:00:12. > :00:14.Chile. Now it is time for HARDtalk. Is it time to end the 'Alice in
:00:14. > :00:18.Wonderland' economics inside the Eu Eu acknowledge that
:00:18. > :00:22.Greece is bankrupt? Default will bring with it plenty of pain - for
:00:22. > :00:32.Greece, the Eurozone and the wider world - but the longer it takes,
:00:32. > :00:36.
:00:36. > :00:39.the more corrosive could be the uncertainty and fear. I'm joined
:00:39. > :00:42.today by three guests, from Greece, Argentina and Britain, all with
:00:42. > :00:52.long experience of economic policymaking in the toughest of
:00:52. > :01:16.
:01:16. > :01:26.times. What should policymakers do And Norman Lamont in London,
:01:26. > :01:27.
:01:27. > :01:34.Constantine Papadopoulos in Greece, Mario Blejer. First, to Athens to
:01:34. > :01:40.Constantine Papadopoulos. We do agree that the Greek government is
:01:40. > :01:44.in a hole which just keeps getting deeper? I heard your remark about
:01:44. > :01:51.Greece being back rocked. That is in consistent with the reality on
:01:51. > :01:56.the ground. Right now we are in the middle of an adjustment which has a
:01:56. > :02:02.physical side and a structural reform site. It may look as if we
:02:02. > :02:09.are in a hole, but I can assure you that the physical aspects are
:02:09. > :02:15.getting better by the day. If you have followed it I can believe that
:02:15. > :02:20.next year Greece is expected to move into a primary surplus on its
:02:20. > :02:28.budget which will completely change the outlook. This has been achieved
:02:28. > :02:35.in three years, from 2009 when the primary purpose that was 24 billion
:02:35. > :02:44.euros. This will be changed into a surplus of 3.2 billion euros in
:02:44. > :02:49.2012. So, we are far from bankruptcy. You have a doubt the
:02:49. > :02:55.optimistic case that the figures in Greece are manageable and getting
:02:55. > :02:59.better. You speak for the Greek foreign Ministry. Norman Lamont, a
:02:59. > :03:05.former Chancellor, used to looking at budgets and public finances,
:03:05. > :03:10.when you hear that optimistic noise coming from happens, do you buy it?
:03:10. > :03:16.I would not like to diminish in any way the courage that the Greek
:03:16. > :03:20.government have shown in trying to get their budget back to balance.
:03:20. > :03:25.But the fact is that this crisis has gone on and on and the markets
:03:25. > :03:29.do not believe that Greece can eventually avoid a default. And
:03:29. > :03:34.because this goes on and on it is becoming corrosives and it has
:03:34. > :03:39.affected other countries. If the markets are right, and I think they
:03:39. > :03:44.probably are, there is a strong argument that it is better to lands
:03:44. > :03:49.the boil, have they controlled default. Of course that would be
:03:49. > :03:54.painful and it would affect French banks, but it would be containable.
:03:54. > :03:59.There is an argument to get it over with, rather than have this never-
:03:59. > :04:06.ending crisis, which is affecting all of Europe and countries outside
:04:06. > :04:11.the eurozone and indeed the entire Western economy. Roses are
:04:11. > :04:14.uncertainty, Constantine Papadopoulos. The markets do not
:04:14. > :04:22.believe the references that Greece can manage the scale of public debt
:04:22. > :04:25.we are talking about. And you keep revising the figures. Even in the
:04:25. > :04:30.last 24 hours the estimates you had for the deficit this year and next
:04:30. > :04:34.year had to be revised again in a negative sense. You are not going
:04:34. > :04:44.to hit the target set by the EU. That looks as though it cannot go
:04:44. > :04:45.
