captions copyright national cable satellite corp. 2008 they're hugely integrated and we forget, when i first went to brussels i was given a dinner by now ambassador to belgium tom corologas and i walked in, very nice, very friendly, very distinguished. belgian came up to me and said "i'm so glad to meet you, where are you from?" i said i'm from washington, d.c., he said no, no, nobody's really from washington, d.c.,

where are you really from? i said i'm really from north carolina, whereupon he hugged me. i sort of wondered, i said "do what do i owe this show of respect?" and he said, "because we own food line and you've been very good to us." food line is the largest supermarket chain in the southeast in north carolina. i didn't know that. i grew up there and didn't know that the belgians owned where we bought our food. and a lot of us don't know this, there are 7 million, 8 million jobs on each side, depending on the investment from the other side. i think many of the bmws, the bigger bmws that europeans drive are actually made in spartanburg, south carolina. there are many and too many regulatory disconnects, there should be a total, i think it should be one internal market. the european market isn't finished, that's one of the keys. if there is any key to europe it is the formation of an internal market. we shouldn't get very uppity

about this because it wasn't until five years ago that we could ship wine in our state and we still can't do that very well, so we have our problems, too. we shouldn't be, you know, throwing rocks at europe so much because there are things we need to do which they can help us with, but the two economies are really, really intertwined, and it's not so much that our banks would fail if some of their banks, if our banks pull back, it's not necessarily that exports would drop, which they have, which on the margin hurts us because we don't export that much to europe. it's the overall picture of investment of confidence in europe and what the europeans want now from us is almost their first priority, led by the germans and you can correct me if i'm overemphasizing this, what they want is a more focused look on regulatory harmonization or mutual recognition and they cloaked it in the guise of a free trade agreement between

europe and the united states and this is not progressing very well, but i wait until after the election and let's see what happens. i was disappointed to see even the obama, meeven the romney administration is not saying it's a good day, administration's campaign is saying it's not necessarily a good idea. why is it important? it's important because if europe cannot find the key to the kind of a dot-com innovation we're used to, facebook, google, then we suffer. we suffer, they suffer. if we both can get rid of the regulatory emissions, we'll be at 2% maybe lucky, nobody would be complaining if we were aat 3%. if europe were at 2%, 3%, europe wouldn't have a problem. what are the difficulties? you can trace almost the price of bonds in germany depending

on, and italy depending on the progress of monti, who is a very free market guy, had a competition in the commission, you could trace the prices almost in tandem with progress or lack thereof of getting his reform program through the italian parliament. now what to me is the key to all this? i asked this rhetorical question, sort of a trick question when i first went to europe in january of 2006, who was, how many people know this, who was the sick man of europe when i first got there? what? germany, yes, germany's growth was slower than greece, spain, italy, ireland, whatever, and what happened? what did they do? well, they did the so-called hearts reforming under schroeder. he never really benefited from it, chancellor merkel has had a huge benefit from it. this is not the first time, president bush 41 cleaned up the banking system, lost in part because of it and clinton had a great run, you know?

but that's life, that's just life. germany was fine very fast. it didn't go into effect until january of 2005 and within 18 months germany was the colossus of europe from the sick man of europe but in a way i'm oversimplifying what the europe wants with the rest of europe, god if we can do this, this derag galatian, a reagan/thatcher, clinton welcome reform sort of moix tour, relaxing the rules on hiring and firing, if we can do that, certainly you can do that, but monti's given up, and so the price goes one the bonds, interest goes up, when he gives up on the notion that he's going to eliminate the requirements because you can't lay off anybody in italy without a court approval. i said this is one of the more

liberal judges, he said "you cannot do what in italy?" i said you cannot fire anybody, it's also true of france. you can't fire anybody without a court approval. "without my approval" said the judge, i said yes. he said "that's insane." well it is insane, and today we learn in the "new york times" a european court of justice ruled that if you get sick on vacation in europe, you get to take your vacation over again. it used to be if you got sick before vacation could you postpone it and take it over again. now they've just ruled -- i've got it here, you can read it in today's paper if you get sick during vacation you get to have it all over again. gee whiz what a great racquet. i hope to get sick in august and give myself another vacation in september because it wasn't good in may. what we need to do is take a look at these things that made germany a success.

