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costs and the street now in the palm of your posts. pushing. the to. the length of. the flow. flow well coming up i hear about the euro crisis the never ending agony of the european union where do the problems come from and just anyone have any solution the first step to take to steer the slow lead. to discuss this i'm joined by a gusto carlos lopez he is director for the global indicators and analysis department of the world bank also we have jeff there he is an economist and we have

tom conway he's a principal at reinsurance consultants international ok jeff if i could go to you first. when you when we look at the euro crisis today doesn't watch fox put into what could go wrong because it seems to me that we have nineteen emergency meetings nineteen. and everybody keeps looking over the cliff and we keep hearing a solution is in sight and then we have another emergency meeting when told it went so wrong. i think there are. two factors that have to play that one is political and the other one is economic the political one is that i think we have to keep in mind that democracy is a very slow process definition and european union is is maybe too democratic for song good which plays adversely most people would say it's the world versus now i don't think so but i still don't think so at least during the outbreak of the

crisis that was definitely the case so that meeting at the meeting as you said this is news that the markets were expecting were not coming up who said when was it money for the markets is it working for the people like this one of the things i always hear with the markets thing but when i say people i'm not a i'm not a great fan of markets that people but everything because i think when it comes to signaling that there are always two ends of the emitting ends and the deceiving and receiving end of the markets so what i was going to say the people i get to receive back whenever there's a problem in communication everybody assumes that the emitting party is faulty the parties to blame but i think a lot of the times the markets get all the wrong signals because the perception about situation is a bit for the short side so it does surprise us to be prominent in today's world i do so perception. when you think come from the perceptions that this is a political problem but european political elite can't overcome are they afraid of their people are they afraid of being voted out because eleven governments last two

years have been voted out and. i think that we are underestimating the little bit difficulties of. basically getting seventeen countries in the euro area to essentially moved to a much higher level of integration and to develop institutional mechanisms that will be necessary you know to support the euro area a longer term basis. just think a little bit from a historical perspective we're coming out of several centuries of national sovereignty where basically the local power you know was the national government right but now we live in the age of globalization and the age of interdependence and in the age of one global economy these seventeen governments are essentially trying to work out a new way of doing business in the context of these new realities and it is that officer that you know that's one of my fine but that the clock is ticking right now the clock is ticking and as we heard earlier in the program the markets are baking decisions ok there it jacks that there juxtaposed right now i don't see them in

sync i mean as we speak right now the leave the vultures are circling around spain ok right now we already saw it with greece ok and we have a government in greece we who is making the decisions the government leaders the people the markets. i think that in terms of what needs to be done you know to ensure this is thing ability to go to area very much the focus is on much not just a government but a group of governments who are you know trying trying to come together and trying to develop decision making mechanisms that would actually allow them you know to introduce the innovations that are necessary to ensure sustainability of the area down it was never supposed to happen this crisis right was never supposed to happen we just should be more and more prosperity and people are going to retire earlier and earlier and everyone was going to be richer to go to vacations in greece oh i have been really didn't work that way it never got and never does but what i'm what

i'm trying to when i'm trying to get out is that we're all talking about what needs to be done in that's a fiscal side of this monetary union a federal side of this the european union but not once ever correct me if i'm wrong gentleman as europeans ever voted for that they never voted for such things as it was. no we're not going in that direction we can do it with just monetary you that's a blatant false right there you can't do it without a federal so while the monetary union is in some ways a union and in some ways mad and you've got to just how is the problem of eventually you have to go back to the fundamental flaws in the original structure of the euro. or supposedly it's a single currency but in actuality. it's a currency mainly or all that is any each individual country because the sovereign

governments of each country are soley responsible for the bonds they issue so what you will but at the same time this is what got greece ok is it if you have your own currency you can default you can devalue you can do it and start over again but the euro is a straitjacket you can't do that in the argument just winning the argument is made because you can't do that you surrender your sovereignty and it's somewhere in berlin it's somewhere in brussels it's not at home well. in some ways that's true but in saying that there's no way out i think i wonder there are various ways out and there's history on earth i mean if you look back ten or twelve years to the time that argentina had their peso linked to the dollar and it was pretty obvious for at least two years prior to the dealing that it was going to happen you

