this, how significant is that in terms of europe's future? does it really matter? the person out again we are all focused on this battle between the commission and the government's. actually the real substance. >> what's happening at the moment is very serious. my bias as a political reporter, it has always been about the politics. the results of political disagreements. and before i get to what happened last week or responding quickly to some of the things on the panel here, i remember when i was writing a charlemagne column, people used to have this line. we created this monetary union,

a federal political structure. for done to create the fiscal year again. the reason i created this was because they profoundly disagree about what the political union might look like. let's not forget, to my mind the european union and the euro can be understood as epic tussles between two visions of how to run an economy. you can call one competition and won solidarity. i think that we need to understand why the euro has all of these incompatible countries. what it greece given to the euro . if you talk to the country's, was never their intention. how did it happen? in part because france and germany at that time represented competition. there was a summit in italy.

he had run on the election platforms attacking the franc. let inflation run to try to boost rates. he came to a summit in italy countries like italy were not going to be in monetary union. quite anxious about having more so than european countries and the monetary union because they did not want to be locked into a german deutsche mark to be the was not have the vision. but he started attacking the italian prime minister. since time immemorial average prime-time is a place in the alps between france and italy. the french alpine farmers raise this beautiful cars, and then they had driven over the high passes and italy. but because the italian lira

devalued to read a costume much. for the first time in living history -- and this was very emotional. for the first time in history. [inaudible] because the cost to much. and thus italy had to join. because the fear is the competitive devaluations would have made it impossible for the richer countries and north to sell goods. and so that kind of political thinking and did not rely contemplates the elements, that was the kind of thing that was being done. at the same time people did not predictable as one happen. my own newspaper, magazine if you want, we supported the creation because we felt

precisely because these countries could no wonder devalue it would have no alternative but to undertake the painful structural reforms that were crying out to be done. now, how does this connects to the present economic i think one of the biggest understandings that uc among the kind of small handful who really care, a tremendous misunderstanding. this is all about silly germany not understanding how bad austerity is. wicked, wicked germany forgetting the lessons of the second world war imposing this wicked austerity on europe and now europe apolitical cannes in isn't that essentially what's going on is the withdrawal demand from the european economy . silly german austerity. i think that's never accuse the

germans but forgetting the second world war. that's your argument, you're wrong. the people saying that they are against austerity in europe, the policies that have been doing so well and some of these countries , this new kind of essentially latin-american done quite well, when it talk about austerity what they really mean is reform. what it really mean is keep the money coming. like a serious election platform raise the minimum wage, and large the welfare state, nationalized major companies. you know, that is not a rejection of austerity. that is these the indisputably painful economic circumstances in the south of europe leading to a sort of wholesale rejection of globalization, openness,

structural reforms. people in sort of lazily assume that this can be fixed with tweaks to monitor rules are missing the whole point that this is a serious moment. wicked my own country. it's mostly a process. it will not do as well national elections next year. the reason that you're -- the european debate is becoming so dangers is because europe now basically means immigration. that is a crude version, but it has gone beyond the complaints about excessive rulemaking. it is about immigration. american audiences to fund and another of europeans in this audience. on capitol hill the was a congressional meeting. a bunch of congressional staff. you need to understand that europe has done something incredibly bold in terms of

responding the globalization with openness. imagine how and would work if you said to the u.s. congress, under the new nafta will is there will be free movement of labor. the mexican who wishes to move to america to find a job can do so more. the american government will have no legal ability whatsoever to control the numbers. you can just tinker with things like welfare rolls with the nafta court justice with the ability to tell congress not to gives state aid of factory in detroit keep it open because it was against competition rules. in order congress not to give state aid to the american company. you could never in a million years get away with that. anita understand that europe has done some incredibly radical things. in response toward globalization and try to offer the solidarity

of a sort of extraordinary embrace. things that the economists, my employers, we wholeheartedly support it to be a need to understand, if we wholeheartedly support this need to understand how much danger it is a now. a bow of rage, bellow of kind of contestation. do they -- well the specific members of the european punishment start taking specific votes in unison? and don't think that is where the danger lies. it is fundamentally in direct. someone on the panel on monday said 70 percent of the vote went to the mainstream parties. one of the terrifying things that people are proposing a former finance minister of

