18/06/2012 Newsnight

Greece votes to stay in the euro, and suffer.

But does Europe even want them any more?

The Conservative New Democracy leader wins the election, and is

tonight, trying to form a coalition. But Angela Merkel hasn't helped the

mood here. She says Europe will not change the punishing bail out terms

for Greece. TRANSLATION: We agreed on a Greece

programme, and the framework needs to be adhered to, this means we

must be sure that Greece sticks to its commitments.

I will be speaking live to one of the architects of the new

Government's economic programme, and to a candidate from the

defeated far left party, Syriza. Meanwhile, with the Spanish crisis

turning to open violence, the value of their bonds crash through the

point where borrowing becomes unsustainable.

Here we will be talking to the man who negotiated the bond default in

March, will he have to do it all again for Spain. Is there anything

Governments can do to save us from a decade of economic pain, we will

drill into big economic brains. We are at the Egyptian elections

too, where it looks like the Muslim Brotherhood will win the president

circumstance but the military won't hand over power. We will hear from

Cairo and Washington. Good evening from Athens, where the

Conservative winners of last night's election, are trying to

form a coalition that can keep Greece in the euro. Investors

across the world breathed a sigh of relief, that the far left party,

Syriza, failed by less than three points, to top the poll.The way was

open, it seemed this morning, for a new Government to renegotiate the

terms of austerity with Europe, and with the IMF. But, tonight, in

Mexico, Chancellor Merkel, said no. Without changes to the bail out

terms, it is hard to see where Greece goes next. Meanwhile, with

Spain's cost of borrowing moving deeper into the danger zone, the

rally on the global stock market looked about as energetic as the

tourists do, as they struggle up this thing behind me.

Who would want to govern Greece? What would the new Government ask

from Brussels and the IMF? Will Spain wreck the whole thing any

way? I will explore these questions in a moment, with representatives

of the two main parties, and a financial journalist who thinks she

knows what is on the table. First, here is what has happened in the

last 24 tumultuous hours. Last night Greece came within three

percentage points of a far left Government. The nearly-man, Alexis

Tsipras, mobbed as he arrived to concede defeat. REPORTER: Is the

fight against austerity over now? Is the fight over?

The markets open, the polls close, what the markets wanted was

certainty, but they haven't got it. APPLAUSE

The only certainty is that Greece remains capable of blowing up the

euro, despite last night's result. The Greek system gives the winning

party 50 extra MPs, so New Democracy's 30% translates into 129

seats. To form a Government tkpwhok needs -- New Democracy needs a

coalition with PASOK, the Socialist Party, and to be sure, a small

Marxist party called Democratic Left. Syriza, the main far left

party got 27%, with 71 seats it becomes the opposition. Together

with 18 fascist, 12 hardline communists, and 20 Conservatives

who opposed the bail out. But Athens awoke today to the same

problems that have sapped the will of politicians for two years. The

austerity demanded by the IMF and EU has pushed the economy into a

death spiral. The current bail out deal means 1 billion worth of cuts

to come. -- 11 billion worth of cuts to come. It all depends on the

11 billion worth of cuts in the next month, if the Europeans and

the IMF will insist on that, we will see a backlash on that. If

they cut Greece some slack and spread it out over the next few

years, and are able to balance it with other measure, maybe tax cuts

and maybe more money for growth, then perhaps you can see a quieter

summer. Cutting Greece some slack sums up

the problem, Mr Samaras wants to form a coalition around an

alternative strategy to balance the country's books. With tax cuts

instead of tax rise, paid for by much more rapid reductions in

public spending, and rapid privatisation. What they need from

Brussels is time and money.What Greece needs from the core of

Europe is not only further help in terms of debt forgiveness, but more

particularly a demand boost. The problem in Greece and the periphery

of Europe is lack of demand. Europe needs to provide assistance,

speeding up the release of European Union structural funds, also

providing help, backed by the European Investment Bank. Trying to

get some demand into the Greek economy. But the reality of the

situation is, whatever the core of Europe provides in the near term,

is unlikely, in my view, to get Greece out of a recession. At the

G20 Summit in mexko, the leaders arrived, knowing the election

result in Greece had bought time, but little else. The German

Chancellor put paid to any talk of an easier time for Greece.

