culture is the same of you i can tell if i get one hundred thirty one of them was all worth tell me so for serving hero tuesday germany and france agree in principle at least that fiscal union in the eurozone is the only way to. get.

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you knew you don't know i'm tired of the big picture. and. the only welcome to cross talk i'm peter lavelle averting hero doomsday germany and france agree in principle at least that fiscal union in the eurozone is the only way to avert the sovereign debt crisis and they are planning a new treaty to make it happen is this wishful thinking or a plan based on illusions. and you can. start. to cross-talk the euro i'm joined by james mead way in london he is the senior economist at the new economics foundation also in london we

have an pettifor she is director of policy research in macroeconomics and in brussels we cross the jews by ourselves he is the president of the e s c steering committee for europe two thousand and twenty all right folks this is cross talk you can jump in anytime you want and i very much encourage it and if i can go to you first the december nine summit is coming up and there is a ultimatum on the table the french and the the judge germans are saying to the entire twenty seven member members of the european union give up fiscal sovereignty or else is it going to happen and if it does what does it mean. well i doubt it's going to happen but the point is that it is not the answer to the crisis it's addressing the wrong problem it's really it's addressing a problem of fiscal deficits which are a consequence of the financial crisis and it is that which they should be dressing

they're not looking at the causes of the crisis which is the broken global banking system instead they're looking at the consequences and trying to fix the school deficit and that's not can solve the problem ok james i mean it's interesting we're anxious because they're. threatening to downgrade everybody for one thing and then you also you also have this countdown i don't know if it's popular immediate four days to go three days to go and then the you're always going to think what's going on here is this what is this summit in is going to happen overnight change anything and if it is going to change it will change for the better. i think it's a continuation the pattern we've seen for the last eighteen months which is a succession of summits the various your own leaders get together thrash out another deal or attempt to and then there's an increasingly short space of time before it becomes clear the thing isn't going to work now the stakes now are very much higher than they have been for the last eighteen months or so these are

rapidly approaching crunch time for the entire eurozone. and of course the credit downgrade for the fifteen euro members that sons and pour of threatened is only adding to the pressure here it strikes me that they will probably come up with something by friday that they say they've got something already they'll probably be some sort of agreement how long it will actually hold from that point on which is a rather moot point ok current basis for thinking you know there's any real optimism there's not very much and i also think they're kind of chasing after the wrong solutions here the chasing after the fiscal deficit rather than as they should be chasing after the banks get any more pessimistic on this program and i do go to brussels just what do you think i mean if the eurozone it seems to me that we've been writing this very long eulogy for this single currency. we're going to get just another chapter on friday. no i don't think cher. governments are under huge pressure at the moment and i don't i don't agree

with this is. a collapse of a banking system worldwide it's all but it is in fact a lack of confidence of the markets in governments and what they should do is to stand upright to agree with each other to consolidate their efforts to create a real fiscal union and to go on ok but i wish i could say with you in brussels here is this what the euro people of the here opinion you want to they want a more federalized a union they want a fiscal union because i mean this is brussels or frankfurt going to determine every country's budget i mean this isn't what people signed up for was it yes in date back to ninety nine to one maastricht treaty was signed there was already a strong for a political union that means an economic pillar of the e.u.

and the time germany and france and the others refused to go pass. now that one will. but. a couple of years they are stumbling forward and it becomes perfectly clear that there is no alternative. which look at some of the alternatives here is what i did and i like to quote the prime minister of luxembourg he was quoted in saying is we all know what to do but we we don't know how to get reelected once we've done it i mean that sounds like a gutless response from the political class of the european union in my opinion what happened back in one thousand nine hundred ninety one is that we set up a monetary framework for the euro zone which is very wonderful for bankers and for the for the great powerful wealthy who operate across the borders in europe but