luxembourg because he was chosen by the center-right in the european parliament. understand what that means. they're essentially saying, we hear a populist rage. our solution is to offer you more of the same. our solution is to offer you the past. a solution is to offer you an old guy who stands for opacity and boasts about how important it is not to tell the truth european voters and do believe in stitching appeals behind-the-scenes. that is there response right now to what is happening. that is kind of terrified just a final point. this economically perfect argument that the logical thing to do is to have more federalism with the eurozone what to end

the single currency. neither of those things will happen. he talked about the fiscal discipline rules. you also indicated the suspect these fiscal discipline rules will be hard did pilaf. his final kind of thought based on my time in brussels, it always seems to me that people misunderstood one germany the people always misunderstood when germany was so consistent. as though it was somehow sort of just an economic preference. again, it seems to me to be even more than a political preference it seems to me the problem is in the euros on. was worse than at crash of economic policies, worse even than a clash of political positions. was, in essence, a clash of

social contracts, the fundamental democratic social contract that bond elected governments. the germans have a social contract since the second world war entirely informed by the pre-war hyperinflation, the vital importance of monetary stability. that social contract work hard, don't ask for excessive pay rises, labor market flexibility, limited inflation. don't spend too much. the thrifty, prudent to be in exchange the government bowed guarantee you lower inflation and a stable currency. that was the kind of fundamental social contract, prudent and thrift. even bolted that of the countries whose fundamental social contract was something different. when people talk about wiccan austerity in greece, of greece is a special case.

a close that down. 10% market share. an annual budget of 300 million lira for a country of 10 million people. over 100 employees earning one and a million year-old premier. all of whom were political appointees. every new government came in and plug innocent people and to this . so closing out that, is that austerity? and keeping that killing, is that the kind of keynesian stimulus? that's the problem. you are asking in a country, a monetary union, you are asking german voters to carry on funding things like that. you are saying to them, you have agreed to extend the reach you live to fund greeks who want to retire. that is politically impossible.

the problem with the election results last week, the bill of pain from southern europe which is entirely understandable, appalling unemployment. the human agony of that, but the problem was that those things were saying keep the money flowing. we want to have a higher minimum wage. the politics just is not there to ask countries like germany to improve much, much larger fiscal problems. it always seems to me that the fiscal discipline was actually a german response to the democratic deficit. the single most painful thing is what happens if german dutch send money south and on and then on no structural reforms and there is endemic corruption and essentially it take the money

and say thanks. we are just not going to do anything you want. that is politically totally unsustainable. because german voters have no say it seems to me always of the fiscal discipline rules were in essentially an attempt to kind of do -- to fix that democratic deficit and make it impossible. and so i think we need to be much, much more sensitive to the incredibly tough politics that i think explains why the economic is so broken. smoke signals of this clash of social contracts. >> thank you. i particularly liked the -- [applause] a particular night the image of nafta. i am wondering what fox news would do with that.

it would be quite interesting. i think one of the -- you talked about the periphery. it is important to be clear. germany's narrative of success. it is sort of missing on the panel, but they're is a few in terms of how this works. it is largely based on structural reform. the structural reform that is occurring does not have payoffs now because it is a slow burning thing but will have pay off later and will cause the return to grow. you don't need this monetary policy or quantitative easing. but one of the problems in almost because of the actions we have seen the course of

sovereign debt come down quite a lot. i think yesterday irish sovereign debt past u.s. treasury bills and terms of how cheap there were. all of the periphery is coming down. merrill pretty manageable. that has taken off the pressure for structural reform. germany, the case was the problem in the bond market would lead the pressures are government had no choice except to reform. because that pressure is now often is harder for them to do so because of this political opposition. as you rightly pointed out, one of the political sword of populism is actually against. they are against austerity but mainly against some of these very tough reforms and taking place. and so i guess my question of

you, if we see this sort of rising populism and opposition to the status quo of the last few years, and if we see that governments find it very hard to initiate structural form, what is the case as to how this will work? not going back to the need to do this of that, but is there any sort of scenario in which germany or the ecb position will prove us wrong? in the, the situation is a lot rosier if they just stay the course or is there just no way this will actually work? >> i think it is worth saying how difficult it is to push through structural reforms. politically that is very, very difficult which is what typically when any country faces the need to push through structural reforms it does so against the backdrop of some kind of stimulus. for example, if greece or

portugal had been under an imf program that would eventually impose fiscal discipline. a very large currency devaluation the problem we have is there was nothing offset the austerity which means that believe these countries trying to do two contradictory things. one is to try and rebuild their trade competitiveness within the euros on. their debt burdens dough rise. that is an impossible thing. the result of that has been a huge increase in debt relative to gdp. we hear a lot about -- particularly from the right on this issue.

