>> rose: welcome to our program, we begin with the foreign minister of greece, stavros lambrinidis. >> in a few year's time if we are signature at this table coy look you in the eye and say remember what i told you, this is not a disaster that this can actually work that this is hope. that i can sit here and look you in the eye and say see, i was right. i cannot promise you this because there's a long road ahead. but i can promise you that greece has the determination to make the changes it needs. and i can promise you that now europe doesn't simply have the ability but has the political will to make the changes it must. >> rose: and for a look at greece, europe and the global economy, we assembled three editors from the economis magazine. john micklewait, editor and chef, zanny minton beddoes,

an gregip. >> they haven't just kicked the can down the road in the sense they put off all decision. they made some decisions but this is not the end of the road. they have a lot more still to do and they have to make a real firewall, a real rescue kind of around countries like italy. >> rose: the editors of the economist and the foreign minister of greece when we continue. funding for charlie rose was provided by the following:

captioning sponsored by rose communications from our studios in new york city, this is charlie rose. . >> rose: staff rose lambrinidis is here, the foreign minister of greece. on wednesday night european leaders agreed on a new package to contr the debt crisis. it included a 50% write-down on greek government bonds in return for further austerity measures. not everybody in greece is happy. today mass protests interrupted-- day which celebrates greece's stand against access forces in

world waii. throughout the world questions remain about whether the ueu's new plan is a right, long-term solution. i'm pleased to have the tof enminister here to talk about that and other issues having to do with greece, welcome. >> nice to be here. >> rose: you met with the secretary of state. >> yes. >> rose: what was that about? >> it was about discussing that deal that happened a few hours before i actually met her in the very early hours of the morning, european time. because the u.s. has been quite involved, in fact n this european debate. it is, after all, a world in which we're all interconnected and interrelated. and europe's putting its house in order, something that theu.s. also cares about. and of course we also talk about our region. >> right. >> rose: . >> you know, the middle east, the ab spring, turkey, the balkans, so of course, i have to say, however, that

although i'm a greek foreign minister no one particularly cares to talk about all those other things. they say well that's all very interesting. tell me about the-- . >> rose: what's going happen to is greece did going to default on its debt or not, that's t question. >> exactly. >> rose: okay so, what do you think of the deal that has been struck? >> i think it's anxcellent deal. i think that there's work to be done to make it concrete. what i mean by this is that greece was beyond any doubt now, in the eyes of the markets and of the people of europe safeguarded. >> rose: markets reacted positively but often they do after there is some solution that troubles them because of the potential for -- >> and then there is usually just a spin that tends to focus on the negative. we'll see what happens in the next few days. we should discuss this because it is centring why you have the good reaction and the bad one. but this deal is very good for greece because it gives it the breathing spa it needs. as you mtioned there's a

50% cut in the bonds. >> rose: so-called haircut. >> haircut. >> rose: right. >> there are, however, also sweeteners for the banks that participate in it. so it's not as bad as it sounds. >> rose: no guarantee. >> there is a guarantee, there is an ability now of the european fund was set up to buy bonds in the secondary market, not just for greece but for italy, for spain, for ireland, for portugal. there is an economic governance structured that is being put in place finally in europe. in which we had a monetary union that was not, however, followed by a fiscal one. and that gap in the architecture of the eu is what was, if you like, in my view at least, the most glaring problem that was revealed in 2008. >> rose: there was not political unit. >> well there was no political and no fiscal unit there was a monetary one. and whereas greece is in the center of the storm, because of some truly terrible

governing decisions it made and the he explosive combinatn ofebt and definite date-- deficit that it faced, in fact it is not the center of the problem. it has been revealed to be a european one, the debt problem in general. and what i've always been saying is that i'm glad we have this deal now. because scape goating greece was never the answer. now we can move beyond that and like i said, put the european house in order. i think europe needs it. the pa of the markets that want stability need it. and the united states needs it. >> and the global economy obviously. >> yes, of course, of course. >> we're not the chinese i'm talking about investing in this european fund. so i mean that just goes to show how interrelated we are. >> now will all the banks participate in this? >> all the banks will be asked to participate. so negotiations -- >> they take their debt, the bonds are 50% less. >> that is correct. and this is, we have two months to get this done, to talk to the banks.