TRANSLATION: We will discuss with Greece if they can participate in

growth impetuouss within the growth programme designed for the entire

European Union, but it changes nothing of the decisions of the

memorandum of understanding, what we voted on in the German Bundestag.

Spain's headline cost borrowing surged to 7.29% this year, the

highest since joining the euro. Experts point to 5.5% for borrowing

over two years, that is the equivalent of acute chest pain.

have seen spiralling downward political and economic problems,

feeding debt and banking problems. That self-feeding downward spiral

needs to be stopped. Not just through help to the banks, but the

core of Europe needs to provide a marshall type plan, providing a

European fiscal boost, that helps, not only Spain, but the periphery

of Europe. Despite the problems in yuerpbgs the key issue is Germany

and the European Central Bank have it within their remit to give a

boost to the periphery of Europe, that pulls us back from the brink.

On the streets of Athens, the problems of poverty, crime and

dislocation, are all too clear. One in five adults is unemployed. There

is a yearning for order and stability that the in coming

Government has to meet. Soon the global media circus will

leave Greece, but another narrative, hidden for now, will remain. It is

a narrative of street fights, between fascists and migrants.

Between anarchists and riot cops. It is worth rembering that the

political class, both here in Athens, and at the G20, has no

direct experience of this whatsoever.

More than one third of voters here voted for the Marxist left, more

than half voted for parties opposed to what will happen next.

So discontent continues. So does the crisis.

Joining me here, beneath the Acropolis, are the New Democracy MP,

and one of the architects of his economic policy. Aristides Baltas,

a candidate for the far left Syriza Party, and Professor of fill loss

pee of the national technical unit in -- philosophy in the national

technical unit. And a journalist who has covered the crisis from the

start. You heard Angela Merkel, it is game

over, she says there is no change to the memorandum of understanding,

what can a New Democracy-led Government now do? It is a given

that everyone in Europe wants the Greek programme to succeed. In

order for the Greek programme to succeed, we must restart the

economy after five consecutive years of recession, we need to

enhance the growth programme. We need to increase the safety net of

the society, when one out of four Greeks live below the line of

poverty. We have had a number of comments from a number of European

leaders, we are confident there is a basis for discussion. It seems

Merkel has stopped the whole thing tonight. You have heard from a

number of European leaders, when she says categorically we may give

you structural funds, but knot no changing to the timing and the

amounts, what can you do? There is sufficient basis for discussion, we

will approach the negotiation, taking as a given that everyone in

Europe wants the programme to succeed. How much time have you got,

you must know now you are on the brink of power, how much money is

left in the coffers here in Athenss? We have enough liquidity

for 30 days. We expect the troika to come after the new Government

has been formed, to discuss for the next tranche. As part of the next

tranche, it was already in the praj to finalise a lot ofish --

programme to finalise a lot of issues in the programme. There is a

lot of issues to be resolved, without changing the programme,

still open for discussion. The base, I need people to remember, without

the economy reconversation, without the economy restarting, 2013 it is

expected to be the sixth consecutive year of recession, no

fiscal programme could ever meet these objectives. You lost,

commiserations, I should have said congratulations to you, Mr

Mitarakis. You lost, more than a million people vote Ford you, quite

unexpectedly, -- for you, quite unexpectedly, even for yourselves.

What can you offer them, if you are sitting outside Government,

steadfastly refusing to take part. Surely the dented shield is better

than nothing for the people you represent? This is not the question,

I think. The question is we cannot participate in a Government with

the disagreements so much. The whole strategy up to the elections

and now is to try to preserve as much as possible the kind of

confidence we have been winning over these months. As you said

before about Miss Merkel is, I think, a proof, that the kind of

strategy we are pursuing, in a sense, was better than the New

Democracy strategy. What I mean is, it was not only Merkel, but all

kinds of political leaders in the European Union, said various things

about the Greek problem. In our case, what we said is we start from

a point of this slippery slope we have been following up until now.

We stop the mem da programme at that point and start negotiate d

memrand dumb programme at that point and start negotiating then.

You broke the story for your paper, what do you think is going on?