actually it was never designed with the interest of the public in mind and it is that conflict between the monetary framework and the absence of the political framework holding that monetary system into account that has caused this crisis so what the eurozone leaders are doing are ignoring the s. and p. standard and poor's which is saying sorry but your solution austerity is destroying economic activity is weakening economic activity lowering incomes lowering tax revenues making things worse. and if the eurozone leaders don't want to hear that well fight and good but they will drive europe deeper and deeper into the mire of economic failure until they fix the private banking system james can the private banking system be fixed because we heard the having the private having private investors take a haircut when it came to greece and i was president now everyone is running away

from that so again you know it's going to be the taxpayer if there's going to be bailouts it's hacks piers they're going to have to pay for this and actually the banking system is making a mint off of this and winning and losing at the same time. really is a win win to be a banker at the moment it's quite incredible actually that having sort of tiptoed around the idea or maybe him to kind of voluntary haircut for greece just a few months ago it was straight back to absolutely no way will probably bondholders take a hit on this and this is of course the worst possible solution to the crisis exactly the reasons and says that once you impose austerity real economic activity collapses you're left with the bank is still sitting pretty out of all of this and everybody else carrying the current i mean that's the that's the kind of deal that we start to look at of course is entirely the opposite of what needs to happen the bondholders should take it the private banking system does need to take it in all this that's those are the people in the end largely responsible for the mess that we've got ourselves into they're the ones who really want to start carrying some of

the burden of it just if i can go to you i mean looking at this crisis unfold over the last two years now it really seems more to me a political crisis the lack of political will by the political leaders the leadership in europe who is basically in bed with banks would you agree with that statement. yes it is a political crisis they are fully fully right and a political crisis can only be sorted out by politicians to come together and to fix a system the euro itself is not doing badly at all when you compare it to the door . to the end. where you look at the economy it is the basics are all right lex after all is this certainty confidence trust in the markets so the markets have to be respondents in the way they they expect governments to respond and that brings me

back again to the fact that we have to build up the economic pillar of the e.u. and there's far as the banks are concerned i fully agree with and that the mancs had to move to march a free field for them. and that's the reason that the european commission is now proposing a number of legislative legislative arrangements ok now i'd like to go to james i mean james the euro crowds are talking about making these adjustments a new treaty has been two point zero but we're running out of time and we're running out of time very very quickly for this currency here i mean there's a lot of bad debt payments are right around the corner and there he blew in at the same time when you have so much austerity it's not creating any growth i mean this is this is the worst of all possible worlds. oh yeah it's course in a vise no uncertain terms that on one side you know the demand for debt repayments the interest payments to be made on the other hand the desperate rush to austerity

actually trampling out real economic activity and therefore making those those debt repayments essentially unmeetable going into the future certainly in the case of greece a default is essentially never it's but what still hangs over the euro zone is the pos prospects of a really major default by a very major economy like italy that's something that there's still a possibility now the sad thing about all this is that it's not just getting to the stage of thinking this is a possibility this may get become an inevitability the situation is so serious that the collapse and the stagnation across europe and with all respect to our friend in brussels the fundamentals in europe are not good for productivity growth everywhere including germany is being weak for years now you're looking at mass unemployment particularly once a young writer where the continent you're looking at a deeply flawed. situation with the institutions that he used level the conflict between monetary policy and fiscal policy which is now desperately trying to be resolved the massive imbalances of surpluses in the northern european countries

matched by deficits in the south this is a complete mess and it's a mess that we're well i don't hold out much hope of any of the european leaders sort of shower now gathering on friday are really going to be able to resolve this i think more actually has to happen is something far more fundamental something really root and branch they will transform the european economy rather than just sort of tinker around to the top like we seem to last eighteen months or so ok we'll see who's going to survive the first we're going to go to a short break and after that your break we'll continue our discussion on the fate of beers on state. sometimes you see a story so you think you understand it and then something else you hear sees some other part of it and realize everything is. welcome to the big picture.