:04:45. > :04:50.on. The targets will be miss this year by 0.7% of GDP. Considering
:04:50. > :05:00.the recession, that is understandable. The recession is
:05:00. > :05:04.far worse than we had hoped for. This is partly are the fault,
:05:04. > :05:09.partly the fault of the international situation. Out the
:05:09. > :05:13.main export markets are in Europe and the European economy is
:05:13. > :05:19.stagnant. You have to take these things into consideration. Given
:05:19. > :05:24.that, if we missed the target by 0.7%, that is manageable and it
:05:24. > :05:33.does not affect next year's target. The two have been calculated
:05:33. > :05:35.together. Isn't this the basic problem 'The Burgers are better at
:05:35. > :05:39.The Circle, especially when George Calombaris is making them' however
:05:39. > :05:45.much you cut, the contract the economy, I think it is contracting
:05:45. > :05:52.by a 5% this year, means that her whether much austerity you impose
:05:52. > :05:56.upon your own people, the burden of debt is going to get worse. We are
:05:56. > :06:06.already talking about a national debt that is approaching 200 % of
:06:06. > :06:08.
:06:08. > :06:18.GDP. It is closer to 155, 160. The denominator is shrinking. The debt
:06:18. > :06:20.
:06:20. > :06:25.load is not getting bigger. It is a statistical effect. It seems to be
:06:25. > :06:30.growing all the time, and how are we're going to pay it back. This
:06:30. > :06:35.will be reversed when growth kicks in. The other part is to make the
:06:35. > :06:41.economy more competitive. Do not forget that. Fiscal measures were
:06:41. > :06:45.absolutely necessary because things had gone overboard. Parallel to
:06:45. > :06:50.that is the other programme of reforms which are meant to make the
:06:50. > :06:58.economy more competitive. Eventually, growth will Peakin and
:06:58. > :07:01.then you will see how the ratio will shrink. Mario Blejer in Wayne
:07:01. > :07:07.is there is, you bring experience of dealing with the most difficult
:07:07. > :07:12.of economic circumstances. You were the President of the Central Bank
:07:12. > :07:17.of Argentina won the country went through default. INA you have been
:07:17. > :07:23.looking at Greece today very closely. You have concluded that
:07:23. > :07:33.Greece should be pulled and it's called big. Why you say that?
:07:33. > :07:43.of the things we have learned from our experience... does not do any
:07:43. > :07:44.
:07:44. > :07:51.good. Greece seems to be unbearable. If you compare it with our
:07:51. > :08:01.situation, Greece is 20 times larger. In per capita terms. And we
:08:01. > :08:04.
:08:04. > :08:11.were not able to pay. I understand reforms are necessary. But I think
:08:11. > :08:19.that at a given 0.1 has to face reality. That is what we did. If we
:08:19. > :08:23.had defaulted two years earlier the pain would have been less.
:08:23. > :08:30.Additionally, if you default and pay the price, you can reverse the
:08:30. > :08:40.problem. That's why I think the current arrangement, reducing the
:08:40. > :08:44.
:08:44. > :08:49.value of their debt to 20%, is not enough. If you are the way to
:08:49. > :08:55.accept that fact that you cannot pay the full debt, the haircut must
:08:55. > :09:00.make the remaining debt sustainable. This word hec mac keeps coming up,
:09:00. > :09:05.but what would be the deal on the debt to make a sustainable? How
:09:05. > :09:14.much would be written off was no I would need to do a careful
:09:14. > :09:24.calculation, but 60% would not do the trick. He then the 20% being
:09:24. > :09:31.discussed now is not OK because they're a lot of conditions. Greece
:09:31. > :09:40.has to find collateral. There is also public sector involvement.