we had began this discuson a couple of months ago when the initial deal was 21% cut. now its 50%. but the banks agreed last night, two nights ago in rope, through their head that this deal was a good deal for everyone. so it's a voluntary deal. and i underline this because that's very, very important. it's important in the way that it was structured and important in the way that it will be perceived in the markets. pele discussed. they had tough discussions, difficult ones but they all agree. no one was coerced in this. >> is there se devil in the deil here? >> oh, i guess you could say there always is. or could be. but for me, the important thing he is to look at the psychology as opposed to the detail. by this, i mean, we all know at markets at the end of the day are psychologies. this is not an exact science. >> right. >> this is an exceptionally

good deal if you were to look at its fundamentals. in other words, if we take it as such, if we accept the markets reaction during the first day and move forward in applying it, i think that all these devils in all these details will be cast aside by the complication. on the other hand if you have the naysayers jump in and all those who have invested billions and billions of dollars and euros in seeing the euro fail and greece fail and europe fail, and you allow that part of the markets to hijack the debate, then it's going to be university. but i think that this time european leaders in europe is ready. in other words, we know now what the problems were and what we did in the past. we know now what the black holes in the architecture were. >> rose: what do we know about the past. >> there were two many doctors around the patient's bed debating what the right medicine for the patient was. the impression we gave for a

number of months to the markets was th we had no idea what we are talng about. at happened now is that all these different recipes were debated extensively. were he date-- debated in the long hours and everyone came out with a compromise that is not the lowest common denominator but it is, it's not t silver bullet either. but it is an absolutely realistic plan to move europe ahead. so in other words, what i would say is don't listen what i said, look at what i have done. look at the fact that i have dropped the deficit by 6% in 1 year. no other european country, no otheremocracy to the best of my knowledge has achieved this. i have dropped the primary deficit which was huge in greece from 24 billion euros to only $2 billion in only twyears. that's because i cut salaries, i cut pensions. there were many tough, unfair i would even say, measures that were taken. but also, a number of deep structural changes that

greece need ford decades and we knew it. and the greek people demanded them. they didn't want inefficient public sectors that didn't work. they didt want the most expensive health-care system at wasn't delivering what it should. so this changes when you ply them, hurt people. they hurt doctors, they hurt lawyers, they hurt others. so they are not popul. but the fact is that we all understand we have to make them and now europe understands that as we're cutting we also need to grow. and these measures give us the chance, the breathing space to see both the coetitive advantages of greece floish through the structal changeshat we're making but also new money for growth. this is a skinic sgaunon to use an european expression. >> rose: sometimes the compareson is made that austerity builds confidence and therore confidence builds growth. >> you can to the get out without structural changes in greece in particular.

but those changes bring recessions. and the cuts. it's inevitable. so will a restructuring of the labor market eventually make it more competitive, yes, sure t will. but eventually is the whole point and problem. the markets don't care about eventually. they want to see the effect immediately, tomorrow. at least that's our experience up to now. and so when i say that we have got the breathing space this is not just, you know, a figure of speech,his is critical to get the support of greece ay from the markets fo the needs, for all these changes to be effective. but, and here's a big but f we are going to be competitivas europeans,s greeks, as americans in a globalized world, we cannot try to become like some of the countries we are comping with. we are to find our own advantages. let me put it this way. if you look around the world today, the countries that don't have labor standards and labor laws to speak of,

they don't have environmental protection standards. they feel, you know, a perfect freedoto viote the environment. in some cases they're not even democracies. now i will submit to you that all these are competitive advantages, short-term ones. but they're there. and now the question is this the kind of model that we want to emulate. i would say no. i do not want a competitiveness based on inequality. i want a competitiveness based on quality. and that means tt i have to invest in education. i have to invest in research and development. i have to invest in a social ructure that supports my people. and that costs money. where do i get this money in the midst of cuts. becae everyone is cutting as you said. you have to. and that is the g debate that is happening right now in europe as well where. do you find the new sources of financing. >> this may be the dark side of things but as you know much has been made out of the fact that the german culture is different from the greek culture. that the germans are savers and the greeks are spenders

and consumers and that's why you have the problem. and that's why the germans are reluctant until angela merkel came through here to do more in the past. >> it's obviously more difficult to sell people something if you have let's say sell to your people to lp someone else. if you have a term that someone else as a -- >> exactly, right. now we have been pointing fingers for too long in europe during this crisis, o afraid after the financial crisis hit, each country of its own people, own voters, own economy, shutting ourselves in our shells. now i just don't believe that this was helpful at all. and ok at what it did. the markets didn't believe in us because they thought that we couldn't get our act together. and they killed us. our people didn't believe in us. and they're in t streets. in greece and in the u.k. in germany, a tremendous amount of euro skepticism is coming out so isn't it interesting that both the lender countries and the

borrowing countries both have for a while public opinions that were against-- growing against europe. now this is what i said before. maybe i didn't say it but maybe i implied it, that we did yesterday. we got out of the rhetoric of punishment and towards a rhetoric of sol darity. to get there, we had, we the greeks, had to prove that we can-- we understand the mistakes we made and we are willing to return to the path of responsibility towards our partners and i think that the sacrifice of people, thevery, very tou ones, up to now and in the next few years are what got the rest of our partner's focus. >> the people that got there were people in political leadership and people who have a financial stake it wasn't the people, you know, who provide elections success for political leers. >> well i'm not sure that's true. if you are saying that