could see it in the argentine bank structure where they were paying eight or ten percent interest on peso accounts and two percent interest on dollar accounts even though the peso in dollar language what happened and they dealing i mean basically you had an immediate devaluation of about. as i recall. the pacer went down to two and a half to the dollar overnight you had some inflation and basically inflation is nothing but an additional tax on given even one solver in state you can't do that in the european union you can't you can't do with one country at a time ok and it was this the no i mean a greater disgrace ok that's. it was never contemplated aside but now that the push ups come to the shop maybe you should start thinking about that as well by the way say there are ways out yes the ways out but there's

a cost significant cost attached to each way out so i think what you have is the one at this moment as they try to calculate these costs as best as they chant and they will choose the lower cost so i personally think lending greece out or any country is going to be hurting the zone and they couldn't see the mess the water that's either precedent has been set if they're exactly as if you know you know as a lawyer you cut it out you're no going to be able to avoid the who's next question that's number one because people will say the markets will say at least if greece is out why spade why is portugal then why is such a so these weak links will always be questions and greece i think can be maintained in the union but that has to give the course which i suppose well nobody is safe in even germany a lot of people think that germany is safer germany is not because when you look at the share of germany's getting d.'s in the f.s.a. for example they're in excess of ten billion dollars when you look at the problem conti g.d. i put for you the e.c.b. it's in excess of six hundred billion euros and l.t.l.

is one chilean fuel and one third the e.c.b. is buddhist one not that i contingent liabilities of judgment they have a material eyes but they can do live with these so the situation actually these quite difficult to cope with deal with but yes that are ways out but we have to understand that there is a secret legal us a little part of a little bit of a goose if i go to you you know when germans were. goal really likes to hit the wrists of the of the greeks of the spaniards would anybody the weak links in the euro zone put germany has been the greatest beneficiary of the euro and has every interest in keeping it it just wants to control the rules of engagement with the currency that's a couple of things first of all you said earlier that you know you surrender yourself aren't you to brussels and i don't think that's going to occur you know used to render your sovereignty to a broader world can nationalize the super national body in which you have

a vote. actually i think you are set on kind of or have a small vote on the board of the european central bank and you know you have basically sitting around the table representatives from all this all the members of the euro area. and they have a voice and they have a vote so i think it's important that no one is surprised because otherwise you know you get this this perception that this is basically a show run out of brussels which i don't think that is the case you know again i come back to my original point these countries are trying to come up with some kind of collective decision mechanism in which you know they are truly truly represented tough so if you europeans want more of europe or less of europe now because you know he the more you have to get the more crisis you get ok well you could make that argument maybe for the man on the street the woman on the street might say in particular if you're unemployed that's true and you know when you talk about the population i mean the population is natural to my ears and so the question is you

know has the majority of the population favor this or that and in a lot of the recent post you say that. many of the votes are coming out against expanding the powers of the european union but it's a matter like a ninety two town vote it might be fifty three. forty seven which would be considered landslide so i mean it's it's an ongoing issue and different people have waited things differently in their own mind yes but i mean a lot of people that have waited who did not come up with the solution been voted out of office ok and it will the people that usually come in well less of europe all of them in for in france i think is saying he wants more of europe but it has to be done more equally more as an equal partner balancing out the germans so more of this sort of cozy merkel cozy relationship even if it's good for friends. i

think there's a more fundamental problem of working which is that even before the crisis i think european union as a union had the following problem the outage so-called hued of pm didn't feel the emotional attachment to the union the way say in america and that the united states i think that's in good times such deficiencies and such laws are basically kept on the cops but on the cover but when tough times heat you ok i'm not very important no gentlemen we're going to go to a short break and after returning from a break we'll continue our discussion on the euro crisis stay with our team. and if you. still. want to. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something

else you hear or see some other part of it and realized everything you thought you knew you don't know i'm tom harpur welcome to the big picture.