there is an effort afoot to try to do this with our help, with our cooperation. i think that would add to it and then i think europe would be under a whole lot less pressure if they had a whole lot more growth. >> thanks very much. i do recall i think it was jean claude juncker once saying we european politicians know exactly what needs to be done. we just don't know how to get reelected after we've done that. >> there's the problem. take your lumps and if you're like schroeder or bush 41, maybe it means you don't get reelected but you're treated well by history. >> yes, yes. so i think what we've heard from this panel is a different view of the eurozone crisis, one that looks at this as a bargaining enterprise and not a very pressie or nice one but one that requires crisis to work. we have a franco-german relationship that does better when they're having arguments,

and we have politicians who commit political suicide in order to get these reforms through and so of course no one in the current crop really wants to do that very much. so it's not a very cooperative environment, it's not an environment where everyone can simply make a rational decision and move forward, but we do have this great impetus of the economy pushing people forward, debt levels, deficit levels pushing decisions to be made, action forcing events as well and we have the meeting next friday which we hope will open decisions. i'm going to open this to the audience and i think we have some microphones here, why? okay, so, yes, back. yes, that's right. and please say who you are, and

your affiliation. >> i'm chris bludewsky from manufacturers alins for productivity and innovation. >> could you stand, please? because you're hiding behind the person in front of you. >> yes. i hold luisca and jacob in best regard. these are some of the best brains in the community we have today and i read their stuff and i value their writing highly. i would somewhat blind, maybe impolite by challenging their views today. on the one hand, we've got a game of chicken, which is trying to subtract sovereignty which is given to any group of countries. on the other hand we've got a conflict that luricka said is almost needed in order to advance integration. what we have effectively is a conflict that is needed in order to deepen the integration that is supposed to avoid a conflict,

so you've got a conflict that is supposed to then mend a conflict. i think the search for the first best solution that we have and inability to concentrate on plan b, the second best, and have that second best as a viable option, is causing this crisis that we have, where markets are not convinced that first best is achievable but second best is not attempted or spelled out, and this in between gray area is causing this crisis that keeps going. why do we have a crisis in order to solve a crisis? why can't we go back, step back, climb down and accept the plan b, spell it out to the voters, and at the price of the diminished credibility, regain the credibility down the line and build what is viable? i'm sorry i can't put it any other way but i'll finish there. >> is there a plan b that would work and that is something that everyone could agree on? i mean, the europeans are often

accused of not finding the big solution, that we're not going to wake up and suddenly see that the crisis is over, but rather of muddling through, and let me add to that, for you, jacob, there's a timing issue, too. how long does this game take to play out, and how long would we be better off having less of a time distance to get to the goal, and be able to have something, a win of some kind, george soros who has made a lot of money in currency speculation and investment had a speech about a month ago where he gave europe three months, and he -- >> he also said last year about three months. >> yes. >> two weeks alast year. >> two weeks last year and there are others as well who have said this. what's the timing?

is there a second best? >> well, i mean, i think that we have to be clear that this is second best. modeling, as i said if we could have a cooperative solution, it would be much cheaper and much quicker, but that's not possible because of the sovereignty issues involved. so we are in a second best situation here, and with respect to the timing issue, the way i view it is perhaps slightly broader. the euro area is trying to achieve here, is trying to unify from the bottom up by voluntarily pooling sovereignty from the units to a new center that's being created, that's infinitely harder to do than the way consummates are normally unified which is of course through military conquest

historically. but remember that we in the united states, we have states versus federal discussions about who does what, who pays for what, these types of issues between the center and the periphery and it goes on all the time. it's essentially the same that europe has, the same discussion about, you know n here we call it state's rights issues. in europe they call it the principal of subsidiary. but it's essentially the same thing. what is different is, of course, that europe does not yet in my opinion have a center that everybody agrees will hold. now i believe it will, and that we, in fact, have cross the point of no return in the sense that it's going to be much more expensive for everyone involved to dissolve the european union than go through this process that i have already sketched out

and that enrique was also talking about. so what we need to do is get to the threshold where markets are essentially convinced that the center will hold. once that's established, we can go on forever to have these state's rights debate internally in europe, when will that happen? i think that's a very good question, do we need, we clearly in my opinion need a banking union. we will get a big step towards that next week. >> yes. >> we clearly also need partial debt mutualization of sovereign debt, which is something that i believe can abchieved, you know, maybe in a five to eight-year time horizon, so that is the time frame that i'd be looking at, but that doesn't mean that we, in the meantime, cannot have a quieting down of the sovereign debt market or the sovereign bond market instability, because essentially, the way the ecb

