28/10/2011 Newsnight

The richest continent on earth, Europe decides how to solve the

Europe decides how to solve the debt crisis.

And then hits China for a bailout. What will be the price of making

Beijing Europe's lender of last resort. The Europeans are so weak

that they have to beg China to ask for its contribution to the bailout

fund, which I think is a bit humiliating. Is this a turning

point in the rise of China, and perhaps the eclipse of Europe. Also

tonight, top directors' pay source by almost 50%, the Prime Minister

talk - soars by more than 50%, the Prime Minister talks about more

transparency. Is that because the Government doesn't know what to do.

Their first born would be first in line to the throne, boy or girl. If

it is good enough for a Queen, why not good enough for Dukes, Duchess

and Lords and Laidies. We will hear from our gates.

Anyone travelling in China in the past few years struck by something

exorderry, the country managers to call itself a developing country

and merge - manages to call itself a developing country and a

superpower. The fate of Europe lies in the kapbdz of a communist

capital. What will it demand in return, and how much are we

witnessing a power shift in Europe towards Germany, while Europe risks

being eclipsed by Asia. As China's economy powers ahead,

old assumptions are being recast, and new relationships forged. Today

the head of Europe's stability fund was in Beijing, looking for 70

billion euros. That may be a lot, but it is less than a 30th of the

foreign currency war chest that China has amassed through its trade

surplus. The foreign exchange reserves of China go up every month,

therefore there is a need for investment. And that is also my

experience talking to the Chinese authorities, that they are

interested in finding attractive, solid, safe investment

opportunities. Across the EU there is a hunger for

inward investment. This development on the whirr ral is being financed

in part by Chinese money. If this is welcome in these times of

recession, why should EU borrowing be any different. The Chinese are

very careful about their public image. What they get in return for

any assistance that they might give. Of course we don't know exactly

what is being discussed in Beijing, but we do know, on past record,

when the Chinese have made an investment, they will also raise

other issues, like, we don't like that our currency gets criticised.

We need market economy status recognition, they raise other

issues that has been bothering them for some time, and this quid pro

quo is very much in line with how they normally negotiate, I think,

as they think about helping Europe, these other issues are likely to

surface, so this is much broader than just the Chinese thinking,

could I get the best return for my money. The Chinese leadership

strings could mean ending an arms embargo, stopping criticisim of

their trade practices and gaining greater access to European

technology. For some Europeans that is too high a price. The most

important trading partner of China is Europe, but I regret, in way,

that the Europeans are so weak that they have to beg China to ask for

its contribution to the bailout fund. Which I think is a bit

humiliating. The perception of European weakness has already

caused flack for Nicolas Sarkozy, as he returned home from this

week's summit, he went on TV, insisting he had held his own with

Germany and was not going begging to China. TRANSLATION: If the

Chinese, who have 60% of the worldwide reserves decide to invest

in the euro rather than the dollar, why refuse. Afterall, there is

nothing to negotiate. Our independent will not be affected in

any way. Why shouldn't we accept that the Chinese have confidence in

the eurozone and deposit part of their excess funds in our funds or

banks. Inevitably, China's leaders see in Europe's current crisis, an

opportunity. They want to move from the shadow of history, when the EU

took a sort of very aspirational, idealistic attitude, used to some

time lecture and hector China about internal issues, it now says we are

equal, we are partners, we don't want that kind of relationship any

more. We have had enough of it. The conversation between China's

leadership and the western powers will continue at next week's G20

Summit in France. This week's developments will put China in a

strong position. Europe's begging bowl approach to China provides the

leadership there with a great opportunity, to further their own

long-term goal of a more equal relationship, with the developed

economies of the west. Now that's part of a long historical trend, of

course, of power moving eastwards. But that won't stop opposition

forces in many European countries from blaming today's leaders for

going to Beijing in such a craven manner.

Have you seen really, that when the President of China went to the UK,

or to France, or to Italy, he was told something bad about the

Chinese attitudes, in relation to freedom of speech, have you seen

recently any leader in the EU saying that China has some change

to accept in its social policy, with regard to its own workers? No.