basically look at their debt burdens. there still not serious. the greeks have cut more than in the economy since the 30's. they have made huge cuts in public spending, far greater than anyone thought possible. the net result of that is that their economy is 25% smaller than a was. private sector demand is also contracting. the economy shrinks dramatically and the burden of debt relative to gdp rises dramatically. now, we saw her right off of greek debt. we are now back above where they were prior. that is not because they have not been cutting spending. they're now running pretty close to primary budget. the economy continues i think

saw it is not just a question of people wanting to all on the the benefit. this should not have been in the euros on. there are all kinds of vested interests in greece that need addressing. the question is whether you can pull that up politically uncommon is being pushed in the this kind of swap. structural reforms are not a panacea for all problems. structure reform if accompanied by an investment well in the medium to long-term deliver benefit. but there is not a particularly strong correlation between economic growth and flexible labor markets. for example, everyone is touting germany as an example. germany does not have a flexible

labor market germany has a fairly highly regulated labor market. there is no correlation, and it is not just the south that needs to push these structural reforms spanish markets for goods and services are far more competitive and contested. this is a problem of structurally very weak demand. we can all do what germany does which is run a huge surplus of savings in a massive trade surplus. that means is dependent upon foreign demand to close the gap between what the uses and consents. >> that is the plan. >> that's my point. we can't all do that. if you're going to find a sustainable solution to what happens, yes, ben is to be adjustment. there also needs to be changes structural reforms in countries are running huge unsustainably high surplus savings.

>> yes. can you also just address this sort of a german surplus issue which is quite extraordinary. is there any prospect of internal rebalancing where some of that surplus would be used for investment? when people talk about, you know, a rebalance or a change in sort of stimulus, what they're really talking about is that that-occur in germany says. so what is -- is there sort of a prospect of that on the horizon? >> it is essential that we have rebalancing within the eurozone. now we have the situation where -- to answer symons' question -- there has to be something offset austerity. this would be german growth, the increase of wages, some kind of german deflationary. we cannot expect a relative

improvements in competitiveness on the part of the periphery without the periphery of undergoing deflationary if german inflation is half a percent or one person to. many to get that up in the higher ranges. one of the on the reported events of the last couple of months is that the commission actually sites germany for an excessive surplus on the macro economic imbalances procedure. where this goes and how this develops is unclear. it is not -- it does not appear as if this is going to be a strong discipline on german policy to produce the stimulus of some sort. but this is essential. in fact, this is in part with the rest of the world comes and. is essential and important. the eurozone has all does not become just large germany in

terms of the macro economic imbalances and running continuous surpluses. the way -- you know, one of the ways to think about this problem very specifically, to think about the situation of italy again. so in italy we would like to see structural reform, but this is to come in the context of growth italy's solution, there would like to see a room in the fiscal rules for greater investment in infrastructure as a way to provide this. indeed, italy needs this. this is a structural policy that could complement reforms and the liberalizing reforms in the service sector and the labour

market. but, of course, this would require a change in rules which is part of the italian agenda for his presidency in the council of ministers in the second half of this year. i think it is important that goes forward. >> thank you. david, before we go to the audience how would like to raise a big question. the role of the u.k. we have seen cameron lead the charge, but there are huge issues on the agenda for the u.k. and europe over the next four years. it poses very difficult challenges for the german chancellor. how this should make the concession necessary so he feels like he has enough of victory to keep the u.k. in but also deeply

into great between the eurozone into what is needed to fix the monetary union. what is your assessment of not so much the referendum but the diplomacy between cameron and and german chancellor and how that plays into europe's future? is it possible for the chancellor the keep cameron have to also deepening immigration, or is there traffic? >> i think the problem is that there's a lot of mechanisms that have been set in motion on the short-term political. very unpredictable effects. you have this odd situation. willing to do and more or less

