:00:08. > :00:11.is time for HARDtalk. After months of applying sticking
:00:11. > :00:14.plasters to the ailing global economy, have world leaders finally
:00:14. > :00:18.come up with an effective long-term treatment? In the Eurozone, there's
:00:18. > :00:26.talk of a two trillion euro stabilisation fund and a managed
:00:26. > :00:36.default for Greece. In the US, the Obama administration says it has
:00:36. > :00:39.
:00:39. > :00:46.plans to deliver job creation and deficit reduction. My guest is Ken
:00:47. > :00:56.Rogoff, a former chief economist at the IMF. Is it too late to avert a
:00:57. > :01:18.
:01:18. > :01:25.prolonged contraction in the Welcome to HARDtalk. Thank you.
:01:25. > :01:28.You're a chess grandmaster as well as an economist. Do you think world
:01:28. > :01:37.leaders have made the right moves to avert imminent economic
:01:37. > :01:41.disaster? I am still very nervous about how this will unfold. There
:01:41. > :01:48.are many moves the Europeans Herve but do they have the political will
:01:48. > :01:55.and support to execute them? 80% of Germans are against the euro right
:01:55. > :01:59.now. That is not a very easy thing to go against. Easy to your view
:01:59. > :02:08.that everything we are now seeing in terms of a crisis of economic
:02:08. > :02:12.confidence hinges on what happens next in the Eurozone? I think it is
:02:12. > :02:17.acutely Europe. It is also fair to say the United States has slowed
:02:17. > :02:24.down even more than people had anticipated and there is policy
:02:24. > :02:28.paralysis here in the United States also. That is not quite as urgent
:02:28. > :02:35.but it is also weighing on investors' minds and people are
:02:35. > :02:39.wondering when they will be growth again. In the UK when politicians
:02:40. > :02:47.like the Prime Minister David Cameron used the analogy of staring
:02:47. > :02:52.down a barrel and when George Osborne says that Eurozone leaders
:02:52. > :02:59.have just six weeks to save the euro, does this inflated rhetoric
:02:59. > :03:05.help or hinder? I do not think it is inflated rhetoric. I think we
:03:05. > :03:09.are approaching what we had in 2008 and urgent action is needed,
:03:09. > :03:14.particularly in Europe. They seem to be just waiting for things to
:03:14. > :03:20.unfold and have a disorderly default in Europe. I do not think
:03:20. > :03:26.it is hyperbole. It is a very nervous moment and that needs to be
:03:26. > :03:31.communicated - not just two leaders but to the public, especially in
:03:31. > :03:39.Germany. We have decided that Europe is the key for the moment.
:03:39. > :03:43.What exactly is on the table in the Eurozone? We are talking about a
:03:43. > :03:51.managed defaults in Greece. Do you think They should have happened a
:03:51. > :03:55.long time ago? It absolutely should have happened a long time ago. It
:03:55. > :04:05.has been a farce that they have not had Greece going to significant
:04:05. > :04:09.default already. It will not be able to pay its debts. The reason
:04:09. > :04:16.they have hesitated is they do not know what to do next because after
:04:16. > :04:25.Greece there is Portugal, Ireland, Spain, Italy... They cannot agree
:04:25. > :04:30.on a plant so they have kept Greece on life-support, just giving it
:04:30. > :04:36.money. It is not going to keep up because the Greek public does not
:04:36. > :04:39.want to put up with one austerity measure after the other and five or
:04:39. > :04:44.six years of recession to be in default anyway. That must be
:04:44. > :04:49.settled. You say they keep giving Greece
:04:49. > :04:53.money and I assume you mean European leaders but let us not
:04:53. > :04:58.forget that the IMF is involved in the progressive bailout strategy as
:04:58. > :05:03.well and you were Chief Economist there for three years. Do you think
:05:03. > :05:08.the IMF has got this wrong? There is no question that until
:05:08. > :05:18.relatively recently the IMF has been willing to go along with
:05:18. > :05:18.
:05:18. > :05:23.whatever you reported -- Europe wanted. It went even further than
:05:23. > :05:28.that. By any one year ago, it was insisting that it was impossible
:05:28. > :05:33.that Greece could default as an advanced country despite the fact
:05:33. > :05:39.that this time is different. In my book I showed that Greece was in
:05:39. > :05:46.default every other year after independence. The IMF has recently
:05:46. > :05:52.been retreating and started to realise that it cannot keep saying,
:05:52. > :05:58.whatever Europe once. There needs to be tough love coming from the
:05:58. > :06:03.IMF. This is fast-moving and it is hard to know which way it will go.
