i'm not from moscow this is all tea time talk to you i'm a new story is this the russian president pledges drastic measures to create a wall the investment climate in the country decentralizing power and defeating corruption are among the goals voiced by the nutriment vidit of the international economic forum in st petersburg. no consent no cash u.s. congress members say they'll cut funding for the libya campaign unless the president gets the proposed constitutional go ahead bonus ninety days of action

without sanction runs out this weekend but the white house claims is no need for congressional consent. plus the e.u. moves towards new sanctions against syria in a push that's feared to be a build up for libya style intervention. to brings up to take them not me but with more news for you more developments in less than thirty minutes from now and meantime cross-talk discusses whether the eurozone is collapsing like a house of cards. education. student. loan and welcome to a special edition of crossfire i'm eating well. we're always in crisis we'll have you with us ten years from now. you can. start.

to discuss the fate of the euro here at the st petersburg international economic forum i'm joined by alan since he's a professor of economics at yale university and roland now 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 have having another very bad few days here markets are spooked. bankers are some who i'm 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 the process yet the markets the beginnings of price but i think where we're still a little bit of distance from from that how much has more if there's more hesitation now on another support equal bailout remember the first one wasn't called the bailout where you know greek tragedies what are they always end and they

always ended in tragedy and i think about is going to be the endgame here unfortunately markets right now are beginning to price perhaps the greek prolonged months of debt and that's the latest euphemism for default but whether that actually you know we're not going to happen after that that's going to be a question let's come out here and i'm going to press you now ok in the nobody wants to talk about the end here i mean now we're seeing the risks so high right now and in the normal 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 what what kind of precedent is that established for the eurozone. very positive on the euro zone in general i think it's fair i got sick with 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 is actually on the stand because if will go look at greece for look at spain 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 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 as an ally. actually it's ok i mean it is if something isn't done they're going to have their own tea party. to feel the first person actually i've heard say that because this is usually used for the year i think the problem is that they're trying to address right now i'm not the actual problems the exist in in those countries you know by providing more money they're not really solving the underlying problem and then trying to force countries through to revalue their currency through through changing domestic prices you know at the height of

recession forcing these countries to go through yet another round of austerity and that's that's that's all right how can you find growth when you're when you we're in when you're in the gutter how do you find growth by going i having more austerity i'm never in a short article where. it's all of a large scale consolidation maybe expansionary not not contractionary i think economic research points out. the periods of running that are the same effect on the direction are specialists and not the increase and that fiscal consolidation that last not on the production of that but also at the same effect an increase over the battle. and what it appropriate for investors and for bankers it's not in many ways here but we are at the point now where everybody has to accept a haircut because little boy that the bankers know 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 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 will be the next the complications of an expedited to begin to bailout the banks still again credit is always a big problem right i mean they're owed this money and they need germany to so effectively bail out the peripheral 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 europe's problems the banks themselves are told the euro money . three systems and you know again fundamentally right now peripheral european countries have exchange rates which in all competitive and that's how you have done all that i want to talk about it takes a minute or 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 two you know for the cue from me. on the line moves to the increase in the uncertainty what we know is

important and what has been i think a stark stark and clear during the big financial crisis where that is that the increase in the uncertainty hurts the markets business certainly hurts growth in general so i think what their policymakers are worried about is how to unwind without increasing the overall and start over there on the road can you do both can you have both because unbinding is unwinding i don't care if it's orderly or 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 in the 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 we're already seeing that if you look at the bottom up just 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 with the star show that i would prefer to see

that in the bailout bill russell or for europe i would i would like to see more of the imposition of what is traditionally buildout way moral hazard that's my biggest stage right roland my biggest issue has always been moral. i think if you provide an endless stream of money coming from another source of financing then it doesn't put 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. i don't want to try and deal with this issue problem is they're addressing the wrong types of issue right now it may need to change the value of a currency so how can we change the value of your friends like for i think is a very difficult for greece to deliver your i just don't see the op side for progress of that so sure you'll be able to devalue parts of us will probably get hyperinflation rules all the time consistent so that part of the euro brought for

that want to draw on to your so i think the costs are going to sort of like you know 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'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 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 after a country devalued russia still that in the one nine hundred ninety eight and you remember everybody said it brushes too big to fail you know be leveling 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 we 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 back to the positive sign that i'm seeing is that i do this now

the money i come in with strings attached the money i come away at the necessity to do the structural reforms and of the structural reforms happen especially on the part off cuts in spending stuck in the parts when very little punch comes in as and 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 left did ok i mean how do you how do you marry the two or or why it we divorce the two paradoxical i'm on the theory. it's also a convert of the large scale consolidation in henri's to do 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 that enough in political information to get recorded if we've found the great except i don't know i mean i think recession in general is harmful 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 and it's by sherrilyn in ireland so you know when you try and implement austerity really difficult of storage actually there are big strings attached now to these loans we try and implement back 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 one we've seen here is this a liquidity crisis or a solvency crisis so i think it's it's it's a solvent surprise so i don't see that this is a pure all around on the banks or on on greece it's a crisis which came from sustainable economic policy. i'm great it's not that different from a comment that i can't handle that everybody throwing their money 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 don't go back to nearly a point that you were making 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 the

greece mannish and what it turned out to be an unsustainable economic situation like this erica will happen 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 let's ask 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 but it's going to be learn from that because people are just going to think we'll just have a better euro it's going to be hard to convince so in this unemployed. or your family is going to be fake oakley unemployed for the next decade i mean structural reforms have a very large cost associated with you know spain already has twenty percent plus unemployment there are already people out on the streets in greece or you know i tend to agree if the structural reforms all successful and they could be taken because 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 at a 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 still would have been two thousand and eight when they were going through deep recession if there was a big monitoring fiscal stimulus like that's the thing because all right we're going to jump in here when we return we'll continue our discussion on the fate of the state. he stood. listening to. at least. i thank her.

