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that's the i'm trying to look for a shelter or a. little. they'll they'll they'll they'll. they'll. just some. sleep.

listening to the latest in science and technology from the realm of rush limbaugh the future of coverage. if you. stood. alone and welcome to a special edition of crossfire i'm people. you're always in crisis we'll have you with us ten years from now. keep still. 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 troll and now she's a senior partner in chief investment strategist at verne o.

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 so who i'm going to ask you the big question are we 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 the 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 of of debt and that's the latest euphemism for default but whether that actually you know what

was 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 nobody wants to talk about the end here i mean now we're seeing the risks so high right now and in the. norma's mounted in decision 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. from the 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 is bad news is good news the bad news is good news actually on the stand because if a lot at greece for work especially portugal was saying that for the first time in many years they dealing 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 hey we'll pay for it we will always pay for it i mean really that's where push comes to shove here a merkel has 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 problem to that 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 it at 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 we're in it when you're in the gutter how do you find growth by going by having more austerity i've never been so i got sick where there are large fiscal consolidation

may be expansionary not not contractionary i think a canard research points out. the periods where they have the same difficulty with auction off the special span. one of the increase in that to fiscal consolidation that last not on is that action on that but also at the same effect an increase in growth that will use indeed that will. prove for investors and for bankers it's not in many ways here but we have to point now where everybody has to accept the parapet because of the way you avoided the bankruptcy 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 getting their money back ok i mean is this what the next the complications have been expelled is that going to bail out the banks still again credit is always

a big problem or an event there oh does money and they need germany to to 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 your problems you know the banks themselves are holes of the euro monetary system and you know again fundamentally right now peripheral european countries have exchange rates which are no comparison and that's how you have to know that i want to talk about the big when i look 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 the because i think you for me as rather the on the wine list or the increase in the uncertainty was when you know if you work on what has been i think a stark stark clearer during the the financial crisis where that is i think raising uncertainty hurt the markets because i'm not certain hurts growth in general so i think what policymakers are worried about is on the line without increasing the

norm or the wrong or wrong can you do both can you help people 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 nine hundred ninety eight if you find 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 already so you've got 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 with this partial or i would have preferred to assume that in the bailout to be a loss of a free iraq i would like to see more off the hook it was initially was it is dreadfully buildout way moral hazard that's my biggest patient growing 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 could say enough pressure on two countries 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 they've been need to change the value of their currency so how they can change the value currency like i think is going to very difficult for greece to deliver your i just don't see a bit off side for progress on that so are sure you'll be able to devalue we'll probably get hyperinflation removes all the time consistent so that part of your body for ballard to drive to your so i think the costs are going to have to make you think 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 role and what's worse it's the it's the base the least worst option and you know before a country devalues it always seems much worse than off. they were a country devalued russia saw that in the one nine hundred ninety eight and you remember everybody said it russia's 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 we want to lend to russia again obviously greece is a different type of situation the political capital there 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 at least now the money i can in the strings actually money i can aware of then the sasa to do a structural reforms and of the structural reforms happen especially on the part of cuts in spending especially the parts where the very little 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 why it we divorce the two paradoxical and want the perience offset conduit of the large fiscal consolidation in oyster 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 comparable information. 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 so forth out of office and seen it's in some regions in spain mostly rural and in ireland so you know when you try and implement austerity really difficult austerity i agree there are big strings attached to these loans we're trying to 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 solvency crisis i don't see that this is a pin. ron on the banks or on the greens if the crisis were true which came from the unsustainable economic policy. on agree some snow is no different from a comment like i'm not going to handle that everybody throwing around a nobody went to get out when the interesting thing was the unsustainable policies were a direct result of the way in which the euro is back up so you go back to merely a point that you were making you know the criticism sells they have to think some blame for this mean they were the ones who were making the loans to to the greeks vanished in one turned out to be an unsustainable economic situation like the paragraph will happen and i think the markets are a price on this and i think what the markets are not private means 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 going to be learn from that because people are just going to say we'll just have a better year oh it's going to be hard to convince so in this unemployed or their families can be sick hopefully 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 so you know i tend to agree if the structural reforms all successful and they could be they can be pulled through very quickly then that doesn't prove competitiveness and maybe these countries will go out of their 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 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 recession is there was

a big monitoring this was stimulus and right let's see because of all right we're going to jump in here when we return we'll continue our discussion on the fate of the state. the t.v. state. legislature to. sleep. i think. i. think leg . length.

just. a charge in here broadcasting live from washington d.c. coming up today on the big picture. looks . the british.

