mean.

he's told stories of russia's economy muscle modernised says president dmitry medvedev pledges drastic measures to create a better head investment climate in the country speaking at the international economic forum in st petersburg and also blames that's corruption and excessive state influence in business and trade threaten the country's development and. also u.s. congressman threaten to cut off funding for the event campaign saying obama is acting illegally and not seeking from the approval to extend american military involvement past ninety days the white house how it denies it needs permission from capitol hill. plus a new wave of protests in syria as the towards a third round of sanctions against the country germany and france meanwhile say

they will put pressure on russia and china to support a new resolution on syria which critics fearing it's part of a vote out for another style intervention. one of the headlines up next crosstalk and it's kospi to have allies on his gas said the st petersburg international forum discuss what chances the euro has of survival. stood. alone and welcome to a special edition of crossfire i'm peter lavelle. the euro is in crisis we'll have you with us ten years from now. still.

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

unfortunately markets right now are beginning to price perhaps the greek. of of debt and that's the latest euphemism for the default whether that actually you know what was going to happen off of that that's going to be where the lead come out here i'm going to press you now ok in nobody wants to talk about the end here i mean now we're seeing the risks so high right now and in the. 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 all more or less agreed there's going to be a default now what does that mean when if and when it's probably when greek defaults and the greeks say we want the hell out of this project what it what what kind of precedent is that established for the eurozone i actually am very positive on the euro zone in general i think it's far docks of 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 is actually on the stand because if will look at greece for a look at spain portugal was saying that for the first time in many years they dealing with the structural underline the reforms which will cause faster growth over the medium term going to pay for all of the germans going to say hey we'll pay for it we will always pay for it i mean really that's where push comes to shove here merkel has an electorate ok i mean if if some something isn't done the going to have their own tea party movement i feel the feel the first person actually i've heard say that this is this is good news for the year i think the programs that they're trying to address right now i'm not the actual problems the that exist in the in those countries you know by providing more money than 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 these countries to go through yet another round of austerity and

that's that's that's the wrong how can you find growth but when you're when you're doing that when you're in the gutter how do you find growth by going by having more austerity i've never heard of started oxic where there are large fiscal consolidation may be expansionary not not contractionary i think the canonical research points out. the period there have the same effect on the induction off the special spans. no the increase in that fiscal consolidation that last not all of that adoption of that but also sustained if it can increase and grow the devil is in details and what the current through for investors and for bankers it's not in many ways we at the point now where everybody has to accept a haircut because there's a way to avoid that the banks are safe because i've always said maybe with a lot of cynicism here these are not sovereign problems these are bankers problems ok and they want their their money back in return on top of it and so this is where the sovereignty and the risks that countries were allowed to make in the bankers

need to be their money back ok i mean is this would be the next the complications of the next bailout is that going to bail out the banks still again credit is always a big problem right i mean that they're owed this money and they need germany to to effectively bail out the brutal countries the 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 you know the banks themselves all pass all the euro monetary system and you know again fundamentally right now peripheral european countries have exchange rates which are not competitive and that's how you have done and i want to talk about the pigs in a minute of what's the difference between an orderly unwind and a disorderly one unwind i love this newspeak that is being used by the financial media and by bankers what is the difference between the two and the key for me is rather the on wine list or the increase in the uncertainty what do we know is important and what has been i think

a stark stark clear during the the big financial crisis we're had is i think reason that uncertainty hurts the markets because i'm not certain person growth in general so i think what the policymakers are worried about is how to get on the wind without increasing the overall uncertain all of it all and all wrong can you do both can you house both because unwinding is unwinding i don't care if it's orderly and 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 eight if you unwind one part of what is a very complicated problem the danger is that you start a series of domino effects and it moves from greece to other countries we're already seeing that if you look at the bond markets what was wrong with the first bailout of greece because it was inevitable that we have to do it all over again and plus we have ireland we have portugal spain is knocking on the door i mean what was it all about. what what was wrong in this partial or that i would have preferred to assume that in the bailout to be the last of

a free iraq i would i would like to see more off the imposition of once it is truly built that way moral hazard that's my biggest patient role and my biggest issue has always been moral hazard i think the if you provide an endless stream of money coming from another source of financing then it doesn't put enough pressure on two countries to to to restructure but you know at the moment i do believe that greece and spain and portugal and ireland i mean they are doing quite a lot to try and deal with this issue problem is they're addressing the wrong types of issue right now that they need to change the value of their currency so i can change the value currency like i think is going to very difficult for greece to live you are i just don't see the op side for the greeks of that so surely will be able to devalue a car instead but they'll probably get hyperinflation will lose all the time consistent so that part of the you are bought for that one the john d. or so i think the cost of living in terms 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 would be it's painful to stay in the eurozone it will be painful to be out of it but at least you have control of your finances what's better role and what's worse it's the it's the base the least worst option and you know before a country devalues it always seems much worse than off. country devalues russia still that in one thousand nine hundred ninety eight and me remember everybody said russia's too big to fail you know be level and 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 bearers it is much greater but the economics i think are actually quite similar. they're going to sound similar by the positive sign that i'm seeing is that at least now the monney are common with