There is grounds for the new Government to make proposals. The

people who voted for Syriza in Greece are in favour of radically

changing that programme. So the new Government will enjoy a lot of

support in doing that. I know that they have done their calculation,

and there has been continuity for the last couple of years in this

Government. They, I understand, will be asking for a two-year

extension of the bail out programme. Theoretically it ends in 2014, from

the eurozone side, they would like it to go to 2016. That costs money,

doesn't it? Unfortunately, it does. Officials calculate it will cost

around, if not more than 16 billion euros, for those two years. When

you extend the programme, and postpone meeting fiscal targets and

cuts, that is money, that needs to be covered. 16 billion, Mr

Mitarakis, does that sound right to you, you postpone the terms of the

bail out for two years s that on the table right now? The critical

issue is how fast can we restart the economy, how fast can we become

for business friendly. Fiscal figures are driven by GDP, and it

is deeper than ever imagined. Lagarde said we have to review

right now, and we have to look at the changes. The view from you now

is it will cost Europe and the IMF money to dig you out of the hole?

Our objective is not more money but that it works, that is the starting

point. We think there is a lot of structural reform ones the table

that needs to happen, we need more efforts in privatisation, and in

using the funds already committed to Greece. We need to change on the

ground the business environment. We are not attracting any investment

at this stage. This is all economic speak, isn't it. We all know,

because we frequent those streets out there, that they are very

gritty streets right now. There is anger and violence. I want to start

with you Professor Baltas, your party has been a party of the

street and the election, is it time now that you basically, are you

going to change that. Because with fascists running around the streets,

and anarchists, it is playing with fire, isn't it? That is a very big

problem. I think it is much more complicated than it has been taken

to be. It is not just the political position of Nazi ideology, it is

roots and values of the Greek population, it is related to misery

and frustration. It is related to sub cultures developing. We need a

more general kind of policy to attack the problem. I think that in

all kinds of ways, we are more effective addressing these problems

than, let as say, the Conservative Government, which can

sometimes...Can It be contained? think it can be. Do you think so Mr

Mitarakis? In order for it to be contained, you cannot have 50 pest

youth unemployment, you need jobs and ho. In order to give people

hope you need the private economy running. That is the difference

with Syriza, we believe in investment, privatisation,

business-friendly country. should we judge your Government f

you form a Government this week, what is the target for youth

unemployment, the target for adult unemployment, if we come back in a

year's time? 12 months from today we would hope youth unemployment to

have created 150,000 jobs, 10% of the population, that is the

objective, that is what we will strive for. Can you tell us what

you think, objectively, will happen, will they make it to a Government

they will make it to Government this week, I think that is very

clear. I think it will happen soon. I think we will have a new Finance

Minister from this country speaking to his counciller parts in

Luxembourg on Thursday, will they does. Is it going to be you, the

have no idea who Mr Samaras will appoint, it is not a matter of

faces but policies. Thanks to my guests in Athens, and good night,

over to Kirsty in London. Despite the desperate firefighting

for Greece, Ireland and Portugal, the European bail out of Spain's

banks, European Summits and the European election going the way

European leaders wanted, the crisis is unrelented. Spanish borrowing

prices rose sky shy and markets tumbled. Merkel -- sky high, and

centre of the attention the world possibility of a two-year extension

set with the Spanish bail out. They got their banking bail out with

fewer strings attached, and a lot of the people in Greece will expect

some sort of concessions. We heard it already there, from the European

body politic, for delivering a pro- bail out victory. In Ireland they

have been the good boys. Do you think Angela Merkel is serious, or

this is an opening gambit? years ago she said no bail outs

full stop, she said the European Financial Stability Facility was

temporary, now permanent. She has said a lot that has changed in the

last few years. The Irish are hoping to cash into the concessions.

