stunts on t.v. don't come. from moscow this is artsy you're just in time for the headlines major world powers or throw the diplomatic a weight behind attempts to end the drawn out crisis in syria it's all amid reports the country is right now being surrounded by foreign military forces. as the german parliament of rubber stamps the euro zone's massive bailout cash for disillusioned italians turn to comedians for the sham. that the homosexual community in russia fights a new law targeting so-called gay propaganda they say is just one step from outlawing same sex relations. by a time to dive headfirst into the world of finance with on the money.

hello and welcome to the business of prussia is business. at the st petersburg international economic forum panel discussion on the. panel including high ranking. economic studies bank. executive director morgan stanley russia. he is head of the federal service for financial markets. president chief executive officer. chief economist special advisor to the president of european bank for reconstruction and development and exhibit chief executive of the london stock exchange also on the front row. and then editor in chief of business.

to you first. has the european currency the euro already had its lehman moment. right well i don't think so not yet we've had some crises and then a policy response i think that's what people mean by lehman moment a moment in which you stare over the abyss and then after that with his name on team emergency meetings and everyone keeps staring over the abyss where we had the l.t.r. oh and some people thought that that solve the crisis but basically i think the problem is the euro project is half baked i don't mean that in the pejorative sense but i'm going to have money i'm going to be in a positive sense in any way you have a monetary union without a fiscal union and until you have a lender of last resort as a backstop to the monetary union i think that with the weak banks and the weak saw friends that we have particularly in the south of europe they will start trading as

credit race rather than sovereign risk that means that they yields will go up and it will be impossible for them to finance in the market and since we have two very big countries there spain and italy financing them through official channels will be very difficult so i think that we haven't yet got to the big crisis moment in europe and that will come when those countries can no longer finance themselves on a sustainable basis in the market because that will force the european institutions the leaders to make a final choice about whether they are going to complete the monetary union with some kind of corresponding fiscal powers or whether there's going to be some other resolution of the situation that's very academic to me triac if i can ask you i think everybody would agree but you can't do that in a snap of a finger. in the european union yes but you see i totally agree that the now we have a kind of make a nice make a nice nice radio to resolve all this question and we have

a system of european stability make a nice stability fund we have a european central bank so. we are ready to say to substitute market force by official force and my feeling is that it will be a political agreement between country it will be north structural problem for. the government body to substitute market forces we are talking about. market debt for spain. italy ok. this is a euro you want it. is a little one of these days because he is safer. i'm not an economist saw but i can tell you based on polish experience i think the european problems to be solved if you wish go ahead. poland is no perceived as

a success story and one of the key drivers of growth in europe if you only if you remember. if it were a member of the europe european currency would it be a driver. i don't think so ok so only if you remembered these days the rocky road to the place pointed to that and just after that central planned economy collapse influence in one nine hundred eighty nine the inflation amounted to six hundred forty percent underling today's four percent four and accounted for sixty five percent of g.d.p. today's fifteen percent and the cure was less votes out of each plan this plan was published on the newspaper page and was prepared to just in the hundred days. a radical and comprehensive reform was needed to bring a real big breakthrough to the polish economy isn't it is it true that that plan

was introduced but what are telling anyone because he knew everybody would be against it of course and you need to this is the same in europe. ok we'll talk about the democracy deficit in europe later keep going i mean the solution for europe is quick and radical action pain so it would abandon finally from. virtual worlds of talks and negotiations and get back to reality. ok if i can go to you do you want this you believe is washington a something like the year we had a presidential candidate that said. russia should join the euro while i think where we have discussed in a rush to trash that relationship with the european union and then i heard a loud crash go away can i say i don't think anybody wants to join me at all that you have no option like an exile let's clear if. you will get away i'm

going to jump and there are several countries that actually are now still that wanting to join the euro one of them is poland and not today not today exactly so we need to fix the euro post but how do you fix it so i mean only to i say we've had about this topic how do you fix it jacob has the idea but i don't know if it's politically feasible so i think we will start from another place i think we will start from the banking sector a little start with a roadmap towards a banking union that starts with relaying out how are we going to get central banking union i keep hearing idea what is that me so that a banking union means that you have a central supervision who's going to supervise it so it is to provide it easy be probably or possibly be able to e.c.b. so the european central bank would be the supervisor it would also set up common deposit insurance to make sure that you know you pull all the resources that have