strings attached to the mining iconica where the necessity to do structural reforms and of the structural reforms happen especially on the part off cuts in spending scotch in the bar whether you get a cold punch comes in doesn't it i mean because you walk away from your sovereignty in a financial sense ok part of i mean that's the unspoken rule of the eurozone but then there's the political side of it i mean there are people that are elected ok i mean how do you how do you marry the two or do or quietly divorce the two paradoxical and want the perience offs a convoy of the large fiscal consolidation in or a city over the last twenty years there is no evidence that a large fiscal consolidation leads to a loss at the polls so i think anybody who is saying i don't know if i'm frugal improvement even if we've found the great except i don't know i mean i think recession in general is home to politicians and you're already seeing you know politicians being elected out of office or forced out of office have seen it in

some regions in motion early in our lives so you know when you try and implement austerity really difficult austerity actually there are big strings attached now to these loans and you try and implement that at the height of one of the biggest recessions in the last hundred years i think is going to be political consequences from what is the what it what are we seeing here is this a liquidity crisis or a solvency crisis i think it's it's it's a solvency crisis i don't see that this is a pin. ron on the banks or on on the greens it's the crisis that we show which came from sustainable economic policy. on the great sums not the different from a common opinion on panel that everybody's throwing around and nobody want to get on with the interesting thing was the unsustainable policies were a direct result of the way in which the euro itself so you go back to merely point to you and 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 greeks vanish in what turned out to be an unsustainable economic situation like the

paratha will happen and i think the markets are a price on this and i think what the markets are not pricing man 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 what is going to be learned 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 someone this unemployed or their family is going to be sick will be unemployed for the next decade i mean structural reforms have a very large cost associated with them you know spending already has twenty percent plus unemployment there are already people out on the streets in greece are 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 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 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 recessions there was a big monitor if this will stimulus and that's the because it's all right and i'm going to jump in here when we return we'll continue our discussion on the fate of the euro states are to. stupid. to. lose.

it was to. execute was. to a substantial degree and one problem or another socialism has spread the shadow of human regimentation over most of the nations of europe and the shadow is i'm approaching up on the brink. of the early twenty first century military bases the network of military bases all around the forms of the empire that the united states is trying to build that's astonishing most americans have no idea there are more than a quarter of a million or more than two hundred fifty thousand u.s.

troops stationed on these bases all around the world. we don't have power bases in america we don't have any british base we don't have any korean base we don't have any french bases or you know we just all american bases in. there are the noises our noisy doesn't bother us at all because they're all bases but for other people it's almost like a cancer here for these people. since the end of world war two the spaces i've been . working here to provide a safe and secure environment for everybody. the questions they have thing else you get everything you need. more than a month. in one of the most extreme environments on the planet this is antarctica

and people have to be aware that they are far away from civilization. as discovers makes antarctica so special and attractive for many. and for the. expedition to the bottom of the earth. and. still. welcome back to cross talk i'm peter lavelle right before we were to the break room we were talking about how the euro is. how some people think it is collapsing in europe big specially if you're unemployed in greece but one of the implications internationally i mean the chinese are very very unhappy about this the united states is just about to end its quantitative easing its part to how do the i don't

all three of these fit together i don't think it was really interesting we were talking about the weaknesses in the in the euro but actually the euro has been strengthening against the u.s. dollar and you've got to ask yourself you know why the country or want to 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 have to fight to the bottom and they both have a lot of very deep structural issues the u.s. is dealing with them on when the the europeans are trying to deal with it in another way and so far three your q.e. two story behind the senate q do you think you already said it we're going to three are we going to throw a fund manager sort of political to carry through but you know chewy too is the is the simplest way to try and solve some of the issues in the in the u.s. another was to devalue the dollar against the euro now what we're seeing in peripheral europe is trying to devalue the euro against the gold. out of the

chinese looking at this you know how worried are you so i think that the big the right way but from my point of view to think about the constitution but when you're on the 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 here is the dramatic reduction on the supply of the safe assets think about just. what had a wonderful. triple a mortgages so i had 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 it but it's still safer than watching this can produce especially for the long term securities so what we're seeing is despite all the problems in the developed markets in europe and in the ass there is still so difficult to replicate this long term instruments it's a unique x. part that you asked me i started because there's an alternative is that why the

intrinsic value just think about for example a thirty year i think thirty year bond when your 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 found and you can only sell that kind of expert if you had a long history of political system which is consistent with go to come up with. 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 put a little bit strong ok a really good strong but no easy answers your question i would not be buying u.s. u.s. treasuries right now i mean it is still the safe haven album but it really is a lack of alternatives and you know you made the assumption that china didn't offer any sort of long absence you curity been in the u.s.