:06:03. > :06:10.If you use the phrase tough love, how far should it go? The message
:06:10. > :06:14.from European leaders is that if they can Engineer the managed
:06:14. > :06:22.defaults and get the angry creditors to take a haircut of 50
:06:22. > :06:26.or 60% then Greece can stay in the euro and survive and thrive in the
:06:26. > :06:32.long-term. I'm struggling to see how that can be the case. The Greek
:06:32. > :06:36.economy will still be a zombie economy. There is no prospect of it
:06:36. > :06:45.escaping from long-term austerity measures. Where are all growth come
:06:45. > :06:50.from? How can it thrive in the Eurozone? It is very difficult. It
:06:50. > :06:57.is in a tough position either way. I think Greece will not end up in
:06:57. > :07:02.the Eurozone. I think whoever is left will be in a tighter bond, a
:07:02. > :07:12.tighter fiscal and regulatory union than they are now. It will be very
:07:12. > :07:14.
:07:14. > :07:18.hard to keep Greece in it. I think the real problem is that it will do
:07:18. > :07:26.fault but that the Europe -- that the Europeans will say we will
:07:26. > :07:29.protect Portugal and everybody else. Countries are way past the normal
:07:29. > :07:35.limit of what the people will tolerate in terms of repaying
:07:35. > :07:41.foreign debt. Portugal is in that category. Ireland has done many
:07:41. > :07:48.great things but they are still in trouble. There is panic in the
:07:48. > :07:52.banking system. They're thinking Italy and Spain that maybe it is a
:07:52. > :07:56.solvency problem but mostly it is a panic. The Europeans want to
:07:56. > :08:03.protect everything. Until recently they said it was unimaginable that
:08:03. > :08:09.Greece would default! You are a respected economist with a lot of
:08:09. > :08:14.experience in international financial crisis. Are you telling
:08:14. > :08:18.me that the two trillion euros mooted as the benchmark price
:08:18. > :08:25.stability fund will not do it in terms of putting a firewall a round
:08:25. > :08:33.Portugal or Italy? Italy is an enormous economy and his national
:08:33. > :08:38.debt is about the same as the German GDP.
:08:38. > :08:42.Two trillion euros is a very good idea and would be very helpful. It
:08:42. > :08:50.will buy time. I think three or four trillion Europe might
:08:50. > :09:00.ultimately be needed. You make it sound easy. Where on earth do we
:09:00. > :09:03.
:09:03. > :09:13.get a three trillion or Fort William from in Europe? -- four
:09:13. > :09:18.
:09:18. > :09:23.trillion. Unita the overwhelming force to prevent the banks falling.
:09:23. > :09:29.They need resources at that level, not that amount of cash itself. How
:09:29. > :09:33.long can Greasby in austerity? It is the same thing for Portugal and
:09:33. > :09:40.Ireland. That is the difference. You need to forgive some of the
:09:40. > :09:45.debts and write them off. The NAB over time they can grow again.
:09:45. > :09:49.Perhaps some of them will need to leave the Eurozone. What worries me
:09:49. > :09:56.with the plan is that they have not made the top decisions. It will be
:09:56. > :10:03.unstable politically as long as they have not decided where at the
:10:03. > :10:11.debt cannot realistically be paid. I understand your distinction. But
:10:11. > :10:15.I want to push you in the wake one cannot push elected politicians.
:10:16. > :10:25.Which countries do you ultimately believe will have to leave the
:10:26. > :10:31.
:10:31. > :10:39.Eurozone? -- of the wave. -- the way. We must see structured debt
:10:39. > :10:44.reduction in Ireland, Portugal and Greece and perhaps in Spain. States
:10:44. > :10:54.and cities default in the US all the time and they do not leave the
:10:54. > :10:56.
:10:56. > :11:01.US. But what I think we will see is that these defaulting countries
:11:01. > :11:06.will leave the Eurozone ended has to be fixed. There must be more
:11:06. > :11:09.revenue-sharing and a tighter fiscal unit. They may wonder which
:11:09. > :11:15.countries that are currently they can really justify having a
:11:15. > :11:19.stronger integration. Some of the newer entrants such as Estonia are
:11:20. > :11:29.also emerging markets that a strong right now but who knows what
:11:30. > :11:30.