to be built up over time the city will have to step in for for some time and then you will have some kind of common resolution scheme as well who is going to decide this this so this is that it does not know there are a very concrete plans and they will be discussed and i said not only are people being asked about it well people are being asked about this so this is definitely out there but i agree i mean it's. and to. put it europe has moved without a full democratic consultation and i'm afraid this is the way it going to happen now too because it is incredibly you know it we have don't have a lot of time and it's very if i could ask you we don't have a lot of time right now i mean depending on who you want to ask in the market we're looking at weeks a few months before you have we have to get a final resolution somehow either you some people keep the euro or people leave it we still at that point. first though i've been in the market more or less as a trader for thirty years and my experience is when somebody throws money to you

should take it since no one wants it i'll take your euro at least i five enough for it ok the next point is no i don't think time is running out i actually think that and i know this will shock many that time is on the side of the euro not against the euro explained everybody of course wants the resolution and i think market participants investors corporate issuers are anxious to see this crisis resolved the problem in the near zero is fundamentally a competitiveness issue here isn't nations have decided to hitch their monetary wagon to the german economy the german economy is very competitive the majority of eurozone countries are not and in fact that competitiveness diff deficit has increased germany's largest labor to the to the west france has seen a thirty percent decline in the last eleven years of its competitiveness measured

as hourly wage costs versus germany has gone from nineteen percent less expensive to eleven percent. and the way european nations and this goes back thirty to thirty five years this is not something that's happened since two thousand and eight you kindly reminded the audience of even failure this is not just about a banking crisis the banking crisis triggered that mark to market but you've had a history for the last thirty to thirty five years of the majority of eurozone nations running budget deficits why were they running budget deficits because there was no political will no political debate to address the underlying competitiveness issue a lack or somebody would pay for it eventually just not well i mean if you're not on the can down the road that's what if you are competitive and you're running a very expensive show show model it's been financed through debt most of it hidden and still part of it so the. mark to market now tells you you can no longer continue to do this because markets want financing at

a rate that's affordable area i want to come in because i think there is a lot to the story that we just heard but i think we should not forget that germany in the ninety's was the sick man of europe and you know what's happened is that germany managed to restrain wage increases basically to productivity increases if you look at the countries in the periphery the countries and there are problems they had wages going way above productivity and i think that's the fundamental problem and that's where the competitiveness jake if you want to jump in here you know it's i guess it's you know politically incorrect but you know we have a discussion like this it's all about germany isn't it. well this is something that i mean i think i think that the point about the competitiveness reports reforms in labor and product markets in the south driving you know medium term growth prospects up that's fine the problem i think is the short term austerity that is leading to recession and nastiness in southern europe and that's making the debt to

g.d.p. ratios in the deficits worse and growth worse and that's why i think you know in a situation where you're paying seven percent to fund your government debt firstly in spain you have a situation where something has to give and i think maybe it will cave i think is a very big step because in the past france has been against transferring national powers like fiscal powers to the european level and that's what european banking regulation and deposit guarantee banking means and germany's been against monetary financing of deficits it was in the constitution after the second world war people say we saw that in just approaching it all for germany success but you have to start pledging at a time so these both these countries have to make a big move forward to find some kind of back i mean i don't see any and i think that the french elections have changed the game a little bit so i think there's more. willingness to accept something. before ok i

want to go to yeah. i think the question is not peter you will i take your euro my question is how much will you pay me to take your euro because in germany right now it's a negative interest rates negative bonds and that's the the this flight to so-called quality happening and in these countries but sure i mean this has been a fantastic crisis for germany there are artificially cheap euro thanks to the marginalization and destruction of the periphery countries like greece and others through financial legerdemain has given them huge upside and that there's no reason for that not to continue why would we see that continuing they're benefiting from it. greece and other countries are a bit of a prison. and they're they're the chief beneficiary they've got a huge bank and deutsche bank which is a huge hedge fund which is operating on the global stage you know spending financial derivatives again to the benefit of germany to the detriment of countries like greece so they're really making out the great that during this whole crisis

and there's no incentive to stop that they have no incentive to stop this current trend they get the fantastic boost from the export markets. they're doing great. wealthy british science. market. was really happening to the global economy with much stronger no holds barred look at the global financial headlines.

