Norman Lamont, Constantine Papadopoulos and Mario Blejer HARDtalk

Chile. Now it is time for HARDtalk. Is it time to end the 'Alice in

Wonderland' economics inside the Eu Eu acknowledge that

Greece is bankrupt? Default will bring with it plenty of pain - for

Greece, the Eurozone and the wider world - but the longer it takes,

the more corrosive could be the uncertainty and fear. I'm joined

today by three guests, from Greece, Argentina and Britain, all with

long experience of economic policymaking in the toughest of

times. What should policymakers do And Norman Lamont in London,

Constantine Papadopoulos in Greece, Mario Blejer. First, to Athens to

Constantine Papadopoulos. We do agree that the Greek government is

in a hole which just keeps getting deeper? I heard your remark about

Greece being back rocked. That is in consistent with the reality on

the ground. Right now we are in the middle of an adjustment which has a

physical side and a structural reform site. It may look as if we

are in a hole, but I can assure you that the physical aspects are

getting better by the day. If you have followed it I can believe that

next year Greece is expected to move into a primary surplus on its

budget which will completely change the outlook. This has been achieved

in three years, from 2009 when the primary purpose that was 24 billion

euros. This will be changed into a surplus of 3.2 billion euros in

2012. So, we are far from bankruptcy. You have a doubt the

optimistic case that the figures in Greece are manageable and getting

better. You speak for the Greek foreign Ministry. Norman Lamont, a

former Chancellor, used to looking at budgets and public finances,

when you hear that optimistic noise coming from happens, do you buy it?

I would not like to diminish in any way the courage that the Greek

government have shown in trying to get their budget back to balance.

But the fact is that this crisis has gone on and on and the markets

do not believe that Greece can eventually avoid a default. And

because this goes on and on it is becoming corrosives and it has

affected other countries. If the markets are right, and I think they

probably are, there is a strong argument that it is better to lands

the boil, have they controlled default. Of course that would be

painful and it would affect French banks, but it would be containable.

There is an argument to get it over with, rather than have this never-

ending crisis, which is affecting all of Europe and countries outside

the eurozone and indeed the entire Western economy. Roses are

uncertainty, Constantine Papadopoulos. The markets do not

believe the references that Greece can manage the scale of public debt

we are talking about. And you keep revising the figures. Even in the

last 24 hours the estimates you had for the deficit this year and next

year had to be revised again in a negative sense. You are not going

to hit the target set by the EU. That looks as though it cannot go

on. The targets will be miss this year by 0.7% of GDP. Considering

the recession, that is understandable. The recession is

far worse than we had hoped for. This is partly are the fault,

partly the fault of the international situation. Out the

main export markets are in Europe and the European economy is

stagnant. You have to take these things into consideration. Given

that, if we missed the target by 0.7%, that is manageable and it

does not affect next year's target. The two have been calculated

together. Isn't this the basic problem 'The Burgers are better at

The Circle, especially when George Calombaris is making them' however

much you cut, the contract the economy, I think it is contracting

by a 5% this year, means that her whether much austerity you impose

upon your own people, the burden of debt is going to get worse. We are

already talking about a national debt that is approaching 200 % of

GDP. It is closer to 155, 160. The denominator is shrinking. The debt

load is not getting bigger. It is a statistical effect. It seems to be

growing all the time, and how are we're going to pay it back. This

will be reversed when growth kicks in. The other part is to make the

economy more competitive. Do not forget that. Fiscal measures were

absolutely necessary because things had gone overboard. Parallel to

that is the other programme of reforms which are meant to make the

economy more competitive. Eventually, growth will Peakin and

then you will see how the ratio will shrink. Mario Blejer in Wayne

is there is, you bring experience of dealing with the most difficult

of economic circumstances. You were the President of the Central Bank

of Argentina won the country went through default. INA you have been

looking at Greece today very closely. You have concluded that

Greece should be pulled and it's called big. Why you say that?

of the things we have learned from our experience... does not do any

good. Greece seems to be unbearable. If you compare it with our

situation, Greece is 20 times larger. In per capita terms. And we

were not able to pay. I understand reforms are necessary. But I think

that at a given 0.1 has to face reality. That is what we did. If we

had defaulted two years earlier the pain would have been less.