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wealthy british science. class. market why not. why not what's really happening to the global economy with mike's cars are the no holds barred look at the global financial headlines tune in to the report. to keep. the. welcome back across the uk i'm peter lavelle right before we were to the break room

we were talking about how the euro is how i was some people think it is collapsing in europe expression if you're unemployed in greece but what are the implications internationally i mean the chinese are very very unhappy about this the united states is just and it's quantitative easing it's hard to hold the i don't all three of us fit together don't. let's reintroduce 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 why a country or why redefine what is it well actually i think because it's a competition it's a race to the border between the dollar and the year they both say i have to fight to the bottom they both have a lot of very deep structural issues the u.s. is dealing with a moment in the the european learns trying to deal with it in another way and so far q e three your q e two story. that you've already said we're going to three are we going to try to fund managers to let me put it to you through q e two is the

simplest way to try and solve some of the issues in the in the u.s. and others be devalued the dollar against the euro now what we're seeing in peripheral europe is trying to devalue the euro against the bill. how the chinese looking at it now how worried are you i think that the big right whether from my point of view to think about the current situation different in your eyes are you from the point of view of the global imbalance. there has been after the financial crisis one of the key things that has happened here is the dramatic reduction of the supply of the safe assets think about this out two thousand and seven right had a wonderful triple a mortgages work out of all kinds of mortgage backed securities which were i suppose in the safe now what you have is a powerful 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 the problems in the developed markets in europe and in the u.s. there is still so difficult to replicate this long term instruments it's a unique x. part that's sort of because there's an alternative is that why any 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 thirteen years your economic policy is going to be paid to get back the country is not going to collapse. the inflation is not going to be found and you can only sell that kind of expert if you had a long history of our political system which is consistent with good economic policy making 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 be that i think on the verge of bankruptcy is probably

really strong ok or a 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 its insecurities been 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 years but 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 us given the economic this is the region's most famous event for 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 brussels knew about it but it was the great project that had to succeed well it is utter 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 there is some countries are going to be at the children's table in some countries will be at the adult about the theory of why and how a minute nine every unions work one of the key paraclete. in addition to the to the common currency if you have synchronized business cycles and to pass go at it on across the particular the fiscal rules so your bod the credibility all of the monetary calls it was outsourced to european central bank so now you have the crisis would lead to better calls i don't want to say this war but european fiscal authorities that this. will work that's what a lot of people in the euro zone afraid of expression i mean someone said to me once well 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've 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 on the grading unity here but can you do that well if you 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 roland go back you you could have political union without monetary union he you know there was something like the european economic community they didn't work out too bad ok which was a great a political ambition. the the floor part of it i totally agree with the ford part of it was on that was on the economic side you can have monetary union without some kind of centralized to school authorities 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 that used low interest rates are very sustained period of time to build up that's the group to be unsustainable if it gets very profitable isn't it for some people to do that the model works for some works there's a work for a lot of god but it was 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 in the country what sort of under still a towel you can find in three soccer emmett's but i soon got at this for me the euro was a marginal successful project that i thought it would be outsource that monetary 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 and sort of a policy i think your euro project and european project of the policy as are all the same kind of work our growing can they stop or contain. or is it more likely now or

less likely everybody's generate 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've 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 have been and now price the more aggressively. expected difficulty in greece portugal ireland and i think i think spain as well. so what happens when the contagion. it's great mark scheerer i mean well when we know we have more than pigs i don't think there is a significant danger of the contagion the on the ropes right in the markets. i think is going to be a i think the market the two percent mistake and so short term 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 i was on president a structural reforms what the positive for europe in general so i think there is a 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 that the question is on its own but you know 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 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 and the markets see this reporting money in some kind of stabilization then go for the structural reforms so look i disagree actually where they're all in on and that's i think this is exactly the right time to do the structural reforms i think the kind of because of 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 a good deal more pain that way before there is a look at look about a different time for the comparative japan japan isn't diary austrac for the force 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 one or two person after a huge economy that's for a new take on it but they could grow faster try let's try to think of all the us is doing ok there is no crisis there is no acute crisis could that crisis and it's that's why it's so difficult to portugal but all structural reforms in the production are far. exactly now europe is huge so badly time for. a long. in the congress so i 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 pops up there but there is the euro issue as well and the sense of sovereignty here do you think that the reforms we formalised 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 they say you know. we didn't screw this up you know we use it you rightly pointed out germany's and quite well by the euro in the longer term but it is a 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 but you can you bail out the belgium six but i have again the point i mean it's up to the germans to make the conditionality so strict that is not considered to be a bailout they haven't done that yet and then it comes down to a point about you know is are they government in place or can they be government 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 i mean you know there actually is nonpayment swearing 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 that although i think that's a very good point and it is a necessary time to do the reform i'm not sure it's a feasible times to reform and i guess that the press in the last last question where we were is a year over to spend a year from now. i think it's so difficult to predict what's going to learn is economists so difficult to predict the cars of the best workouts in fact is the value of the cars and today so that's going to be my forte well i can't believe it we ended the note on a positive positive position here 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 time for. these.

stories. and you can see.

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