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stories from also these must go down not bad for a day's work the presidents of russia and china signed multibillion dollar trade deals with even more into pipeline to finalizing a thirty year multibillion dollar gas deal as well as discussing libya and i think sound of issues both countries say nature must honor and not exceed the terms of the un resolution on military intervention in libya. also there is no place for gadhafi in post-war the beer that's the message russia's peace envoy to live with it while needs to officials in tripoli get a previously met with opposition leaders in ghazi as part of a push by moscow to mediate a peace deal the talks took place and that fresh nato air strikes on the even capital under rebel offensives along the curb. and lawyers for alleged arms dealer

victor booth the printed challenge the legality of his extradition to the u.s. from thailand the russian businessman has been awaiting trial since being arrested in the u.s. and sting operation of the three years ago the charges against him include conspiring to age terrorists as planning to kill americans and of the world. and there's the headlines coming up next because talk about his pile of guests discuss if there's any future for the deeply troubled you. stood. alone and welcome to a special edition of crossfire i'm peter will. be your always in crisis we'll have you with us ten years from now. and. still.

to discuss the fate of the euro here at the st petersburg international economic forum i'm joined by alec since he's a professor of economics at yale university and roland no she's a senior partner in chief investment strategist at ver no capital all right gentlemen crosstalk rules in effect that means you can jump in anytime you want roland i want to go to you first the euro is having another very bad few days here markets are. bankers who are going to ask you the big question are we seeing the end days of the euro and if not what can they do you know a greek tragedy generally speaking has many twists and turns and i don't think we're at the end of that process yet the markets are beginning to price but i think we're we're still a little bit of distance from from that how much has more if there's more hesitation now on another supporting whole bailout remember the first one wasn't

called the bailout or you know greek tragedies what do they always end and they always ended in tragedy and i think that that is going to be the endgame here unfortunately markets right now are beginning to price perhaps the greek. of of dan and that's the latest euphemism for default whether that actually you know what was going to happen after that that's going to be where the lead come out here i'm going to press you now ok in nobody wants to talk about the end here i mean now we're seeing the risks so high right now and in the new. armisen mounted indecision going on there's so much double talk and how to deal with this problem here and now the markets are all more or less agreed there's going to be a default now what does that mean when if and when it's probably when greek defaults and the greeks say we want the hell out of this project what it what what kind of precedent is that established for the eurozone i actually am very positive on the euro zone in general i think it's far doxie where this crisis is going to be

good news for europe in general so what we're seeing now imagine new says good news the bad news is good news is actually on the stand because if well look at greece for a look at spain and portugal less in that for the first time in many years they dealing with the structural underline the reforms which will cause faster growth over the medium term going to pay for all of the germans going to say hey we'll pay for it we will always pay for it i mean really that's where push comes to shove here and merkel has an electorate ok i mean if if them something isn't done they going to have their own tea party movement i feel the feel the first person actually i've heard say that this is this is good news for the year i think the problem is that they're trying to address right now i'm not the actual problem to exist in in those countries you know by providing more money than not really solving the underlying problem and then trying to force countries through to revalue their currency

through through changing domestic prices you know the height of recession forcing these countries to go through yet another round of austerity and that's that's that's the wrong how can you find growth when you're when you're doing that when you're in the gutter how do you find growth by going by having more austerity a memorandum started oxic where there a large fiscal consolidation may be expansionary not not contractionary i think the congress search points out. of the period that have the same effect on the induction often especially spandau. no the increase in that fiscal consolidation that last not all of that adoption of that but also sustained if it can increase and grow the devil is in details and. for investors and for bankers it's not in many ways we at the point now where everybody has to accept a haircut because there's a way to avoid that the banker said because i've always said maybe with a lot of cynicism here these are not sovereign problems these are bankers problems

ok and they want their their money back in return on top of it and so this is where the sovereignty and the risks that countries were allowed to make in the bankers need to be their money back ok i mean is this what the next the complications of the next bailout is that going to bail out the banks still again credit is always a big problem right i mean that they're owed this money and they need germany to to effectively bail out the brutal countries the bailouts the banks and if that doesn't happen then the banks are left holding the baby and that you know that doesn't solve any of europe's problems the banks themselves all pass all the euro monetary system and you know again fundamentally right now peripheral european countries have exchange rates which are not competitive and that's how you have said i want to talk about the pigs in a minute of what's the difference between an orderly unwind and a disorderly one online i love this newspeak that is being used by the financial media and by bankers what is the difference between the two for the key for me as