The Irish media reporting that there would be an extension of

their bond repayment, 15 to 30 years. That would have a positive

impact on the Irish day-to-day spending, they might be able to get

back to the markets. Which sets a good precedent for Portugal, they

can continue to be the good poster boy in all the crisis. With all

this going about, why is the intensity about the European crisis,

there is no let up? It is all about the markets. The new term is "sub

bored nation", the markets are very worried that the money they have

lent to countries like Spain will be lower down the pecking order, as

pardon of the sub bored nation. If the banks have lent money to Spain,

they would be lower down the pecking order, They get paid first,

the ECB, then the other banks, they are less likely to lend to Spain

then. If they do lend it will be on a higher interest rate. That is

what we saw today. Trying to explain what is happening

in the bond markets is the outgoing head of the Institute of

International Finance, a global body that represents banks and

other financial institutions, which negotiates with Governments over

default, including the Greek default earlier this year. You

applaud the banking bail out of the Greeks last week, the Greeks appear

to have done the right thing by the European leaders, why is the

European crisis no better? I do think that the developments in

Greece over the weekend were clearly a positive development for

Greece, Europe and the global economy. But I think we are at a

stage now where solving the euro zone seven debt crisis will require

more than individual actions of countries like Germany, Greece,

Spain, Italy, it will require concerted effort by the entire

European leadership to frame a solution, and sub lement it with

other issues. We will continue to swim upstream and not make the

progress needed to calm market anxieties, if not. Let's look at

the Spanish bond problem, 7.25%, you can get an insecured loan less

than that here. Who will invest in Spain? Markets are deeply troubled

at the moment, if one steps back from the current market anxiety,

arguably some what overdone, one sees that Spain has a much more

manageable debt to GDP ratio than Greece. It is well under where

Greece is, Greece is 150%. Spain has a serious but localised problem

in the savings banks, the core banks of Spain remain strong. It

underscores the importance of eurozone action. We need a clearly

game plan towards fiscal union, well articulated, with time lines.

We need a clear game plan towards banking union, well articulated,

with a time frame. We need more flexibility in the instruments that

Europe has. We need to inject funds directly into the banks, rather

than weaving them through sovereign buckets, which elevate budget

ratios. That is the model in America, you have the fiscal union,

but, essentially it means that Germany will have to pay up. They

will have to be the one that pays up for the southern countries, yes?

Germany, I think, has benefited tremenduously from the eurozone

arrangements. Germany has impressively low unemployment right

now, Germany has a remarkably strong export record. Part that

have is due to the discipline in Germany labour wage and fiscal

policies over recent years, part of it is due to the creation of the

euro. They have benefited substantially and will continue to

as long as they invest in the future of Europe. Germany and other

countries will have to lean forward and provided a decisional support

to countries like Spain, Italy and Greece. Aren't they going to

squeeze them hard. Isn't it if that is the case Germany will demand a

lot more control? Well, I think Germany already has perhaps

arguably a bit too much influence. The fact of the matter is, that

these programmes need to be broadly designed when Chancellor Merkel

says, and I understand the necessity of her statement, when

she says Greece needs to follow the framework of the programme, I read

between the lines some flexibility between the words "framework" and

the precise details. It is absolutely essential that Europe

recognise that the Greek economy has contracted and is contracting,

at a much more severe pace than anticipated when the programme was

designed. It is only common sense to extend the near term budget

targets some what supplement by additional funding. It need not be

large amounts, we are talking about 20 billion euros. You are talking

about spend, in order to create growth you must spend? That is part

of it, in order to create growth it is not just about spending, but

creating an atmosphere of confidence that investors can come

back in. It is about capitalising, and recapitalising the bank. You

can get credit flowing. It is about European, Greek and global

investors having confidence again, not just in Greece, but the

eurozone as a whole. It is not just about spending money in Greece, it

is about investors feeling confident, that they see a long-

term game plan. What about your members in the banks that you

represent, they took a bath in Greece, are they going to have to

take a bath again with subordination? No, but

subordination is a concern. Certainly the investors, the banks,

the insurance firms, the pension funds, took a very deep bath in the

case of Greece. But Greece had a debt-to-GDP problem, that was miles

beyond the debt-to-GDP problem for any other country in Europe. You

raise a valid point that the previous commentator on

subordination, I think European officials would be wise to step

back and stop insisting on primary status of hair claims against the

sovereign relative to private sector claims. Will this only

undermine the goal of rebuilding confidence among private investors.

Ultimately it is only the private investors who will alleviate the

burden off the back of the German, Dutch and other European tax-payers.

In order to encourage them to come back in, and stay in the game of

funding sovereign debt, this issue of subordination has to be

addressed. To ask why this is the crisis that

won't die, we have, in Chicago, President Obama's economic adviser

until last summer, and the editor for the Financial Times, and the

chief economist at Germany's oldest private bank.