Additionally, if you default and pay the price, you can reverse the

problem. That's why I think the current arrangement, reducing the

value of their debt to 20%, is not enough. If you are the way to

accept that fact that you cannot pay the full debt, the haircut must

make the remaining debt sustainable. This word hec mac keeps coming up,

but what would be the deal on the debt to make a sustainable? How

much would be written off was no I would need to do a careful

calculation, but 60% would not do the trick. He then the 20% being

discussed now is not OK because they're a lot of conditions. Greece

has to find collateral. There is also public sector involvement.

Even the for Greece is less than 40%. You really need to tackle the

problem in an Inter related manner. A significant get out, but, Norman

Lamont, is that possible with reasons I the euros and? Yes, I the

EU can have a controlled default and remain within the eurozone. And

I think that is what is necessary. Postponing the day of reckoning and

make it much worse. It is becoming alarming the size of the package

that the rest and is talking about. The German Parliament just voted

through a 440 begin euros package. They are now talking about her

being a two rate trillion euros package which would be highly

leveraged. And leveraging is what at the scene to this problem and

that this place. The ECB have a capital of 5 billion euros. It has

advanced money to banks and the Ritz and, may be only 400 bn. It

has bought bombs, may be over 100 billion. This is really making a

crisis for the European Central Bank. And who is guaranteeing this?

Countries like Italy. It will be is the third most important guarantor

of ECB and the bail-out fund, that Italy could not possibly afford to

pay the sums of money. So you have countries like Italy and Spain

guaranteeing a mechanism in order to bail out themselves. Frankly,

this is not credible. That last phrase used: Bailing out themselves.

You never stop and look at the miss your country is in and think:

Borrowing more money simply to allow us to service the debts we

already have two at the European Bates is doing us no favours. It is

harming the interests of our and people, simply looking after the

interests of the big European banks. Wouldn't it be better for you and

people to call a halt to this? course not. Because if you declare

a default, it is like committing suicide because you're at us will

be destroyed and your economy will be cut off from the rest of the

world and we are an integral part of the EU. Mr Blair is living proof

that it is not suicide. He was running the Central Bank, I kid in

a bit old oak, it had to cut its ties. It was a means, it was

painful, but after that we saw Argentina grow for five years in a

In 2011, despite the crisis in Greece, it is 38 %. Please explain

that to me. You could argue it is because agrees has been living in

this fantasy that it should not have been in the first place.

will come back to that if I may. We had four years of recession before

the default. The default did not cause the recession, it was the

opposite. This was in 1998, at the end of the four years we had a

default, as a consequence, we did have some problems, of course. The

banks did not collapse. We were able to save all of the banking

sector. After that we had eight years of growth. I think Greece has

benefited largely from belonging to the eurozone that is why I do not

think they should leave the eurozone. They should look at the

current situation and recognise that it is not possible to serve as

this large amount of debt which has accumulated over many years. In

Argentina, the recession and the pain was before the default. After

six months we were growing again. Of course we had a number of

benefits that Greece does not have. I am going to stop you there, that

is a very interesting point. I want you to respond to it. The idea

being, if you get out of the eurozone, at least for a time, you

would not be subject to the Monetary Policy that is driven by

the Germans, which seems more suited to a German economy than

yours, you would be free to depreciate Euro-currency, you could

begin exports, you could restructure your academy in a

radical fashion, it would be good for you. Are you asking me that

question? Whether I believe in depreciation as a tall? I can tell

you my opinion on that. Our improvements as an economy came

when we were getting ready to join the EU and the eight years that

followed. From 96 until 2008. Greece moved from 40th place in the

world up to number 23. This did not happen just because our government

was burrowing through the roof. No, this happened because of the

improvement in the whole macro- economic situation within the

country. There are all kinds of indices to prove that. Do not take

my word for it. Between 2000-2008 productivity growth was 2.4% per

annum. That was three times higher than Germany, Spain or Portugal.

Higher than Ireland, higher than anywhere in the eurozone. That is a

product not of free borrowing but a result of lower inflation and the

efforts that were made on the part of a Greek businessman to start but

is abating in this thing called a single market... -- start

participating. I think it is fair to say you whenever a friend of the

euro. You have stoutly defended Britain's right not to be in it.