rather the on wine list or the increase in the uncertainty was when you know is important and what has been i think a stark stark let's clear during the the big financial crisis we had is i think raising the insurgency hurt the markets in a certain person girl in general so i think what the policymakers are worried about is how to get on the wind without increasing overall and sort of all of that all that well known can you do both can you have both because unwinding is unwinding i don't care if it's orderly or disorderly you have the potential for a domino effect we. seen this in many other parts of the world the passenger in one thousand nine hundred seven russia and in one thousand nine hundred eight if you unwind one part of what is a very complicated problem the danger is that you start a series of domino effects and it moves from greece to other countries we're already seeing that if you look at the bond markets what was wrong with the first bailout of greece because it was inevitable that we have to do it all over again and plus we have ireland we have portugal spain is knocking on the door i mean what was it all about. what what was wrong in this partial or that i would have

preferred to assume that the bailout to be a last or for europe i would i would like to see more off the imposition of my sister i was really built that way moral hazard that's my biggest patient role and my biggest issue has always been moral hazard i think the if you provide an endless stream of money coming from another source of financing then it doesn't could say enough pressure on two countries to to to restructure but you know at the moment i do believe that greece and spain and portugal and ireland i mean they are doing quite a lot to try and deal with this issue problem is they're addressing the wrong types of issue right now that they need to change the value of their currency so how they can change the value of your friends like for i think is going to very difficult for greece to live in you are i just don't see the op side for the grace of that so surely they'll be able to devalue a car instead but they'll probably get hyperinflation lose all the time consistent

so that part of you are bought for that one the john d. or r. so i think the costs will be in terms of like you know if you can't win for losing i mean i don't i can't see any potential upside at all in doing that either you have to make a decision one way or another it would be it's painful to stay in the eurozone it will be painful to be out of it but at least you have control of your finances what's better role and what's worse it's the it's the place the least worst option and you know before a country devalues it always seems much worse than often. country devalued russia still that in one thousand nine hundred ninety eight and you remember everybody said russia is too big to fail you know be left alone to russia or a guy in the last generation if we will do values in one thousand nine hundred and what actually happened well you know after the devaluation six months later but he wanted to lend to russia again obviously greece is a different type of situation the political capital there is it is much greater but the economics i think are actually quite similar. they're going to sound similar by

the positive sign that i'm seeing is that at least now the monney are common with strings attached to the mining icon in the way that the knesset to to do structural reforms and of the structural reforms happen especially on the part off cuts in spending cuts in the parts whether you would call punch comes in doesn't it i mean because you walk away from your sovereignty in a financial sense ok part of i mean that's the unspoken rule of the eurozone but then there's the political side of it i mean there are people that are elected ok i mean how do you how do you marry the two or do or quietly divorce the two paradoxical and want the perience offs a convoy of the large fiscal consolidation in or a city over the last twenty years there is no evidence that a large fiscal consolidation leads to a loss at the polls so i think anybody who is saying i don't know if i'm critical information. we've found the great except i don't know i mean i think recession in general is home to politicians and you're already seeing you know politicians being

elected out of office or forced out of office and seen it's in some regions in motion early in our lives so you know when you try and implement austerity really difficult austerity actually there are big strings attached now to these loans and you try and implement that at the height of one of the biggest recessions in the last hundred years i think is going to be political consequences from what is the what it what are we seeing here is this a liquidity crisis or a solvency crisis i think it's it's it's a solvency crisis i don't see that this is a pure. ron on the banks or on on greece it's the crisis which came from sustainable economic policy. on the great it's not that different from a comment that i can't handle that everybody is throwing around and nobody wants to get on with the interesting thing was the unsustainable policies were a direct result of the way in which the euro was set up so you've got to go back to nearly a point that you and i you know the creditors themselves they have to take some blame for this i mean they were the ones that were making loans to to the greeks

mannish and what it turned out to be an unsustainable economic situation like the character had will happen and that i think the markets are a price on this and i think what the markets are not pricing and here is that the structural reforms can lead to higher medium term growth. well that's asking for the bankers get bailed out and everybody else has to pay for it that's why we have the riots in the streets here i mean is that tenable and it's certainly not tenable in the short term what is going to be learned from that because people are just going to say well just have a better year oh it's going to be hard to convince someone that unemployed or their family is going to be unemployed for the next decade i mean structural reforms have a very large cost associated with them you know spending already has twenty percent unemployment there are already people out on the streets in greece or you know i tend to agree if the structural reforms also successful and they could be if they can be pulled through very quickly then that doesn't prove competitiveness and maybe to these countries can grow out of the situation but the key question is is

it politically sensible to expect these structural reforms to be to go through at a time like like now when these countries are facing real the economic pie and you certainly wouldn't expect a country like the u.s. or or the u.k. to go through something like this and we saw it happen in two thousand and eight when they were going through deep recessions there was a big monitor if this will stimulus and that's the because it's all right and i'm going to jump in here when we return we'll continue our discussion on the fate of the euro state. students. hungry for the full story we've got. the biggest issues get a human voice face to face with the news makers.