We will talk about subordination later. From America's point of view,

tell me how does it look from America, you advised President

Obama on policy, what looks scariest about Europe to you?

the US, clearly the scariest thing would be if there were some kind of

financial meltdown and the contagion leaped across the

Atlantic into the financial markets in the US. Easily that could happen,

that makes everybody on edge. The second-most scary thing would be if

the continued stumbling and shrinking of the European economy

means that the world economic growth is just not strong enough to

get anybody feeling healthy. That would also be a concern, but both

of those are pretty serious matters. The European economy stumbling,

sinking, we have got politicians in the G20, we have been here so many

times before. Politicians don't seem to be able to make a

difference, is the only difference to be made the markets? No, I think

there are ideas floating around. Some constructive ideas about

pooling the debt overall, talk about banking union where you would,

in a sense, water down national regulation, have EU-wide

supervision. You would also inject money directly into the banks to

resolve this serious problem. She is are huge steps, you thought

Maastricht was big, this is even bigger. It is interesting you say

that, presumably, in order for that banking union to take place, there

would have to be more regulation, and the regulation would probably

be designed by Germany? It would be designed at European level. The

French, for example, President Holiday, recently elected, this is

his big new idea. The problem is there is a lot of big ideas at the

same time. No clear game plan, just over 20 years ago we had the great

upheaval in Europe with the collapse of communism. The

Americans came in with a five-point plan for German unification, all

done, bang. Pooling the debt, a good idea? Not at the moment. There

will be some pooling of debt over time. But, if we pool the debt up

front, those who are the paymasters lose control. There is always a

give and take. There is some pooling of debt, and some

establishment of rules to prevent future debt crises. It is a process,

there is no silver bullet to solve it once and for all, but it is a

process that will move on. You want other people to bleed before

Germany pays the debt? No, it is not other people bleeding, but it

is other people accepting fiscal rules, which, in the future, is

fiscal debts in the future need to be smaller. That is the problem,

Germany approaches is step by step, but the markets have always been

ahead of the politicians. What do you think of the idea that there

will be a pooling of the debt and a banking union in Europe S that what

you would like to see? I understand exactly why the Germans don't want

to get on a permanent subsidy type of relationship in the European

Union. The only problem is, there is an old American movie, The

Godfather, and the two families are fighting, and they say, look this

is the business we have chosen, if you are trying to have a monetary

union in which there isn't a fiscal union, we know a lot about how you

hold together very different economies, and the problem is, it

is not cheap. Either they are going to be permanent subsidies, or there

will be a very extended decade-long austerity crisis, in which they try

to grind down the wages, or else there is going to be inflation,

those are our only choices. This is the missing ingredient, growth.

Where is the growth going to come from? Right now Greece, with its

austerity package, has lost, in effect, 30% of its output, GDP.

That is an incredible adjustment, and you are seeing the results, on

the streets. Violence, a society collapsing. What you heard from

that Greek newspaper editor is that if there isn't a slacking off, if

there isn't extra time for repayment in order to inject some

money into the economy, there will be trouble in the streets? That is

why there needs to be grand bargain between having fiscal discipline,

austerity on the one hand, dealing with the welfare state, pension

reform, but at the same time a commitment to growth. That, I would

submit, requires Germany to reflait its economy. Which is exactly what

Germany is aiming for, the grand bargain, but in politics it is

often not possible to strike the grand bargain at one point. It is a

process towards that. As to reflating the German economy, they

are doing a lot of it. Do you the Germans would be happy to see

Greece go and concentrate on Spain? The Germany vision is clear, those

who sign up to the rules of the club, and they include those

without a big budget deficit, all those countries will be kept in

with German help. It is up to the people of Greece to decide, they

voted for it. Germany has been benefiting hugely in terms of your

exports? It has been benefited by being an open economy versus Europe

and the world, it is supporting neighbours in Europe quite a lot,

but it asks for a quid pro quo. From where you sit, do you think,

as a case of either the euro implodes, or, Germany has to, as it

were, pay up, there has to be some grand gesture before the banking

union takes place. Germany has to pay up in the short-term?

