forecast and then we had what i guess by russian standards austerity kicked in yeah i've been disappointed when we started this year with consensus looking at three three and a half percent growth and then the economy basically stalled and the economics minister was saying we had zero growth over the first nine months and it's a combination of things i mean firstly the really terrible external environment which is dragging russia down particularly europe. internally we've had a combination of the governments cut spending for the first time in a decade so we have a russian version of austerity and given that half the economy is directly or indirectly dependent on the state that's had a big drag effect second to that is the high cost of borrowing inflation remains persistently high in the central bank has made a choice to stick with high interest rates rather than do the rate cuts that everyone else is doing to stimulate growth because they feel that fighting inflation is more important then finally there's just

a general lack of confidence and that showing up particularly in the investment figures and investment is fratto negative and no one is building new factories despite the fact that i'll wait and see i think there's a big element of wait and see people are uncomfortable and given the external environment so terrible they're waiting for the upswing before they commit themselves to you know building new production or or investing into a new facility suddenly when when the government a few months ago decided to go are well used to austerity budget cuts instead of stimuli they knew this was going to happen to the economy it shouldn't surprise anyone that the economy would slow down and and industrial production is zero right now absolutely i mean already talked about industrial production cap ex over the last year is down four percent which is significant so the government throwing on austerity on top of that it's no surprise that the economy does it take the pain now for. growth later i mean is this the strategy i think i think the external factors of being brutal nurses. bernie indicated you're in europe and the recession

for many many quarters are just just coming starting to come out fifty percent of russia's exports are related to europe so i mean that external factor has been significant i think russia decided that it would while the rest of the world was taking pain it may as well join in ok but yeah they have the the opportunity to do so well the comfort space i mean if you it seems perverse to put into place now when the growth is so low but the slowdown hasn't actually affected the people in so much is people are cutting rates in the west because they've got twenty thirty in youth fifty percent unemployment in russia we've got twenty year lows there's full employment moreover people's incomes continue to rise and so for the most of the older a number for this quarter that is is positive is disposable income continues to be on the increase so very small so the rest of europe is suffering and you know seeing these riots and protests because the people are hurting and in russia the

kremlin has made the decision the people are actually doing fine for now and so we should get on with the business of doing the you know these these reforms and changes to the financial system getting inflation down because what they're doing is they're betting on an organic recovery starting next year rather than trying to fishley engineer a growth recovery now and you can debate whether that's wise but it's quite brave i mean this is what the big debate was during the summer and i think this is what confused a lot of people if you walked in there in the state sector and for investors and just for businesses in general i mean the we had first six months we had a government policy of stimulating the economy through spending and all of a sudden it came to a screeching halt and then you got to reverse and i think this is one of the things of wait and see because we're going to see how this plays out as ben was saying you know i mean the. g.d.p. growth is about one point three one point four percent over the year it's significantly the vast majority still from the consumer you know complexes. all is

still being the consumer spending which has come from real wage growth which has been significant within within the russian economy in contrast that with across western europe where you know wages are still often off from below two thousand and eight levels in real life russia is coming to the point. where they're kind of running out of time in so much as even the consumption is starting to slow down and retail turnover is slowing although it's still a driver but it means that the model for growth going forward is changing and it has been you know people say russia is a petro commie it's not it's a consumer story because of these hundred forty three million people who buying things they never have they do like to shop and they still have lots of shopping left to do. going forward the for the economic growth story is now going to be about investment and encouraging investment and putting the things in place which is lowering interest rates which is confidence which is less bureaucracy these are all the things and these are big tough issues to do with and you know things are

being done about that but we'll have to see how it goes i mean you know over the last couple of years the word austerity is a dirty word in europe and a lot of people have come to conclusion that the kind of austerity that we saw play out in greece and some of the other big countries was really the wrong strategy that you have to find the balance between stimulus and cutting budgets but russia is in a peculiar situation to go down the austerity path is because it virtually has no debt absolutely i mean it is that the rationale behind it to go through the pain now and get real quality growth not financial growth not financial markets but i mean real economic growth effects the real economy the interest of the everybody became keynesian for a very short period of time. in russia it's not really looking to a situation we need there's significant cap ex needed this significant investment but this really is structural reform that if that if that was adopted now that would really significantly improve you do go down the path. structural reform

during times of austerity i mean you know people would make the argument you know it's not a good idea to change the wheels of your tire and the muffler and every else everything else in your part while you're going seventy miles an hour i mean they did it in the one nine hundred eighty. three significant social and economic problems it example exaggerates to a very great degree any problems that exist with a quarterly but at the same time if you are going to see it is much better to sort of go to the doctor and get everything done and that's right so i guess there's no there's no real good time or a bad time you just have to do it well put it this way typically countries if they don't need to do the reform they won't and for most of the last ten years russia didn't need to because they had buckets of money suddenly they need to do the reform and you could argue with you know it's a bad time to do it but the thing is they're being forced to do it because now there's no way out of this paper bag unless you do the structural reform and like i said before russia is in this great position because they can effectively

