good afternoon and welcome to capital account i'm laurin the star here in washington d.c. these are your headlines for may second two thousand and twelve nicolas sarkozy and challenger francois alone face off today in the live french election t.v. debate and what's reportedly seen as the climax of the campaigns with elections in france and greece this weekend the results have the potential to send shock waves across the european debt landscape was meet with former diplomat and investment banker edward harrison about how politics in single countries could impact the global economy meanwhile what it outspoken and famed fund manager hugh henry tell a panel about europe at the milken institute global conference yesterday about his concerns take a listen but the thing that i fear is. confiscation of my i also it's called. lawsuits. he also thinks we're

a year away from the french nationalizing their entire banking system we will discuss and speaking of confiscation foreign financial institutions are reportedly frantically preparing and shelling out serious money to comply with u.s. tax relation regulations take a lesson. the legislation is all about the disclosure of information that they have with respect to their u.s. accounts. it is the foreign account tax compliance out and as u.s. citizens are shunned by swiss and german banks facing these rules reportedly more evidence comes out that american ex-pats are lining up to give up their passports we'll discuss that let's get to today's capital account.

so the euro zone crisis is under control until it isn't until leaders lose control which could be the price to pay for politicians who have presided over default in the sense that hugh hendry describes it take a listen the politicians chose to default on their spending or petitions to their citizens in order to order the part with their financial creditors and so of course what we are seeing is that as time moves on the politicians are being rejected. and speaking of rejection elections in france and greece this weekend look like they could see incumbents replaced incumbents who introduced tough reforms with candidates who are proposing growth with a different president that has that predisposition in france they could change the

balance of power in parliament in the case of greece so let's talk about what impact this would have on the eurozone crisis solutions and the crisis itself here to do that is edward harrison founder of credit write downs because you are always so in the nitty gritty of europe that you can really break this down for us and we haven't had a chance to do that with you recently so let's get right to it with elections in france and greece this weekend what would happen to the eurozone crisis solutions and the eurozone crisis itself if say francoise hollande did win the presidency in france or if there was seats gone by the far right or far left parties in greece well i think the long thing is a lot more interesting just because it was. merkel and sarkozy together you know having some bond over policy and so basically it was germany and france

dictating to a certain degree i don't know if you saw that. who's the head of luxembourg he was on this post as the head of the e.u. group saying that he was sick and tired of germany in particular saying that they speak for you know we're having to shell out we speak for the creditors etc in fact he says you know it's a wider thing it's seventeen nations within the eurozone we have to make it that way and so if along gets in there basically the more cozy pact which is very much on the austerity side is going to give way to growth you can already see star cozies sort of talking about that but a lot is definitely on that path and i think that's the train that europe is moving to use a growth some like you hendry say nationalization of the french bang. system he's worried about confiscation of assets is that a legitimate concern and what would the impact of that be on investment in europe will it's always a legitimate concern i mean down the lawn obviously when things get tough i think you already see confiscation in bolivia and in argentina for instance with the

which is a spanish company they've had assets confiscated in both those countries but you know that's a different situation than in europe i think in europe things about to get a lot worse and you know you have to have a real depression where they're going you know with the banking system is collapsing before you have any sort of comfort so you are in disagreement with him that french banks could be entirely nationalized in a year that was the time frame you gave only you got to go with ok well then let's move on to what you do think is going to happen because i want to stay on this political subject for another moment because you think that the old law and issue is a lot more interesting than the shift and greek parliament but one thing that is interesting that has been a trend that we've talked about before is that as europe has attempted to integrate further with more fiscal unity and a fiscal compact and have those be the solutions within certain countries we've seen a rise in nationalism and movements that are far right extremely right wing in holland

for example the dutch freedom party was the party that led the government to fall when it withdrew from talks over austerity which then a caretaker government passed in france kind of one of the big stories was that in the first round of elections the national front the extreme the far right party saw unprecedented support with their candidate marine le pen and there was and then and for the first time and greece the far right party the neo nazi party is expected to for the first time gain seats in parliament so do you see this trend as significant and gaining steam or you know one hundred percent and i was in a say in france they're going to be in parliament for the first time i think since one thousand four hundred ninety six so you know in both places they're going to. representation the far right and really would have boils down to is that you know the e.u. is the superstructure on top of national sovereignty saying that we're to strip you of your national sovereignty and when to do it in such a way that it's so obvious that you don't have any rights you are going to be