an opinion. so, you know, on the one hand it all looks fine. the problem is, of mechanisms have been set in motion. in particular this idea of a referendum on your, should the conservatives when the next general election next year. at think the problem with that is -- i remember i was in berlin by chance when david cameron was elected prime minister. and there were a group of european correspondents. we weren't invited this seeded german chancellor for this very off the record meeting that they do. someone in berlin, the basic german position was pretty clear. germany does not want to be left

alone in a kind of tight euros on union with just the club of countries. germany would much rather have britain and sweden and denmark to be not because germany is on britain's side. my impression is often germany like to have the deciding vote. it suits them quite well. she was definitely open to the idea of doing a lot to keep britain in. the problem is expectations of the british side to be the fundamental problem is the british never loved the european union. it never felt proud or at the. it was a cost benefit analysis we joined in a state of gloom and misery. so much more economically dynamic. britain was at the end of a very inept experiment which have reached the end of the road.

we kind of reached -- just remember the cars that burn was produced. we joined in a fit of, well, they seem to know better than we do. it was kind of a cost-benefit analysis. what has fundamentally changed, the short version, wants the british public went to europe and thought that was like an economic basket case, if she never loved it and now it looks like an economic basket case, was left? the single biggest driver conservatives used to hold their nose. the really dangerous dynamic was the number of conservative mps, a big chunk of that party him out say it's in the market. should we just be the nimble and

did globalized anglo-saxon power nations in and around the world's oceans trading with the emerging powers. the moment we are tethered to this kind of running venetian hold of the european economy. if only we had the courage to cut the ropes and some forward we could be this kind of suit lower trading power. the problem is we are actually an island. the of the problem with the analysis is that germany, which obeys all the same supposedly crushing european rules as we do actually has a much more dynamic economy. clearly there are other factors. the problem that faces, is pretty going to leave the european union? on the one hand the grown ups of were answer is no. the thing that slightly worries me, when you map out how we stand -- here is how it works. the conservatives when the next

election, here's how it seems to work. for us to stay in -- this is of staying in. the intervening steps. there are forks in the road. david cameron goes to europe and says, would like to have or renegotiation in which i know of you hostage. the others have to go, okay. we will let you do that. it might happen. that might be other reasons. in my just go, you know what, we don't particularly fancy that negotiation. he then asked the securities. he then asked to secure concessions. you will get something. he then has to come home and say the conservative party, these concessions are what you wanted. they basically what cut price.

he has to get the concessions and have an initiation, convince his own party that these mean something and then the british public has to be disciplined enough to vote on what is on the ballot. this is not an in and out referendum did it do you approve of the deal. the history is that voters very often don't vote on what is on the ballot paper. if we think it will change the immigration rules. the strange position. most of the big powerful forces in british politics and economics want us to stay in. the big business community in the three main party leaders. i don't think we will get walk

out, but i think we could trip and fall of. that does kind of worry me. >> very interesting. [laughter] >> if you were a betting man than you would -- >> the only bad i have ever done in european politics may be a huge amount of money. choosing the first council president. an irish internet. i probably should not admit this . the council summit. there was this irish better. i just looked and there were offering not on the european council president. tony blair was still odds on favorite. it was one of those rare circumstances where you no more than the bookmaker. you know, working in brussels. 331. i said, you know what, then need a small country, center-right guy, a christian democrat.

the website but not let me put on more than 50 rooms. the odds immediately changed. it did affect my reporting. it made me a serious amount of money. >> we will watch very carefully the odds. i'm sure both of you want to come in. we might go the the audience. we have about 20, 23 minutes left. lots of questions. let's start up.

>> to quit questions. one to david. you portray the elections as a referendum on european issues. the conventional wisdom and european elections is their second order elections because european voters don't care about the issues the european parliament deals with pity could make an argument for them caring about the euro, but the european parliament does not deal with the euro. why should we care about the voters said in the elections? ..