if you. still. want to. welcome back to cross talk i'm here to lavelle to remind you we're discussing the implications of the euro crisis. and if you. still. tom if i can go back to you. do you think. the majority of europeans want to become part of what could be called the united states of europe. i think in

a narrow way make it varies by country i mean for instance the smaller countries particularly the eastern european the emerging countries in eastern europe basically want to be a part. at least the european union to get the benefit of free movement labor cost advantages that they can take care of. araby decision makers what state you come from and you and i come from colorado oh i know i was brought up in colorado but i call myself a california who has more weight in the united states in the federal union of the united states well right over california in today's market for next coming election this fall colorado and truly has more weight because it's considered a swing state oh ok go anywhere where a question of the trick and so you know what i mean here i come from rhode island ok come from luxembourg. or pro europe been greeks.

my dogs i'm not sure but i dogs but. i wouldn't even i mean if it's different based on this week basis again that's a problem i mean the nature of the problem doesn't go. that's healing of the motion of attachment to the union as a european i don't see it that i've never seen it that actually but as i said during good times you don't feel that too much but do it in best times it just plays out as a cd is political so that's the stability of the union and that's exactly what's happening at this moment so i think that i think that having a bit of a historical perspective on this is quite useful you know if you think about the twentieth century we have to all the wars that involve you know huge complete collapse economic collapse and destruction from you know between european powers right we have more from barack to a point where basically the way the europeans resolve their issues are still committed me teams working groups and essentially you know peaceful coexistence

right here on this it will be but i take they're all pretty awful you know one hundred times better than better than war and it wasn't so long ago right but actually we have talked at the very beginning you raise the issue of the design of the euro area and if you remember when the euro was introduced there was actually a gentleman's agreement between the members of the european union called the girls on a stability pact right but whereby they would actually keep their budget deficits below three percent of good leverage germany broke first and they waived girls and their levels under sixty percent of g.d.p. right i think what was missing a point and perhaps because they were not ready for it yet where actually binding mechanisms such as exist in the area one for equality and i think that this crisis essentially is moving europe kicking and screaming in that direction shifted if i can go to you and. i like what i got so i just say i agree with his history of

historical analysis completely but you know for at least the last thirty years there's been another can being kicked down the road and it's called dams it's rolling it over rolling it over the let's look at the demographics i mean we have a lot of people a lot of ill. the only people they got are getting very cushy cushy social services in retirement the envy of the world i would point out the envy of americans for sure ok but you can't keep kicking the can down because the bill finally arrived. actually at the brink of a crisis in one of my writing is that one of the reports claimed that even in the absence of this financial crisis you look at some point would have had a fiscal crisis because of the pensions that there was on stage so add on top of that the fiscal crisis and the physical body composition the financial sector it's an opinion then taken into account what happened in the united states ok so huge that problem on the bats in the body that is not the stock of that per se but when

you look at the difference between the girls they forcibly you'd have versus the real rate at which they would have to bottle that rate exceeds the growth rate which means your debt dynamics has become unsustainable by default so you have to be very very austere on the fiscal front which could be self-defeating you know that's the economic advice to austerity create growth for me that's the big question. there is one interesting counterexample in the european union which is sweden you know that sweden. already ten fifteen years ago incorporated into their place called policy the notion of sustainability they basically said the following we are an aging population if we want to be able to pay our pensions on monday in our safety net. broadly in the same terms for future generations as we have it now we have to begin to accumulate budget surpluses and leading up to the crisis in two thousand and eight if you just look at the historical data we've been consistently year in and year out of budget surplus. why because they understood that they did

not wish to become captive to the market is what has happened to some of the countries in the european union. the only country in the european union which actually has seen its debt levels come down since two thousand and eight is sweden sweden there. on a totally different path low on declining debt levels why because the politicians long noble understood that we have to live within our means we have to have the brains of a very interesting point in it and it's something that politicians are terrified of i think a lot of people don't want to confront but tom says. the people of the european union particularly in the euro zone have to accept that for the next ten or fifteen or twenty years you're not going to live better that you may live for and can that is that politically untenable what politicians are going to come out and say you know we're going to live poor for the next twenty years vote for me it doesn't work we don't have the poor i don't think there's well there's always