:11:30. > :11:34.problems lie ahead? So your message is that the German people have to
:11:34. > :11:40.suck this up and recognise that they will be the guarantors of
:11:40. > :11:47.sovereign debt across the periphery of the European Union? They will
:11:47. > :11:51.pay the price for years to come. am afraid that is absolutely right.
:11:51. > :11:56.The endgame has the German people doing that. Life in Germany is
:11:56. > :12:02.still pretty good. It is hard for the everyday German to feel the
:12:02. > :12:09.risk of what is going on. I think it is similar in Italy. But the
:12:09. > :12:14.system must change. They must have a tighter fiscal union and they
:12:14. > :12:21.must try to sensibly provides support. You cannot just guarantee
:12:21. > :12:26.everything. If they go to Portugal and say, or borrow more money, they
:12:26. > :12:36.need to have some of the debt forgiven. They have not reached
:12:36. > :12:41.
:12:41. > :12:46.that recognition outside of Greece. To use a British phrase, get your
:12:46. > :12:50.fingers out and get real! The Germans really resented because
:12:50. > :13:00.they are looking at the political management of the US economy and
:13:00. > :13:03.
:13:03. > :13:09.say, who are you to lecture last? It is a fair point. -- lecture us.
:13:10. > :13:15.It certainly is. The debacle there has undermined confidence. You
:13:16. > :13:20.wonder who is in charge. The Republicans have been weekend. The
:13:20. > :13:28.President has been weakened. They were talking about shutting down
:13:28. > :13:38.the government again! I enjoy seeing you smile but this is no
:13:38. > :13:38.
:13:38. > :13:42.laughing matter! The IMF and just gave us their latest survey and
:13:42. > :13:47.call it a dangerous phase for the world but they downgrade growth
:13:47. > :13:53.prospects in the US for this year and next. What do you think is
:13:53. > :14:03.going to happen in the US economy? Do you believe that a double dip
:14:03. > :14:08.long-term recession is inevitable now? Not inevitable but I do not
:14:08. > :14:15.think we left the downturn. We are still in 2008. You cannot even
:14:15. > :14:20.think of this as a recession. Output per person is no we knew
:14:20. > :14:26.where it started, up much less getting back to trend. Unemployment
:14:26. > :14:32.has not fallen below 9%. It is in a deep recession in the US and with
:14:32. > :14:39.it grows at 1% or falls at 1% in the short-term, we need to see four
:14:39. > :14:49.or 5% growth. You mentioned the IMF forecast. It was exceptionally dark.
:14:49. > :14:54.
:14:54. > :14:59.US growth was forecast eight. Down You look at the numbers coming in
:14:59. > :15:07.and the IMF have had growth forecast going down to 1.5 % in the
:15:07. > :15:14.US. What do you think it might be? We have entered a phase of this
:15:14. > :15:21.queer, suddenly, after the last few months, that is a best guess. The
:15:21. > :15:27.rest has become very a symmetric. It would have been that slow growth
:15:27. > :15:32.for many years but could be better, could be worth. -- worse. Now we
:15:32. > :15:37.are hoping it stays at that level. There is a lack of confidence.
:15:37. > :15:44.Businesses are freezing up. The economy is not falling but it is
:15:44. > :15:48.not rising. The Federal Reserve has not stepped in yet. There is a risk
:15:48. > :15:52.that there will be dramatic tightening instead of a gradual
:15:52. > :15:59.tightening. It is a very disconcerting moment. There is no
:15:59. > :16:05.order way to put its. I can feel your concern. It is easy to sit as
:16:05. > :16:09.a renowned economist at Harvard University and tell me how the
:16:09. > :16:14.economy is misfiring but it is not so easy to tell me how to fix the
:16:14. > :16:18.problem. Barack Obama has started a new initiative and is committed to
:16:18. > :16:26.reducing the death of -- deficit, what of the measures that you think
:16:26. > :16:32.need to be taken? I think a piece of the President's plan is not
:16:32. > :16:36.particularly controversial. That is extending the tax cuts to low-
:16:36. > :16:41.income workers. If you pull them back, that is quite a tightening in
:16:41. > :16:48.the economy. I would look at this is a patient with a high fever. You
:16:48. > :16:58.are giving them I'd be Provan or aspirin to stop them going in to
:16:58. > :17:05.