people in greece are on the streets protesting, i would say yes, that's absolutely true. >> why do you think they are protesting. >> because no one is happy when their salary is cut or their pension is cut. and we are a democracy, thank god. and this is the way it works. >> so political leadership and political skill and political courage is required to make sure or at least to dot best you can to provide an explanation. >> absolutely, absolutely. and this is where, in fact, et going rid of the reference of punishment helps. i mean peopl in greecback there 2009 voted this government into power. the government of george pan andrew. there were no loans at the time. we didn't know, no one knew the extent of the debt and deficit of the country that was real a couple months later. and the people voted my party in way huge mandate for change. they said in that mandate, that they wanted to cut the

civil service, make it more efficient and make it more effective to support the greek citizens. 150,000 civil servants have left the civil service in the past year and a half and to the been replaced. they wanted to get rid of the intranspancy and the waste in the health sect never greece. today there are thousands of doctors that cnotimply writ a recipe for a pedestrians but they have to do it electronically. they wanted those who were tax evading, billions of euros, the rich greeks who were taking the money out in tax havens to pay. today more and more of those people tax evading are being caught and being taken to trial. what i'm saying is-- . >> rose: a large percentage, isn't it. >> tax evasion is still a hugeroblem for greece. >> rose: exactly. >> but let me tell you something about that now. we have a task force over european partners in greece that we asked for. a tax force of experts from

different countries in the eu on different issues that we need. getting a tax collection system that works in our country and making it effective. getting a health prescription-- we are in the forefronts of changing the country, using as every european country in my vw should, the best expertise and competitive advantage of every other of our partners. this gives me great confidence that in a few year's time if we are sitting at this table again, i could probably look at you the eye and say remember what i told you, that this is not a disaster that this can actually work, that this is hope, that i can sit here anlook at you in the eye i cannot promiseyou this because there is a long road ahead. but i can promise you that greece has the determination to make the changes it needs. and i can omise you that now europe doesn't simply havehe ability but has the

political will to make the changes it must rdz a couple things before we leave. number one the arab spring. you've got syria where battles continue. you've had qaddafi killed in libya an in government trying to form there. you've got egypt issues that are there as they try to prepare for an election. tunesia, to have an-- just had an election. where do you think it is and where do you think it's going? >> i think it's probably going tunesia ay because they had an election that was a very successful one, they were ver peaceful one by all accounts. bun that didn't have-- didn't bring an absolute majority out but you see already parties discussing. in egypt the election is different. it's going to be in a number of rounds and take a number of months to be completed because they have lower house elections, senate elections and then they have to create a constitution, pass it the people then they have to voteor the president. but i was in egypt two weeks

ago. and i was struck by the vibrancy, the hope of the people. that was remarkable. it's not an easy transition. no revoluon is. the sirius is deeply disappointing and deeply troubling but also very, very complicated. you have -- it's not as if, country is like another. libya is not syria. >> rose: right. >> which with is, and you see in fact that kind of awkwardness in the debates of security council. >> rose: whether it's will ridge-- religion or the nature of the society. >> and all this stuff. but i think that what you need in this transition n all these countries where you create by definition both political and economic black holes. when you have them, everyone rushes in to fill them. so the question is who does so. i think that these countries now do not want, do not need new hegamotts. they want to be treatedot for their oil resources but for their aspiration as opposed to the predictions

of a terrible terrorist muslim revolutions, the aspirations to be free and to be democratic. and to be able to cooperate with the rest of the world. that's what the european union in my view, and greece in particular have a major role to play. they want the cooperation. they want the investment. they want the democratic support. but they don't want someone coming around trying to be their new leader . and there are some countries in the region that are trying to play that role. i think that's a mistake. i think we have to be very wise with these revolutions and very suppoive. but not offensive to them. >> rose: turkey. >> difficult case. difficult country. in the past few months with its new military movements around cyprus, questioning by military means the absolute right of cyprus to

drill in its waters, aight that the united states government has recognized, russia, the eu and everyone else, is indicating that it may not realize how important it is and how much we certainly greeks wanted to be a stability factor in the region. >> you want turkey to be a stability factor. >> absolutely. turkey and greece have been in the past fewears improving their relationship dramatically. we are engaged in exploratory talks with turkey for the continental shelf in the add recent. >> we will continue this. >> do you believe they're being more aggressive and too aggressive in terms of this new found confidence in themselves and their onom >> well, certainly -- >> and the role they want to play in the region. >> i certainly think that what i see or some of t signs i see are troubling. because the signs go against international, like what they are doing in cyprus. >> beyd that. >> that is a long problem at

th point. >> the situation with israel troubles me as well. >> rose: in that they are, what -- >> well, there is a raising of the decibel level of conflict and confrontation between turkey and israel. >> some say anti-israel rhetoric. >> well, some may say that. but like i said, the region is already unstable enough. but filled with hope. >> rose: but do you believe that it's happening because there is some design that turkey wants to appeal to the arab street or dow believe it's happening because they feel like they have legitimate grievances because of the flotilla incident. >> well, i think that the answer is probably both but what i am looking at at this stage is a bigger pture. i do not want to vp a situation where there is more threats to the stability around israel. i do not want to have turkey in a situation where insad of being able to play a very