:09:40. > :09:46.Even the for Greece is less than 40%. You really need to tackle the
:09:46. > :09:54.problem in an Inter related manner. A significant get out, but, Norman
:09:54. > :09:57.Lamont, is that possible with reasons I the euros and? Yes, I the
:09:57. > :10:03.EU can have a controlled default and remain within the eurozone. And
:10:03. > :10:09.I think that is what is necessary. Postponing the day of reckoning and
:10:09. > :10:15.make it much worse. It is becoming alarming the size of the package
:10:15. > :10:19.that the rest and is talking about. The German Parliament just voted
:10:19. > :10:23.through a 440 begin euros package. They are now talking about her
:10:23. > :10:31.being a two rate trillion euros package which would be highly
:10:31. > :10:39.leveraged. And leveraging is what at the scene to this problem and
:10:39. > :10:44.that this place. The ECB have a capital of 5 billion euros. It has
:10:44. > :10:52.advanced money to banks and the Ritz and, may be only 400 bn. It
:10:52. > :10:56.has bought bombs, may be over 100 billion. This is really making a
:10:56. > :11:03.crisis for the European Central Bank. And who is guaranteeing this?
:11:03. > :11:08.Countries like Italy. It will be is the third most important guarantor
:11:08. > :11:13.of ECB and the bail-out fund, that Italy could not possibly afford to
:11:13. > :11:18.pay the sums of money. So you have countries like Italy and Spain
:11:18. > :11:26.guaranteeing a mechanism in order to bail out themselves. Frankly,
:11:26. > :11:32.this is not credible. That last phrase used: Bailing out themselves.
:11:32. > :11:37.You never stop and look at the miss your country is in and think:
:11:37. > :11:41.Borrowing more money simply to allow us to service the debts we
:11:41. > :11:46.already have two at the European Bates is doing us no favours. It is
:11:46. > :11:50.harming the interests of our and people, simply looking after the
:11:50. > :11:55.interests of the big European banks. Wouldn't it be better for you and
:11:55. > :12:00.people to call a halt to this? course not. Because if you declare
:12:00. > :12:05.a default, it is like committing suicide because you're at us will
:12:05. > :12:11.be destroyed and your economy will be cut off from the rest of the
:12:11. > :12:16.world and we are an integral part of the EU. Mr Blair is living proof
:12:16. > :12:22.that it is not suicide. He was running the Central Bank, I kid in
:12:22. > :12:27.a bit old oak, it had to cut its ties. It was a means, it was
:12:27. > :12:37.painful, but after that we saw Argentina grow for five years in a
:12:37. > :12:41.
:12:41. > :12:47.In 2011, despite the crisis in Greece, it is 38 %. Please explain
:12:47. > :12:52.that to me. You could argue it is because agrees has been living in
:12:52. > :12:58.this fantasy that it should not have been in the first place.
:12:58. > :13:02.will come back to that if I may. We had four years of recession before
:13:02. > :13:09.the default. The default did not cause the recession, it was the
:13:09. > :13:16.opposite. This was in 1998, at the end of the four years we had a
:13:16. > :13:22.default, as a consequence, we did have some problems, of course. The
:13:22. > :13:30.banks did not collapse. We were able to save all of the banking
:13:30. > :13:34.sector. After that we had eight years of growth. I think Greece has
:13:34. > :13:39.benefited largely from belonging to the eurozone that is why I do not
:13:39. > :13:45.think they should leave the eurozone. They should look at the
:13:45. > :13:52.current situation and recognise that it is not possible to serve as
:13:52. > :13:57.this large amount of debt which has accumulated over many years. In
:13:57. > :14:03.Argentina, the recession and the pain was before the default. After
:14:03. > :14:09.six months we were growing again. Of course we had a number of
:14:09. > :14:15.benefits that Greece does not have. I am going to stop you there, that
:14:15. > :14:20.is a very interesting point. I want you to respond to it. The idea
:14:20. > :14:24.being, if you get out of the eurozone, at least for a time, you
:14:24. > :14:29.would not be subject to the Monetary Policy that is driven by
:14:29. > :14:34.the Germans, which seems more suited to a German economy than
:14:34. > :14:38.yours, you would be free to depreciate Euro-currency, you could
:14:38. > :14:43.begin exports, you could restructure your academy in a
:14:43. > :14:53.radical fashion, it would be good for you. Are you asking me that
:14:53. > :14:56.