everybody likes to look at the laggards but you know but the winners have profited enormously everybody i knew when i said this is a program about germany ok well what basically germany will have to do just as well right for greece to become more competitive with what germany has to become less competitive fan and i guess that someone who doesn't want this and that the mantle to say this is happening i mean job and wage increases are quite substantial at the moment and you seeing significant labor market reforms in spain and italy and liberalization of some of the closed shops that you had on the product side taxi drivers and so on so that all moves afoot but these are quite slow moving changes

the whole market remember in the nineteen nineties when. the some advisor james carville wanted to come back as the bond markets in his next life because everybody is scared of the bomb well i think that's what's happening in europe know now that we're seeing these. first spanish and italian government that were rising up to levels that all sustainable ok over the long you know this but this was really very specific to finance and i'm thing about people in the destiny of this currency here dmitri if i can ask you. if more integration is the only solution to this because you the status quo is not tenable obviously you can't win that no one really wants to go back. but how do you move forward and how do you sell integration i mean after everything that's happened how do you tell people more europe is good because electorates are saying less is good thanks. to you that more integration in that case it will be good because. if we are just one step back about

competitiveness we have different regions with properly different competitive. it's in europe we have south with less competitive less productive do with we have germany productive. but compared with let's say let's take united states or russia again we have a. situation with one to raise a very competitive other noncompetitive so this is a typical question for many areas and resolution it's ok it's a let's say united all the world the. beginning of the twentieth century the united states of europe again. to create a fiscal union with a great political union monetary union it means one country means united states means russia and in my feeling this is a one solution with only one solution for europe to move in that direction it's

inevitable but do people want people want that i mean in a united states of europe in theory would work and i'm an american and i know i know i know that anyone that votes an election to determine the presidency it's michigan it's florida it's california and new york you can't win the presidency without those states ok as a result candidates don't go anywhere you know what i'm getting at ok and in is this what europeans want i mean we never we created this mechanism for security in peace and a lot of people don't have security and people are getting less prosperous are very clear that europeans. i don't want european voters don't want. united states of europe but i think you can start in places and that's what i was trying to do this may make sense to people if you look at the way the european banking

system looks right now that you have cross border banking all over and it's incredibly important for eastern europe for example you know that requires solutions at the federal level has been motion if you tie into the success for example in europe so let me stress one thing poland successful and people sibal we've all membership in you and poland shows to others how to use the funds and use the chancellor well and thanks to e.u. cohesion policy means. poles polish people created fall to four hundred thousand jobs so all these figures mean that poland success wouldn't be possible we work with of membership in you and i think your question that i only like one for the nation a lot of people would vote anyway i'm going to take you know you are today. i tell you i take it tomorrow when the eurozone is fixed because people's belief believe strongly in common europe the whole history of the currency got getting to the euro

and the euro itself if we go back from the end of the second world war all the way to the present what you've always seen is when there's a crisis there's more integration there's always more integration. can you politically sell that because i think the most of us would agree that that's the solution but i'm an american so i don't have to worry about it ok i don't have to worry about who's going to represent me in berlin or if it's going to be in brussels or wherever and i think this is a very real problem i completely agree with this and and that's get and i'm trying to to start you know it makes sense to people i think if we go down this route we definitely need to do to reform. you know the european commission is the president who can commission a selected you know how the european parliament functions and so on there are a lot of things that need to happen for this to be you know a true democratically accountable. because if it is a political crisis i think it sells itself i think actually we are at the darkest

hour i don't foresee there's going to be only moments no doubt but i think we're on the slope to slow but steady recovery and we've seen it in greece i mean you said you know you have a referendum oh vote if it's not the right answer you try again until you get the right answer that's one way to look at it another way to look at it is the greek people is that an opportunity to truly contemplate what happens if they get out of the euro and the electorates of italy or spain of portugal in other countries also have an opportunity to say well you know if the greeks get out why don't we get out so we don't have to swallow that bitter medicine that bit a pill of competitive that's why they won't then they are used to seeing his grease on itself doesn't really matter does leave then you have the press that it doesn't matter economically because you've represented the greek economy g.d.p. is one fifth of being crease of china so economically no it doesn't matter politically if greece exits he puts on stoppable pressure of

