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can. follow and welcome to profit i'm peter lavelle saving the euro in the financial and political costs of doing so is it all worth it there's a euro project need a serious rethink should there be a two tier year old system and can the politics of the euro serve the interest of all in this currencies on. can. cost up a year was viability i'm joined by andrew moravcsik and princeton he's professor of politics and director of european union program at princeton university in washington we go to sheriff raymond she's a professor of international business finance and international affairs at the

george washington university and in madrid we cross to philip bagus he is an associate professor at king juan carlos university is also author of the tragedy of the euro ok folks this is crossed out that means you can jump in anytime you want and i very much encourage it but first let's look at a short report on the plight of the euro. the trials and tribulations of a currency or the euro and those discontents no matter how you cut it or count there are no easy solutions when it comes to resolving the euro crisis the financial costs are higher long term and the political costs are probably even higher ever since greece exposed the weakness of the entire euro project politicians and central bankers have been at loggerheads the single currency was always going to depend on member states exercising fiscal discipline and boosting their competitiveness to achieve convergence this is always been the theory behind the euro but it's reality has played out differently on the ground we can't just

shoot solidarity and say to these countries can't continue as before we can't have a common currency but some get lots of occasions time until there's very little work in the long timing is not on the side of the hero greece was a test case only to be followed by ireland and portugal and now probably spain european elites one another bailout on harsher terms reeses asking for more funding on easy terms something is going to have to give and one of the first political discontent will arise as well reform and pain are in there in equal measure doesn't help in the worst of the second world war but the longer you. necessary evil. the more costly. it is going to be the costs are easy to see in predict if germany gets its hardness fiscal way of forming the eurozone there will be more and riots across the continent if the greeks get their way that is easy terms and easy money then there could be a tea party revolt in germany that could see the euro implode for too long european

governments turned a blind eye to reconnaissance at the heart of their project today politicians have found just enough resolve to avoid immediate disaster given the events of the past year it is an open question whether the populations of the eurozone have. much more patience with the currency but this is my only russia china across our team. ok to start i thought i could go to philip in madrid here i'd like to read a few more words from angola merkel she said we don't have a problem with the euro as such it is a stable currency particularly because of the the dollar it is quite strong sometimes too strong for us as an export in country nation we have problems with certain member states in their debts is that an understatement for a year or is that accurate and looking at the condition of the euro. i would say this and i understand meant this set of the euro system. it's needs

it needs to distract from the problem is that we have several independent governments that can use one central banking system to. to finance deficits and debt and this has perverse incentives put it to where to find if these deficits that you via the central banking system thereby externalizing to costs by price inflation to other countries so i think that it's from the root system is bad all right all right shares out if i go to you in washington are you that pessimistic i mean we were i'm reading in the press right as we could do this program here that sixty or seventy billion more dollars could be funneled into to greece ok that's on top of already what's been put in there i mean is this money well spent because you know is is greece is such a small part of the eurozone but they want to save it ok why don't we just cut its

losses right now and because you know we're going to have other countries following suit i mean i want to talk about the slippery slope later in the program but is this project worth saving and can it be saved. well i don't think they have a choice they have to say that too much political investment has gone into this project they've gone too far you can just go back and reintroduce national currencies at this point the market will hammer these countries so they have to spend the money there's no choice ok if i go to you andrew i mean that's a lot of money to spend here i mean i mentioned in my introduction why can't we go to the two tier system i mean some countries are in this not up to speed their economies are not in st and the integration is not in sync go ahead. well i'm inclined to agree with that there are enormous common interests in keeping this system together because it's not just germany versus greece germany greece are on the same side in the sense that it's germany and france that lent much of this money to greece so if greece goes belly up

a lot of banks in germany go up so they need to work together the question is whether there is a middle solution between just shuffling more money from germany to greece and cutting them off ok it's interesting i don't agree you are right go ahead phil should go ahead ahead go. i think we should not think so much in terms of countries but more in terms of the political elite and the citizens so of course had put it to could it lead or france and germany and greece want the euro to continue and of course also the banking system that the banking system the french broken system that this lent to bear and vengeance of the government but it's not and maybe also some exporters from export to us want to continue but for german consumers this is not a very and perplex player this is not

a very good deal with the market. they could import cheap pearls of companies could import natural resource or sheep or they could be occasions cheaper and we we could buy vacation in houses much cheaper. so they are now losing and it would be better to raise the difference in the conflicts in these times the political give and bankers versus come in place players and consumers to reside if i go back here in washington when it you know i think is interesting i mean if i could just interject hearing it i mean philip really does bring up a good point i mean if you agree or disagree with him a lot of these bailouts are about banks bailing out banks isn't it i mean are they thinking more about their friends and making sure they get a return on their investment eccentric cetera versus the average person in the street about having a job are paying higher taxes etc etc i mean it seems to me that that's the two tier thing here banks saving banks saving economies is the second after thought.