billed out and i have to go on undergo austerity use you know twenty five percent unemployment and we're going to give you even more austerity those are the kinds of things that lead to a nationalist response is just a natural thing what i do want to get austerity with you because i want to have a more in-depth discussion on what really is behind the criticism of austerity and if that's really what the problem is but as far as these far right parties these nationalist movements what is it really about because while yes they run in some cases on protectionism on abandoning the euro economically there is also a very strong anti immigration stance like i said the party in the golden dawn party in greece is a neo nazi party so what is that about which is which is kind of the prominent theme that we need to pull out of what these movements signify basically in economic downturns people look to the other as being

responsible for problems basically you had everything going fairly ok in the euro zone and suddenly had a crisis and now everything's falling apart and people are looking for ways to figure out why this is all happening and things that they would put up with before they're not going to put up with and all these simmering tensions that you saw with immigration we already had the problems with the veil and so forth and schools and threats and things like that those are going to boil over and people just because you know we don't want that anymore there were already simmering tensions with the e.u. in places like holland you know he was already had a. movement but now it's. been crystallized as a result of this economic economic depression so you see them very much entered the anti immigration stance and the economic situation in these countries you know one hundred percent what happens is that the economic downturn causes people to revalue

with how they see the political spectrum and they're much more willing to look outside of the mainstream for for people who have answers to the problems because obviously the mainstream parties don't have the answers that we wouldn't be in the situation if that were the case and why i guess it will remain to be seen what actual impact that will have on the eurozone crisis and all of these internal politics how they inform the mass of the euro zone crisis but let's switch to economics because we did get the global manufacturing purchasing managers index out the p.m.i. which showed that euro zone factories sank further into decline last month peripheral readings were weak i guess that's to be to be expected but they the core also saw not below and they saw their drop below the market signals expansion also china complected numbers one measure shows growth one shows a contraction so do you see these numbers as pointing to a global slowdown and i wonder is there significance so global world slowdown the

places like china those numbers are weak we can brazil they came up they were at fifty one forty nine which is contraction india's numbers although they were fifty four they were also weak and the eurozone across the board was below fifty they're in a recession so you have all of these countries you know weakening in terms of their growth in the united states has shown fairly weak growth. with the unemployment numbers you only get about two hundred thousand jobs per month over the last six months that's not going to cut it going forward so what that says is that we were synchronised global slowdown and any sort of exogamous shock will be a very negative event and any shock and shock from anywhere will. exactly will potentially be the the one that catapults the system down because you have weak points at all points on the spectrum china you know australia is also weak in terms of their housing market their bank their central bank cut rates by fifty basis

points just yesterday. europe is weak and i think the united states has an incredibly strong list of the law and way it's just you know is that how kind of difficult of a situation where i am but it sounds like you're saying any of these factors could be the domino you know everybody is looking at europe but there are a lot of other dominoes that could fall to speak of dominoes falling one thing i thought was interesting about that p.m.i. was that the netherlands was weak and the netherlands is one of these examples of an economy in europe that was strong that did benefit from the euro because their currency was a stronger currency and then they benefited from having cheaper exports cheaper goods under the euro now they're facing a slowdown they're in a recession they are having to pass these cuts to meet the euro zone's deficit to g.d.p. targets what's the significance of a country like the netherlands and their situation to you well it shows that the eurozone the economic policy that they have is flawed and. when there's

a downturn there's no fiscal space whatsoever because all of the countries are users of currency that means that they don't they're creating the currency that means they can be insolvent unlike the united states where they can just print more money so what it means is that not only does the private sector but also the public sector has to they have to cut when when the going gets tough and so that's what's called pro cyclical it means that you know when the economic cycle goes down everyone is cutting at the exact same time and that makes it a much more severe economic cycle and when you look at europe as an integrated marketplace whatever is happening in france that's happening in italy or spain it's going to have an impact on what's happening in germany or the netherlands. so they're not going to be able to scoot when we see that that's that's true and when we come back i want to talk a little bit more about this issue of cuts reforms of austerity and the criticism of it along with what some of these actions will mean in the long term if it's different than what it is in the short term so we're going to go to break and when

we come back we will have more with edward harrison founder of credit write downs also still ahead student loan debt may be roughly one trillion dollars in size meanwhile college presidents pledge a fortune of their salary to poverty we'll give you our three cents on this irony but first your closing market numbers. old. technology innovation all the developments around russia we've got the future covered.

