our three thirty pm here in moscow you would on the same reminder now the top stories president medvedev highlights beating and corruption on decentralizing power as the main steps towards russia's and modernization program of reform was laid on a major international economic forum ongoing in some cases. the u.s. congress threatens to block washington's campaign in libya ninety days after it began lawmakers are furious that president obama extended the commitment to

corporation without their consent which they claim contravenes little. and of thousands of palestinians are left scraping by for a living that is road withholds money owed their government over fears it could be used to fund terror attacks and with hamas now reconcile the fucked up people fear even a less likely to see. how those are the headlines here and not see with you stay with us next it's people i know across the whole cast so this time they're debating whether we can have members of the eurozone should abandon the single currency and go their own way and interesting debate coming your way right now. if you start. to think it's. a low and welcome to a special edition of crossfire i'm getting. to you're always in crisis we'll have

you with us ten years from now. if you can. 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 nash is a senior partner in chief investment strategist at verne zero 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 still. bankers are who i want to ask you the big question. we've seen 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 about how much has more has this more hesitation now and then another support equal bailout remember the first one wasn't called the bailout where 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 surprised perhaps to greek prolonged months of of debt and that's the latest euphemism for the default but whether that actually you know what was going to happen after that that's going to be when i 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 enormous amount of indecision going on there's so much double talk and how to deal with this problem here and now the markets are more or less agreed that 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 kind of

precedent is that established for the eurozone actually i'm very positive on the euro zone in general i think it's far doxy for this crisis is going to be good news for europe in general so what we're seeing now is bad news is good news the bad news is good news actually this done because if we'll look at greece for work a space portugal rests in that for the first time in many years that zealand where the structural on the line the reforms which will cause faster growth over the medium term going to pay for all of the germans going to say hey we will pay for it we will always pay for it i mean really that's where push comes to shove here merkel has an. actually it's ok i mean if it's if something isn't done they're going to have their own tea party you're the fuel the first person actually i've heard say that this is this is who's loosely you know i think the problem is that they're trying to address right now and not the actual problems that exist in most countries you know by providing more money they're not really solving the

underlying problem and they're trying to force countries through to revalue their currency through through changing domestic prices you know at the height of recession forcing the country to go through yet another round of austerity and that's wrong how can you time growth when you're when you know we learned when you're in the gutter how do you find growth by going i having more austerity i'm never going to start that declare their fear of a large scale consolidation maybe expansionary not contractionary i think economic research wind power sure the period swung back are the same effect on the duction are actually expanding and not the increase in that to just go to consolidate that last not on the production of that but also at the same effect an increase and grow the devil in the power and that's what i prefer for investors and for bankers it's not in any way it's fair but we have a point now where everybody has to accept a haircut because of the way you avoid a bankruptcy or because i've always said it maybe with

a lot of cynicism here these are not sovereign problems these are bankers problems ok and they want their money back in return on top of it and so this is where sovereignty and the risks that countries were allowed to make in the bankers need to be in their money back ok i mean is this would be the next big the complications of the next bailout is it going to bail out the banks still again creditors always have big brother running that they're owed this money and they need germany to to effectively bail out the brutal countries the bailout 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 your problems you know the banks themselves are part of the euro zone . tree system and you know again fundamentally right now peripheral european countries have exchange rates which you know competitive and that's how you have presently i want to talk about the pigs in a minute what's the difference between an orderly unwind and a disorderly one unwind i love this new speak that is being used by the financial

media and by bankers what is the difference between the do we have for a big cue from me as rather the unwind leads to the increase in the uncertainty look when you know it is important and the work has been i think stark stark and clear during the big financial crisis where that is that the increase in the insurgency is part of the markets business certainly hurts growth in general so i think what they're policymakers are worried about is how it's on the line without increasing the overall answer or the wrong i'm wrong can you do both can you have both because unwinding is unwinding i don't care if it's orderly and disorderly you have the potential for a domino effect and we've seen this in many other parts of the world in the past major in one thousand nine hundred seven rusher and in one nine hundred ninety 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 are 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 one for europe i would i would like to see more on the imposition of i see it structurally buildout way moral hazard that's my biggest fish growing 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 put enough pressure on to come to 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. i do a lot to try and deal with this issue problem is they're addressing the wrong type of issue right now they need to change the value of their currency so i can change the value people like i think is going to very difficult. to live in your i just don't see that size or the break from that so sure you'll be able to devalue the

