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top stories russia's economy must modernize as president dmitri medvedev bludgers drastic measures to create a better investment climate in the country speaking at the international economic forum in st petersburg that corruption and excessive state influence in business and trade threaten the country's development. u.s. congressman and want to cutting off funding for the big campaign saying obama is acting illegally seeking the approval to extend american military involvement pos ninety days. of it denies it needs permission from capitol hill. and 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 disappointing new resolution on syria which critics fearing is part of the build up enough that lead their style and. up next cross-talk if you or if the you are right they can survive and that's a topic for debate between people about his guests at the st petersburg international economic forum. stood. alone and welcome to a special edition of crossfire i'm peter will. be your always in crisis will appear with this 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 verne zero capital all right gentlemen crosstalk rules in effect that means you can jump in anytime you want roland i want to go to you first the euro is having another very bad few days here markets are. bankers or so who are 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 if there's more hesitation now on another supporting quote 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 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 but 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 new. 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 eurozone in general i think it's far doxie where this crisis is going to be good news for europe in general so what we're seeing now imagine noose is good news

the bad news is good news is actually on the stand because if well look at greece for a look at spain portugal less in that for the first time in many years they dealing where the structural on the line the reforms which will cause faster growth over the medium term going to pay for all of the germans going to say hey we'll pay for it we will always pay for it i mean really that's where push comes to shove here in merkel has an electorate ok i mean if if them something isn't done they 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 problem is that they're trying to address right now and not the actual problems to that exist in in those countries you know by providing more money than 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 the role how can you find growth 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 a memorandum started oxic where there are large fiscal consolidation may be expansionary not not contractionary i think you can honestly search points out. of the period that have the same effect on the induction often especially spandau. 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 immigrant groups for investors and for bankers it's not in many ways we have to point now where everybody has to accept a haircut because there's a way to avoid that the bankers have 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 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 all pass all the euro monetary system and you know again fundamentally right now peripheral european countries have exchange rates which are no competitive and that's how you have said i want to talk about the big soon 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 for the key for me as 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 hurt the markets because in a certain person growth in general so i think what policymakers are worried about is how to get on the wind without increasing the overall uncertain what the wrong or wrong can you do both can you have both because unwinding is unwinding i don't care if it's orderly or disorderly you have the potential for a domino effect we. seen this in many other parts of the world in the past major in one thousand nine hundred seven russia 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 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 see that at the bail out to be less of

a free iraq i would i would like to see more off the imposition of i say the struggle to rebuild that way moral hazard that's my biggest patient roland my biggest issue has always been moral hazard i think that it's 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 of your friends like i think is going to very difficult for greece to live with you or 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 lose all the time consistent so that part of the you are bought for that one the john d. or so i think the costs will be 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 place the least worst option and you know before a country devalues it always seems much worse than off the. country devalues russia still that in one thousand 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 they're going to sound similar but the positive sign that i'm seeing is that at least now the mani icon with strings attached the mining icon in the way that the next sasa to do

a structural reforms and of the structural reforms happen especially on the part off cuts in spending in the box whether you would call 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 critical information improve how do we 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 so forth out of office have seen it in some regions in. the 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 if 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 pure. ron on the banks are wrong on greece it's the crisis which came from sustainable economic policy. on the great it's not that different from a comment like i'm content with that everybody is throwing their own and nobody wants to get on when the interesting thing was the unsustainable policies were a direct result of the way in which the euro was set up so you've got to go back to nearly a point that you would like to you know the credit is themselves they have to take some blame for this i mean they were the ones that were making loans to to the greeks vanishing and what it turned out to be an unsustainable economic situation like the haricot will happen i think the market's already

a price on this and i think what the markets are not pricing and you know is that the structural reforms can lead to higher medium term growth well that's asking 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 what it's going to be learn from that because people are this going to say we'll just have a better euro it's going to be hard to convince so in this unemployed or their families 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 pushed through very quickly then that doesn't prove competitiveness and maybe can these countries will go out of the situation but the key question is is it politically sensible to expect these structural reforms to be to go through at a time like like now when these countries are facing real deep economic pie and you

certainly wouldn't expect a country like the u.s. 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 we're going to jump in here when we return we'll continue our discussion on the fate of the year it's fake. to a substantial degree and one form or another socialism has spread the shadow of human regimentation over most of the nations of europe and the shadow is an approaching us on the brink. of the early twenty first century military bases the network of military bases all around the former misleading