constructive role that i believe it can, i the african world in terms of ilding democracies tha are in muslim countries, it may end up appearingo want to be a hegamoinc power in the region because i said this isot what the countries need. >> rose: dow believe that is what they are trending towards, a hegemonic to we are or the aspiration to be one. >> i hope to have one aspiration still, more powerful than anyone else and that is to become a member of the european union. i think that turkey belongs there. and i think that turkey in order to get there has to make the changes that everyone else has to be-- . >> rose: youon't think they have metthe requirements to be a member of the european unionness. >> it doesn't matter what i think, it's what many european countries believe. >> no, i don't i think-- do you think it is that or do you think there is some sense that turkey is not your pen and doesn't belong. >> i think there are some countries in the eu that although not saying it

openly may feel that turkey should not be in the european union because of religion and other reasons. i think that sun acceptable. i think that the eu is a conglomeration of countries and religions of every stripe. and i think that that is a power. think that turk, if change if peaceful with its neighbors, if truly economically prosperous in a way that is based on sound fundamentals and sustainability could be a very powerful european member. this is not the turkey of today. am concerned by the fact at i see a fat agency in turkey in terms of the reforms it needs to make to get in the eu. i'm concerned by the fact that i see some european countries state almost openly that they don't want turkey to be a part of the eu i intend to insist and continue to insist as a greek foreign minister in convincing the turks that the direction of hostility

d mill tarization of debates is not the way to go. and of convincing some of my european partners that it is deeply short sighted to assume that it is best for us to be a europe without a changed turkey than a europe way changed turkey. i think that's a long process. >> rose: chinese got involved in this. were they early players in this conversation having to do with a solution that worked out knowing that they stood by to play a role? >> no, they were not. in other words in other words, you mean in europe in this last decision. >> rose: right. >> no, do the best of my knowledge, you always talk to people. >> rose: right. >> but they were not at least as influential ahe u.s. was where tim geithner came aouple of times to europe, participating in meetings and all of that. but it an interconnected world. the chinese are exporting this stuff largely, hugely to europe. when they-- . >> rose: a huge market for

them and they need market. >> a huge one. when they see the european economies getting into a recession and getting into majo cuts d when they see an instability in the markets, they are concerned about theirconomy in the same way that the u.s. is concerned about its. you know, we cannot, you know, for better or for worse we cannot avoid each other. i never wanted us to. so i'm very pleased that we have to sit and talk. >> rose: and does the u.s. continue to have a role in the region. >> in europe? >> rose: well, i'm thinking specifically of more the middle east in terms of-- because of the arab spring, because their differences shifting different levels. >> absolutely. i mean the eu has a-- an increased confidence and increased role to play that the arab spring countries demand of it. because of the geographical proximity, it makes sense if you are going to have investment, trade, that is your region. the mediterranean. but the u.s. always has been

and will continue to be an important player. now how theu.s. uses the influence it has a power it has is not for me to say. but it can be an influence that can unlock that can break a lot of locks if it is exercised wely and can create even more if it is not. >> rose: fanned it has its own house in order. >> if the u.s. does. >> rose: yeah. >> financially you mean. >> rose: yes. >> you reallexpect the greek foreign minister, the greek one to comment on the american economy. that's to the going to happen. >> rose: or the dysfunction in washington and all that vu for coming. >> thank you so much, great to be here. we continue our conversation about europe and the global economy with a distinguished group from the economist magazine. joining me john micklewait, editor in chief, zanny minton bed owes and greg ip, u.s. economic editor. i'm pleased to have them back on this program and to

have them together and especially to point to this europe's rescue plan which mr. micklewait did not edit, for whatever reason he now can explain. so tell me, you heard the greek foreign minister. so you watched that conversation. just give me your take on whether this deal, this plan will work. >> start with you. >> well, i think reign minister lambrinidis put a positive spin on it. i think it is a good deal for greece in the sense that finally there is a more serious debt reduction for greece. but if you look beyond that as our cover showshich has a picture of a receive, there are a lot of holes. >> rose: what are the holes had? >> well, the holes are primarily, it had to do with three things, deal with greece t sort of did that deal wh europe's banks and put a firewall around countries like italy and spain which are embattled but ich are not insolvent. and in that space it didn't do well. not only the rescue fund for europe at 440 billion your owes. the idea was ey needed to

bolster them because that's not enough to save ily and spain. >> rose: to how much. >> this is the big question. on the one hand you could have the european central bank putting in basically helping out there. they refuse to. you could have the germans put in more money. they refuse to. so su have to figure out a way to turn $4040-- 440 billion your ows to a trillion your owes and more. and they said they did it but if you look define print all they've done is created some financial structures that they hope are going to kind of encourage others to invest. they are ep hoping that t chinese will invest in some special purpose vehicles. but right now we don't have any new money. we just have some financial structures that are designed to be sort of building blocks of a bigger res coup fund there isn't one there yet so i think when you look at the market reaction you kind of see this the first day your phoria, thursday, the day after it was announced. equity markets shot up. by today, friday, actually things are not looking so great. the spreads on italian beyonds which is the kind of benchmark of how wored people r ty are at your

