04/11/2011 Newsnight

They told us there was six weeks to save the euro, those six weeks are

up, what have they to show for it? In Cannes the masters of Europe

have failed to find anyone to pay for their bailout. As we go on air,

in Greece the parliament is voting on whether to topple the Government

that agreed to accept it. Back there the Greek Prime Minister

is still fighting for his political life, many MPs have already written

him off, but he doesn't seem to have got the message.

At the G20, there is no deal, because every time they try to put

figures on a bait youl deal, they raun against the will of their -

they ran up against the will of their own electorates. The finger

is pointing at Germany, we have a senior member of Angela Merkel's

Good evening. As we go on air this evening, a vote over 1,000 miles

away could dictate all our futures. In Athens the parliament will

decide if it still has confidence in the Prime Minister. Man who has

led his own country and other countries around the houses in a

series of contradictory statements in the last few days. In Cannes the

summit that was meant to bring definitive results, has brought

little but of a firmations of the blieldingly offous - affirmation of

the blindingly obvious. We go to Paul Mason in Athens. The

MPs started voting a short time ago, they were supposed to start at the

top of the hour, they were late. Many people said that was bound to

happen. This really is going to be quite an extraordinary moment when

we do get the result. The Prime Minister's Socialist Party, PASOK,

has a wafer-thin majority, but most say there are eight of his own MPs

who have indicated they will vote against him. In theory he should

lose. He's daring them almost to bring down the Government, knowing

that would put this whole eurodeal back into crisis. He's daring that

hostile vote. On the other hand, there has been great deal of talk

today that they have received assurance that is if they do vote

for him and give him, dignity, as it is called, le soon step down and

set about negotiating a coalition Government to put that rescue

package through. The EU one, through the parliament, with cross-

party support, and then get out of the way. We still don't have that

result. The parliamentary dynamics are complex. He has sent a shot

across the boughs already this evening, that saying snap elections

would be a catastrophy? Absolutely, knows that, he knows his own party

dissenters know. That no-one wants to take responsibility for this,

although he got a probum from Germany and France, for his

referendum suggestion, that really has now collapsed as an idea, if

you bring down the Government here, either as the opposition or the

dissenters within PASOK, then you take that approbium. This is the

last gamble he's resting on. Most people think if it works and

retains his two-seat majority and scrapes through, it will be only on

some sort of promise to go, because he has lost the faith of so many in

his own party. Thank you very much. We will be

back to Mark a little later as things develop. Let me take you to

Cannes. Our economics editor is there. Most of them packed up and

gone home, what have they to show for it? Well, they did manage to

save the situation with the Greek bailout. They actually managed to

pull it out of the fire, 48 hours ago it was entirely possible that

Mr Papandreou and his ill-fated referendum proposal could have

scuppered the whole euro bailout deal that was agreed a week ago. As

we have been hearing it is Mr Papandreou who looks more likely to

be history. However, to save the euro bailout deal is to save what,

it was always vague, never funded and never guaranteed to work. What

they have been trying to do is work out how to raise a trillion plus

euros to make the bailout deal real. They looked first to the EFSF, the

euro bailout fund signed off last week, China said they didn't want

to put money into it, it is too risky. Then they looked to the IMF,

here you run into problems of democracy, neither Americans or the

Brits could can get extra money for the IMF through their parliaments.

What about the ECB, there it is Germany, Mrs Merkel has been under

severe pressure today to do something with the ECB, she's

telling them she can't, there is a constitutional court, and the

parliament. It is just stasus. mood then, between the leaders,

given there is nowhere to go with any of these, what was that like?