works, the political response function of the ecb is, it lends its balance sheet every time there's a step forward towards european integration, and i would expect that, quite frankly, to happen after next week's summit as well. >> uricka, second best plans and what looks, what does this look like between france and germany and if they agree on something, do the other countries, who are not so much part of at least the initial decision-making process, is it second best for them, and i wish you'd say a little bit about the incentives for germany to compromise and particularly chancellor merkel. she has been -- shes aa farvegt rating of somewhere between 55% and 65% consistently since the beginning of the year. >> second best in the sense that politics is the out of the possible, right, and i would agree, i mean the question was

more or less sort of how long do we go with this half pregnant situation, right? and i think the answers she gave a speech in the last couple of days it will take five years to overleap into the institutional setup so that's the first league of work to do, that much of the things that have been more or less outside of the treaties will be conveyed into the real institutional treaty work. don't forget we have new elections of the new parliament 2014 and the budget so this will be doing a refundamental work in the institutional setup with respect to discretionary means for the eu budget but also probably with respect to how the european parliament functions and whether we can work on more transnational european parties. don't forget that january 2013 next year we have 50 years of franco-german years of the treaty and i'm deeply concerned france and germany will take that opportunity to do a huge quantum leap in political integration just to size the

symbolics of that thing, and then what is in for the smaller countries? i think what is in for the smaller countries that, i mean, i don't want to say they don't have much other choices, right, but in austria, the nether -- the smaller countries of the eu are largest benefit, they don't have a foreign policy, they benefit from a european foreign policy and energy policy and benefit from its strong set so the smaller countries as long as they have ownership in the system and it's important how we work in the institutional setting. let's face it, i don't like discussions about federations any longer and i don't like united states of europe because it's too much comparing with the united states. i like european republic, because that's more or less what it's about. we will need to have a moment, european republic resonates

plenty of our values. many of the european countries are republics, and also the french and there must be something like creative more political thinking and then i'm convinced there's a lot in for the smaller countries. >> ambassador do you want to comment on this? >> this sounds vaguely familiar if you remember american history. i used to say, take it from us, we're the old country, you're the new country. my state is older than greece, i mean older than italy, belgium, even germany, so we're the old country. this is not an unfamiliar thing going through and many europeans say gosh, why shouldn't germany pick up debt the way hamilton did in 179. he did that in 1789 when it was formed, you know, there was a

huge debt crisis in 1837, when the states bet on canals, and got overtaken by the railroads so there was a lot of investment going belly-up and the states went to washington saying will you bail us out and washington said no and therefore we got some 39 or 40 state balanced budget constitutional provisions, which has helped a lot in this country. so you know, we've seen this movie before, and you also say brussels needs to get stronger before it can get weaker. there needs to be more of a democratic element, either the parliament has to be more representative, the eu parliament or president of the commission or the council has to be publicly elected. there's got to be this element of it, which has got to be added. the french, and i got to be careful how i say this, i've got

to be careful how i say this, but my experience was that the french really knew how to run the european union. spanish being the principal language and the brits being so good at this and so articulate and i say to my english friend, boy, you really do dominate the commission, don't you? they say, no, no, no, no. it's the french [ whispering ], the french dominate everything. and i think they're losing some of that, but this is a problem. the french don't want their secret behind the scenes power diluted any more by we see europe forgod's sakes, let alone the united states if we were to be more integrated in terms of our economic regulatory relationships.

so i'm putting a different spin on what you're saying but i think the drench do have to come along on this. >> jacob, you had one small thing? >> just very quickly on this issue of the pooling of the sovereignty, it's very important to distinguish between the timetable for fiscal union and the timetable for banking union because banking union has the "political advantage" that you can pool sovereignty in a bureaucratic, technocratic institution, most likely the central bank to oversee that. you cannot do that with fiscal policy because it's inherently political. so i would absolutely not believe a banking union is that far away. i believe we're close to one. >> next week? >> no, i think we will have an announcement of one next week that will have this proportionality between pooling of sovereignty and pooling of in this case not debt, but

contingent liabilities is what we're talking about, but the principal is essentially the same. >> next question here, let's see, can i get a microphone here? you had one, right? >> yes. >> i'm harlan omar of the atlantic council. i thank and congratulate the panel for a lively and provocative series of comments. i wanted to enlarge the discussion however along the lines of a headline i remember reading years ago in london in the express of the mail that read "channel fogged in, continent cut off." we're looking at this in isolation of europe, and there are a lot of other moving parts, let alone a collapse of the new greek government, what's happening in syria, what's happening in iran, when the supreme court decides to rule on at fordable health act here, if they do, you can imagine what's going to happen to the stock market, so there are a whole series of exogenous things going on that have not really been considered that are going to have powerful influence. i wondered if the panel might address some of those and how