owe era highs. they have gone right up again. people are worried about italy. i think the more people look at this agreement the more they will pick apart and see there are a lot of holes in it i don't think ts is the last one. >> in other words, there will be another, they will have to come back and fix this. >> yeah. they will have to come back and do more. now we're making slow, slow progress but every time they say this is the comprehensive deal, the final deal, the one that is reallyoing to solve the problem this is not the last. >> any heroes in th deal? >> heroes, you know, some ople it's hard to find heroes in europe, right now. but i think some people have played a constructive role. even chancellor merkel and president sarkozy kind of came. they have huge divisions,. >> they did more this time than before. she actually-- . >> rose: i was raising the question because when you were here -- >> that's right, i was on charlie's show and i was saying angela merkel needed to, remembewe talked about she needs to stand up and say to the german people this is what is in the germany's interest.

she has done that, she's been on german tv and making the case. and she is a very methodical person. she is a physicist, right. she's not given to grand gestures, huge great announcements. i think in here view this is a step forward it is, it is certainly not the end of the road. >> rose: so this is kick the can down the road as they say with that awful metaphor. >> it is, well, i think they've moved forward. they haven't just kickethe can down t road in the sense they put off all decisions. they made some decisions but this is not the ends of the road. they have a lot more still to do an they have to make a real firewall. a real rescue kind of around untries like italy. >> the problem is imagine you were the chinese and you are supposed to come in and back this and already they're saying well, if we put money in surely the germans should be putting money as well. they are the people trying to encourage us. and they are also beginning reports to sayhings like if we have the money in, you have to withdraw all-- of the currency. if you start having a fit about why should people do this,s the problem with markets, they are tough

nasty things. in the end they keep wheed eling away at these questions. >> so the chinese basically saying what are you going to do for us if you do this. >> a hundred billion dollars or whatever we ask for is not a small amount of money even to the chinese nowadays. >> i think the chinese will put in some money. the emerging economies will because they will want to be good global comments but they will be putting in maybe, you know, $100 billion or $200 billion. but you need to get this fund to 440, to something over a trillion there is a lot of money needed. the hope is that you have, you know, funds put in money and the private sector puts in money but you have to get the structures right and it's not clear the structures are here. if the europeans think that the emerging economies are going to come to tir rescue and kind of pony up more money when as john said the germans have said we're not putting up any more money, why should they. >> i would add there is something else about this plan which is very troubling. as zanny was saying one of the big problems to deal with is the fact the bks are in a shaky state because they own so many of the

bonds. so the plan says okay, you need to raise and call it 100 billion your owes of capital in order to ensure that you are safe as necessary. find we can all agree the banks need more capital. but they left it in such a way that if they cannot get the capital from the private market these constrict their lending because you can raise your capital ratios by selling more shares or cutting your lending. if they in fact go the soaked route and that say real possibility, your will be dealing with this like strangulation of credit at exactly the same tie they are also dealing with all this austerity. so in some ways the plan has been set up to make the growth look worse. >> that's really a central point, isn't it, the idea that this can be detrimental to growth. >> yes. and the other thing is that they are so desperate to avoid having a default on greek bonds trigger all the default insurance that was purchased through the credit default swap market that it now actually does the opposite. in fact, all the bank sectors that bought credit default swaps thinking this is a way to hedge yourselfs

are now left thinking, are they actually worth anything to us. >> greg's absolutely right. these are the kind of details that as people pour over or the unintended consequences thaus people pour over they will start thinking this deal isn't that great after all. you can see how it hasn't this is struck after what, 8, 10 hours of negotiation by presidents and chancellors. i mean credit default swaps pretty arcade think at the-- thing of best of times. >> rose: even for bankers. >> at 4 in the morning -- >> the americans--ou put the americans when they have a real-- they tend to put in the treasury secretary, a lot of young technocrats and endless people coming through with different plans who know about when bonds mature. this one was much more a group of politicians. >> but you have 17 countries. europe -- the u.s. has enough problems, enough trouble dealing with its own problem you about at least one treasury secretary and one federal reserve. in europe, what, 17 countries in the your ozone, they all get their say in this as the european commission, as the european

central bank there is a gazillion actors fighting for their own interest, it is surprising they agree on anything. at 4 in the morning i was going say we have to get an agreement out that is why they end up with these agreements which look great at first sight or look okay and the more you look, there's actually a mirage and no detail underneath it. >> are all these banks going to buy this deal, bondholders going to take this haircut. >> they are making positive noises so the banks were at the table. but so here again w get to the problem with the details. e governments are still trying to characterize this as a voluntary write down of the bonds they hold which basically implies that the banks are going to say well, is it volume taeferment i think actually i'm not going agree to it. then we have this problem if bank a doesn't agree then bank b is not going to agree so again. >> it's not clear what they agreed is a 50% reduction in the nominal value of th debt. so if you had a bon that was 0, it's now 50.