It has been quite bitter. And remember the world needs

rebalancing, the world is in crisis and facing a growth crisis. You can

only rebalance the world in an orderly way at a place like this,

with all the leaders. That was supposed to be their agenda,

instead they get knocked off by Greece. But, I think,

psychalogically, once they have shouted at Papandreou, and it was

literally a balling out he was given, and then he leaves, the

atmosphere is soured, they spent two days sniping at each other, you

could pick it up in the lip reading of some of their photo

opportunities. At the end of the day, the problem has been, they

haven't got the will to come together, and go forward. In this

situation, as in diplomacy, in economics if you don't go forward

you go back wards. Last night George Osborne said to me I think

we will have numbers for the bailout part of the programme

before you go on Newsnight. They have got none. Their expectations

have been dashed even over the space of 24 hours. It has soured

things, as I have been seeing today. These are not the faces of happy

people. The G20 leaders left Cannes tonight knowing they have averted a

Greek disaster, but only stored up a wider European one maybe. As for

a strategic rebalancing of the world, they hardly had time to

think about it. There are a lot of institutions here in Europe. I

think, I'm not sure whether it was Sarkozy or Merkel, or Barroso, or

somebody, they joked with me that I had gotten a crash course in

European politics over the last several days. And there are a lot

of meetings here in Europe as well. But, for all the meetings, they

achieved very little. The commune Kay confirmed that Italy would the

The aim of the IMF moves was to allow the fund to get around the

problem that nobody's parliament, not Britain's, not the USA's, wants

to vote more money through for the general fund. A point Mr Cameron

rammed home. We are ready to expand the resources of the IMF, as that

becomes necessary resourcing the IMF is not a substitute for the

eurozone dealing with its own issues and problems. Chancellor

Merkel complained bitterly about the lack of outside support for the

EFSF, the bailout fund, and then left, early. Meanwhile, the bond

markets pushed Italy's borrowing costs to its crisis high, and left

the ECB as the only buyer. To hold the line, Governments have pushed

international pressure to its limits. Last week Angela Merkel

phoned the Italian President to express doubts about Mr

Berlusconi's Government. And President Sarkozy had put massive

personal pressure on Greece. Prompting this question.

I said it is evident that he and Mrs Merkel are trying to change the

Governments of Italy and Greece, how is that just, and once you have

started, where will it stop? TRANSLATION: I'm quite sure that

you are wrong, very wrong. We didn't want to change the

Governments, either in Greece or in Italy. That's not the role that we

play. That's not my idea of democracy either. But it is quite

clear that in Europe, and the perhaps that you come from an

island, means you can't understand the subtlies of European

construction. I'm sorry to say that so frankly.

There are some rules to be respected, if we don't abide by

that rules, you have to leave Europe, it is as simple as that.

be fair, after a week like this, we're all struggling to understand

the complexties of Europe. Joining me now to discuss what we have

heard from both Athens and Cannes, Angela Merkel's Chief Whip in the

German parliament, and a former Labour minister to played a key

role in rescuing the international banking system in 2008, and from

New York, the financier who has negotiated on behalf of global

banks and sovereign debt crises around the world. If I can start

with you, we come away from a summit that was meant to be saving

the euro, with very little achieved? May I remind you that

last week, in the Brussels summit, a lot was achieved. It was a very

convincing package. The stock markets were jubilant, and then

there was the surprise in announcing a Greek referendum. We

have worked very hard, the last couple of days, to keep control of

things, going on in Greece. To make clear we are still committed to the

rescue package that was agreed in Brussels. There are some things

that you can't control, which is what's happening in the Athens

parliament, there are some things you can control, which is where the

money comes from the bailout, the G20 has dolg done nothing to agree

that - has done nothing to agree that? We are organising the money

in the most efficient way. There was one diversion of opinion as far

as the involvement of the ECB is concerned. From a German point of

view we have always maintained this is a sovereign debt crisis, and we

can't cure it by creating more sovereign debt. Why did Angela

Merkel walk out early, China said no, the ECB is refusing to do it,

that is surely the simplest answer to this? It is not. We have managed

to establish very impressive amounts of money in the European

financial support facility, we have agreed last week on some

instruments to leverage it, in order to use it more efficiently,

and now we have a serious debate with the IMF. This could be over if

the ECB stepped in. If a European Central Bank is not prepared to

bail out a European problem, what's it for? The problem is, however,

that if the ECB would do it, we would be ready to generate an

unlimited amount of money, potentially. This would be in

contradiction to our stability philosophy. What we have learned

from the crisis is that states have spent too much money over the last

30 years, and now we cannot answer it by inspiring inflation by the

ECB. That is why you need the Central Bank to step in?