:14:56. > :15:05.question? Whether I believe in depreciation as a tall? I can tell
:15:05. > :15:09.you my opinion on that. Our improvements as an economy came
:15:09. > :15:17.when we were getting ready to join the EU and the eight years that
:15:17. > :15:23.followed. From 96 until 2008. Greece moved from 40th place in the
:15:23. > :15:30.world up to number 23. This did not happen just because our government
:15:30. > :15:32.was burrowing through the roof. No, this happened because of the
:15:32. > :15:39.improvement in the whole macro- economic situation within the
:15:39. > :15:46.country. There are all kinds of indices to prove that. Do not take
:15:46. > :15:52.my word for it. Between 2000-2008 productivity growth was 2.4% per
:15:52. > :15:59.annum. That was three times higher than Germany, Spain or Portugal.
:16:00. > :16:05.Higher than Ireland, higher than anywhere in the eurozone. That is a
:16:05. > :16:12.product not of free borrowing but a result of lower inflation and the
:16:12. > :16:20.efforts that were made on the part of a Greek businessman to start but
:16:21. > :16:26.is abating in this thing called a single market... -- start
:16:26. > :16:32.participating. I think it is fair to say you whenever a friend of the
:16:32. > :16:37.euro. You have stoutly defended Britain's right not to be in it.
:16:37. > :16:45.The message there are, you know what, the eurozone has been good
:16:45. > :16:50.for the periphery countries. The idea being, yes we are in a crisis,
:16:50. > :16:54.but actually Greece, Italy, Portugal, Spain, these highly
:16:54. > :17:00.indebted nations, in the end will benefit from staying inside the
:17:00. > :17:05.euro to get out of the mess they are in? I do not subscribe to this.
:17:05. > :17:15.Leaving this financial crisis apart, the future of opera for Europe, the
:17:15. > :17:18.
:17:18. > :17:24.Mediterranean countries and Italy is one... -- peripheral. They will
:17:24. > :17:28.be denied their own flexibility of exchange rates, they will not be
:17:28. > :17:33.able to compete with the Germans. Productivity has lacked massively
:17:33. > :17:39.behind that of Germany since the euro was formed. What has been the
:17:39. > :17:45.result? The Italian economy has hardly grown at all. Something
:17:45. > :17:49.under 1% per year since the euro was formed. It was much faster
:17:49. > :17:52.before that. I do not believe that putting countries in a
:17:52. > :17:57.straightjacket in this way is going to make them suddenly become
:17:57. > :18:03.chairman. When EU Commission President said the lesson from this
:18:04. > :18:09.is that there has to be much deeper integration at the physical level,
:18:09. > :18:14.talking about one finance ministry, one set of fiscal rules, taxes set
:18:14. > :18:18.for the entire eurozone, is that not a way out of this? That is
:18:18. > :18:28.correct theoretically. I have always believed that is one reason
:18:28. > :18:34.why I did not want to join the euro. You cannot have a single currency
:18:34. > :18:39.without having a single fiscal system. How can you have policies
:18:39. > :18:49.in Greece, Spain not decided by those countries... It does not work.
:18:49. > :18:50.
:18:50. > :18:54.People of those countries were not accept having their taxes drawn up
:18:54. > :18:59.by another country. Will you accept taking economic instruction at
:18:59. > :19:07.every level, fiscal and monetary, from Germany more than any other
:19:07. > :19:17.country? In the latest opinion poll 70.5 % of Greeks say they want to
:19:17. > :19:20.keep the euro. 19.7 % said they wanted to return. Their country, in
:19:20. > :19:28.essence, will be economically governed from Brussels and
:19:29. > :19:35.Frankfurt. Well... I am afraid there is a misunderstanding. When
:19:35. > :19:41.we say governed from Brussels, we are part of it. The prevailing
:19:41. > :19:46.ideology is another question. We were never against discipline.