No it has already begun. For the moment, China's leaders haven't

agreed to help out. Like many others, they want to know more

about Europe's latest bailout man. But few believe they will re-

bailout plan. But few believe they will refuse, since Europe has made

a point for eloquently than China ever could.

I'm joined by Georg Boomgaarden, Ha-Joon Chang an economist who

specialises in China, Pippa Mlmgren, economics adviser to George Bush,

and Timothy Garton Ash, Professor of European Studies at Oxford. How

embarrassing is it for the richest continent on earth to go to chine

that to help solve these economic prob - China, to solve these

economic problems, why can't Europe or Germany solve it for themselves?

We have a global world economy, in a global world economy, it is very

positive and good if everyone in this global economy who can and

wants to acts as positively where crises happens. It is a good thing,

going to China saying, please, give us some money? It is not, please,

give us some money, it is an offer to invest money. It is an offer to

invest money, certainly into a region, which for China is also

very important. We are the biggest client. This is certainly something

very important. I think trade relations is not a game, it is

normally putting both sides on a better level. Timothy Garton Ash,

it is good for the world, it is good for China to be part of this?

I think the ambassador has put magnificent spin on it. Look, the

eurozone did, theoretically have another option, which is to say

they will do it ourselves, save it ourselves, make the European

Central Bank the lender of last resort, issue Euro-bonds,

guaranteed by Germany, and have Germany fiscal discipline, but the

fact is, across the eurozone, but the fact is, the German people

didn't want that, they wouldn't let Chancellor Mercury do that, nor did

the Greek or Italian people. That is - glp ska Chancellor Merkel do

that, nor did the Greek or Italian people, that is why we are going

with the begging bowl to China. It is a small milestone on the longer

term with the shift from west to east. If he's right, it is easier

for Angela Merkel to go to Beijing than the Bundestag, is that true?

It is not about going to the Bundestag or Beijing, it is about

how far Europeans are able to be united, and strong Europe in a

globalised world. We are on the way, this is not something which is

already finished. I know we discussed it earlier, when you want

to have a common policy on that, then you should never, never touch

the incompetence of the ECB, this is an - independence of the ECB, it

is an ECB decision, and if you don't do not do that you have an

inflationary machine, this is tax on the poor. How is this going to

be seen in China, what do you think they will l they want out of this

relationship? At one level, this is not a big deal, because China has

already bought quite a lot of European bonds. But it is a

watershed in a sense that it is being turned into some kind of

formal arrangement. I do not know exact whree what will change hands.

- exactly what will change hands, but China does take on the attitude

that they want a more equal relationship. Exactly what that

would involve, would it involve discussions about exchange rate

policy, or human rights, I don't know. There is one way of looking

at it, they have already propped up the American economy, thank you

very much, it has not changed what the Obama administration does or

doesn't do, why should we worry about it? Absolutely, that isn't

what is on the table here. What is on the table is an investment that

is effectively guaranteed. It is not buying the bonds, if it were

that simple they would just go out and buy them, they are available on

the open market. This is a totally different deal. I think it is

precisely Asim thee Ash says, it is - Asim thee Ash says, it is because

the Bundestag doesn't approve and they can't inflate the Governments

can't accept that, they have to reach to outside parties. Of course

the Chinese were not wanting this deal, now it is on the table they

are going to say we have some other requests, we would like to buy a

lot of hard assets in western Europe, infrastructure, agriculture,

all sorts of things, with a privileged price. It brings an

income with implications. Also I think foreign policy does get sold

in a Chinese direction. Meaning what, western medias will shut up

about Tibet? Correct, and a number of issues. That shifts the dialogue.

Does it permanently change it? No, but it shifts the dialogue. Do you

think it will have that effect, perhaps not a revolutionary effect,

but slowly the mood will change? have no doubt about that. That it

will be slowly, slowly chipping away, market economy status, the

issue of the arms embargo. Please don't invite the Dalai Lama, go a

bit softer on human rights. And let me add one very important thing,

which is there is one United States, but 27 states in the European Union.