Central Bank can't step in this very moment, that is why we have

created the European financial support facility. What do you bring

to this problem, what would you do with it? I think while I have a lot

of respect for the work that Peter does, I would disagree with the

point that he makes, that the EFSF brought an impressive amount of

money. The thing about the summit, the eurozone summit that was held

last week, was that not a single new additional cent was committed

by eurozone countries. The idea there was you take the money

already committed and you go out into the markets, or go to the

Chinese and you get them to lend you four or five times what you

yourself committed, without recourse to the stronger countries.

So everybody is meant to do what the eurozone countries are not

prepared to do themselves, which is lend to the weaker countries with

no recourse to the stronger countries. China was right to say

no? I think China was right to say no in some forms. There was a very

sensible proposal put forward, to be discussed at the G20, for SDRs,

to be lent to the EFSF, and that was, in fact, blocked by Germany,

because they didn't want to lend any more one to the EFSF. Briefly

to come back on that point? We have made a strong commitment to our

national parliament, that there is a limit of 211 billion euro, to be

lent to the EFSF, by Germany. This is an incredible amount of money to

support other countries. This is a very clear indication by our

parliament that we have to find a solution to the crisis, together.

There are other countries in Europe, like the UK, we are all affected,

if this crisis gets out of control. Therefore, we have to prove

solidarity, it is a global crisis, we have to provide a global

solution to it. Let's talk to Bill Rhodes, a global solution,

President Obama was shaking his head at the prospect of the IMF to

be involved. Is this your problem and Europe should find the

solution? We have to remember that the markets are more interlinked

than ever. What happens in Europe and Greece affects the rorld

markets. The Chinese are very interested in what happens, because

the largest export market is Europe. What they are concerned about is

how any money that they may put forward would be used. I think the

IMF is the vehicle, the anchor, that was the anchor for us in the

Latin American debt crisis, the Asian financial crisis, the

problems with Turkey in 2001 what I would like to see is a trust fund

set up, not just for southern Europe, but we have to remember the

problems of northern Africa and elsewhere. And make the IMF the

anchor again. What is very important that comes out of Greece

is a Government that is unified, and can implement the programme

that my colleagues are talking with about, if you cannot get a

Government that can convince its own people to move forward and

implement this programme, then we have a problem that is bigger than

we perceive now. Let me ask you, we are treating George Papandreou,

some people are treating Papandreou like he's a bit of a ranting

lunatic. What if the whole thing was perfectly orchestrated to get a

better deal from the banks, is that conceivable? I think what he's

trying to do is to try to get some sort of a Government, whether he be

involved as Prime Minister, or a unity Government, or even a

Government with someone like Lucas Papademos, a former vice-president

of the European Central Bank, that can carry forth this programme. I

think he should have done it earlier. As far as the banks go, I

think it is very important, and the stability fund has to move on this

very rapidly s to support and recapitalise the Greek banks.

Greece has gone through three years of negative growth, and projected

to go into a fourth. You can't expect a people of the country to

move forward if they don't see growth. The key to growth as far as

the economy goes, right now, in Greece, is the banking system. I

think one of the first measures that has to be taken by this newly

constituted stability fund, is to help recapitalise the Greek banking

system. How long can this kind of instability go on for? It really

worries the longer it goes on. The first reason is, it costs more.

Actually what would have been a 200 or 300 billion euro problem, is now

a one or two trillion euro problem of the people who will pay the

price of that are real people losing their jobs, investors are

too frightened and nervous to put in money and create jobs and

employment. Who do you think is the biggest obstacle for this, do you

think it is on the Greek side or the lack of leadership in Europe?

Greece is 2% of the eurozone economy. That is something we have

to remember, and we have to talk about the real problem as well,

which is Italy. Italy is too big to fail. There isn't a firewall of

sufficient liquidity that has been created to help Italy, and 200

billion euros from Germany is not sufficient for that purpose. The

second thing is, it is Italy's fault, because they need to get

serious about reform. You need reform to, and you need liquidity

to bridge yourself to the reform, those two things. What is Germany

scared of here, is it a very emotional atavistic response thaw

don't want to be seen as the dominating force in Europe? On the

one hand we are prepared to prove solidarity. European integration is

a very emotional thing to us, it means the happiest years of German

history, the last 60 years, without devastating wars. Therefore, we are

prepared to provide the highest amount of money ever provided by a

sovereign country in order to help and support others. The second

point is, Germany has suffered twice from a devastating inflation.