but there's no talk about the maturity of any new bond you get in exchange. the coupon there are all kinds of ways in which a 50% reduction in the nominal value might not actually be nearly as much in the kind of present value of what you own. so there again, you know, once the details are out, once the negotiations, as the foreign minister said, the negotiations are now starting. and his first big deaine was december. >> thank god. >> it absolutely is. so we're a long way from clarity on where it's going. >> is it a political sale that the greek prime minister can make. >> for the greeks it's not that difficult because they are any a much better position then they were a week ago or somewhat et abouter. they have finally got, finally got the element of fang reality, somebody is saying you're never going to pay this money back. that's finally coming to the system and that to me is i think the good thing that there has been a jump, an emotional jump, with that hurdle. what would if they said this is greekee problem, let them go. >> you get people saying th.

>> i know. >> and very strongly. i think the problem is if that happens, you begin to see a lot of problems within both within greece, horrific for them, but also you begin to see the problems actually going beyond that. because people will think if the greeks go maybe somebody else can be let go. >> it is i think catastrophic. >> more in the wle letting them go would be more intensive than keeping them in. the germans i think ck t the merkel thing, still i think she's done much more but still hasn't really-- totally explained that there is a choice. you have a really gassly horrible feel hereut a much, much worse one the other way. maybe she did a byte more. >> i think she has done more of that. i haven't been in germany awhile but i'm half german so i have german cousins. and my kind of box top view of germany. >> rose: what do your cousins tell you. >> they aren't really concerned. they seem to get it. they say we know that we depend on, we benefited a lot from this euro and we

need to we would be in terrible trouble if the euro fell apart and it's just not an option to let greece go. >> but they're angry. >> of course they're angry. of course because they have behaved, they've tightened their belts for the last few years, had a tough time and they see these guys who they feel rightly or wrongly have been profligate and loafing around, going to the baechbd retiring at 50 and doing that sff. >> rose: not paying their taxes. >>hat is a very strongly held view but at the same time i think a lot of geans really understand that they have got a lot out of the euro and if it falls a part they would not be better off. >> did the u.s. play a role here. >> the united states has sically looked awhat is going on in europe and said look, we care a lot about what is going on there. we are very exposed not just economically but financially. if you look back on the u.s. econy, some of the potholes it hit were clearly related to eruptionf financial anxiety from europe stilling over to the united states. >> rose: once a recovery is on the way that waded in. >> it happened in may in

2010 when the greek problems flared up and again in august where with a little help from the debt ceiling negotiations and that debacle, you had another explosion of political risks. so the americans care a lot and they have tried to essentially nudge the europeans in the direction of saying you need force, you need commitment, you need overwhelming conviction about putting money into this problem. now so tim quitener, for example, went to one of their summits in poland at the request of the europeans to try and make this point as subtley, tim quitener is not a sus el man but he tried to do this behind closed doors. then you had-- the amerins caused this problem, your debts are bigger than ever, why should we listen to you. the irony, of course s we are not running away from the blame but you asked us for our opinion. that said, it is the case at least through back channels, the europes have said this has been helpful. and in fact the device that they have been struggling to create for the european bailout fund goes along the telate of what the americans have suggested

they do which is basically take some real hard money provided by your joint treasuries and lever it up, okay. either lever it up with private sector money or lever it up to the central bank's balance sheet. the mecnism by which they are doing still rude goldberg as we were discussing may not work. but itoes -- >> have they levered up. >> well, the original plançy)w is really crucial to understanding whether or not it will work. when the manies were doing this similar with their private sector debt problems they were saying the treasury is going to basically, you know, put for every dollar the treasury puts into the bailout the treasury reserve will lend $9. and the treasury will observe all the loss in that one dollar. so therefore you can make a accommodate $10 worth of debt exposure and it worked very well it worked partly because you know that the fed is able to lenld as much as it wants to as long as the commitment is there. the europeans are trying to mimic that wit the leveraging idea. okay wll take a dollar of the european financial stability facility. we'll find three or four of

other money. but without having that money co from the european central bank it simply can't be as effective. the european central bank is the only institution in europe whose firepower is unquestioned. they can lend as much as they want if the have the conviction the refusal t play that role is the single biggest strumable--tumbling block. >> the iro of all of this is thathis firewall, this rescue couldave been very easily provided by the ecb, the european central bank making clear that it stood behind solvent countries. because it is unwilling to do that. because it's unwilling to provide financing directly to this rescue fund t becomes much, much me difficult so they have chosen these kind of two alternatives. one is this special purpose vehicle that greg talked about which is trying to be somewhat similar to what was used in the u.s. and the other is to use the rescue money as a kind of first loss insurance. so for example, italy a new bond the rescue money will