welcome back let's talk about austerity because we got into it a little before the break but i really want to kick the wheels on this one a little bit so let's take spain for example in spain one in four spaniards are unemployed the country is back in recession i don't even want to talk about the youth unemployment there are they saying major major issues people are using this to say that austerity is the problem that austerity doesn't work but the point that we have made is that austerity won't solve the. but maybe neither will spending this is about a massive overhang of another guy's word a real true four letter word debt d b t so i want to really ask edward about this because i think it's going to challenge me here so at word what i want to know is

is austerity the problem in spain or is this really about something that neither austerity will fix or spending will fix this is about a massive overhang of debt in spain for example the non-financial private debt to g.d.p. ratio is two hundred thirty percent do you think i think that you're on the money with the i'm not going to say anything that you're not saying i don't think there's anything wrong with austerity purse meaning that you know if you have a recession and you need to cut back it's a normal garden garden variety recession then so be it that's what you have to do in the eurozone because. otherwise would be insolvent if bondholders won't buy your stuff but at the same to. you know we hugely private sector debt. there's an effect a feedback loop that happens to basically means that the government sector is cutting and so when the government is cutting that means the private sector has less money to spend and if they have

a high debt levels they're going to cut as well so you get these cuts and at the same time that that leads to more cuts and then that causes asset prices to go down that causes the collateral for banks to be banks which are already leveraged as a result of the debt that we're talking about can become insolvent and then you have a system crisis that's exactly what's happening both in united states and in europe but doesn't there need to be a discussion when there is this kind of debt default of forgiveness because there is such a massive debt that at some point it becomes odious and you have these situations where austerity is just a term to meet in order to pay back the banks and you have central banks papering it over on the other side so isn't there a bigger conversation to be had here grew there is and you you know. clip that you should have you henry he gets to the point is that you know the european governments are in the thrall of the creditors they're they're basically are in their you know on their promises to their people in order to pay the banks back on your one hundred cents on the dollar yeah you know that leads to this downward

spiral that we're seeing they just can't go on at some point going to get either defaults what they're going to have to be default or and or you're going to have to have what steve keen calls the jubilee yeah. exactly let the banks suffer let the investor suffer so you know i'm robbing from the people i think politically what's really going to happen is that we're going to continue down the line of trying to give the creditors as much as they possibly can and that's not going to work it's going to create more crisis and then at some point we have defaults like we did in greece but more people are going to default other countries are going to default and then at some point the crisis will get so bad that bill start to think about debt forgiveness that's when potentially the specter that you had to say about in terms of nationalization and how that is. ok what about something like the u.k. which isn't in the euro it doesn't have these targets that the e.u. imposes they impose what some would call austerity on themselves public cuts to get

rid of the deficit by two thousand and seventeen aiming to at least they're now in recession again in the recession the economy recently contracted point two percent do you think this gives critics of austerity firepower you know definitely one hundred percent because they are doing something that they don't have to do they have more fiscal space they could actually do something unlike what the united states is doing which is basically just propping up demand to create more deliberate jean in the private sector in order to facilitate you know a rebirth of the economy because obviously as long as these economies are indebted people are going to want to go. into more debt so if you just try to get people to spend money and spend money they're not going to be able to deal loveridge we're going to still have the problem with the debt and i hear what you're saying the current turn that i have is that how do we know what part of the u.k. going into recession has to do with whatever measures they have put in action so

far that would be called austerity versus what is from the reduction in their exports because of the contraction in the eurozone how can you isolate these different pieces to really know what's going on what the true story is we can entirely isolate the two pieces but i think you know so we can you know we can we can never know in a condom is so i don't know if you mean honestly parity but i think our users and they definitely see the difference between the u.s. and the u.k. the trajectories as being emblematic of the difference between the palace that they've taken and you know a year and a half ago that will see the u.s. and the u.k. are going on different this would be the best of real time experiment that we have you know you can never have a perfect experiment in an economy because of too many moving parts of the difference in their philosophies and what we've seen is the u.s. . philosophy. keeping growth versus the u.k. philosophy which is causing growth to contract right now but how do we know that in

the longer run this isn't going to ultimately lead to more sustainable growth that is the big point i think we agree that you know if you're not going to love seems you know the u.s. position right now is just to continue spending in order to keep credit growth going but that's sustainable what will happen is in the next recession and then we'll see that sustainable as a same thing all over again the member for an over by member so we'll have to see how this experiment does unfold what the ultimate. conclusion is about it but i appreciate you being here to try and really pull out what this austerity argument is what even as austerity that was at work harrison founder of credit write downs. thank you thank you.