Unfortunately, I think if they haven't gotten to that point, they

probably will get to that point quite soon. I think you can see why

the Germans are frustrated about the budget deficit issue. But there

is a deeper problem, which is that countries are locked in at fixed

exchange rates, that are the wrong rates. They are not competitive, so

it is going to be really difficult for those countries to grow, or to

balance their budgets. If they are not growing, they will not have any

improvement in their deficit situation. That was an inherent

problem, wasn't it? Right from the outset, yes it was. Let me be clear,

I don't want to sound too hard on the Germans here. We need to

remember that Germany, under Chancellor Schroder, took some very

tough decisions in terms of reforming labour markets and having

wage restraint. You can understand why the Germans feel frustrated and

why it is so difficult for Chancellor Merkel to sell what will

be necessary to save the euro. if you look at the results, first

of all, you see, that whenever the crisis came to a head, the Germans

did offer more. They just have to see the other side of the bargain

before they do it. And as to the German experience, it is definitely

reforms pay off. What we are seeing across much of the eurozone

periphery, is now the kind of labour market reforms, situation of

improving competitiveness, that will likely to turn Spain and Italy

into booming economies in a while. How -- How do you deal with the

debt mountain, are the Germans prepared to write it down 60% to

mutualise it, so these countries have some way of surviving. Would

you be prepared for a broad writedown? I don't think there is a

need. Spain has less public debt than Germany and Britain. What we

need is a firewall against financial market panic, that is the

European Central Bank. And fiscal and labour market reforms, which is

what Spain is getting. And we need to deal with the banks. The

Americans dealt with the banks. In 2009, the Europeans poo pooed it as

a marketing idea, and two years on we are still in this place.

In modern Egypt, there have always been two significant, often

adversarial powers, the military, the backbone of the state, and

religion, lately in the form of the Muslim Brotherhood. The two are in

the run-off for the presidency. It seems the Brotherhood may have won,

but it is increasingly doubtful if the army is prepared to hand over

real power. 18 months ago in Tahrir Square

behind me, there was a drama that caught the imagination of the world.

The Egyptian revolution. There was a blueprint set out for how power

was to be transferred. That involved the ousting of President

Mubarak, the holding of parliamentary elections, and the

climax of the process, at the weekend, the holding of these

presidential elections, in their second round. What became clear,

though, as the weekend unfolded, was those two key forces would

fight for the destiny of the nation, but the Muslim Brotherhood and the

military had very different ideas how this would end. This is Zagazik,

a Nile delta town, far from Tahrir Square, where we watched the

weekend's voting with all the telling symbolism. The polling

station was secured by the army. Knowing an important voter was on

his way, the Colonel in charge posted an armed soldier to stand

guard over the ballot box. There was outrage. The law says the army

shouldn't be inside the actual voting room. But, the soldiers

stayed. Rules though, were being bent here

by the Muslim Brotherhood too. We're not actually supposed to be

in here, we didn't get all the accreditations that Egyptian

officialdom demands for filming in a polling station. But a member of

the Muslim Brotherhood has wafted us in, and in the process,

demonstrated their power. Then the tumult moved outside. Mohammed

Morsi was arriving, the presidential candidate from the

Brotherhood. It was his turn to define the moment. He joined the

queue taking more than an hour to vote.

The Brotherhood has waited 84 years to govern Egypt, a few more minutes

hardly mattered. Casting his vote at last, Dr Morsi

could underline the contrast with his rival, who, elsewhere, swept

straight to the front. But if this gesture was meant to

sway ordinary Egyptians, one who had been further down the cue,

wasn't having it -- queue, wasn't having it. After they destroyed

everything, we need a strong man. I said Mr Shafiq is a stronger man.

The confrontation between an authoritarian establishment and the

Brotherhood, has been sharpened by a court decision, dissolving the

parliament, elect just months ago. He asked one of the Brotherhood's

unseated MPs, whether they think Egypt's military has any intention

of letting them run the country. TRANSLATION: The Military Council

has said over and over that they are unbiased towards all the

candidates, that is what we hope for.

They should fulfil their role in protecting the country, they have

announced they will support the candidate who win, I hope that is

what they will do. Not far way is Herriya, it is rural

Egypt, where people struggle on the bread line. Many familiar lose here

are sustained on a few pounds per day. Once underground, the

Brotherhood and its charities have been working openly for the past 3

years. It helps people with -- 13 years, it helps people with you

money and good works, that earned Dr Morsi the support of many.

TRANSLATION: We believe Dr Morsi will make a difference. He comes

from a village nearby, he understands our problems.

TRANSLATION: I voted for Dr Morsi, so he would improve the country.

Gotd will give the election to the person who deserves it and the

youth will find jobs. A few miles away from the candidate's birth

place, support is not solid. The Brotherhood accuses supporters of

the rival candidate of rationing water to the farmers in a bid to

get their votes. We were finding farmers saying they wouldn't vote

at all. TRANSLATION: I have never voted and I never will. If all the

candidates want is power, then I say God take them now before the

result has come out. Take his soul away. That other precious liquid,

petrol, is in short supply here. They don't like foreigners filming

this kind of thing. Months of political turmoil have

left people tired and edgey, and we seemed to be part of that problem.