provide credit that says if you default we'll insurance you against the first 20% loss. because they insurance against the first 20% that magnifies their rescue money five times. but both of those, because the central bank isn't involved, at the end it's just notn effective rescue. it seems to me that the real rescue will ultimately be provided by the european central bank. because the european central bank will, if things spread ftalian spreads keep rising as they have done now it is the ly institution that can come in in force and buy enough to bring them down. >> what is the political fallout of all this. >> the initial -- go ahead. >> the itial political fallout is as merkel has rebounded a bit, she's still the most powerful person in europe. the's a really big dynam whereby the germans on the whole are trying to hide, although has a tougher time trying to hide it at the moment they have this huge ecomy this power behind it. the french by contrast are desperately trng to show

slightly more vibrancy and the relationship-- sarkozy comes behind it rapidly having tried to persuade in different directions before. on the outskirts you have the italians with berlusconi looking at over-- forlorn figures. >> i think that would be a polite way of putting it. >> rose: berlusconi forlorn. >> -- a sort of sad clown going back to the circus, you get a rough idea. >> having been lecture by angela merkel to really lechure you sad and say you have three days to come back with something proper. >> rose: must have went over well. >> he went back anhalf came up with something. but he doesn't look particularly strong. the rest of them are all ightly again waiting on the sarkozy but paicularly merkel. and on the outside you have the british. and that's the sort of-- they're just beginning to get drawn into this, the first time because there is

a sort of-- . >> rose: thinking they would never. >> i think they are getting drawn in to it, not in the sense of giving money. even in britain giving money through the imf is viewsed a controversy. america has to give money to the imf, we allave to but also because the euro skeptics within the conservative partyave scented an opportunity. they tend to almost t some them, rattle. >> rose: an opportuty to do what. >> renegotiate the terms with europe back on the terms that they want to do. and that is causing cameron a lot ofifficulty. last week you had a revolt with 80 people, 80 members of the party, the biggest revolt ever against the prime minister of europe because even john major never-- numbers. >> the arguments that are clear and paul krugman talked about it today is whether austerity works. does austerity work and do we have any indication from britain. >> i do think within europe i think the idea -- >> there is too much, by any measure as we go through repeatedly, they have-- the

push towards austerity at they wer ss moment is worrying having as high interest rates as the ecb has had, having the kind of strictures which angela merkel is putting people through is tough. within britain what has happened is the austerity so far has pulled in one very obvious big thing. britain has not gone down the roads of greece, although britain has very, very bad debt. the problem is which krugman was rightly pointing towards is that growth has not been coming. so the trick-- . >> rose: and will not be coming. >> i think he is perhaps over -- >> i'm with, i think he has a point. and i think that there is-- it's very clear that if you undertake fiscal austerity your economy suffers and you have to-- than you otherwise would. if you have everybody undertaking fiscal austerity at the same time and so within europe we-- everybody trying to cut their budget deficit and here too unless

we have some action on the president's growth agenda, job as genda. >> the option in the u.s. fiscal tightening, the unemployment insurance expiring. effectively most of the rich world tightening at the same time when economies are incredibly weak. i think that's a kind of recipe for stagnation in the short term. much more sensible would be, and we've argued it until i'm blue in the face. most economists argue it too. it is not a nonmainstream view. you need to deal with media deficits. we need to have kind of particularly in this country. but this kind o overreliance on short-term austerity is in my view kind of magnet rose: are making ficits only big issues. >> making deficits the only big issue but focus on the short term and not focus nearly enough on the medium. even in europe mh more needs to be done in terms of raising retirement ages, in terms of medium term things and more in europe on

boosting growth, on underlying strucre reforms. journal still has a lot to do to free up its labor markets but on use terive-- austerity it has been exsensive. the greeks have no choice. they have to cut their defit but germany doesn't, doesn't have to do it right now. they have a demographic problem but there is absolutely no need for germany to be doing deficit tightening right now. so you can have a much more sensible plan which is more in the medium term, smoother onhe short term. >> i think it is a very important point and we have made, zanny has made this point is that in some sense europeans are completely misdiagnosing what the problem is they see the markets losing confidence because government debts are large so they sayhe answer must to be cut debts that is not fundamentally the problem. most of europe's debts are actually smaller than america and britain's as a share ofgdp. why are they having a crisis and the united states and britain are not. because the people who hold the spanish and italian debt aren't sure who will buy it next year because there is no lender of last resort.

when you control your own currency, your lenders never worry about thr ability ll their bond. so the united states controls itsurrency, britain controls its currencythose countries in spite of their debt are bothering for less than 2%. because spain and italy do not control their own currency they must pay 5%. that's why it comes back again to that european central bank. europe is going through liquidity crieses and liquity crisisan be solved by the right application of good monetary policy. >>ose: so what is the supercommittee going to do in the united states? the largest question is of course the direction of u.s. fiscal policy. d unrtunately the news is not very good. you know what we do in america is that when this year's crop of congressman are not courageous enough to make the right decision they ask never year's crop of congressman to do it which is more or less what the supercommittee is supposed to do. come up with mechanisms or we'll have automatic triggers take care of it. >> will it come to that, though. thanksgiving is the deadline s it not.