market. find out what's really happening to the global economy with much stronger the no holds barred look at the global financial headlines. and. welcome back to cross 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 well what are the implications internationally i mean the chinese are very very unhappy about this united states is just and it's

one of hated easing it's hard to hold the i don't all three of it together don't. he was talking about the weaknesses in the in the euro but actually the euro has been strengthening against the u.s. dollar and you go to ask yourself why country or want to redefine what is it actually i think because it's a competition it's a race a battle 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 europeans are trying to deal with it in another way and so far q e three your q e two story. you already said that we're going to three are we going to throw out a fund manager to let you go to q e three but you know if you need to is the simplest way to try and solve some of the issues in the in the u.s. and be devalued the dollar against the euro now what we're seeing in peripheral europe is trying to devalued if you're against the bill. out of the chinese looking

at this now how worried are you i think that the big right way to think about the current station and your 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 here is the dramatic reduction of the supply of the safe assets i think about just two thousand and seven wonderful triple a mortgages work out of all kinds of mortgage backed securities which were supposedly safe now what you have is you have a long term view as a government that which 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 i see in it 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 and so you need x. part of that. because there's not an alternative it's not why you know 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 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 do that and you can only sell that kind of expert if you had a long history of our political system which is consistent with going to come up with if it could be made by any estimation of the united states is is on the verge of bankruptcy i mean would you buy those bonds and i'm asking you personally what would you advise an investor to do that i think on the verge of bankruptcy is probably press release a really good strong but no easy answers your question i would not be buying u.s. the u.s. treasuries right now i mean it is still the safe haven i'll bet but it really is a lack of alternatives and you know you made to sumption to 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 s. but but you know i'm not sure that you can make the argument now the search china doesn't offer longer so security than. in the us given the economics of this is the reason for the money given for that to the eurozone here i don't we have just the 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 which is much more rational where there is some countries are going to be at the children stable in some countries will be at the adult about this period y. and our mind mind very unions work one of the key paraclete that in addition. to

the common currency is to have synchronized business cycles and to go with economic rules but they are the fiscal rules so your guard the credibility of the monetary pulse it was outsourced to european bank programs so now you have the crisis would lead to better fiscal policy i don't want to say this war but european fiscal story that i'm embarrassed to admit you will work better with 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 leave the euro zone and then things might work out better what do you think i think they they probably benefited more from the eurozone been 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 all of you can you do that money 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 if we see this point in time. you can have roland and 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 to back ok which is a quite a political ambition. the the fourth part of it i totally agree with 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 won'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 that in the first place and that's that's the issue it was it was the ability of governments to use and private sectors that use low interest rates are very sustained period of time to build up that so that proved to be unsustainable if 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 you know but it was discussion before the introduction of your so many people were saying that it would never happen that it will have all the flavor of would never happen in the country with some rather still the towel you can find it very softer and it's about right seeing that 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 policy i think your euro project and european project in terms of policy as are all the same kind of work our own commission often can change it. 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 to stop the whole contagion you know they've already tried it several chances in the past they put you know a lot of money several hundred billion trillion. euros into defending the region it

hasn't been enough and markets have been on our pricing more aggressively. expect a default 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 will we have more than pig. because there is a significant danger on the contagion beyond what's right in the markets. i think is going to be i think the markets the two percent mistake and so short term are looking on a 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 propaganda structural reforms what's 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 the question is on its own bailout if it is just a bailout then you know eliot structural reforms don't take place so if if it's money that actually results in structural reform than 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 really pouring money into some kind of stabilization then go through the structural reforms so that the cigarettes are 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 increase are because of fieri or because you think it's i mean i'm looking at the man and woman and child on the street right now is it could be a lot more pain that way before there is not going to different that for you compared to just back japan is in dire need off structural reforms to get it out of the last decade to try to sell it to jeopardy is that they have to do all the

painful reforms to grow faster by their age they're growing at one trooper sack or a huge economy that's more of your take on it but they could grow faster try let's try to think about the u.s. is doing ok there is no crisis there is no acute crisis there could be a crisis and that's that's why it's so difficult to for all structural reforms in the production or for. exactly now ron the europe is huge so badly. for all this long. european economy so i think 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 to starve off. a growing

political reaction because we see that me and i go back to the germans and say you know. we didn't screw this up you know we use that you rightly pointed out germany's done quite well by the euro in the longer term but 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 do a lot of belgium's. against the point i mean it's up to the germans and maybe conditionality so strongly that it's there's no consensus be a bailout and i'm done that yet and then it comes down to a point about. a government in place or kind of a government in place that are able to follow through on that street 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 nonpayment growing in some of the american states in washington if it's a politically very difficult very difficult thing and i have to say that although i

feel like very good point i mean and it's a necessary time to do the reforms i'm not sure it's a feasible time to do the reforms and i guess that's the sense of the last question where we are where is the year over to spend a year from now. i think it's so difficult to predict the ones who have learned as economists so difficult to predict the cars of the past work out in fact is the value of the cars that are that so that's going to lie for a while i can believe in the end of the note on a positive positive positioning i want to thank all of my guests in the studio and i want to thank our viewers for watching us here are going to see you next time remember across our state it's. still.