:17:05. > :17:10.fever. -- Ibuprofen. They are fighting the 1970s. It is like
:17:10. > :17:15.something that Japan had in the 1930s. It is a mask which year
:17:15. > :17:22.scenario than the thought. Just to be clear, but what you mean about
:17:22. > :17:28.that, you mean more quantitative easing? Printing more dollars? That
:17:28. > :17:32.is inviting inflation in the United States. Exactly. I would like a
:17:32. > :17:39.better form of quantitative easing where they make good form that we
:17:39. > :17:44.will have to tolerate higher inflation for a file. Bedford mean
:17:44. > :17:49.having a law a dust -- it would mean having a law adjusted
:17:49. > :17:54.interested. It could mean changing the value of housing so the market
:17:54. > :18:00.clears quicker. It would be a slight help to people who have got
:18:00. > :18:06.loans, outstanding debt. Four-5% inflation is certainly not a
:18:06. > :18:11.problem. All of the things that are usually wrong with it would be
:18:11. > :18:16.beneficial. I would like to see it in Europe. Central bankers are very
:18:16. > :18:21.reluctant. I find it truly fascinating that you say you want
:18:21. > :18:27.to see inflation take-off and the United States. It drives you former
:18:27. > :18:32.allies on the republican side absolutely nuts. They say that that
:18:32. > :18:36.sort of attitude, quantitative easing, inviting the write-down of
:18:36. > :18:42.mortgage debt, it is simply undermining the dollar and this
:18:42. > :18:46.fundamentally unfair because it hurts those who are prudent savers.
:18:46. > :18:53.You used to be a force for inflation. What has happened to
:18:53. > :18:57.you? I wrote a paper 25 years ago about why it was a good idea to
:18:57. > :19:02.have an independent central bank, why there should be tougher than
:19:02. > :19:08.average -- they should be tougher on inflation, absolutely, I think
:19:08. > :19:17.it is very important. We are facing a once and 75 year, once and 100 g
:19:18. > :19:22.of downturn -- once in 100 you downturn. There has to be a safety
:19:22. > :19:28.method from things like this happen. We do not what is going to happen.
:19:28. > :19:34.You have got to pick your poison. I would like to see some debt
:19:34. > :19:44.forgiveness with mortgages. It is very difficult in the American
:19:44. > :19:45.
:19:45. > :19:49.psyche K. It seems quite unfair. Even if you did that, and you have
:19:49. > :19:54.ruffled feathers in the conservative side of politics, even
:19:54. > :19:58.if you did all that, is there not a much deeper problem that there are
:19:58. > :20:03.global imbalances in the economy and organisations like the United
:20:03. > :20:06.States can only really get their growth going if they see creditor
:20:06. > :20:10.nations and great exporters like the Germans and Chinese
:20:10. > :20:15.fundamentally changing the nature of their economies so that the US
:20:15. > :20:20.can start selling them goods. That is not going to happen. No, it is
:20:20. > :20:25.not. We do need to see that. I don't think it is something that is
:20:25. > :20:30.going to happen quickly. The Chinese cannot easily balance their
:20:30. > :20:36.economy. Frankly, the Germans cannot either. Are you sure about
:20:36. > :20:41.that. Is that not giving them a bit of a pass? Surely the Germans could
:20:41. > :20:45.take some short term measures to boost demand inside Germany and
:20:45. > :20:51.that would make a big difference to the rest of the eurozone and
:20:51. > :20:57.probably to the United States, to. What I would most like to see is a
:20:57. > :21:02.to have a higher inflation rate in Europe. That would put pressure on
:21:02. > :21:09.everyone else's wages apart from the Germans. I think the Germans
:21:09. > :21:12.are reluctant to have a big bang fiscal stimulus because they know
:21:12. > :21:19.their guaranteeing everything. Nobody is kidding themselves, they
:21:19. > :21:26.know that. If you look at Germany's credit rating, they are and a very
:21:26. > :21:31.tight spot -- paid sports. They cannot go too far. -- they are in a
:21:31. > :21:35.very tight spot. Systems are not working. They would like to make
:21:35. > :21:42.good investments and get a higher interest rate but they do not see
:21:42. > :21:47.progress in having Europe move towards greater integration and
:21:47. > :21:51.they are very concerned. You have referred to were concrete
:21:51. > :22:01.contractions. You are saying we are seeing the greatest contraction
:22:01. > :22:07.since the 30s. How long is it going to last in your view? What I found
:22:07. > :22:13.in my booking 2009, I spoke about the great contraction then, things
:22:13. > :22:18.like unemployment can get worse for up to four-five years, that can
:22:18. > :22:24.take the same amount of time of output per person to get out we
:22:24. > :22:30.started. You typically start seeing the out -- the end of this after
:22:30. > :22:34.seven years. I have been saying for a long time that you have to worry
:22:34. > :22:42.about The Vics death -- decade, not just the next six months. You have
:22:42. > :22:48.to look at competitiveness, finding ways to reduce debt, this is not a
:22:48. > :22:52.magic bullet because it is a difficult situation. This has
:22:52. > :22:57.happened in other countries and it does end. Is that not perhaps a bit
:22:57. > :23:04.complacent? You are seeing it is worse than people have realised but
:23:04. > :23:07.perhaps it is a cycle comparable to the 1930s cycle. What of this is a
:23:07. > :23:14.crisis of growth orientated capitalism and that actually we
:23:14. > :23:18.could never go back to the way we were in the 1980s and 1990s?