experiment with doing all this reform and if it doesn't work they can simply turn on the spendings because they're unique in the world with that because they can spend their reserves and they can borrow they have massive borrowing capacity which they haven't tapped and so they can just spend their way out of anything which is the result we have also we have the double whammy here for russia because i and i think both of us remember the one nine hundred ninety s. when russia was broke it was very much a debtor nation and then we saw the financial crisis of two thousand and eight two thousand and nine that's still with us now and the man in the kremlin a lot of mir putin remembers both very very well he's very skittish about going to international markets for credits right now because he sees it as a national security issue yeah i mean deficits in general are anathema to the government and they're going to avoid it and consequently we've seen all these sort of. short term budgies you know the duct tape economic duct tape which is things like freezing tariffs and freezing state employees wage growth because they were.

to avoid that so they're trying to you know we've between on the one hand doing the reforms in the austerity and on the other hand creating some money in the budget in order to avoid a deficit to avoid borrowing to see if they can get to the point where the rest of the world picks up and leaves russia with it and as i say the consensus amongst the consumer the economists and the i.m.f. from next year that there will be a recovery that we're through the pits at the root of the crisis yeah completist or we at the bottom of the trough. i think why it's very very difficult to pick bottoms didn't is another one further down but i think overall everybody i mean the u.s. he's on stall speed but it's recovering and i call it the move our recovery so it's it's not phosphorous but it got that i agree with ben but i mean but i don't i don't see i maybe that's the consensus among economists but i mean the consensus among economists this time last year was that things were going to be better and it hasn't been proven true what is it the economists predicted nine out of the last two recessions. i mean it's just i mean the bets is that there's going to be

a general recovery you know that really is visible from next year and russia will be able to benefit there in an organic way which means they can do the austerity things now without having to do this official stimulus i think it's a good bet i mean this is what you know people are looking at and that's what you plan for and as i say they've got all these reserve options that they're not using that they can put into place if there's another crisis meltdown problems it was slower than expected and it's already starting to look like it is going to go slower than expected some to his russian miscalculated or underestimated its impact it's how it's impacted by the rest of the world because we do see this aversion to going to the international credit markets here but still as you pointed out the first thing she said on this program is that you know the the crisis in europe that continues to really sap the energies of this economy i think i think all governments around the world like to think of themselves as truly independent and

able to influence their own affairs but the state of the financial markets and the global globalization of the world as it is countries are completely intertwined i think it's becoming less and less one sovereign even if you wanted to reverse absolutely i mean you know each sovereign nation would like to believe they can plot their own little call path and their own spending measures or certain measures will see them through in their own way but it's too intertwined it's just impossible if the u.s. . i don't it's that next week for bring it will have swell friends or going to it on hawk about that when we come back after a short break we'll continue our discussion on russia's economy state with r.t. .

her. or her. great hopes for freedom and democracy. substituted by great disenchantment. what was expected to be a blessing to the country. turned out to be its curse. georgia the story of a disappointment. the room could be yours you don't know if you don't pay a car or you're not response to really. knows everyone in my life that i cared about their goal much and then that i came to skin well.

i was a national champion in track and field and also was able to go and qualify for the olympic games. you know nine hundred eighty eight i started to experiment with drugs and lost all the financial means and i. was really on the street. black market. for. the fact that the military practicing in at any given moment in palestinian towns on palestinian people you know doing false arrests which is basically like like

a normal arist that you actually drag somebody out of his house in the middle of the night only difference is that the person that you are arresting is not really wanted for anything this is just for practice for training the soldiers now obviously one of the reasons that it's being done is in order to actually train the soldiers which is problematic by itself but i would say that if you look at the whole of the testimonies of hundreds of soldiers you will see that the main mission around this is to is to detail or the palestinian society as a whole not just the gunmen men women and children everybody needs to be afraid of you because that creates effective control over the palestinian population.

i've. lived. leak live. live .