:19:46. > :19:50.Despite what you may think. We were never against improving our
:19:50. > :19:55.competitiveness. Maybe you should look out the window. Are you
:19:55. > :20:00.looking at the strikes in Athens? Are you looking at the fact that EU
:20:00. > :20:04.officials cannot get inside the finance ministry to read the books
:20:04. > :20:09.because there are strikers outside barring their entry? Great people
:20:09. > :20:17.do not accept the levels of austerity less the levels that will
:20:17. > :20:25.be imposed in the future. Nobody loves austerity. We know this is a
:20:25. > :20:35.necessary transition from a state which turned into a Lotus giant
:20:35. > :20:40.that collapsed from its own weight. People know that. I see you shaking
:20:40. > :20:46.your head. You are outside the euro, what do you make of this
:20:46. > :20:50.fundamentally important debate? things. I am completely certain
:20:50. > :20:57.that austerity is not going to resolve the problem. It never
:20:57. > :21:03.resolves the problem to adjust in this way. In terms of Europe, the
:21:03. > :21:07.euro is not an economic project. It is a pretty bad project. It is a
:21:07. > :21:13.political project. When you have a project that is political and not
:21:13. > :21:17.economic it has a cost, someone has to pay for it. Who is going to pay?
:21:17. > :21:23.Who is going to pay for the recapitalisation of the banks that
:21:23. > :21:33.is necessary? The losses that they are going to incur? Who is going to
:21:33. > :21:39.
:21:39. > :21:44.pay... Germany, and France? The only economic powers within the
:21:44. > :21:49.eurozone that can indulge in a reconstruction of Greece? Yes come
:21:49. > :21:55.up not only them, some countries in the north of Europe, Austria,
:21:55. > :22:00.Netherlands, Finland, they will pay. But they do not want to pay. It is
:22:00. > :22:08.important to notice that international community's... If you
:22:08. > :22:15.look at the balance sheet of the IMF, 80% of the commitment is to
:22:15. > :22:25.Europe. To third of the commitment is to the countries that have this
:22:25. > :22:25.
:22:25. > :22:29.huge debt. -- two-thirds. Before we end, Barack Obama has said, we in
:22:29. > :22:34.America are scared by what is happening in Europe. The Europeans
:22:34. > :22:38.have not responded quickly enough to the crisis in their midst. Do
:22:38. > :22:44.you believe this euro crisis has the potential to be a fantastically
:22:44. > :22:50.heavy drag on the world economy for years to come? Without any doubt.
:22:50. > :22:54.It is affecting the banking system. American banks are reluctant to
:22:54. > :22:58.transfer money to European banks. The bank market is beginning to
:22:58. > :23:02.freeze up again because people are uncertain about what is happening
:23:02. > :23:08.in Europe. The burden of debt has been passed from one person to
:23:08. > :23:11.another. It started off with the banks, it was passed on to the
:23:11. > :23:17.government, now the Government's are passing it to Germany and
:23:17. > :23:20.France. France cannot absolutely accept this huge burden that will
:23:21. > :23:27.be placed on it. It is a pack of cards that could come crumbling
:23:27. > :23:33.down. Surely the inevitable consequence is that it will come
:23:33. > :23:37.down? I think it will be better to recognise the reality of Greece and
:23:37. > :23:42.have a controlled default within the eurozone. Of course that would
:23:42. > :23:46.harm the great banking system, assistance can be given to the
:23:46. > :23:51.great banking system and the French banking system. Anything you have
:23:51. > :23:59.heard that has changed your mind? That it is best for Greece to
:23:59. > :24:04.accept reality and get the default done now? No, I am more and more
:24:04. > :24:11.convinced this is destruction. Do not forget we are inside the EU.
:24:11. > :24:18.Never before has any other country received so much assistance. It is
:24:18. > :24:23.not transferring funds, these are loans. They are loans if they get