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studio. welcome back to cross talk i'm peter lavelle right before we were to the break room we were talking about how the euro is. how some people think it is collapsing in europe big special if you're unemployed in greece but one of the implications internationally i mean the chinese are very very unhappy about this the united states is just about to end its quantitative easing its part to how do the i don't all three of these fit together i don't think it was really interesting we were talking about the weaknesses in the in the euro but actually the euro has been strengthening against the u.s. dollar and you've got to ask yourself you know why country or want to redefine what is it well actually i think because it's a competition is

a race to both of between the dollar and the euro they both have to fight to the bottom of it they both have a lot of very deep structural issues the u.s. is dealing with them on way in the the europeans are trying to deal with it in another way and so far you juhi three your q e two story behind the senate q do you think you already said it we're going to three are we going to fund managers that are willing to go to carry through but you know chewy too is that there is the simplest way to try and solve some of the issues in the in the u.s. and other ways to devalue the dollar against the euro now what we're seeing in peripheral europe is trying to devalue the euro against the dollar. all of the chinese looking at this now how worried are you so i think that the big the right way that's from my point of view to think about that the current station but for the euro dollar is from the point of view of the global imbalances. there has been after the financial crisis one of the key things that has happened is the dramatic reduction on the supply of the safe assets think about just how the two thousand

and seven what had wonderful triple a mortgages so we had all kinds of mortgage backed securities which we are supposedly safe now what you have is if you have a long term government that which may not be perfect it has all kinds of issues with that but it's still safer than watching this can produce especially for the long term securities so what we're seeing is despite all the problems in the developed markets in europe and in the ass there is still so difficult to replicate this long term instruments it's a unique x. part that you asked me i sort of because there's an alternative is out why the intrinsic value just think about for example a thirty year i think thirty year bond one your issue a thirty year bond what you're selling is yes alan that in thirty years your economic policy is going to be pretty good that the country is not going to collapse the inflation is not going to be

a pound and you can always sell that kind of expert if you had a long history of political system which is consistent with go to come up with policy that could be made by any estimation of the united states is on the verge of bankruptcy i mean would you buy those bonds i'm not asking you personally but would you advise an investor to do that i think on the verge of bankruptcy is probably put a little bit strong ok a really good strong but no easy answers your question i would not be buying u.s. u.s. treasuries right now i mean it is still the safe haven al that but it really is a lack of alternatives and you know you made the assumption that china didn't offer any sort of long distance security been in the u.s. you know obviously the track record of the u.s. is much greater than in china over the last one hundred fifty is good but you know i'm not sure that you can make the argument now the china doesn't offer longer term security than. in the u.s. given the economics of this it's the regions of money ok let's go back to the euro zone here why don't we have just see two tier three tier euro system it was

premature we know that the greeks lied openly lied about what they did frankfurt knew about it brussels knew about it but it was the great project that had to succeed well it is under failure by many accounts by many different people here why don't they is it time to rethink the project completely or it's much more rational where they are there is some countries are going to be at the children's table in some countries will be at the adult table about the theory of why and how my mind every union this work one of the keeper requisite years in addition. to the common currency is to have synchronized business cycles and to go to comic roles particularly the fiscal rules so your body the credibility of the monetary policy it was outsourced to european central bank so now you have the crisis would lead to better fiscal policy i don't want to say this war but european fiscal authority

that and this could lead to a war that a lot of people in the euro zone afraid of expression i mean someone said to me once roll in which all that was really quite interesting is that everybody should stay in the euro zone except for the germans they should lead the euro zone and then things might work out better what do you think i think they've probably benefited more from the eurozone than than than anybody else and i think the euro zone actually is a great political invention and has been very successful actually politically if you think about european history and what do you have that's that's the heart strings i mean i used to be a professor of european history i can absolutely agree with you i mean creating unity here but can you do that look to can you do that monetary really and maybe it just takes a much longer time than they had expected i mean we have countries like poland that are kind of stepping back now thinking maybe this is not necessarily a good idea if we say at this point in time. you can have roll in the back you can you can have political union without monetary union we you know there was something like the european economic community they didn't work out too bad it was