That was the last 100 years. Therefore stability means something

to us emotional. We tried to combine both of those approach, on

the one hand solidarity and the other stability. As you have

mentioned, we have to build firewalls, we have to prove

solidarity. But we need these reforms, and for the time being,

neither in Italy, nor in Greece, unfortunately, there is a clear

commitment that will reform and encourage markets and remove doubts.

This is where we have to provide loadership France and Germany

together. I completely agree about the need for reform. The single

biggest thing to change the European crisis is Italy being

prepared to reform and Berlusconi being prepared to leave. However,

why do you deny yourself the capacity to provide the liquidity,

even if you don't give it to them until they reform. By saying you

are not prepared to have that much capacity to provide liquidity, you

are spooking the markets, that is the real problem? It is a clear

argument, we have an mechanism to provide the money. If we increase

the money to the fund, France would lose its triple A Tate tus as the

next country. As soon as - status, as the next country. Conditions

France loses it then what. Go to the IMF. Can I get a word in

edgeways. That is right in the epbs of timing, we have to get on and

get it done, this contagion can spread even further than we are

seeing. It is starting to affect markets worldwide, even in Asia. We

need to get on and get it done. That is why I suggested the role of

the IMF as Anwar chore and help. - as an anchor, first help is Belo in

to be monitored. We will pick up with that - Berlusconi in to be

monitored. We will pick that up soon. Give us

a sense Mark of what people in Greece think George Papandreou's

game plan has been in the saga? need wait no longer. We have heard

news, the votes are counted and he scraped home. We know Eva Kaili,

the MP from his party, that we have seen in our reports last night, for

example, she was a doubter, she voted with him. The interesting

question is, is he still in the driving seat of his party? If he

can carry on, put together a caretaker Government, then he may

just last a little longer. But most people think that the price of

getting this vote has been to promise he will go, that now looks

increasingly inevitable. Thank you very much. Now a quick

reaction here, so he stays,'s won that vote, does that make things

simpler or more complicated? In the short-term it makes it simpler.

There is one vote that really counts, I don't think it really

matters about the internal politics of groz, they have to vote to

accept - Greece, they have to vote to accept the terms of the package,

and then get the funding and not default. That is the important

point, that has to be done after the vote of confidence. We know the

Greek electorate have, 90%, have no faith at all in the politicians at

the moment. Does it matter if he stays or goes? It matters if they

are able to form a cross-party Government of National Unity. That

is what they should do, and the Government of National Unity should

engage in an undoubtful commitment to implement this reform package.

It would be a strong signal to the markets. Then if we would have what

you described for Italy, it could be the second step, then we could

try to reorganise the process in the convincing way. Do you think

the specter of global recession has been pushed back in these last few

minutes, because of that? I don't think so. It is not sufficient

because, as I said, Greece is really small in the scale of things.

Global recession is still a threat, and therefore, we have a joint

responsibility to take on the challenge. We are going to to go

back to Paul in Cannes. Just ask him, Paul, you have heard the vote

come in now from Greece, Papandreou has scraped through, it would be

too soon to get any reaction there, what are your first thoughts?

scrapes through the vote. He still has an economy to run. As I

understand it, listening to the debate there in the Greek

parliament, as it was happening, as from the translation, it appeared

at one point in his rather long speech, he said if we now have an

election, our banks will have a run on them, and they will go bust.

That is quite a thing for a Prime Minister to say in a life-saving

speech. But let's start from that assertion. The Greek banking system,

is, effectively, bust, unless the EFSF deal comes through and saves

it. We have heard tonight that the Cypriot banking, the Cypriot

Government and state is downgraded again. But the Greek banking system

needs to be saved. The dynamics in Greece are not just political, as

we heard throughout the programme, they are also economic. Every day

that goes by, without a political settlement, does increase the

economic pressure, both on the Greek banks, the Greek sovereignty.