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mission of free accreditation free zones for charges free. range means free. three stooges free. old free broadcast quality video for your media projects and free media. tom. welcome back to cross talk i'm peter lavelle to remind you we're discussing what's next for the euro. ok and i'd like to go back to you in london before we start talking more about if these euro can survive how democratic is all this process because i find it very

curious is that merkel and sarkozy are giving an ultimatum to you all members of the european union saying by friday you have to agree to this it has to be unanimous and then sometime in the spring we'll talk about the proposals that sheens like it's getting everything backwards and i mean are the people of the european union in the euro euro zone have any voice in what's going to be done with this common currency it is a common currency after all. it's not only undemocratic and that is worrying and they and the people of europe have never really been involved in for example the drafting of the maastricht treaty which set up this disastrous policy framework but it's worse than that because the people of europe will be punished through austerity for a finite breakdown which is happening in the private sector and for which those people are not responsible so it is sort of double jeopardy i think i'm not sure if that's the right phrase but it means they are both do not have

a voice but they are also victims of a crisis that is not of their making and that is the making of social and political breakdown which is indeed for me extremely worrying she said i'm going to go to you in brussels i mean how do you feel about that i mean it is interesting i think you said earlier in the program when when times are good when there is prosperity people are not so concerned about it when things turn down people want to have more say in their fate in this is not the case as they try to save the restructure or save the euro altogether. yeah well i'm most sorry to people in london are very gloomy i am i'm not all all that pessimistic at all and it is a false picture to say that people have nothing to say we are we are living in countries also in the ok of a representative democracy and decisions are being taken by governments that are very good every four years of the people can vote differently ok let's face reality

you can't say no. they're not on great. good boy and police where you look at the united states for is is a mess down to california you know why oh where you compare it to texas and new york city well it's an enormous difference like in europe between greece and think that the problem only here is that they have won't state with one currency and woman economic policy and we have looked we have well let me just suggest if i can ask you if i could interrupt here and ask you a question i mean prime minister cameron won't have. refused to hold a referendum on any changes to the. lisbon treaty or any other treaty that has to do with the european union because he knows it will fail so i mean let democracy take its course yeah is that a referendum is not democracy it is what it means in a market that is a demand that they're going to form their own what is it what is it there are many

no there are many systems there are many systems and the river in them is. long past one side of it and i wish i wish mr cameron a lot of luck let him read the financial times this boarding and. give him a good advice ok james if i can go to you are we going to go through the whole process again with the european union well just keep asking though are different question until they get you get the right answer or you keep going through this one who passed or another after another and then all of it all this time it's like the titanic that is going to hit that iceberg and think. that has been the practice in the past. the other con the question of democracy it is fairly clear at the moment that the leaders are particularly interested in democracy i mean no one voted to mario monti no one voted. greece nor voted for maria draggy is the new president of the european central bank which is so quietly behind all this there is a quite serious threat to democracy right the way across the continent at the

moment and to the extent blackmail is being concocted by. and merkel being presented to a vote on friday then i think it's another potential blow for democracy i mean bear in mind he was never been especially democratic institution it's not something that has been formed out of the will of the peoples of europe especially something that's been formed over their heads rather and i think it's become increasingly obvious over the last few years the financial crisis the crisis of the european economies is only accelerated ok and if i can go back you know one of the issues going to be talking about it in this summit is more fiscal union and and maybe i mean i can be swayed one way or another on that one because if you have monetary union least you should have fiscal ok at the start of the program you disagree with the solution of that but i mean is anyone in the mood in the european union right now to give up even more sovereignty because this is the worst possible time to ask them even if you were to ask them to vote on it it would all fail no one will say