a great up political ambition. the full part of it i totally agree with of the full part of it was on that was on the economic side you can't have monetary union without some kind of centralized to school or foresee and that's exactly what's being proved now why don't you take the tools away from sovereign governments to fix their problems when you have something like that you can't default you can't build up debt in the first place and that's that's the issue that was it was the ability of governments to use and private sector to use low interest rates or very sustained period of time to build up that has proved to be unsustainable that's very profitable isn't it for some people to do that the model works for some works doesn't work for a lot of other discussions or for the introduction of your many people were saying that it would never happen that if the level of low inflation it would never happen in the country with all the time oh you mean my medicare you saw there emmett's but i see that at this for me the euro was a much more successful project that i thought it would be outsource that mine very

policy to the technocrats of the european central bank which were more conservative than the average population of europe and that's something like that happens in service policy i think your in your project in the european project it's sort of the fall of wrongness and kind of work out while growing can they stop it contains it now or is it more likely now or less likely everybody's generation i think is i think it's going to be really really difficult announces to stop the whole contagion you know they've already tried to hit several chances in the past they put a lot of money several hundred billion trillion route euros into into defending the region it hasn't been enough and markets are concerned now pricing more aggressively. expected people to agree political island. i think i think spain as well so what happens when the contagions starts. its its great march here i mean

we'll have when we will we have more than pigs only there is. significant danger all the contagion beyond what's priced in the markets. i think it's going to be i think the market's a two percent mistaken too short term a look at on their whole european situation again i'm going to come back to what i was trying to say in the beginning that the period of fiscal consolidation and of the unprecedented structural reforms would be positive for europe in general so i think there is a contagion is relatively small again you know what about this slippery slope here ok moral hazard i mean if there's always going to be a bailout you know it has to there has to be a contradiction there i mean the money runs out eventually the question is if the question is on its own bailout if it is just a bailout then you know structural reforms don't take place so if it's money that actually results in structural reform then that then that is the exit i just think

this is where we really disagree i just think that trying to do structural reforms right now is politically unfeasible in the markets so you just reporting money in some kind of stabilization then go for the structural reforms so let me disagree actually were there on on on on this i think this is exactly the right time to do the structural reforms i think the kind of people as a fairy or because you think it's i mean i'm looking at a man and woman and child on the street right now it is going to be a lot more pain that way before there is a living loving heart a different country and compared to japan japan is in dire need off structural reforms to get it out of the last decade but try to sell it to the japanese that they have to do all the painful reforms to grow faster why their rage their growing want to pursue after a huge economy that's why i'm here continent but they could grow faster try let's try to think of all the u.s. is doing ok there is no crisis there is no acute crisis no good debt crisis and

it's that's why it's so difficult to push through all the structural reforms in the production or for. exactly now we're on the europe it's cheap so badly you have the time to pay for it or this along with other forms of maybe european economies so i think you know really looking at these the election process here upon we've seen a lot of wild cards coming out a lot of nationalist parties doing much much better of course is going to be the element of immigration that always pops up there but there is the euro issue as well and the sense of sovereignty here do you think that the reform reformists for the for the eurozone have enough cards to play to starve off. a growing political reaction because we see that we and i go back to the germans and say you know. we didn't screw this up you know we use that you've rightly pointed out germany's and quite well by the euro in the longer term but as a certain point they're going to say it's politically not viable for us to do it

because of the more hazard that's still out there what you can do bail out the belgians next but that again the point i mean it's up to the germans to make the conditionality so strong it's not it's not considered to be a bailout they haven't done that yet and then it comes down to a point about you know other governments in place and can they be governments in place that are able to follow through on that strict conditionality given the current circumstances that exist in those countries and you know when i look at places like spain right now and the way in which you know the regions of finding it very difficult even to make payments you know there actually is non payments growing in some of the american states in washington it's a it's a politically very difficult very difficult thing and i have to say the although i feel like a very good point on it and it's a necessary time to do the reform i'm not sure it's a feasible time to do the reforms and i guess that's different from the last question where we were just a year over to spend a year from now. making it so difficult for exact one that we have learned is economy so difficult to predict the current forecast in fact the value of the car

is that today so that's going to be much more well. i can't believe it we ended the note on a positive positive positioning i want to thank both my guests here in the studio and i want to thank our viewers for watching us here are going to see you next time and remember across. i.

just. read you the latest in science. from. the future. to a substantial degree and one problem or another socialism has spread the shadow of human regimentation over most of the nations of europe and the shadow is.