current but they'll probably burn inflation will lose all the time consistent so that part of the you are bought for that want to join the euro so i think the costs are going to be arms like you can't win for losing i mean i don't i can't see anything tangible upside at all in doing that i do you have to make a decision one way or another if it's painful to stay in the euro zone it will be painful to be out of it but at least you have control of your finances what's better. what's worse. is the least worst option and you know for a country the values it always seems much worse than off the right country devalued russia that in ninety ninety eight and you remember everybody said it's russia's too big to fail you know if you ever learn to rush through again it will be a lost generation if you will the values nine hundred ninety eight and what actually happened well you know after the devaluation six months later everyone has to learn to rush through obviously greece is a different type of situation political capital there is much greater but the

economics i think are actually quite similar they're going to follow a similar advice the boss's son and i'm seeing is that i think now the money i comment with strings attached to my icon in a way that the next package to do a structural reform and of especially the foremost happen especially on the capital spending especially in the foreign lingering political punch comes in as a nickname because you walk away from your sovereignty in a financial sense ok part of 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 are different and i hope we divorce to the doctor when i'm on the air. it's our say congress 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 for recall information improve it we've found the great except i don't know i mean i

think recession in general is harmful to politicians and you already see you know politicians being elected out of office so forth out of office and seen it in some regions in motion early in our lives so you know when you try and implement austerity really difficult austerity i agree there are big strings attached now to these loans we 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 of what is that what are we seeing here is this a liquidity crisis or a solvency crisis so i think it's it's it's a solvency crisis i don't see that this is a pure all around on the banks or on on greece it's the crisis which came from sustainable economic policy. are great it's not that different from a comment on how to handle that everybody through you know only nobody wants to get how it will be interesting because of the unsustainable policies were a direct result of the way in which the euro was set up so you can go back to

merely point to you and i mean you know the credit is themselves they have to take some blame for this i mean they were the ones that were making the loans to to greece and what it turned out to be an unsustainable economic situation like the erica well it happened and i think the markets already priced 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 so 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 but it's good to be learned from that because people are just going to think well just have a better year oh it's going to be hard to convince someone this unemployed or their family is going to be fickle unemployed for the next decade i mean structural reforms have a very large cost associated with them you know spain already has twenty percent plus unemployment there already people out on the streets in greece are you know i tend to agree if the structural reforms are successful and they compete they can be

pulled through very quickly then improve competitiveness and maybe these countries will go out of the situation but the key question is is it politically sensible to expect these structural reforms to be to go through either time like like now when these countries are facing real deep economic pain you certainly wouldn't expect a country like the u.s. or all the u.k. to go through something like this and we saw what happened in two thousand and eight when they were going through deep recession so there was a big monitoring this was stimulus i like that see because i'm right and i'm going to jump in here when we return we'll continue our discussion on the fate of the spade. lead to keep still. listen to this you can at least. i i i i i i. i

think leg . length. well it looks like we. just.

started. to. welcome back across the bell right before we were to the break roland we were talking about how the euro is how some people think it is collapsing in europe expression if you're unemployed in greece 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 hold of the i don't know all three of these fifty gether i don't. it's 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 a country or a want to redefine what is it actually i think because it's

a competition is the right to vote of between the dollar and the year they both have to fight for the bottle they both have a lot of very deep structural issues the u.s. is dealing with them on my in the the europeans are trying to deal with it in another way and so far you chewey three your q e two story you know you had a cynic you think you already said we were going to free are we going to throw out a fund manager sort of political to carry through but you know q.e. two was the that was the simplest way to try and solve some of the issues in the in the u.s. and i don't see the value of the the dollar against the euro now what we're seeing in for a full europe is trying to devalue the euro against the dollar. all of the chinese looking at this you know how worried so i think that the big right way but from my point of view to think about the current station with your our dollar is from the point of view of the global imbalances. that has been after the financial crisis one of the key things that has happened is the dramatic reduction of the supply of

the safe assets i think about this out of two thousand and seven right had a wonderful triple a mortgages where all kinds of mortgage backed securities which were supposedly safe now what you have is if i have a long term view as government that which may not be perfect has all kinds of issues with that but it's still safer than watching this can produce a special for the long term securities so what we're seeing is despite all the problems in the developed markets in europe and in the us there is still so difficult to replicate this long term instruments it's a unique x. for that you ask because it's not an alternative it's not why there were any intrinsic value just think about for example a thirty year i think thirty year bond when you're issue a thirty year bond what you're selling is yes alan that in thirteen 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 down and you can only sell that kind of