let me let me jump in here i think that it's a little more than that you know in crisis you know yes banks bail out other banks it's the i.m.f. or it's other banks building up banks but this is this is a little more serious you're talking about for a precipitating a contagion across spain probably and then who knows where else and so is trying to avoid another crisis situation which then not is this a little bit higher up than just banks bailing out banks we're trying to prevent a financial crisis to repeat itself for what happened last spring and that will affect not only europe it will affect us here in the united states as well ok and remember it's kind of a slippery slope scenario here because this is what's happening i mean there is this tendency all well i'm in trouble i have pirate all this money i lied about it especially in the case of greece and now we need help so germans really come out ok for i mean we see this time and again. so here's the question cher

assad's right you have to bail out the banks if there's one thing we learned from the last couple of years and from the great depression it's that if you don't bail out the banks then everybody in society is going to pay on the other hand and philip is right that you don't want to stick the whole bill on the german taxpayers so the key to the solution to this problem is to find a way for german creditors and french creditors to oss so take a haircut or pay some of the costs of settling the debt problem which is the whole issue of restructuring this debt and the medium term and such a way as to make it sustainable so that's what i was talking about before but you need to find some sort of a solution in between just cutting the greeks off and bailing them out down the slippery slope as you say you need to find something where the greeks and the germans but not just the taxpayers also the banks share the cost of resolving the crisis it's interesting you think it will do you think banks want to share the cost

of resolving this crisis because then they'll just go to the i.m.f. ok i mean you keep going up the ladder to get more money to do it maybe start off real reform in the euro zone. yeah of course the banks have been shifting trouble some essence from the financial crisis on who until now to ascend the center of bangs and general a taxpayer and the e.c. b. has bought or already more than one hundred billion euros of of assets from banks of. covered bonds from german banks but also a weak government bonds portuguese government bonds on and i don't think that bailing out banks is really the best solution because of that it creates a moral hazard problem which has brought us to actually send in the financial crisis in the first place that people thought i'd been crossed or they would be bailed out of if they would have probably

a lot of government but still if it was let me jump in here so you're saying don't be allowed to big what would happen then if the banks won't build up how we just affect the euro zone it wasn't of course but the problem of the financial system would. who would collapse at least the banks that i am in bed share shape and then there might be better ways to put them on a stable ground again of course shareholders would lose everything and then let me jump in radio this is like head to landrieu jump in your head. but this is the this is the kind of radical thing we want to avoid i mean even if it were true in retrospect that regulating banks and offering to bail them out created a moral hazard here we are we're in a situation where people have made these loans and we don't want to mortgage all of the economic prosperity of society now in some kind of a neo liberal experiment we've lent the money and we now want to avoid as she has

rightly said a kind of contagion effect that brings down entire economies into a scenario like the great depression but the key is that banks which will benefit from an orderly restructuring of this rather than some kind of apocalyptic collapse need to share in the one that i'm not very appealing to look to her and if i don't and you let me jump in here after a short break we'll continue our discussion on the euro crisis stay with our team. in one thousand nine hundred two dr ralph brin straight the university of pennsylvania said what if i can take the gene responsible for growth in human beings and put it into a mouse. wrong or the main risk

issues here is a ninety five percent of all competent scientists in these fields are working for the produces side and only five percent are really genuine independents. there's not a lot of science that says train genic this is unhealthy for people to consume which is what the food and drug administration looks at there is a lot of concern about the environmental impacts given transgenic fish escapes what kind of horrible impact will it have on the rest of the fish population i don't know what this might do the us or our children or our children's children in our congress here in the united states legislatures rather will devote all these different laws tax laws and corporate laws what could be more important than deciding on the permanent genetic future of life on earth.