40% of Chinese direct investment is in southern and Eastern Europe.

These are relatively weak, small economies. If it goes on like that,

and it is likely to in the crisis, you get almost like something of a

China lobby inside the European Union. One should not underestimate

the potential for the power shift. That is a big problem for the

European Union? I don't think at all, if you look at the decisions

of Brussels, this is a very small part. You are absolutely right, the

first element in it is the very big package giving leverage to the EFSF,

this is the real big shot. Some spoke of Baz zook ka, I don't like

- bazooka, I don't like the military comparisons. These are the

so-called special vehicles, they are a very small part of it. There

it is not between the Bundestag and China, it is between something else.

It is between responsible investor, who is asked, and we have excellent

experience with sovereign wealth funds, from the gulf states, China

and others, it is not looking for money in circles which get into

panic when just a pundit comes up and tells something panicky again.

They go to IRA liable lender. go to a reliable lender, trying to

get the Chinese perspective on this, am I right in thinking the average

employed worker in Beijing earns less than the average unemployed

person in the European Union. Et competitive question on the long-

term - the competitive question on the long-term is going in China's

direction? For one thing I'm not Chinese, I don't speak for the

country. But I'm not as optimistic as other people about China's

future. You know it has its own internal problems. There is a huge

realistic bubble, many of the projects they launched with the

2008 fiscal stimulus package are going sour, and there is a huge

inequality growing. At the moment the economy is moving at a very

high-speed, 9-10%, everyone is happy, when that stops, we don't

know if China can continue on that. Doesn't that bear out the

ambassador's big point, which is we are all in this together, like the

world, China has a part to play and we shouldn't be frightened of it?

Forget for a moment that it is China, every investor has to be

scared about putting more capital into Europe. Why should the Spanish,

Italians and Irish pay 100% of their debt, if the Greeks only pay

half. We just did a haircut on the Greek debt. The pressure on the

rest of the Europeans to implement a level of austerity that I don't

think human beings can bear. We are going to see a lot of pushback. The

politicians may say we agree to the austerity, the public won't agrow.

They will say why should we pay if those guys didn't. The risk to the

bondholders is immense. Forget their Chinese. Consider if it is so

risky that you have to beg an investor, this is telling you

something about the situation. is fair point, is it not? No it is

not. I really beg to disagree. It is not a fair point, because it is

very unfair to the different countries in Europe. Maybe over the

Atlantic Europe looks like one, it is not. And Greece is a real

special case and what is part of these decisions is isolating Greece

from the others, because this was a very long-term, you had an increase

in salaries, for example, 135% in the last 12 years, nobody had this,

in Spain you had real estate crisis and in Ireland, Portugal is still

developing, but all of them, Spain, Portugal, Greece and now also Italy,

they are all on the good pass. One final area, how will Germans

feel about this, we know the burden of history on everybody in Europe.

What we are seeing this week is Germany is not just the economic

motor but has to be the political motor of the EU, because nobody

else can do it. Does that change the mine set within Europe and

Germany in particular which you know - mind set within Europe and

Germany in particular which you know well? Germany is Europe's

central power, that is a reality for many years. At least since

unification again, and particularly when it comes to economics. We in

Britain or France can hardly object to the Germans pursuing their own

national interest. But I think that we do ourselves no service by

suggesting that it is all perfectly normal and actually it is just

normal globalisation and indeed that the problem is solved. The

eurozone has not been saved, we are not out of the woods yet, and

Germany itself will be the first and, in many ways the biggest,

victim of a failure of the eurozone. I think the crisis is still very

much in action. The Chinese aspect is just a small part of it. Very

briefly, ambassador, he is right, we're not out of the woods yet?

Chancellor has said it will take some time until the house is in

order, that is correct about Germany. I don't share your view

that this is still a very risky way, the point is to complete the

incomplete monetary union. This is a democratic process, this takes

longer than the market thinks. If democratic leaders have to decide

it takes more time. That requires a fiscal and political union which

the architects of monetary union thought should follow, but now the

Germans and others don't want. will save that for another night.