No, no, no. Many have ceased to believe that

politics is the way back to normalty. Turnout was low, under

50%. And the Armed Forces seemed to have gambled that their latest

steps wouldn't touch off a strong reaction. We met a key former

general at the Cairo Yacht Club, a place frequented by the city's

elite. Even just before the polls had closed, it was becoming clear

that the military intended to draft the new constitution, retaining

sweeping powers, if Mohammed Morsi, the Brotherhood man, won the

election. Dr Morsi has insulted the army when

he mentioned that if he comes as President of the Country, he will

make many changes in the army, and fire some generals, and he would

shuffle the high ranking officers and all that kind of stuff. What is

the right balance of power do you think, between the military and the

civilian leadership in this country? They will insist to have

two things in the institution, in regard to the army. The first one

is the President cannot declare war against any country, unless goes

back to the army and consults them first. Number two, is the military

budget. Now there is a lot of talk here in Egypt about the issue of

the military budget has to be announced clearly, publicly, to

everybody. I don't think they like that, I don't like that, personally.

As polling was coming to an end. We dropped in the headquarters of

Ahmed Shafiq, the former air force General, whose the country's

establishment had pinned their hopes on. The contrast with Dr

Morsi's team, well to do ladies and others have been among the great

supporters. The Egypt I used to know is centuries old and is my

Egypt. But for the other candidate I don't know what it's going to be.

But it won't be like the Egypt I used to know. But something wasn't

right. A report came in that the Shafiq campaign had failed to post

observers at many polling stations. It was an embarrassing lapse.

The low turnout would mean the winner could hardly claim to have

the country behind him. As this process comes to its climax,

the striking thing is the degree to which the Egyptian people seem to

have lost the enthusiasm that was being expressed little more than a

year ago in Tahrir Square. There is widespread apathy, cynicism, and it

has taken the shine off this process.

After dark, the military issued its new decrees, despite months of

insisting it wouldn't wait to hand the ship of state to an elected

helmsman, it seized essential Government powers, those of

legislation and budget. Captain Hassan has been skippering

Nile pleasure boats for 18 years. He had wanted Mr Shafiq to win, and

he didn't fancy trading places with the new President.

TRANSLATION: I'm the boss of the boat, he's the boss of the country.

I'm only responsible for what happens on this boat. He's

responsible for the country. This boat offers fine dining,

traditional music and belly dancing. The tourist trade has already dived,

so most of these customers were Egyptians.

But now even they, fearing rising crime, are going out less. So this

show struggles on, and Egypt itself continues its national duet,

between generals and Islamists. One that is entering a new and more

dangerous phase. Just coming to you now, what is the

latest what will happen dou, think, tonight? Dr Morsi is pretty clearly

the winner. The army said today they will hand over the power of

the presidency to him at the end of June. But all of these amendments

and restrictions they have put on the constitution and the drafting

of the new constitution means he will be a pretty powerless figure.

So the Muslim Brotherhood has called a million man march tomorrow,

it has said MPs will have a sit-in Tahrir Square until they change the

parliament. The stage is set for confrontation between the two for

example but the army hoping recent signs of apathy, including low

turnouts when the Brotherhood has called protests before, shows that

the country hasn't the stomach to back them in the quest for real

power. The last thing in Tahrir Square is the army didn't move on

the protestors. If the Muslim Brotherhood is calling for a

million men on the street, will the army stand back? I think what is

most likely to happen is the Brotherhood will have difficulty

producing the huge numbers it says it is calling on to the streets.

That is the evidence of all the recent demonstrations when they

have tried to do that. There will be some sort of arbitrage. Lots of

questions are unclear, particularly about the drafting of the new

institution, whether MPs might be able to go back to the parliament.

