culture is that so much of the next mayor isn't limiting it's a show me these people are hearing me you're always in crisis will be your witness ten years ago. now it's seven thirty pm here in the russian capital you are with. our president if you had a pledge is a drastic measures to create a warmer investment climate in the country the centralizing power and defeating corruption are among the goals voiced by the russian president and the international economic forum and it simply has. no concern to note catch us congress members say they'll cut funding for the libya campaign and as the president gets the proper constitutional go ahead farmers ninety days about without

sanction runs out this weekend for the white house claims that there's no need for congressional consent. and palestinians are out of pocket after israel holds back millions in tax dollars that's left tens of thousands of people without their wages in a move the television claims is necessary to prevent terrorists. from me. but i'm a world news with my colleague in about thirty minutes time before that though crosstalk discusses whether the eurozone is collapsing like a house of cards to stay with us. stood . alone and welcome to a special edition of crossfire i'm good with. the you're always in crisis we'll

have you with us ten years from now. if you. start. to discuss the fate of the euro here at the st petersburg international economic forum i'm joined by alex since he's a professor of economics at yale university and roland know she's 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 how having another very bad few days here markets are still. bankers or so who are going 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 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 prolonging all of that and that's the latest euphemism for the default but whether that actually you know what's going to happen after that that's going to be where let's 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. 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 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 would 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 hard to accept where this crisis is going to be good news for europe in general so what we're seeing now imagine news is good news the bad news is good news actually on the stand because if will look at greece for a look at spain portugal we're seeing that for the first time in many years they deal and where 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 ok we'll pay for it we will always pay for it i mean really that's where push comes to show here in merkel as an electorate ok i mean if if something isn't done the going to have their own tea party movement you'll 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 problems the but exist in the in those 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 to the heights of recession then forcing these countries to go for yet another round of austerity and that's that's that's not right how can you find growth when you're when you're doing it when you're in the gutter how do you find growth by going by having more austerity i never started oxic where there are the large fiscal consolidation may be expansionary not not contractionary i think the kind of research points out. the period have the same effect on the doctrine of the special span. not the increase and that's a fiscal consolidation that last not on the production of that but also at the same effect an increase in grow the devil is in details and. for investors and for bankers it's not in many ways fair but we need to point now where everybody has to accept the haircut because little boys at the bank are too 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 sovereignty and the risks that countries were allowed to make in the bankers need to be getting their money back ok i mean is this would be the next big complications of an experiment is it going to bail out the banks they will again credit is always a big problem is that they're owed this money and they need germany to to effectively pile out the peripheral 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 you know the banks themselves are past all of 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 that i want to talk about the beginning of what's the difference between an orderly unwind in a disorderly way unwind i love this new speak that is being used by the financial media and by bankers what is the difference between to go for

a big key for me rather the on wine list or the increase in the answer to what we know is important and what has been i think stark stark in that. the financial crisis right now is that increasing amounts are going to hurt the market because i'm not certain person girl in general so i think what we're going makers are worried about is how to get on the line without increasing the other or the person or the wrong of the wrong can you do both in your household because unwinding is unwinding i don't care if it's orderly or disorderly you have the potential for a domino effect. 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 thousand nine hundred eighty 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 i would have preferred to see you back at the bailout to be allowed to a free iraq i would i would like to see war on the imposition of i still struggle to rebuild that way moral hazard that's my biggest mission growing i think is issue has always been more. 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 to come from 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 may need to change the value of the currency so how can you change the value of your friends like for i think is going to very difficult for greece to deliver your i just don't see the op side for progress of that so are sure you'll be able to devalue its about they'll probably get hyperinflation will

lose all the time consistent so that part of the euro bought for that i want to drive to your so i think the costs are going to sort 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 euro zone it will be painful to be out of it but at least you have control of your finances what's better grow 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 all. country devalued russia sold out in the one 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 of you want 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. to what i was a somewhat similar by. the positive sign that i'm seeing is that at least now the money icon with strings attached the money i come away at the necessity to do structural reforms and of the structural reforms happen especially on the part cuts in spending especially the parts when very little punch comes in as a maiden name 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 to two or do or why it we divorce the two paradoxical and want the patriots off a conflict 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 of the polls so i think anybody who is saying. i don't know comparable information. on the great except i don't know i mean i think recession in general

is home to politicians and you already see 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 i agree 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 but 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. sure all around on the banks or on greece it's the crisis which came from sustainable economic policy. on greece it's not that different from a comment like i've handled 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 can go back to

earlier point that you were making you know the question is themselves they have to take some blame for this i mean they were the ones who were making loans to to the greeks mannish and what it turned out to be an unsustainable economic situation like that erica will happen i think the markets are already a price on this and i think what the markets are not pricing and here is that the structural reforms kind of it's a higher medium for 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 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 spain already has twenty percent plus unemployment there are already people out on the streets in greece and you know i tend to agree if the structural reforms are successful and they could be they can be forced through very quickly then that doesn't prove competitiveness and

maybe these countries will grow 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 the economic pain 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 what happened in two thousand and eight when they were going through deep recession so there was a big monitor if this will stimulus and right let's see because i'm really going to jump in here when we return we'll continue our discussion on the fate of the state . he started. listening to. sleep. i think. i. think leg

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three. three three. three . if you still. want to.