a serious deficit there's a growth deficit but i mean. if growth is that four percent a one there so here is how it is flat right well ok except for see it so specifically because it's live in this the fastest growing economy in europe right now ok all right i'll take your point can you hear it in the european union emulate sweden and how long would it take it would and would it be voted it would people vote for it let's not forget about the democratic deficit but i don't think these dynamics change overnight i mean the police don't have much time jackie does that's the problem that exact problem i mean the swedes are not the smartest people in uniform and i'm sure that our people are spotless to be in but probably it was even feasible to come up with such bold and they couldn't come up with i mean you know when your can say inside is a bit of a cushion so that are certain policies to be pursued that ends but the feasibility of those all the seas becomes a big question mark i think that one of the things we need to do is we need to

shift the focus of the debate in europe at the moment it is too much focused on on basically day to day fiscal management right after what spread i'm i going to be able to show my bed tomorrow that's the big question in the minds of policymakers at the moment for politicians politicians policymakers and so has the right along with its own. well you can you be you can be a policy maker in survive yes governments ok but politician but the point is the point is that it is the fault the debate over the last year or so you know has been over when we focus on fiscal sustainability and we need to shift it you know to grow the reform efforts more institutional reforms let me give you an example if you're a greek budding entrepreneur right and you would if you want to set up a company in greece it is much more difficult but it isn't russia believe it or not it takes far more procedures and it is far more costly than bureaucracy does your phases and for america to get started it is pretty overwhelming that this we do when the going business report that the world bank it comes out very very carefully so if you don't is going to go on a higher growth profile in the us part of

a strategy to get out of the crisis it has to prove competitiveness they have to begin to do this sort of things which the swedes have been doing for the last fifteen years that way he did ok tell me one of the issues you know we've heard over the last couple of years is that germans ingrates are not the same people it's totally of the same gene pool we're told they're geographically in the school abroad scheme of things pretty close together but they're very different people and what we've heard about sweden it seems feasible that kim is only going back to a one size fits all approach i don't know and i think it's too pessimistic to say there are a general population will not accept cutbacks in social programs i mean if the question is to accept some cutbacks and i don't mean cutbacks maybe on a monthly payments but maybe a longer working life remember sixty five were settled on back in the one nine

hundred thirty s. when the average life expectancy was like sixty nine cents or you were on a planning on and on average four years worth of payments now they are bridge life expectancy is eighty ok well what's the difference and the difference is people that are sixty five can continue to work. why should they retire well it's nice to retire with a high of three nation that you play in but if you understand and most people when it's really presented properly understand you either accept or maybe you don't get any pension when you retire because there won't be any money left then it's a different manner i work i spent my working career. before i took my first retirement. with a dutch company ok now the netherlands back in the eighty's and ninety's had a very very beneficial social program it was not financed by did it was being

financed by gas exports from a large gasket that the government received all the revenues from under deciders the lead gas deposits basically ran down ok to the point where the money's coming in and sufficient to continue the social program they kind of ok give it what about people they don't get anything is europe lost a generation of young people you think. i mean if you're if you're spanish. of course i mean you're not even talking about what you know what the swedes do for merkel's monetary policy or if you're not even even close to thinking about that except for maybe being in great. board completely disillusioned i think that is something inevitable balls said let me just point something else which i think is the solace part of the school at first with visibility and just gotten money at the end to follow assess from turkey and he was called in

a deep crisis of our own in two thousand and one but what we were called a crisis cortef the g.d.p. was about two thousand dollars that it was so when the administration said tyson belts the belt was very thought but anyway we thought that it was but when you're caught in a crisis like greece when you enjoyed a bit. a joyful life for more than ten years what they can to utils you want to say about the job in here thank you very much for participating in this program and thanks to our viewers for watching us here in our teeth can remember cross talk. and if you. still. want to. get are sometimes you see a story and it seems so you think you understand it and then you glimpse something

else and you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom harkin welcomes the big picture. there hasn't been a thing yet on t.v. . it is to get the maximum political impact. the full source material is what helps keep journalism honest we. we want to present. something else.

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