they might be dealt with, if at all. >> so at first i thought you were going to actually ask about the role of britain in this. >> something much broader. >> something much broader than that. we have had in europe i think a ba bandwidth issue in terms of this has really dominated the discussions, the amount of leadership time that has been put into the euro crisis has been phenomenal and ulrike, why don't you start this. >> i think there's a very easy and in a way saet answer. we are trying to shift the system a nanocentimeter away and we're doing this for reasons jacob mentioned. but if you shift the system from the adverse without gaining ground the risk is always there at some point you lose it, right, so let's face that. i'm by the way convinced that

market's already got the story and market's got the story we succeed and we go for i say european republic to make it short. your point is say valid point, what we don't price in, in that happening is the unknown risk because we try to price in the known risk but we don't know about the unknown risk, and what we don't price in is the law of unintended consequences, and we have been seeing this with ltros and movements where a good intention of crisis management led to other consequences which were unintended but brought us other difficulties, so is there any chance that we, i think we just need to have that in mind, we are dealing with unknown risk and we are dealing with unintended consequences and just we need to be careful at any step down and there is a problem because the problem is that we will, if all this goes right, we will be basically keeping a whole political system under strain for the next five years to come to put it mildly. and the strain on political

elections and how you have, you know, the narrative ride and the press not overshooting, you know, like nazi articulates, whatever, germany bashing articulates, what is poisoning the atmosphere and you poison electoral things so this is a ri risk, i agree but again is there any other chance out there to be careful and to still do it. >> i think the other issue as well and i'm not sure if you meant to include this as well, is as we look from here from washington and there's this discussion about the pivot to asia in u.s. policy is the eurozone crisis making europe a partner that is less a partner for the united states, that in addressing global issues and in the way that we are seeing, europe is seen in international institutions, such as the imf world bank, et cetera, is this something that from an american

perspective and we have to think about in terms of europe's capability to act else where, not necessarily from military and even to get the diplomatic bandwidth. >> fran, one thing on this, i feel the inverse. honestly all this talk about the u.s., europe going down the toilet and 20 years i'm listening to this and europe is still alive, and i never saw the u.s. so actively commentating and looking on europe than like now. i mean, i'm now at an nyu fellowship in new york, the whole city is about europe and germany trying to get the political economy of europe. i think this country is rea reactivizing europe and realizing we are the utmost partner on earth for the united states and that you have stakes in what is happening, and i think that this is one of the best sort of unintended consequences of the euro crisis from a transatlantic perspective. >> do you want to comment on

that? >> yes, i'm sort of a broken record on this. this discussion, we just don't read anything, and joseph jaffe had a great piece the day before yesterday, i encourage you all to read it, make sure you had copies here or we'll have copies. the -- if we don't, and it starts with economics, i mean, unfortunately. my old man used to say all the time when i was growing up, "money isn't everything, but it's just about everything." it starts with economics. you could say the internal market and the internal market has to be transatlantic and if you don't have that, if you don't have the economic growth you can't pay for anything else. and you can't do the things that we're talking about here. you need the economic growth, and that's where real liberty comes from, and real opportunity comes from. we can do that, but it has to be part of the debate. i just want to insist on that.

if we don't, this is from jurgen toumont, head of the business europe and leading german finance, business figure, if we in europe don't get our act together with our common values, different as they may be in some respects, if we don't do it, asia is going to drive right now and the whole game is going to be lost, and what happens between us and europe is really critically important for the future of the world economic order. it's absolutely essential and if we don't get our act together, we don't hang together we will, as they say, hang separately. >> thank you. let me bring in another voice. >> hi, i'm catherine hauser with the trance atlantic business dialogue. my question really was about the role that the uk will play in all of this. i think when americans think of

europe, we naturally think of the uk, and most of our exports go to the uk. it's the first country companies export to, the close relationship we have with them, and i'd be very interested in the panel's thoughts about the role or trouble the uk may cause in all of this. >> jacob, do you want to start on the economics and the decisions? >> yes, well, i think this is first and foremost a problem for the uk, quite frankly, because i think that what you will see is increasingly, i know there's talk of multispeed europe, et cetera, but in the long run, because of the benefits that ulrike talked about for the smaller countries of actually being part of the european integration of continental integration, sorry, i ot