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. the noise is our noise and 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 you know 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. and so special and attractive for many. parts of. and subtle. expeditions to the bottom of your own party. well see british science. is no time to write. margetts weiner scandal. find out what's really happening to the global economy is a report on our. students

. to. welcome back to cross talk i'm peter lavelle right before we were to the break when 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 a country or want redefine what is it well actually i think because it's a competition is a right to both of between the dollar and the euro both they both have to fight to

the bottom of it they both have a lot of very deep structural issues the u.s. is dealing with them on way and the europeans are trying to deal with it in another way and so far you're chewie three your q e two story the senate q which you already said they were going to three are we going to throw a fund manager later to go to carry through but you know chewy too is that there is the simplest way to try and solve some of the issues in the in the u.s. and other ways to devalue the. the dollar against the euro now what we're seeing in peripheral europe is trying to devalue to the euro against the dollar. out of the chinese looking at this you know how worried and so i think that of the big the right way this from my point of view to think about that the current situation between your our dollar is from the point of view of the global imbalances that has been after the financial crisis one of the key things that has happened is the dramatic reduction of the supply of the safe assets think about just how the two thousand and seven what had wonderful triple a mortgages were had all kinds of

mortgage backed securities which were supposedly safe now what you have is you have a long term government that which may not be perfect or has all kinds of issues with it but it's still safe for them and 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

a good economic policy that could be made 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 for a little bit 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. build a safe haven elsewhere 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 reasons in the us you know obviously the track record of the us is much greater than in china or over the last hundred fifty years but. i'm not sure that you can leave the argument now the china doesn't offer long distance securities and in the us given the economic 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 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 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 key paraclete. in addition. to the common occurrence is to have synchronized business cycles and to go to comic roles particularly the fiscal rules so your bod 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 a story that and this could make you aware that a lot of people in the euro zone afraid of expression 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 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 if you think about european history and what do you have that. now 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 alexy 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 roland if i go back you you can have political union without monetary union we you know there was something like the european economic community they didn't work out too bad it was a great up political ambition. the full part of it i totally agree with the full

part of it was on that was on the economic side you can't have monetary union without some kind of centralized a school or forty 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 debt in the first place and that's that's the issue that was it was the ability of governments to use and private sector to use low interest rates are very same period of time to build up that has 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 other discussions or for the introduction of your many people were saying that it would never happen that if the level of low inflation it would never happen that the country would sort of fill the tarot you whom i had to carry if you saw the remedy but i see that at least for me 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 that's something like that happens in service policy i think in your in your project in the european project it's sort of the fall of their own this and going to work out while growing can they stop it contains it now or is it more likely now or less likely everybody's generation i think is i think it's going to be really really did. 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 route euros into into defending the the region it hasn't been enough and markets are 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 will have will we will we have more than pigs only there is. significant danger all the

contagion beyond what's priced in the markets. i think it's going to be i think the markets a two percent mistake until short term looking on their 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 unprecedented structural reforms would be positive for europe in general so i think there is different pages relatively small again 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 this is where we really disagree i just think that trying to do structural reforms right now is politically unfeasible in the market so you just reporting money in

some kind of stabilization then go for the structural reforms so let me disagree actually whether on on on on that i think this is exactly the right time to do the structural reforms i think the kind of people as a fairy 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 they will let them look up are they different got for the comparative japan japan. off structural reforms to get it out of the last try to sell it to japanese that they crafted you. for to grow faster why their rage growing one two percent for a huge economy that's a continent but they could grow faster try let's try to think about the u.s. doing ok there is no crisis there is no acute crisis no crisis and that's why it's so difficult of course that all structural reforms in the production are. exactly

now. so badly the time to push for all of this along. european economies. and looking at these the elections across europe on 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 euro zone have enough cards to play starve off. a growing political reaction because we see that me and i go back to the germans and they say you know you know we didn't screw this up you know we can use that you've rightly pointed out germany has done 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 mohawk hazard that's still out there but are going to bail out the belgians next but that again is the point i mean it's up to the germans to make the

conditionality substrates that it's there's no considers 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 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 payments you know there actually is known payments growing in some of the american states in washington. it's a politically very difficult very difficult thing to do and i have to say the although i feel like a very good point and it's and he said necessary sometimes to do the reforms i'm not sure it's a feasible time to the reforms and i guess that's the thrust 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 the one that we have learned is economists so difficult to predict the carcass of the best forecast in fact is the reality of the current state today so that's going to be life work well i can't

believe it 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 and remember across town for. any. student.