>> >> and second to, the way america adjust with the macroeconomic differences is by factor ability that was brought up the floor when michigan goes through a decade of low per capita or negative per capita income growth than negative population growth for an entire decade, other americans said the move to arizona. that is the system of adjustment you cannot say

that to spaniard so does the working in europe? >> we will take a few and come back. so there is a gentleman right in front. >> so a quick point that was said. click geography the was a great story with the farmers interest but it is 600 miles away from italy. [laughter] so they pass by in trucks that they cannot do in the u.k.

[laughter] the sadly of the question how can you have a single market with countries competing? there were two main reasons was counterbalanced in the other was completion of the market with the major issue at the heart of the project. >> we will take one more. >> from the e.u. delegation

delegation, this remarks on a question with the run-up to always have the impression with the euro crisis and this is not true. and then the buildup of the euro. and then agreed on a certain but then ideas coming from randy with the decentralization. with integration but member

states agreed the pernod has its limits with the equivalent of u.s. states. but with the intervention with the number one and number two solutions not feasible? of a blade to hear one constructive proposal to have a chance of success to go politically in europe. >> then they will come back.

i used to be with the bbc in brussels. of listening which made an interesting game but they were suggesting a hero's own. but in an act of mercy to let police go and others like it. has. >> we have a lot of questions still to come as well. so we will pick and choose those directed to you live be brief so we can go back to get another round. >> remember the bailout issue is not to make life harder.

this is about correcting a situation that is unsustainable. the countries have not been bailed out to peg the one dash to pay back their creditors but those banks and lending money. but to perpetuate an unsustainable levels to require those to spend austerity that further increases the amount of debt to gdp. this is about the belau or no bailout source with stabilizers with the mechanism of transferring money. it is not about making life

harder. with the competitive devaluation, that typically with the euro was undertaken by those that had higher inflation. if you can make all of these member state so similar then it can be addressed. if you can thing you just remove the macroeconomic adjustment. the real depreciation is says much a problem over a 10 year period of time and imposes more than it ever

did because devaluation of the pound to it and the lira took them down to where there were prior. so you can pick -- tracking sheet trades through 1980. but in terms of what you need in short order a stimulus and it acknowledgement that there has to be something from some source in the eighth acknowledgement to just get to the point is is not just about countries breaking

fell rules. in terms of the investment program coming it is a pretty radical change. a big program. >> but then that central banking question and will go the difference. and with the big investment program. >> but made respond to the questions with respect to decentralized federalism or fiscal discipline that i have. this is a long run division

but i will argue it is likely to have more political traction over the long run them the strategy so far with the esl and that is challenged and that the same time and there was a larger fiscal center in europe. it doesn't have to be the same size as the u.s. federal government. four or 5% of gdp could do it. and then that neutralization of fiscal policy it is important and requires a backstop to the banking unit and this is more important

than the transfers that take place through the social safety net half of the federal system and it is done on the importance of these transfers but those that take place in the midst of the banking crisis with the capitalization so low quantitatively speaking this is far more important to maintain cohesion of the monetary union through a crisis. so with some modest fiscal center and not bother is

point and we have done this through a the council or the treaty changes and we're now testing the ownership of these rules particularly in the periphery and there has been agreement and to be signed up to the debt rule and the appearance is tested.

and to do this economically speaking? and in fact, we don't they can make the investments with the infrastructure and inevitably to this accommodation will happen in terms fiscally how that happens. i have great sympathy for the commission finds itself thin because it is toward frankly between the liberal application of these rules of the one hand and economics and reasoning on the other. and what is worth pointing out with the budget deficit

this requires with separate adjustment. this is a calculated risk debt group of economists to let the structural deficit for any country. is a possible serious consequences could hinge on the accuracy of this, one dash calculation while economists differ widely. the range of calculations done on the part of the imf are fairly large. it is not conceivable to me

would be delivered on a technical argument. were resolved in a political way. for an argument for a much more decentralized system. >> but what political message looking at the constitution that none of them had read the constitution. it's not mean it was not the right solution but it

repackaged it to call its salami and that was fine but at some point if you insisted there are no messages that the dutch are not saying we would like to put our foot on the break so now we are uneasy about globalization and europe has become a proxy war that europe is the "avatar" for free market economics you can keep ignoring those all you like their that technically accurate argument. with the work programs of european parliament.

