welcome back to the new center here in moscow top stories not exactly half past the major world powers throw their diplomatic weight behind attempts to end the drawn out crisis in syria and that reports the country is being surrounded by foreign military forces. as the german parliament rubber stamps the euro zone's massive bailout cash poured disillusioned italians turn to comedians for leadership. and american troops might be out of iraq but the money is flowing in washington plans upgrades worth one hundred million dollars to its baghdad embassy despite cutting a third of its diplomatic staff helping out with a news team with more for you in half an hour from now in the meantime we delve into the world of finance on the money with peter navarro is coming up very shortly

here on r.t. . hello and welcome to the business of business. petersburg international economic panel discussion. our panel included high ranking. of the economic studies. russia. for financial markets. president chief executive officer. chief economist special advisor to the president of

european bank for reconstruction and development and. chief executive of the london stock exchange also on the front row we have. news editor in chief of business. to you first. has the european currency the euro already had its 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 at 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 worse 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 really institutions 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 know

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 ready to resolve all this question and we have a system of european stability mechanism the ability far do 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 the country it will be in north structural problem for. the government body to substitute market forces we are talking about our market 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. i can tell you based on polish experience i think you have been promised would be solved if you 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 this. rocky road to the place poland is today and just after that central planned economy collapsed in poland in one thousand nine hundred nine the inflation amounted to six hundred forty percent annually 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 eighth. 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 without telling anyone because he knew everybody would be against it of course and you need to do 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 to see you. leaders rushing the something like the year we had a presidential candidate that said. russia should join the euro. while i think i would have a discussion in russia to thrash better relationships with the european union and

then i heard a loud crash joining me to go there i don't think anybody wants to join me at all that you have no option like i don't examine let clearly if. you will get away i'm going to jump and there are several countries that actually are now still the wanting to go on the euro one of them is poland and i thought today not today exactly what we need to fix the euro for us but how do you fix it so i mean only to i think 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 live start with a roadmap towards a banking union that starts with the laying 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 who's going 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 a common deposit insurance to make sure that you know you pull all the resources and that has 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's 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 out to you should take it since no one wants it i'll take your own 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 explain everybody of course wants the resolution and i think the 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 two 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 a 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 know

they can hand 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 debts 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 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 the sick man of europe you know what's happened is that germany managed to restrain wage increases basically to productivity increases. when you look at the countries in the periphery the countries that 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 reforms reforms in labor and product markets in the sales 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 then just approaching it all for germany success but you have to stop fighting it 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 that's more. willing 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 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 great 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.

everybody likes to look at the laggards but you know but the winners have profited enormously everybody and you're like 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 germany has to become less competitive

fan and i guess that so many doesn't want this to help and that the financial crisis is happening i mean german 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 there are 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 bond market well i think that's what's happening in europe now now that we're seeing these bond yields for spanish and italian government debt rising up to levels that aren't sustainable over the long you know this this is really very specific to finance and i'm thing about people in the destiny of this currency here dmitri if i can ask you is it 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 high 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 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 so you know what i'm getting at ok and in this is 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 it's 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. that requires solutions at the federal level has been motion a few times a success for example in europe so let me stress one thing poland successful and people simple 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'll work with all of them worship in you and i think your question that. a lot of people would vote anyway i'm going to take you know you a lot 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 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 death again 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 do commission is elected 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 a 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 bitter pill is competitive that's why they want then they are used to seeing his grease in itself doesn't really matter whether he does leave then you have the press that it doesn't matter economically because you represent 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 there's your layman moment there's your lehman moment and they wanted to argue next race that greece is a small percentage of the g.d.p. it's. 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 thing grace have incredible outside lands with these banks and france and germany and these banks are going to go 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 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 wait 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 poles are very sensitive about sovereignty i mentioned before poles voted thankful to the membership of you because of the. how quickly 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 some soloing 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 at poland and truthful 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 the ground so i mean the drones have transformed islands which was an agricultural basket case in the seventy's and eighty's and there 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 boat 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 erica and 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 they're 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 today were paying the same rates as germany and it took that money and they used it to finance a ridiculously generous social system with no productivity cames no competitive games they were able to do that because the cost of finding a cheaper and cheaper i'll just go so you can sort out two scenarios that if you get the economic convergence to underpin the monetary and fiscal union then you

can have a sort of european renee thought 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 they claim no love if what they like and what i thought that's all back in the one nine hundred fifty s. the divergence between the dynamic north of italy and the stagnant. ok max is i usually say in my program going to give you the last word. oh thank you peter for the last word it's got to be. to do address the corruption as it's been we know 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 there's 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 that's an outrageous breach of securities laws very responsibility and yet there's nothing done about this this is outright. so and so this is addressed then everything else is theoretical. and 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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