if you are been here broadcasting live from washington d.c. coming up today on the big picture. and you can start. listening to. the live. welcome back to cross talk i feel about remind you we're discussing

the euro and its prospects live the case slim. ok andrew i'd like to go back to you before we went to the break we're talking about whether to bail out banks or not but there seems to be so many bailouts going on in the euro eurozone is it really having a positive impact because if we see that contained in spreading not contract ing everyone's talking about spain now and then italy's on. the head. i know i'm not arguing for bailing out banks i'm arguing for avoiding the need to endlessly go down the slippery slope of trailing out banks and the way to do that is to move toward an orderly restructuring think about the way that latin american debt problems were addressed in the one nine hundred eighty s. the one nine hundred ninety s. between the u.s. and latin american countries what happened was people negotiated a restructuring of the debt american banks took fifty cents on the dollar sixty cents on the dollar for some of that debt paying their share for having made

imprudent debts and in exchange for that latin american countries got i.m.f. money or got increased private money it's that kind of sharing of the costs between . german and french taxpayers german and french banks and greek. banks and society that needs to take place right now that's not going on and that's the middle solution between just shuffling money around on the one hand and cutting off countries from the eurozone on the other to which we need to strive to decide if i ask you in washington i mean how much more austerity is that entail because really you know we look at these nice words reform restructure and all that but on the ground is austerity and it really is stinging i was in greece not long ago and that austerity is really quite obviously if you do someone just visiting for a few days i mean do what point is it politically viable for this is a good thing go ahead. i think they're going to need

a lot more austerity you know you talking about it least another decade of a lot of pain let me just backtrack here in terms of this middle ground there we've been talking about with andrew they have a middle ground in principle it's a relatively simple they have a huge federal part of money with the u.s. or bailout so they have to establish that in keep it there but they also have to have oversight of the countries that they had bailed out which is where they're leaning towards so there is you know sort of calls for a eurozone finance minister now to oversee these countries that have been bailed out and have fiscal oversight over them and that's a uniquely european way about going things and they're probably going to end up doing that ok thanks so there's i mean just another step towards moving away from sovereignty and for these individual states where it's going to be brussels and frankfurt going to tell everybody else what to do with their economies ok you have to do this business and a lot more pain is going to come your way and you know what there's nothing you can do about it. you know this is

a dangerous the most dangerous of the euro the euro who uses this crisis through the centers. in this crisis then used for more sense of isolation versus a step or was towards the center of government a cent from supposed to in brussels so this is. the problem that see i don't i don't think it'll come back to it it's a good idea i know it would be in any case justified to make german or french taxpayers pay for greek deficits or to bail german banks. i think we could should you really in a moment it'll be ok go ahead jerry jump in go ahead this is the way this program works. i'm jumping it i mean i mean what do you expect you know you allow greece to come into a big boys club on both sides you know of course we we're not sure if they're going

to behave fiscally are not and the greeks understood that they're playing with the big boys you know and they have to stand on their own this is an opportunity when they joined the euro twelve years ago for them to clean up their house and they chose to have an extended party instead and now they're paying the consequences for everyone's paying the consequences for it ok why should. taxpayers pay the confort consequences for it i think germany when we have her on essentially richard pay the cost for a trip. are you pretty lost for a no ok they should pay the cost for a number of reasons one reason is because the german exchange rate is lower than it otherwise would be because they're in the euro and germany benefits from that witness their enormous trade surplus which is almost as large as the national you know they should benefit from it because german banks are kept solvent because as we all agree all three of us german banks would go belly up bringing about what philip himself called an economic crisis or or a collapse in germany without it and they should pay for it because german banks

lent the money and made that the loans and should pay some of the cost and once again i'm not arguing. and i don't think anybody ought to be arguing for surely a taxpayer funded bailout taxpayer should or should pay some of it but most of it should be covered by banks creditors who lent the money accepting a less than one dollar per dollar of code that's what happens in the normal and i am now there are two engines we're not talking about some enormous european sovereignty shift we're talking about normal international practices for resolving crises and that's what should be applied in europe go ahead phil jump in go ahead but i don't see them or our human via them taxpayer foot should be liable for any action that some german bank did so i think that the way that the owner of your various was getting it and and i think it's the myth it's the myth that the low it