Thank you very much. Now, we are all in this together,

apparently, but some people are more in it than others. While the

talk in Britain is of austerity and inflation bringing real wage cuts

that seem to apply everywhere, that is, except the top boardrooms,

where directors are trousers much more than ever before. When salary,

benefits incentive and bonuses are added together, FTSE 100 directors

have seen their incomes jump by 49% in the last financial year. Chief

executives aren't far behind. Their awards increasing by 4%.

A study has found. The average salary for a top CEO stands at �3.8

million. Compare all that, and you might just be tempted to do so with

the average pay rise across the whole economy, and there is quite a

contrast. It currently stands at a modest 2.5%. Eaten away by

inflation, which is more than 5%. I'm joined by Luke Johnson a serial

entree pen your, and my other guest. You can see that people sitting at

home think it is unjust, everybody knows their wages are going back

wards in real terms, and directors getting paid more it seems wrong?

find it very difficult that as Brits he always have to look at the

negative side of things. Over the last two or three years every

pillar of our society has been challenged, whether it be

journalists, whether it be politicians, whether it be bankers,

and the one pillar that has remained very much intact it is

corporate UK, it has held us in good stead. It is quite inic when

listening to the previous conversation - ironic is listening

to the previous conversations is that taxes aren't high enough.

bankers have behaved badly and others have behaved badly,

directors have haid badly and are not showing why they deserve it?

you look at corporate tax receipts, excluding the banking sector, I

would say they are higher in October 2011 than envisaged at the

beginning of the year. We live in a global economy. I reckon Luke would

probably right now, 21% of FTSE chief executives don't have British

passports. The last thing I want, as an investor in these companies,

is to hear on Monday morning that the chief executive of one of our

investors who is foreign, like Burberry, or Marks & Spencers, has

decided to move to a culture that is less blame orientated. Is that

fair, people at the top end will go where the money is? I'm not sure I

agree. I think there is a bit of a myth that management talent is

incredibly rare, and therefore has to be extraordinarily well rewarded.

I think people are entitled to object, when they see bosses of

public companies, these are companies that individuals are not

founded, they are simply employees, executives, who have worked their

way up the hierarchy, and they are being paid 100-200-times what the

bottom ranking employees are paid. There is an argument to say that is

disproportionate. You know boards could do something about it and the

shareholders, if they felt strongly about it? I agree, it is

disappointing that pension funds and insurance investors, ultimately

owned by small, individual shareholders, with pensions, aren't

objecting more strongly. I accept that we have to compete on a world

stage, but for principally UK businesses, to be paying huge

increases such as these Stade tisics suggest have been, in a time

when ordinary hard-working people are getting zero increases, it will

clearly offend. Do you accept there is a problem? Do we get our money's

worth? I think it is popular policing, I think this house is in

order. And Luke knows the environment very well. The

institutions of London, who did get a bad rap over encouraging balance

sheets in banking, if somebody is not doing their job they will be

hard as nails. GlaxoSmithKline make �8 billion a year, their board is

paid a seventh of what Manchester City's squad will be paid. I don't

think comparing footballers is not a good comparison? Man City is 12

people, Glaxo has been built up over decade, quite a lot of people

can do the job the board are doing. The trouble is you have inside,

institutional capture by corporate executives, you have the agency

problem whether it is too big a difference between investors and

managers. They are not entrepeneurs who are risking their homes, and

who are going to use their personal credit card to meet the monthly

payroll if the business isn't succeeding. Their downside is they

lose their job. Their upside is they get paid �10 million, up to

that, a year. Is that right? There is a toughening up on institutions

particularly with the criticism they got with the encouragement of

banking culture going from advice to sales, and Scottish institutions,

such as Standard Life, seen to be very supportive to what happened at

Royal Bank of Scotland and HBOS, came under a lot of criticism. That

had merit. This is slightly more varied, people will go where the

money is. Corporate UK, excluding the banking sector, is one of the

things we can waive our flag on. There are changes to the way the

monarchy works. Bringing changes to centuries of traditions. The

principle change concerns the first born. Future Monarchs will be able

to marry Roman Catholics, and the first born child can inherit the

throne, whether a boy or girl. When list Beth II was crowned in -

Elizabeth II was crowned, it was absence of a brother that secured

her the role. As early as the 1960s, we are told, civil servants thould

the rules inaxe crownistic. Whether or not it is the imminence

of a new royal heir, following this year's wedding, that has prompted

it, change t appears, really is happening.