I think what will happen is some form of negotiation empowered with

mass protests, with counter moves by the army, in which these two

forces continue struggling to try to divide power. It could be Dave

and hot summer here. We go straight to Cairo to speak to a

representative of the Muslim Brotherhood, and to Washington to

speak to Philip J Crowley. It looks like you have won, you are asking

for a million people out on the street tomorrow, are you expecting

a peaceful protest? Unfortunately, not all the facts have been

properly portrayed. The call for the million man march tomorrow was

done by a different group and the Muslim Brotherhood backed it. This

march is in protest for the various declaration, including the

constitutional declaration that the army has issued yesterday, as well

as the verdicts and different laws issued today by the SKAF council,

all of which are unlawful and illegal and have no basis. It looks

like your man has won, but the danger is he will have won very

little, because if you cannot change the constitution, if you

can't change the military budget, if you can't change the security

issues, he will have no power? self-appointed, or the Mubarak-

appointed SKAF council is issuing all of these, it cannot overturn

the voting power of the parliament or the President. This is a

people's-elected choice. Both the parliament and the President and an

opinion or decree from an appointed council, cannot overturn or be

above the will of the people. We standby this and believe parliament

is still in session, as well as all of the powers. The point is

parliament has been dissolved on a technicality, parliament is not in

session? That is not quite true, there was a verdict by the

constitutional court for the dissolvement of parliament. This

has been acted on by SKAF as if it is a Israelty. The head of the

parliament has -- reality. The head of the parliament has announced it

on television and all parties have denounced the same accusations and

declarations from SKAF, we will take this according to the next

chapter of negotiations and discussions with SKAF and what will

happen next with it. From where you are sitting, this looks incredibly

volatile, what do you think the west should do about this? Well, it

is the worst possible outcome, in terms of say the United States

having promoted and encouraged Egypt to go through a democratic

transition, it appears there will be a transition, but it will not

necessarily be democratic. The problem right now is you do

have a crisis of governance. Unfortunately you don't necessarily

have an institution that can resolve this confrantation. We in

the United States, 2 -- confrontation. We in the United

States had a case two years ago called Marbury versus Madison, when

you have a conflict between the legislature and the party, the

court steps in. When you have a nominally dissolved parliament, you

don't necessarily have an institution to resolve it. It is a

lot of complexties about how Dr Morsi will respond to it and SKAF

and what the nature of it will be. The Muslim Brotherhood looks like

it has won the election, should President Obama endorse Dr Morsi?

Well, we will see to what extent it is judged to be free and fair. From

every indication this is a reasonable result. The question is,

you have an elected President, what kind of powers will he have? The

dilemma for the United States, having a strong relationship with

the Egyptian military. Yet up the military basically saying -- yet

you have the military basically saying we are above the law and we

don't believe in the civilian laws will present a policy problem for

the United States. Will you be calling on the support of President

Obama and America? Of course we will be calling for support all the

Allies of Egypt who have declared their support publicly for the

democratic transition of Egypt. What happened in the last couple of

days is nothing short of a military coup. We believe that any power

standing by the value of demok say wants to uphold it around the --

democracy wants to uphold it around the world, should standby us. I

would like to also correct your point that this is not a

confrontation between the military and religion. It is a conflict

between military dictatorship and civilian democracy. We believe the

entire international world, that upholds the genuine true value of

democracy, should support Egypt and provide a peaceful end to this

conflict. That's all from Newsnight tonight.

The death of Welsh actor of Brian Hibbard. Here he is in 1963, with

ace axe pel la group named after the miners striking.

# Looking from a window above # It is like the story of love

# Can you hear me # Came back only yesterday

# Moving further away # Want you near me

# All I needed was the love you gave

# All I needed for another day # And all I ever knew

A fine spell of weather, although brief, sunshine to look forward

through the day. We will start the day with some showers across

Scotland. Transferring their way west to east. Most other places

will settle into a reasonable afternoon. A bit of fair weather

loud inland, the odd isolated shower. Nearly all of us will avoid

these. Racing at Ascot will dodge the showers. Light winds, sunny

spells, temperatures nudging 20 degrees. That sunshine is strong at

this time. If you are heading to the beach it is good across the

south west of England and Wales. Some of the best sun on the coast.

The odd isolated showers over the high ground. For Northern Ireland a

few showers, but not of the intensity which we saw during the

course of the day. A good few of us will stay drive. For Scotland most

of the showers on the eastern side, the odd sharp one, not ruling out

thunder here. Some sunshine inbetween. Further ahead to

Wednesday, another fine day for most of us, temperatures just on

the rise, up into the high teens, and the low 20s in some places too.

One or two spots could reach 22 or 24 degrees. Wednesday the best day