expert if you know how the long history of political system which is consistent with good economic policy by any estimation of the united states is 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 because really strong really 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 or at a loss hundred fifty s. but but you know i'm not sure that you can make the argument now that china doesn't offer longer term security than. in the u.s. given the economic this is a reason to smile ok let's go back to the euro zone here and with why don't we have to see two tier three tier euro system it was premature you 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 it's much more rational where there is some countries are going to be at the children's table and some countries will be at the adult about the theory of why and how mind mind every unions work one of the key paraclete that in addition. to the common occurrence is to have synchronized business cycles and to go to come on across so in particular the fiscal rules so your abroad the credibility are very close it was outsourced to european central bank so now you have the crisis would lead to better also i don't want to say this war but european

fiscal or that this would make me more worried that a lot of people in the euro zone afraid of explicitly i mean someone said to me once for all in which all that was really quite interesting is that everybody should stay in the euro zone except for the germans they should leave the euro zone and then things might work out better but do you think i think they would probably benefit in more from the eurozone than anybody else and i think the euro zone actually is a great political invention and has been very successful actually policing crazy think about european history and what do you have that's you know 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 a look see can you do that monetary only 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 roland i go back you 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 ok it was

a quite a political ambition. the the floor part of it i totally agree with that if the floor part of it was on that was on the economic side you can have monetary union without some kind of centralized school authorities and that's exactly what's being proved now it could you take the tools away from sovereign governments to fix their problems when you have something like no you can't default you can't build up then 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 over a very sustained period of time to build up debts that grew to be unsustainable david that's very profitable isn't it for some people to do that the model works for some works as it were for a lot of voters discussion before the introduction of your so many people were saying that it would never happen that it will have low inflation it would never happen in the country that surround you still they tell you can find it very softer and that's. why seeing that at this for me at 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 if something like that happens in terms of a policy i think your euro project the european project it's sort of the policy has all the same kind of work our own can they stop it can change it now or is it more likely now or less likely everybody's jittery ok i think it's i think it's going to be really really difficult now just to stop the whole consolidation you know they've already tried it several chances in the past they put you know a lot of money several hundred billion trillion rupee euros into into defending the the region it hasn't been enough and markets are compare now pricing more aggressively. expected defaulting greece portugal ireland and i think i think spain as well so what happens when the agents start. it's great mark scheerer i mean

well when we when we have more than pics i don't think there is a significant danger on the contagion the on what's in the markets. i think is going to be i think the market the trip is a mistake and too short term to look at on the 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 them profit on the structural reforms was the positive for europe in general so i think the risk of contagion is relatively small. you know what about the slippery slope here ok moral hazard i mean if there's always going to be a bailout. you know it has to it has to be a contradiction there i mean the money runs out eventually the question is if the question is on its own by you know if it is just a bailout then you know l.a. 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 the trying to do structural reforms right now is politically unfeasible in the market so you just reporting money and create some kind of stabilization then go for the structural reforms so that they disagree actually where they're on on and that's i think this is exactly the right time to do the structural reforms i think the kind of because it fieri or because you think it's i mean i'm looking at a man and woman and child on the street right now is it going to be a lot more pain that way before there is a little bit of our of a different kind of a comparative japan japan isn't wire in the structural reforms to get it out of the last decade to try to sell it to germany is that they have to do all the painful reforms to grow faster why their rage they're growing at one supersaturated huge economy that's certainly the economy but they could grow faster try let's try to think of all of the us yes is doing ok there is no crisis there is no acute crisis and how could that crisis and it's that's why it's so difficult to

portray that all structural reforms that production are. exactly now he's so badly. for all this long. european economists. are really looking at these the elections across europe and 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 starts 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 me and i go back to the germans and say you know. you know we didn't screw this up you know we can use that you've rightly pointed out germany's and quite well by the euro in the longer term but it is certain point they're going to say it's politically not viable for us to do it

because a bit more hazard still out there we're going to bail out the belgians next but that again is the point i mean it is up to the germans to maybe conditionality substrates that is does not consider to be a bailout they haven't done that yet and then it comes down to a point about you know is the other governments in place or can there 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 are finding it very difficult even to make payments you know there actually is known payments growing in some of the european states in washington it is a politically very difficult very difficult thing to do and i have to say the although i think that's a very good point and it's and it's a necessary sometimes to do the reforms i'm not sure it's a feasible time through the reforms and i guess that's the president last last question where we are where you say you're going to stand a year from now i think it's so difficult to predict but i wonder what i've learned is economists so difficult to predict the carcass of the last forecast in fact is

the value of the car i said today so that's going to be my heart 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 remember across. the. street.

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