>> i think you can get to halfway, to 1.2 trillion. call it 600 billion. that basically means you still have the triggers coming in saying okay, well, the law says that we that did you didn't reach the targets the triggers have to do the rest. that means january 1st, 2013, you get these automatic cuts to defense, nondefense spending. here's the problem. that's over a year away and there's going to be an election in between. and it seems very likely that somewhere in between some political force wil arrive which will say can't we wait unl after the election and perhaps pass a law that maybe puts that off for another year or two. i think essentially like it's america's own version of what europe is doing. kicking the can down the road. >> dow find some businesspeople, in the past month i found more businesspeople saying we're worried about europe. right at the front, that actually increasingly worried about america beuse they see these years of gridlock stretching in front of them. and they just imagine america will not be able to deal with these problems

long-term. and that ihink, i know that is more in the past period than i have done before. >> dysfunction that exists today. >> dysfunction really annoys businesspeople. >> because they think it's uncertainty. >> uncertainty. >> why would you build, if you listen what greg just said, why would you build a factory in ohio if you think there is not a long-term plan about where the taxes. >> i want to cover a couple of things. the two of you, did all of you go down to look at occupy wall street today. >> what does it is a to you. what is goi on, what do you think the larger meaning of this it? >> i think it's ea to look at these things and just look at the actual placards and say they are make nothing sense. they are not putting their arguments very well. i think what is interesting i suppose is this also ties into american. the thing about them is they do represent a deeper anger. they may not be the representatives in the sense in the things they're calling for but i think the basic idea that people think

that the system which they've been living under d which to be fair, newspapers like the economists have advocated the basics and model has ende up with as they put it 1% doing so much better than the 99 cents that i think is something that resonates quite hard and resonates all the way around the world. it's not just in new york. you can see it back in london. >> it is also a part about fairness that the system is not fair. >> that for me coming, i haven't been in america for five or six months, that america just feels much anger. >> one of the reasons is feels angrier, this isn't necessarily the main reason that the people are in occupy occupy wall street or the park, but it's an economy that is stagnant. fanned you are in an economy stagnant with 9% unemployment, where the social safety net compared to europe is much sthiner, life is really tough. d you know i think this going to get much, much, much grimmer and every time

you come back it will feel worse, everyone got very excited is week because we had two and a half percent growth in the third quarter. >> two and a half percent growth is kind of basically-- this economy is trend great. emerging from this deep recession d-- this is not an economy that is doing any great shapes any time soon. and if we stagnate or if we grow at this level then i think we will have more of these kinds, this anger will show itself, with the tea party first, occupy wall street now t will be something else. >> i done see any politicians who have develop aid narrative that shows a real sense of connecting where the country is, to a vision to the future. have you? >> is interesting you say that. i had a couple conversations with folks down at the square and the question i asked them was if the economy was in better shape, unemployment wasn't 9%, would you still be here. d they said yes. becae in fact a couple of the people i spoke to had jobs but they were minimum wage jobs, one guy working at disney world, another at a toxic recycling center.

>> college degree. >> one was in college dropped out to come to new york. another a college degree but was working in an area having nothing to do with it the. the point they were trying to make to me is i am going be working at 10 to 15 dollar an hour jobs as long as i can see. there was anger about not just corporate power but about china, about trade with china, immigration from china. and what surprises me in some ways is that we haven't seen the demonstrations sooner. because if you look at the polls and the trend, the things that are upsetting that have been going on for ten years. it didn' start three or four years ago with its recession. to be sure the main reason employmentoday is 9% was because of the devastating hit to overall output and demand. but the stagnation of incomes is several decades old. and if you look at the polls declining support for globalization, declining support for free trade, it tracks very closely the growth of chinese impos and so forth. politically i think it's very interesting because i think will you see in the coming year both candidates try to find ways to harness

this,-- mitt romney's decision to sort of like-- the most unusual part of mitt romney's platform is i want to like get tough on china. >> first thing will do is --. >> exactly. very unlike a republican to take that kind of stand. and i think an element of that is pathizing with the notion that america is on the losing enbase other countries don't play fair. >> i agree. and you see that the president's people are trying to fit ou how do we connect this and what are the risks because they are look for some way to figure out how they regain, you know, a sense of the narrative that they feel like they lost. >> all of a sudden you have these bogeyman out there, you have bankers, you've got bureaucrats, big government, you've got china. you could argue that what is happening not just in america but particularly in america is over the next year or so there will be it be a choice about where this and certificate going to go. >> what's interesting. >> it will be so much worse. >> it is. if you look at the protections-- projection, even optimistic projections of where the economy is

going to go and where the unemployment rate will be in five year's time theree extraordinary hi. and ditto in europe where we are going on this diet of austerity for years and years. if you add all of that up and we are aeady seeing this now, what will it be like in three, four, pfeiffer year's me. >> rose: thank you.

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