ari let's wrap up with change i've got dimitri and shannon and to talk about more confiscation i guess you could argue you heard hugh hundred talking about europe let's talk about what the u.s. is doing because foreign financial institutions are gearing up to comply with that or the new foreign account tax compliance act if you don't know what that is here's a little background on the law taking effect in two thousand and fourteen countries services organizations should be focused on because if they want to do business with. me we need to be compliant the legislation is all about that the disclosure of information that they have with respect to their u.s. accounts the. so this requires foreign financial institutions to report information about their u.s. account holders holding fifty thousand dollars or more to the i.r.s.

the penalty is a thirty percent withholding tax on outbound profits on their u.s. investments and there's also a huge cost to compile to comply reportedly millions to billions of dollars that may be spent by these banks in order to comply so it's a windfall for businesses that help with compliance but u.s. passport holders expatriates abroad are questioning if being a u.s. citizen is benefiting them any more is really worth it they're lining up in record numbers to turn over their passports and new numbers continue to come out as bloomberg reported just new ones that we hadn't seen that seven hundred eighty ex-pat patriots gave up their nationality at u.s. embassies last year and in this with capital for example they are trying to get as many people on board to kind of process these requests because they're backed up you know why after world war two having an american passport being an american citizen was a giant. now it's become a liability if you are actually giving up their citizenship because they're deemed toxic in switzerland if you're an american citizen banks don't want your talks yeah

you're a liability for them and and so you know this is a war against individuals it's a windfall like you said for companies that make money from from this business it's going to take someone like mitt romney but it's going to affect someone else who wants to open up about a broad not to do this but because they want to they're living abroad and there was never an attack in exactly and now it's too much of a pain for these for these banks to comply with what the u.s. is requiring. an overreach so it seems as if nine eleven this is the financial the financial version of the rich that's reaches all over the globe let's move on to some debt that maybe hasn't raised all over the globe but it sure become a huge problem here in the u.s. the student loan debt what some of call a crisis it's turned into a political football in recent weeks has president obama's. best attempt at sympathy for students that are dealing with their one trillion dollars of student

loans take a listen. we only finished paying off our student loans about eight years ago think about the present the united states. i mean it's smart but i don't know that the president can really empathise with students that are completely drowning in debt but it also seems that twenty eight college presidents don't really get it either it's quite ironic they've pledged to give over some of their salary to fight global poverty and donate five percent of their salaries meanwhile their students are drowning in debt and the facts show that data shows that a quarter of millennialism don't even make enough money to cover their basic needs so that speaks to both the problem of debt and the problem of when they get out of college with the kind of money they can actually make you know the universe is a rock at the educational system. the university is just a nice it's a rocket it's socially just a passport that you're paying for to use to travel around the workforce in america

if you want to white collar job but you don't actually learn a thing in most universities and the onus is on you to learn no i mean i think that in the debate i generally listen i have i have a genuine bone you want to college so what so do you regret your education i mean that's a loaded question i mean do i really i don't regret the education because i made the most of it but the point is that it wasn't it wasn't the education system the bang for the buck i got my the best education i ever got was from barnes and noble ok going and reading books from there going on line experience it was not university it really wasn't right shannon what i want in your news throughout my classes professors it's true sorry for your parents you probably paid for it shannon full disclosure my parents and. for most of my college but the my college president is one of these twenty eight that is giving away five percent of the salary but i'd appreciate that help with my student loan yeah yeah i mean i think that the real point here is the irony in the this huge issue of student debt and that maybe it's not being addressed really by anybody before we go let me just

play you what the dallas fed president has been out saying. i'd rather have a bank. i'd rather have five to twelve or whatever the number is smaller banks that used to be the behemoths bank they are smaller institutions who can compete so he's talking about his plan to break up the too big to fail banks he put up another presentation on the dallas website about this we only have a second but what do you think there's a straight suck the oxygen in the room kill the giant too big to fail banks j.p. morgan and everyone take your money out your money out of these banks ok get it out there we go will leave it there that's dimitris plan and along with the dallas bugs we'll see if any of them ever pan out that's all we have time for for now though thanks so much for tuning in don't forget to follow me on twitter out lauren lyster and give us feedback at youtube dot com slash capital account from everyone here at their shows thank you so much for watching come back tomorrow and have a great night.

some stories from our country in moscow at ten pm approx worldwide are in egypt's trouble the like swells over bands religious candidates with the ruling military seeming to be the only ones to benefit. hillary clinton pitches for china support on north korea and iran but the u.s. military's asia pacific buildup and support for chinese dissidents believe beijing where a. police crackdown on them and style stare at a rally in barcelona as major european central bank heads meet there to discuss the state of spain's spiraling debt. while small scale says it reserves the right to strike down its nato planned missile defense system in europe breaches of security as the alliance fails to move forward on the tile along with russia. to one.