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 especially if you're on employing greece but what are the implications internationally i mean the chinese are very very unhappy about this the united states is just about to end its quantitative easing it's hard to how do the i don't all three of these fifty gather i don't think it's really interesting you are 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 want redefine what is it well actually i think because it's a competition is a race to the bottom between the dollar and the euro they both are going to have to fight to the bottom of it they both have a lot of very deep structural issues the u.s. is dealing with in one 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 you know you're

a cynic you feel good you already said it we're going to three are we going to fund managers and political to carry through with 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. another was the devalued the the dollar against the euro now we're seeing in peripheral europe is trying to devalue the euro against the dollar. all of the chinese looking at this and how how worried are you so i think that the big the right way but from my point of view to think about the current situation because you're our 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 of the supply of the safe assets think about this august two thousand and seven what had wonderful triple a mortgages had all kinds of mortgage backed securities which were supposedly safe now what you have is the power of a long term government that may not be perfect or 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 of 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. part of that. because there's not an alternative is that why you know i mean intrinsic value just think about for example a thirty year old thirty year one one your issue a thirty year bond what your salary 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 around and you can only sell that kind of expertise if you had a long history of political system which is consistent with good economic policy because you make 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 talk a little bit strong but no easy answer to your question i would not be buying u.s. u.s. treasuries right now i mean it is still the safe haven al-bab 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 even in the u.s. you know obviously the track record of the u.s. is much greater than in china over the last hundred fifty s. but but you know i'm not sure that you can read the argument now that china doesn't offer longer term security than. in the us given the economics of this is the reason for the moment 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 you know that the greeks lied openly lied about what they did frankfurt knew about it profited 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 which is much more rational where there is some countries are going to be at the children's table in some countries will be at the adult paper about the theory of why and how my ninety three unions work one of the key paraclete. in addition. to the common currency is to have synchronized business cycles and to pass go at it on across some particular the fish stores so your a bar the credibility on the monetary pulse that was outsourced to european banks or bank so now you have the crisis we're going to batter you still pulse i don't want to say this war but european fiscal authorities that this could make you are 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 what do you think i think very very probably

benefited 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 politically if you 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 look you can you do that mana terribly 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 it least at this point in time. you can have roland if i go back you you could have political union without monetary union we you know it was something like the european economic community it didn't work out too bad ok it was a great a political ambition. the the floor part of it i totally agree with the poor part of it was on that was on the economic side you can't have monetary union without some kind of centralized his school or forward see and that's exactly what's being

proved now because 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 dead in the first place and that's that's the issue that was there 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 proved to be unsustainable it gets very profitable isn't it for some people to do that the model works for some works doesn't work for a lot like a lot of other discussion before the introduction of your so many people were saying that it would never happen that the level of low inflation would never happen and the country would sort of under still a towel you can find it very somber and that's. why seeing that at this for me the euro was a much more successful project that i thought it would be outsourced good monetary policy to the technocrats of the european central bank which were more conservative than the average population of europe and that something like that happens and sort of our policy i think your euro project the european project it's sort of the

policy as are all the same kind of work i'll do are wrong can they stop we can change it now or is it more likely now or less likely everybody is jittery ok i think it's i think it's going to be really really difficult now just to stop the whole commiseration you know they've already tried it several chances in the past they put a lot of money several hundred billion trillion. euros into into defending the region it hasn't been enough and markets have been and now pricing more aggressively. expected defaulting greece portugal ireland and i think i think spain as well. so what happens when the contagion. it's great mark scheerer i mean will when we will we have more than pigs only there is a significant danger all the contagion the on what's price in the markets. i think is going to be i think the markets to pursue mistaken too short term are looking 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 the president of structural reforms with the positive for europe in general so i think the risk of contagion is relatively small 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 if it's money that actually results in structural reform then that 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 disagree pouring money into some kind of stabilization then go for the structural reforms so let me disagree actually where there are now and that's i think this is exactly the right

time to do the structural reforms i think the kind of because of theory 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 could be a lot more pain that way before there was a look at about a different guy from compared to japan japan is in dire need of our 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 by their age they're growing at run two percent for a huge economy that's commonly but they could grow faster try let's try to think of all the us yes is doing ok there is no crisis there is no acute crisis that crisis and it's that's why it's so difficult to portray it all structural reforms in the production before. exactly now that europe is shit so badly the time for all this long. european economist thought you know really looking at these the

elections across europe 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 star of off. a growing political reaction because we see that we 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 them 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 of the moral hazard that's still out there we're going to bail out on bail out the belgians next but that again is the point i mean it is up to the germans to maybe conditionality sidestreets 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 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 nonpayment squirming in some of the european states in washington state so it's a politically very difficult very difficult thing to do and i have to say the although i think it's very good point and it's and he said necessary to time to do the reforms i'm not sure it's a feasible time through the reforms and i guess that's the price of the 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 what's going to have learned as economists so difficult to predict the current or the best forecast in fact is the reality of the current state today so that's going to be much more well i can't believe and we ended the note on a positive positive position 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 talk. he's in the

studio.