The message there are, you know what, the eurozone has been good

for the periphery countries. The idea being, yes we are in a crisis,

but actually Greece, Italy, Portugal, Spain, these highly

indebted nations, in the end will benefit from staying inside the

euro to get out of the mess they are in? I do not subscribe to this.

Leaving this financial crisis apart, the future of opera for Europe, the

Mediterranean countries and Italy is one... -- peripheral. They will

be denied their own flexibility of exchange rates, they will not be

able to compete with the Germans. Productivity has lacked massively

behind that of Germany since the euro was formed. What has been the

result? The Italian economy has hardly grown at all. Something

under 1% per year since the euro was formed. It was much faster

before that. I do not believe that putting countries in a

straightjacket in this way is going to make them suddenly become

chairman. When EU Commission President said the lesson from this

is that there has to be much deeper integration at the physical level,

talking about one finance ministry, one set of fiscal rules, taxes set

for the entire eurozone, is that not a way out of this? That is

correct theoretically. I have always believed that is one reason

why I did not want to join the euro. You cannot have a single currency

without having a single fiscal system. How can you have policies

in Greece, Spain not decided by those countries... It does not work.

People of those countries were not accept having their taxes drawn up

by another country. Will you accept taking economic instruction at

every level, fiscal and monetary, from Germany more than any other

country? In the latest opinion poll 70.5 % of Greeks say they want to

keep the euro. 19.7 % said they wanted to return. Their country, in

essence, will be economically governed from Brussels and

Frankfurt. Well... I am afraid there is a misunderstanding. When

we say governed from Brussels, we are part of it. The prevailing

ideology is another question. We were never against discipline.

Despite what you may think. We were never against improving our

competitiveness. Maybe you should look out the window. Are you

looking at the strikes in Athens? Are you looking at the fact that EU

officials cannot get inside the finance ministry to read the books

because there are strikers outside barring their entry? Great people

do not accept the levels of austerity less the levels that will

be imposed in the future. Nobody loves austerity. We know this is a

necessary transition from a state which turned into a Lotus giant

that collapsed from its own weight. People know that. I see you shaking

your head. You are outside the euro, what do you make of this

fundamentally important debate? things. I am completely certain

that austerity is not going to resolve the problem. It never

resolves the problem to adjust in this way. In terms of Europe, the

euro is not an economic project. It is a pretty bad project. It is a

political project. When you have a project that is political and not

economic it has a cost, someone has to pay for it. Who is going to pay?

Who is going to pay for the recapitalisation of the banks that

is necessary? The losses that they are going to incur? Who is going to

pay... Germany, and France? The only economic powers within the

eurozone that can indulge in a reconstruction of Greece? Yes come

up not only them, some countries in the north of Europe, Austria,

Netherlands, Finland, they will pay. But they do not want to pay. It is

important to notice that international community's... If you

look at the balance sheet of the IMF, 80% of the commitment is to

Europe. To third of the commitment is to the countries that have this

huge debt. -- two-thirds. Before we end, Barack Obama has said, we in

America are scared by what is happening in Europe. The Europeans

have not responded quickly enough to the crisis in their midst. Do

you believe this euro crisis has the potential to be a fantastically

heavy drag on the world economy for years to come? Without any doubt.

It is affecting the banking system. American banks are reluctant to

transfer money to European banks. The bank market is beginning to

freeze up again because people are uncertain about what is happening

in Europe. The burden of debt has been passed from one person to

another. It started off with the banks, it was passed on to the

government, now the Government's are passing it to Germany and

France. France cannot absolutely accept this huge burden that will

be placed on it. It is a pack of cards that could come crumbling

down. Surely the inevitable consequence is that it will come

down? I think it will be better to recognise the reality of Greece and

have a controlled default within the eurozone. Of course that would

harm the great banking system, assistance can be given to the

great banking system and the French banking system. Anything you have

heard that has changed your mind? That it is best for Greece to

accept reality and get the default done now? No, I am more and more

convinced this is destruction. Do not forget we are inside the EU.

Never before has any other country received so much assistance. It is

not transferring funds, these are loans. They are loans if they get