a number of countries who are trying to reform to do the same thing this is deal then there is your lehmann moment there's your lehmann moment and they wanted to argue next race that greece is a small percentage of the g.d.p. is. meaningful same thing could have been said about lehman brothers as a relatively small bank but the interim reign relationships with the wall street the rest of world brought down the global economy same things grace have incredible outside lands that these banks and france and germany and these banks are going to get and those loans are going to go bust and that's that's that's the lynchpin moment that is you know i mean i lived in poland for a long time and poles very close country to my heart here i mean i was there during the communist period and let's face it the soviet union wasn't their favorite country ok but you know a free democratic poland to now do you want to be shackled to losing your sovereignty to brussels to berlin to to paris ok i mean what's your relative weight then ok i mean on loan and i can i remember telling my polish friends you know

don't rush into the euro don't because they're all we want to sit at the adult table like everybody else but you know it you'll go sit at the adult table as a child ok and colin has made a really good decision by not rushing towards it maybe under certain conditions but what about the sovereignty issue and polls are very sensitive about something i mentioned before polls voted thankful to the membership of you because of the. how quick the country was there were a lot after two thousand and four and of course going deeper into you if you've been you know. means losing something going to just want to come in on some as what max was just saying about greece having to leave it should leave because it's not competitive but it has no chance of becoming competitive because they're not doing anything about it whereas you look opponent and true for all the central european countries the e.u. membership set the standard that they had to live up to they threw themselves into it they pushed through institutional reform and pushed through market reform and

they stepped up to the mark and became more competitive and on top of that you go to the ground so i mean the drones have transformed diamonds which was an agricultural basket case in the seventy's and eighty's and then it was like this this. economy and that's sincere opinion project european union projects been a fantastic success this is a commitment of the country in particular the people to make a change there but you know the country's not being responsible like greece and so they should go and countries who are being responsible like the both six and poland and many in central europe and they need more help and so to redress this balance of lack of compassion of the range of competitiveness within the european union if the union is going to be a success not only to have fiscal union but actually to make a bigger effort eric go ahead you and joe i have to think that for greece leaving the euro is not you know something that's going to solve all the problems in particular all the debts are going to be converted into hard currency death and you're going to sit there and have to pay them off or default them to put you know

at the end of the creditor line you know that's going to be you know a very hard thing to do i think there's no point in their saying in unless they do something about reforms and bringing up their competitive because the system they've been running into and there was you take as the bun prices converged that they were paying the same rates as germany they took that money and they used it to finance a ridiculously generous social system with no productivity gains no competitive games they were able to do that because the cost of finding a cheaper and cheaper you know just go so you sort of like two scenarios that if you get the economic convergence to underpin the monetary and fiscal union then you can have a sort of european run a soul with all these competitive risk reforms underpinning a strong growth in the south of europe the danger i think is that we're headed for the tally in marriage in. italian marriages where you have long lasting economic divergence within one monetary union of course thinks i don't know love if you're

ok with it at all back in the one nine hundred fifty s. the divergence between the dynamic north of italy and the stagnant sales ok max i usually say in my program going to give you the last word. oh thank you peter for the last words got to be. to do address the corruption as it's been we know it we're heading into this conclusion i mean we can talk about policy initiatives and we can talk about supply side economics and keynesianism and austerity but all that smoke and mirrors unless you get rid of the corruption the underlying corruption which is that is only getting worse when you have banks in the u.s. for example covering their bets by going into customer accounts and stealing money from segregated customer accounts we saw during the m.f. global scandal they had some outrageous breach of securities laws for every responsibility and yet there's nothing done about this this is outright. so this is addressed then everything else is theoretical work i think we ended on the

democratic deficit on both sides of the atlantic i want to thank all my members of the panel for being with us here and thanks to the audience for watching and those watching on the internet.

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