give up more particularly countries that are being taxpayers are being asked to be allowed the weaker wreckless countries in the union. the point about the union i mean i'm in favor of a huge union and i think that would be a good thing to have a fiscal political union with with politicians accountable but what's really been proposed here is a form of economic ideology it's not just a fiscal union it's imposing fiscal limits it's saying no matter what this circumstances no matter how deep the economic depression no matter how successful the economic boom the fiscal deficit must be fixed within a rigid framework a course it and nothing must move and so what that does is to design the economy in a very rigid way. and deny the sort of dynamic growth and development of an economy which can go up when can go down and right now it's going down and it's the

refusal to deal with the economy in the real world. by these politicians who are dictating fiscal limits on friday that is what is most terrifying or triggering jews are very very bad and it was based on ideology let's go back to brussels or one of the things that are being proposed is that something is called a debt break ok where you can actually start punishing countries that are not his keep don't keep their house in their school or it would be adjudicated by the european court of justice one who voted for them. well it is a part it is a part of the institutional framework but coming back on the word to reach it it uses an i say it the whole system can only survive when there is more flexibility flexibility in the labor market flexibility unique india economy and you see that there's economies that are that have adjusted themselves to more flexibility are

doing far better than the others and they look at the program of mr moon to make them very who is very popular in italy according to inquiries he is older he's now working on the flexibility zation of of the italian government spots and this will be accelerated by the james army's alex james chopin go ahead go ahead james. what is worst possible solution is flexibility that goes into this mess at least in part it's the it's the pressure on real wages and really incomes that flexibility in genders that means a demand has been weak it's been compensated for in many countries by excessive borrowing and that's precisely when the things that led to the crisis that we're now in is a crisis of demand. declining reeling films and unless something is done to overcome the crisis of demand which means actually fiscal expansion in reflation in the first instance then we're going to carry on looking at stagnation across europe

all this time the supply side technically look increasing flexible labor markets all us are still isn't only the best going to make much difference or worse is simply going to contribute to a race to the bottom that is not the thing that europe needs a moment or what we actually need in the first instance is a program to expand demand that means increased government spending that means hoyer wages and that means taking on also the banks behind all of this ok and you want to. i want to. i want to to argue again that the real problem is that we have a broken banking system global not even european global and that's because the banks lend crazy money to greece to households to corporations or whatever and the euro zone flexible framework made that possible now when the e.u. leaders depress incomes when they increase unemployment they make it more difficult

for people individuals households and firms to repay dense debts debts to those private banks that have effectively bust and also to pay taxes to governments that need revenues to deal with their deficits so what standard and poor was saying last night. is that the remedy that's being applied by the e.u. leaders on friday is going to have the very opposite effect of fixing the banks it's going to destroy the banking system that's what's terrifying in the markets ok and quite rightly so ok just if i go back for i go back to you in brussels and i think i kind of echoing a statement that james made a million and a few fragments with and just said i mean it least in the in the short to medium term it's great to be a banker in the european union and the eurozone because i mean they're going to get paid ok because i think when there's a great mystery we're not talking about sovereign debts we're talking about

sovereign debt to banks they get paid first and then everybody else is left behind yet here and this is guaranteed the doing now is to bring the house in order parallel true to. the economic pillar new banking legislation is prepared now in order to bring them back to to dance for the meant. when you look at britain for instance britain is asking for far more freedom of the banking world than europe does and. then we follow the british then we are facing indeed. a free for all there's no longer acceptable so i'm very sad moment here is the reason with me are that it's actually dreams done brittany ok james i'm going to give you the last word on this program what's going to come out of the summit on wednesday i'm sorry

on friday anything. anything another botched a deal another attempt to pretend everything's ok the stakes are much higher than previously so it may hold for longer than previously but fundamentally are i don't see any solution arising fraud ignore over the long term we still have forty seconds and you want to jump in there. yes i despair and i wish that the politicians would listen to standard and poor's and understand just how grave this financial crisis is and start dealing with the real cause of the problem the private banking system all right thank you all very much very interesting discussion we'll see what happens on friday many thanks to my guest today in london and brussels and thanks to our viewers for watching us here r.t. see you next time and remember cross talk rules.

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