welcome back to on the money with the business of russia's business i'm peter lavelle to remind you we're talking about russia in the global economy all right so i mean you ended the first half of the program talking about what was going on in washington well it's spread this out a little bit here ok i think we all the consensus was you're going to get through it in washington they have to raise the debt levels and they have to go and get a budget for the country but there was a lot of political scrambling for that a lot of political theater as well but aren't isn't the world getting a lot more and more tired of this circus because of the dollar and how were governments like russia and china bric countries the emerging world i mean looking at this because my last question to you in the first half of the program is trying to insulate yourself from these problems but as long as you have indecision in the

united states and how it's going to deal with its economy and we don't know what how damaged obama politically will be moving forward when it comes to economic issues and what it countries like russia think about that. the u.s. policy politics over the last month has been looking at sort of the west wing and i think i quite enjoy it. china. coming out in public and saying you know look make sure you look after our investments even say this it wasn't a senior official said it's the world it's time for the world to be americanized itself if you are in charge of china for a long time actually for a long time has been trying to switch into non-dollar assets so it's been seen a significant increase in the euro euro euro assets whenever it can go into things it's been going to euro shack losses and things like that being. rise of gold has been significantly impacted by many bric countries i think if you can increase in their purchases so west governments across the world have been trying to dollar ice issues but when it is the global global currency it's rather hard. so yeah they can

they can talk about wanting to do all right and reduce. their holdings of dollar assets but it's it's almost impossible you know i mean you could start by especially when you talk about the chinese reserves you can still bring up entire countries you're. going to say the chinese in the process of buying up a great deal of africa but that's not what t. bills is that it it's with other assets i mean they're not turning these into the united states and going into africa they're stuck with these things so they're part of the nation because of this i mean even before this. recent brouhaha in washington there was a trend of wanting to detail the rise and to spread your assets and russia china has been on acquisitions spree investing money not just in africa where i think they actually cover every single country no one i want my blackberry apparently but more recently in central asia i mean the president was just down there last month and did a whole string of deals you know he was called the chinese father christmas handing

out money and deals to everyone which is sensible but the crisis in washington over the ceiling highlights the world's attitude is changing to the dollar because you bought those two bills because they were the safest bets in the world and even though the. scene has been raised and verted if you start messing around with that reputation because when you buy when you buy you bill you're buying confidence aren't you not it's not necessarily the unit is how you it's confidence in the future and this is what's really been damaged here is i don't think anyone holding in to you bill worried that the u.s. government wasn't going to honor it ok but i think what people are beginning to worry through time is the level of competence the. one day it might not be able to not that he doesn't want to because in this case it was wanting to they could raise the debt ceiling if they want but in the future the near future mid-term maybe they won't be able to you know i mean it's a very expensive insurance policy it's very negative real right so um you know but

that the confidence level in the greenback is. historically i would say dropping and dropping and bends right countries like china just by buying real assets of a hedge against a hedge against the dollar is to go to go off and i don't want you to be in russia you typically buy a car washing machine apartment because you're sure at the end of the crisis no matter where the currency is those things have real value and whatever the new valuation is you can swap it back for money at whatever it's not going to miss watching this and two thousand eight thousand on sunday let's talk about the euro crisis here it was keep it short because it's the same story over and over and over again merkel has been reelected in really uncertain herself again i mean what's the direction of the euro here because again you started out with a program russia has to keep an eye on it it has no choice but i mean europe is here to mass for a while merkel being reelected is very positive news for europe you know awfully to

form a coalition yet but that'll do that'll get done i still worry for certain something european states which has been indicated earlier you know have significant levels of youth unemployment there's a generation of voice to talent so europe's got a lot of healing to do. oh no gentleman i mean healing yes but then you suggest another big bubble. which is a big bubble with quantitative easing i mean when you see this really all too easy credit out in the world right there in the united states it's a bubble it's a misguided policy i mean the whole point of easing and soft loans is basically throwing money at a problem supposedly down the road so that you don't have to deal with it and the basic problem is to deal with the debts and have it because you know during the crisis the government's took a lot of that bad bank and just put it all on the national balance sheets and countries don't you know go bankrupt i mean they can default there but they don't go bankrupt and now the issue is how to get rid of it and unfortunately that is

continuing to climb them across all of europe i think and germany was the only country in the last six months that actually reduced its debt and even that was by point three percent everybody else has seen it climb and it's up around ninety percent of g.d.p. which is unsustainable or at least that's the red line america is one hundred four and accelerates here but the dollar is the dollar and the euro is the euro so it needs to be dealt with and nobody's dealing with it and unfortunately you've got this political problem where the politicians are in for four years and need to get reelected and the significant thing with merkel is that the elections are done so now they can actually turn to dealing with the problems and as i said before germany is actually one of the only countries major countries in europe that actually is dealing with the problem whereas the others are still struggling and losing the fight which means that this whole european soccer is going to continue for the foreseeable with the religion of merkel merkel is she going to go help in the southern tier. i seriously doubt whether she'll be sure what do you do if and

what do you do then look at island i mean island was one of the first countries to stop putting in austerity it was significant budget cuts which were obviously the first country held out in europe it's come back you know it like that almost the celtic tiger is back germany i mean germany went through structural reforms through the rubik with chancellor kohl. germany is always one. step ahead of the rest of your and your needs to follow along and it's one of things for the short of the hard labor reforms they did ahead of this crisis and again we were talking about russia picking a bad time to reform europe's even a worse position because they don't have this buffer of money or borrowing and they need to do the reforms that germany has actually already put in place under through to which is one of the reasons why germany is doing well but it's not just germany the periphery states also needs to tackle these problems and there doesn't seem to be much backbone to do it's you know their little nickel will exactly they're looking to germany for a hand in the end it's to throw money at the problem that it goes away so you get through the election so i could starts you know that's the big problem here because