:23:18. > :23:23.There is an undercurrent of the growth of Asia. That is hurting
:23:23. > :23:27.manufacturing jobs all the world. I do not see that. I think the world
:23:27. > :23:33.continues to have long-term growth prospects. They are certainly
:23:33. > :23:37.things in the system that effect this, inequality has grown too much,
:23:37. > :23:43.that needs to be addressed. Commodity resource based freshers
:23:44. > :23:49.are beginning to look g to look than cyclical. They are definitely
:23:49. > :23:53.not cyclical. We are seeing a rise in metals, gold, that is because of
:23:53. > :23:58.the growth in Asia. You're absolutely right, this integration
:23:58. > :24:03.of people into the world workforce is having a big effect. The ageing
:24:03. > :24:07.population is having a big effect. There are a lot of challenges. It
:24:07. > :24:16.is not as bad as what we're facing right now, we're facing a debt
:24:16. > :24:21.problem, a debt crisis. 100 years, who knows? I think we're definitely
:24:21. > :24:26.in a very difficult situation at the moment. We know that we both
:24:26. > :24:36.want be around. But for now, thank you very much. Thank you for being
:24:36. > :24:53.
:24:53. > :25:00.How low. Over the last few days, we have been talking about things
:25:00. > :25:05.warming up. -- hello there. Yesterday, we had temperatures of
:25:05. > :25:12.27 degrees in France. This is where the warm water demand is going to
:25:12. > :25:18.come from through the week. -- the warm air. Temperatures in the low
:25:18. > :25:28.20s. That trend starts to happen through the course of the day-to-
:25:28. > :25:29.
:25:29. > :25:34.day, particularly through southern areas. -- the day today. Those
:25:34. > :25:44.co coill slowly improve. First thing this morning, and the
:25:44. > :25:46.
:25:46. > :25:50.South, a cloudy start to the day. Misty, foggy, low cloud. Cloudy and
:25:50. > :25:56.misty through southern Wales but for the north-east it will be dry
:25:56. > :26:04.and bright as we head through the day. Into Noy. Into Noland, after a
:26:04. > :26:10.damp night, the sky will Brighton. Lighter, patchy rain in the north-
:26:10. > :26:14.east. We start the day on a cloudy, enjoyed first thing for Yorkshire
:26:14. > :26:17.and Lincolnshire. That is how we look first thing on Tuesday. Slowly
:26:17. > :26:20.the weather will change. The rain across Scotland will ease through
:26:20. > :26:24.the afternoon. Not as heavy with the wind moving as well. In the
:26:24. > :26:27.south, the cloud breaks up with mist and fog clearing away from the
:26:27. > :26:36.coast. Highs of 23 degrees this afternoon. Overnight, a similar
:26:36. > :26:40.performance will happen yet again in the south-west. A bit of low
:26:40. > :26:43.cloud and a bit of mist and fog. Not as extensive as the night just
:26:44. > :26:47.gone. It is going to be a much milder night, 14-15 degrees. For
:26:47. > :26:51.Wednesday, this is the set-up for the next of the week, north-western