this is not the point you're making but the point i am making is the elections in france? that does not matter but the u.k.? it does not have a direct effect it is not about control the most important vote in parliament but the indirect effect as a fork in the road when a national governments there angeles works in the road should be do the unpopular rigorous or populist easy thing? the opening thing or the closing? and there was just a scrap but she'll lay upon the french election but but said

debt but it doesn't help. when we need to do that with the western world is to prepare against russia. in directç times that if britain comes through in says here in the confession to reflect give they think if they had a much tougher anti-european or anti-immigration life to their next year's safer at

the objections to that which radically impact cameron's maneuver in what britain has to offset to let the government have for the wets to just make set much harder for britain to stay and. that is how politics works there is a freezing gala out there so people put on the overcoat and a scarf to hunker down. you can give me lots of clever reasons to ignore its

you cannot just keep ignoring it does not mean anything. >> are we finishing up now with the outbreak? finigan fortunately but don't have time for more questions with there will be plenty of time. [applause] and would just like the next panel to meet overseer so you can discuss that in advance. thank you very much. [inaudible conversations]

>> the reason we're focusing on the speakers because he is the speaker with the awful majesty and weight of his position yesterday made certain allegations at this point he has not yet answered to. i will yield a. >> you have an audience the you normally don't have when you present this to the public. going back to 1970 or 72.

taking it out of context. and it is to imply that those americans are an american in their activity. you knew there was nobody here. >> put those two men from your perspective and give us your perspective. >> speaker ordeal was the giant and a new the up politics of the house and kept much of it to himself but he obviously received the great amount of intelligence what was going on in different places and always believing the politics was the arts of the possible. nobody got their way all the

time. and what you saw was a conscious decision and to work with the majority so he started to attack bob michael andretti on that side. the tea on the avenue to a the majority is we will take them down to with the argument of miss used to ask these rhetorical questions and we knew that then chamber was empty but back then the camera was very tight only on the speaker then it came to show it had people and it changes the whole dynamics. but that was the process that now many years later has torn this institution

apart and has paralyzed the institution. >> the guest today is john podesta from 2019 was president chief executive officer for a center for american progress the he founded in 2003 with a think tank on steroids. grow up in chicago with his

bachelor's degree where he is now a life trustee and a lot of you from georgetown where he is say law professor spent his time on capitol hill with the judiciary committee working with ted kennedy and the chief counsel and then in the nationals before serving president clinton deputy chief of staff in white house chief of staff 19932001 and co-chairman of president obama this transition team in 2008 hour twitter followers, a glimpse of him and his son to gather at the airbase. now on to the process portion of the program.

and our thanks to the us ceo for sitting at the table to keep me from the pain of premature retirement. notes five blogging or tweeting or no fighting while the breakfast is under way to give us time to listen to what the guest says no embargo when the session ends. the monitor breakfast is one of the last bastions so if you would like to ask the question sent to me us settle signal and i will call on you if we have time available. we will make the opening comments than a round of questions and thank you for doing so. >> good to be here. i want to start to talk for two minutes to say a lot is going on in washington this week.

and to reduce carbon pollution that which mccarthy announced on monday. and to coordinate our activity and to put this into context to account for 40 percent of co2 pollution with a greenhouse gas emissions of the largest source of the missions it is very important to reduce that debt level while the president began to discuss the proposal that was one week ago today and air blast saturday because there are huge public health benefits

that will come from this rule more than 130,000 asthma attacks are avoided and 2800 hard attacks and the premature death in visits to hospitals are avoided and 310,000 lost workdays today at noon we will release a report many of the benefits comes from the coal benefit to reduce traditional clinton's -- glutens bat climate changes self will increasingly be up problem for public health

and with the paper we are releasing goes through the recent national climate assessment as well as the ipcc report to show how the effects of climate change take effective ground level ozone that will raise the emergency room visit over the next decade. silk there are more plant based allergens in the upper midwest leading two lost workdays it has in effect particularly aware that the elderly are affected private the strong heatwave santa

from west and i'll fire restore law and disease are affected in the united states. and to reduce carbon pollution to have a big effect on asthma is the main hospitalization for children and african americans are more likely than white and 40 percent are more likely to die. and in 2004 above the u.s. spend $5 billion on medicaid with asthma related illnesses. this is the big deal. . .