you know obviously the track record of the u.s. is much greater than in china over the last one hundred fifty is good but. i'm not sure that you can make the argument now the china doesn't offer longer term security than in the u.s. given the economics of the sort of the two regions of money ok let's go back to the euro zone here oh but don't we have just the 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 where 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 table about the theory of why and how my mind three unions work one of the keep iraq was. in addition. to the common

currency is to have synchronized business cycles and to go to comic roles particularly the fiscal rules so your body the credibility of the monetary policy it was outsourced to european central bank so now you have the crisis would lead to better fiscal policy i don't want to say this war but european fiscal authorities that this could lead to a war that a lot of people in the eurozone afraid of expression i mean someone said to me once roll in which all that was really quite interesting is that everybody should stay in the euro zone except for the germans they should lead the euro zone and then things might work out better what do you think i think they've probably benefited more from the eurozone than than anybody else and i think the euro zone actually is a great political invention and has been very successful actually politically the think about european history and what do you have that's that's the heart strings i mean i used to be a professor of european history i can absolutely agree with you i mean creating

unity here but can you do that look to can you do that monetary really and maybe it just takes a much longer time than they had expected i mean we have countries like poland that are kind of stepping back now thinking maybe this is not necessarily a good idea it least at this point in time you can have role in the back if you can have political union without monetary union we you know there was something like the european economic community that didn't work out too bad it was a greater political ambitions. 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 or forwards and that's exactly what's being proved now why don't you take the tools away from sovereign governments to fix their problems when you have something like no you can't default you can't build up dead in the first place and that's that's the issue it 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 proved to be unsustainable david that's very profitable isn't it for some people to do that the model works

for some works doesn't work for a lot of our 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 sort of under still a towel you can find it there if you saw there emmett's but why seeing that at this for me the euro was a much more successful project that i thought it would be outsource the 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 in terms of a policy i think your euro project and the european project in terms of policy as are all the same kind of work out while growing can they stop to contain china 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 to stop the whole contagion you know they've already tried it several chances in the past they've put

a lot of money several hundred billion trillion. euros into into defending the the region it hasn't been enough and markets have compare now pricing more aggressively . expect a default in greece portugal ireland and i think i think spain as well so what happens when the contagions starts. it's its great market share i mean we'll have when we will we have more than pigs only there is. a nitpick and danger all the contagion beyond what's price in the markets. i think is going to be i think the market the two percent mistaken too short term 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 all done propaganda structural reforms would be 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 by 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 then that is the exit i just think that this is where we really disagree i just think that trying to do structural reforms right now is politically unfeasible in the markets so you just reporting money in some kind of stabilization then go for the structural reforms so let me disagree actually with her on on on that 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 going to be a lot more pain that way so therefore there is an olympic park to different got for the compared to japan japan isn't dire in the off structural reforms to get it out of the last decade to try to sell it to japanese that they have to do all the

painful reforms to grow faster why. they're growing that want to pursue after a huge economy that's more of your content but they could grow faster try let's try to think of all the u.s. is doing ok there is no crisis there is no acute crisis no good debt crisis and it's that's why it's so difficult to pour it all structural reforms in the production or for. exactly now we're on the europe it's cheap so badly you have the time for all this along you that are for the european economy you know 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 reform reformists for the for the eurozone have enough cards to play to starve off. a growing

political reaction because we see that we and i go back to the germans and say you know. we didn't screw this up you know we use that you've rightly pointed out germany's and quite well by the euro in the longer term but as a certain point they're going to say it's politically not viable for us to do it because of the more hazard that's still out there but going to bail out the belgians next that again is the point i mean it's up to the germans to make the conditionality so strict that it's not considered to be a bailout they haven't done that yet and then it comes down to a point about you know other governments in place and can they be governments in place that are able to follow through on that strict conditionality given the current circumstances that exist in those countries and you know when i look at places like spain right now and the way in which you know the regions of finding it very difficult even to make you know they're actually as nonpayment growing in some of the american states in washington it's a it's a politically very difficult very difficult thing and i have to say that although i

feel like a very good point and it's and it's a necessary time to do the reforms i'm not sure it's a feasible time to do reforms and i guess that's the sense in the last question where we are where you say you're over to stand a year from now. i think it's so difficult to predict one that we have learned in the congress so difficult to predict the current forecast in fact the value of the current at the day so that's going to be much more well. i can't believe it we ended the note on a positive positive positioning i want to thank both my guests here in the studio and i want to thank our viewers for watching us here are to see you next time and remember a prostitute. story.