changed rate makes makes the any richer i mean if germany would have to be mark german so would have a much higher purchasing power to purchase goods from the eurozone from from our side they are losing by this it might be that some export as what and my point is what we need is you should use this moment to do or form a through or foremost financial system that this could should not happen again like a one hundred percent post in the goods which would make all of these high bits and deficit impossible cherry's i do want to jump in there go ahead. yeah i do want to jump i think philip is forgetting that when the german taxpayer is elected the german government which signed the maastricht treaty which created the euro and allowed also in the end greece to enter the euro zone. this is a legal obligation and i'm not advocating taxpayer is going to simply hand over their money clearly there's a lot more to it as andrew has mentioned but there is

a legal obligation here they allowed them when they got married to the greeks and now there's no divorce do you think what what what what is a vote to determine who would vote in one thousand nine hundred why would he be responsible for any action that his government why would he be responsible for the signing of the must retreat. since i don't see this responsibility philip you have a philip you have a double you have a double standard here and you say to the greeks that they're responsible for whatever their government did even if it wasn't in the interests of the country but when it comes to the germans and their government does something that you say maybe it's true it's not in the interest of their their population then all of a sudden the population is not responsible for it why everybody is response every government is responsible for its actions in the modern world and if the actions are those that don't turn out in the long run for me in the interest of the country well then you have to adjust ok maybe it was a misunderstanding i didn't even want to say that we would be responsible for their

governments for i actually would recommend. to be followed on their government that ok shares are down and i was going to be my next question why don't the greeks just do it ok just your fault say we we don't belong if you don't we screwed up we lied through our teeth our german friends and our italian friends and our friends knew it but you know will we lied so we're going to have to start from scratch and we're going to leave how would that impact the entire euro project. well here's the here's the catch this still this team playing adult at the table and so they're trying to behave by all the rules that adults play by at the table they can't leave if they leave the euro zone they'll be in the dark ages for the next fifty years their only future lies within the euro zone and basically the germans and the french amongst a few others are going to essentially have control over their fiscal house for the next decade because of this bailout if you know things go down the road

legislatively as they are seeming to have fiscal oversight over the bailed out countries so they're going to be supervised as all teenagers are joining in and out table entries are the greeks are going to be in the gutter friedly the matter what they do they'll be in the gutter for at least a decade or half a century that you could be in the gutter for a long time all right i'm going to switch sides here so that you know you're a sheriff with terrorism against dollars because i don't believe a gold standard is appropriate for the modern world but the reason i don't believe a gold standards are appropriate for the modern world is because i don't think you can impose on countries too much austerity and too much outside control so if the middle solution proves to be impossible if the german banks won't pay if the german taxpayers won't pay if the greeks want to just and you can't negotiate that middle solution that charizard and i think would be the best solution then i think it's better for the greeks to get out and default because it's really not possible to adjust within the confines of the e.s.m.

you without using depreciation without using independent monetary means alas you have the cooperation of the international system so if we can't get the middle solution then if they don't really to understand weaker countries should get out of the euro we should go to a truth here system cheers i go ahead. and yeah and there's a big difference been defaulting on this particular loan and getting out of the euro zone you know defaulting is an option but they'll probably restructure look when the first loan was given out last spring four hundred ten billion euro everyone everyone knew that there's no way the greeks are going to pay this back it was simply a matter of when would be the most appropriate time to restructure this when the markets are calmer because we don't want to instigate another scare so we already knew the restructuring was coming everyone knew this and so we here we are back at the table trying to restructure this debt you know default is an option i don't think they want it yet but leaving the euro zone is not an option ok if you greeks

and we don't last word in the program what's the future of the euro well it depends certainly on the board's petitions to and what populations to it will depend on if the drum relation with people would be subservient to their government and not protest and if the. parties want to rule as they see it and see if the people want to do with it are more boards or if they might if you party will loosen its indicated before and of course also in the countries ourselves currently measures. and if they are willing to go forward with this of their own to measure of if the. budget will run out of time here we could have seen a lot more many thanks my guest today in madrid washington and in princeton and thanks to our viewers for watching us here our geek see you next time and remember cross talk means.

they tell martin here broadcasting live from washington d.c. coming up today on the big picture.

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