merkel was elected not to do such a thing yeah absolutely i like i fundamentally believe that you all should stick to what i think we will see still significant problems in the pressure of europe i think that you know the heartland of europe northern europe asia is robust and has been chugging along quite nicely you know its growth its growth rate as a practical thing they're doing at the moment is to put in this sort of banking union and that's that's the first step and really the way out of this problem i think is to create a federated union. where you start mixing fiscal pen and money people join the european union is that what they wanted to join maybe not and of course it's going to be incredibly difficult and i'm not saying there's going to be a federation but me that's i think that's that's obviously the solution to this problem but that's a rational intellectual. thank you so notion but it's not it's not a political solution that's tenable you know if you don't you'll have you'll have

states pulling out of the. euro land if that happens i mean obviously the u.k. has already said it hold a referendum and the feeling within my home country has you know they were telling me if we're not going for it it's solution you know a viable solution that would work we're just left with muddle through what i think i mean like all currency you. that they they haven't historically evolved for a long period of time and i worry i worry that yuri still see significant danger right there because there is a a two speed europe in say unions work if it's based on economies not just politics change gears we're almost out of time where is oil going go. the consensus there again is given the instability in the middle east although we have this whole thing with saudi arabia right now in the interlining story right there is petro dollars and i think this is what's giving a lot of jitters to people put the predictions i've seen are talking about you know for the foreseeable future five years and one hundred twenty up to maybe one hundred fifty driven partly by the instability in the middle east but also the fact

that demand continues to rise and that's a function of the merging markets emerging there i won't i will counter that by saying obviously you know shuttle is coming much more on stream us becoming energy independent is significant but the use of. hydrocarbons in emerging markets is still rocketing higher rocketing north i mean obviously but for me i would say that the that the demand will be countered by the shuttle eventually we're going to talk getting round to people talking about you know trying to reduce significant use even even in emerging markets but that's where while we wait off that if we if it hits one seventy that's about another seven percent tax on business one fifth that's significant impact on energy prices and now obviously the fact that for russia's reform projects but probably not like i said before if they have too much money they want to the reforms and the beauty of the situation is that they have to and they are making an effort to be saying the right things and i've started various programs so i actually always said that russia would be much better off

with. us because then it would become a normal country you know it wouldn't have all these buckets of money and they would actually have to run their country you know efficiently as a business instead of as a bank that just goes out money to have it once it or can get it. capital flight this year not to good. capital flight to the issue for russia a lot of the time i remember within the capital flight number is always russian investment in overseas companies which is often ignore you know you know it sits there as you say something more than the same thing so obviously the u.s. plays a large number of very wealthy russians moving. capital abroad but capital fights. historically it will continue to be the same way until the reforms and also in the resolution only on account tax and things like this when people feel comfortable with maintaining a fit with the russian one year from now banned or we're going to be sitting what's the g.d.p. growth ten seconds. hopefully if everything goes like it should be looking at sort

of much stronger three percent growth slowing of capital flight which is the flip side so right i'm going to have you both on a year from now what to see for prediction work out many thanks to our guests today and thanks to our viewers for watching us here on on the money see you next time they are. playing. dramas they're trying to be ignoring. stories others through a few posts and noticing. things since changing the world right now. so picture posted

a. long long distance from around the globe. to . the world to the truth. show thirty four could just bend over thirteen billion euros of all she says so each one hundred sixty million degrees with some talk among still to sell something peaceful to france the trouble in search of the song. we've got the future coverage. they're doing whatever they want in syria these days and even the obama administration can do nothing to rein the saudis in and i think the sad answer is that the united states doesn't have the power that it wants. it doesn't have the leverage that it wants tries to work through allies three international organizations and occasionally on its own and deal with the court of public opinion

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so this is a very serious and very urgent problem that needs immediate international action. they enter our territorial waters they fish they load the fish into the ships and leave for europe. to day illegal fishing just taking the bread out of our mouths. she turned his lover into an amazon. that had been my dream for so. but he couldn't hold on to the research scene as i was growing up a teacher and now she runs her own factory. down a challenge to manage. all smoking and even coffee is forbidden they worship the sun and the. martial arts.

will he ever be able to win back man versus woman. another day and yet more damaging revelations that the case communications headquarters is looking for a bill. to keep them surveillance program the. membership . to cough up a staggering twenty seven billion pounds complying with the e.u. so many regulations. need to point to that says turkey turns away from its allies in seeking a missile defense deal with china. you're watching are to fly from moscow are you with me.