Presided over by the Queen herself, the 16 Commonwealth nations at

their conference in Australia have agreed to ind the rule of male prim

Mo beginure, meaning William and Kate's first born will take the

throne. One further anomoly, the ending of this rule won't

automatically apply to the aristocracy, some traditions remain

very much in the era of Downton Abbey. So, if this is some kind of

progressive move, why shouldn't it apply more widely to aristocratic

titles. I'm joined by my guests, Tony Benn renouncing his title in

1963, the first person to do so. On the male ascension, you think it is

a good idea, removing it and making it open to girls? I think it is

Monday sense, I don't think it was a bad idea in fuedal times, if the

head of the family had to be a male, he also had to have a lance or a

sword or a horse and ride. That was a sensible then. That is where it

all came from. The need for protection. Now a female can

protect the family with a computer et cetera, quite as well as anyone

else. And female Monarchs have not done too badly, as you have written

yourself in the past? Exactly. If people list the great Monarchs of

our country, let's face it, no-one would leave out Queen Elizabeth I,

it might well include Queen Vicoria. It is common sense. One should not

get into a state of thinking it should always have been so. Now it

should be so. Do you think it is a good move,

this is progressive, is it? Well, it removes discrimination against

women, which still exists, for example, Church of England won't

appoint women bishops, there was a struggle to get women the vote and

so on. If we are talking about the function of the head of state, and

if you take the function of a Monarch, whether a man or a woman,

they have enormous power, they appoint the bishops, the judges,

they can dissolve parliament and so on. And I give you one example

which occurred to me, in order to be a member of parliament you have

to swear an oath of allegiance to the Queen. And I thought about it,

and realised that I didn't owe my allegiance to the Queen, but to the

people who elected me, to the people who selected me as a

candidate and to my conscience. Therefore, in order to be an MP I

had to tell 17 lies under oath and that is the question, why, if you

are going to extend the right to women, why shouldn't you extend the

right to everybody, by having an elected head of state. That's

another point. But I wondered a slightly more limited change but

still a big one, would be to extend it to the aristocracy in general.

Am I right in thinking you would be the Earl of Longford, because your

younger brother inherited the title? Yes, my one of four brothers

inherited the title. He doesn't use it, as a matter of fact. Something

that Tony Benn will understand. I have to say that I spoke to him

this morning and said I was coming on the programme, and he said, oh

God, are you going to say you want to be countess of Longford. I said,

no, I'm not, because you don't use it, what I'm going to say, if I'm

anything, and don't let's be sexist, don't you agree, I should be Earl

of Longford. But as a matter of fact I don't want to be Earl of

Longford either. Politicians haven't bitten this particular

bullet, they are not going to extend it to the aristocracy.

don't believe to the hereditary titles, if I went to the dentist -

and he said he's not a real dentist but his father was I would move

dentists. I think democracy is the most important thing. When you

elect a member of parliament, you actually employ him. When I was an

MP, in my constituency, every one of my constituents was my employer.

And they could put me there, and get rid of me. So I was kept very

much disciplined by the knowledge that I represented them. That is

the basis on which I believe that society should be run. Isn't this a

good move, isn't this move to say that the first born child of Prince

William and Princess Catherine, should be the Monarch, this is a

good move, isn't it? I personally amin favour of an elected head of

state. I'm just discussing, isn't it a good move, a common sense move,

a modern move, are you not in favour of it? I'm not in favour of

discriminating against women at any purpose. But if you ask me whether

I think the head of state should be by-election or by inheritance, I'm

in favour of election. On that note of near agreement, thank you very