Remember, this week, the IMF and everybody said, you are not getting

the money, because of this referendum stunt. That, as far as

we know, is still the case. That money has not been given yet. It

needs to be given, in order for Greek civil servants draw their

wages and for the lights, illuminating the Acropolis, to stay

on. That is the situation Papandreou is in. That is the

situation his economy is in. I think winning the vote is one thing.

I'm steering that very trouble - steering that troubled economy,

without it blowing up Italy, which is equally troubled, will be the

next task of those two Governments. Thank you very much indeed. We're

going to talk now to someone who knows the Greek Prime Minister well,

Herakles Polemarchakis, thank you very much for coming in. I know you

have just joined us as the vote was read out. I can tell you all the

300 members of the parliament support the Government, but the

question is whether Papandreou's term as Prime Minister close to the

end? You know him well, what do you think is going on here? I heard the

remarks before the vote, if I interpret correctly what he said,'s

going to meet with the President tomorrow and discuss the formation

of a Government of National Unity. He explicitly, or almost explicitly

said that this would not need to include him as Prime Minister.

you think he will be gone by the end of the month? It is a guess,

but yes. What was going on this week, the call for the referendum,

the suggestion he was going to step down yesterday, he didn't, then the

referendum was gone by the night, what was all that about? Let me

make a side remark. Asking him to step down yesterday would have been

very bad. Under pressure? Don't forget, his grandfather, with the

same name, was elected Prime Minister on the 3rd of November, 48

years ago. So the 3rd of November would have been a very bad day to

ask him to step down. But leaving this aside, let's talk about the

referendum, it was a flawed move. That is clear. Why was it flawed,

because it introduced the specter of uncertainty for two months at

that time when world markets, Europe, and groz in particular,

could least afford it - Greece in particular, could least afford it.

At the same time it compromised the credibility of Papandreou himself,

with his European partners, because the reaction that we got implied

that they had not been warned of the move. Don't forget our

credibility was one of his strong points, vis a vis his predecessor

and other politicians. Sorry to interupt, now, who do you think is

running Greece? We have heard from our guests that in something like

this, time is of the essence, and it gets more expensive by the day

for every day it is lost? This is true. My hope is that this vote of

confidence will not be in an opportunity to try and roll back

the tape to where we were a week ago, or a few months ago, but it

would be the first step in the formation of a national unity

Government, it is exactly what the country needs. It is the only

Government, the only kind of Government that can produce the

commitment and the clarity that European partners need from Greece.

A momentous week, and pretty hard, in way, to write the headlines that

make sense. What do you think European leaders, G20 leaders will

be making of this news, does this suggest that leadership is back or

it has gone completely? I think they will be relieved in the short-

term. They would actually be doing the wrong thing by being relieved.

As I say, you have to still win the vote that agrees the conditionality

on the package, that therefore allows money to be dispersed, and

ensures there isn't a default that is disorderly, that will lead to a

run on the banks, and will lead to chaos across the European banking

system and have contagion to other countries. Actually, Greece that is

to deliver a commitment to reform. Do you think that Greece will

accept the bailout first, and do you think it will be able to

reform? I'm today much more optimistic than I have been last

week. After this announcement of the referendum there was a serious

debate, not only in Europe, but also in Greece. May guess now is

that the increase is aware of the risk and the responsibility.

We have a short preview of next week on Newsnight. Our science

editor will report on the dramatic advances being made in how we

understand and treat mental illnesses.

For decades mental illness has been beyond our understanding. Now

scientists think we are on the verge of a revolution. This is what

it is all about, the human brain. Scientists are beginning to

understand how the brain works and what makes it go wrong.

That's all from Newsnight tonight. Bonfire Night might feel a bit

different this weekend, Guy Fawkes's face, as reimagined in V

For vendetta, has stopped being the face of a failed 17th century

terrorist, and into the mask of the Occupy movement. Remember, remember

the 5th of November, gunfire, treason, plot, I see no reason why

gun power treason should ever be forgot. Guy fauk, guy fauks, it was