:01:05. > :01:11.For a lot of economists this is the most riveting and fascinating
:01:11. > :01:16.most riveting and fascinating period we have lived through.
:01:16. > :01:19.It was the uen usual, House of Commons performance on these sorts
:01:19. > :01:23.of occasions, lots of baying and jeering from the people we choose
:01:23. > :01:27.to speak our thoughts. But there was one notable absentee, where,
:01:27. > :01:31.everyone wanted to know, was Nick Clegg, the Deputy Prime Minister,
:01:31. > :01:37.who only yesterday described his friend Cameron's decision in ruls
:01:37. > :01:41.as bad for Britain. Mr -- in Brussels as bad for Britain. Nick
:01:41. > :01:49.Clegg said he thought it would be a distraction. Him not being there
:01:49. > :01:55.made it even more of a distraction. Get up to much at the weekend?
:01:55. > :02:00.Perhaps you just hung out with the family? Let's keep it moving, up
:02:00. > :02:05.and down the door, instant blisters. Maybe you tackled a few jobs around
:02:05. > :02:10.the house, or perhaps you radically hardened your view on the EU veto.
:02:10. > :02:14.No? Oh, well, it was probably just the Lib Dem leader then, something,
:02:14. > :02:19.certainly appears to have happened to him over the weekend. On Friday
:02:19. > :02:22.he gave out a statement saying he was in full support of the
:02:22. > :02:27.coalition's negotiating position in Brussels, that he thought that
:02:27. > :02:31.David Cameron's demands were modest and reasonable. But then by
:02:31. > :02:38.Saturday, his friends were supposedly briefing the newspapers
:02:38. > :02:41.that he was privately furious, and then, on Sunday, he hit the sofa.
:02:42. > :02:49.am bitterly disappoint by the outcome of last week's summit,
:02:49. > :02:52.precisely because I think now there is a real danger of Britain being
:02:52. > :02:56.isolated and marginalised within the European Union, that is good
:02:56. > :03:00.for jobs in the glrb I don't think it is good for jobs or families up
:03:00. > :03:06.and down the country or growth. As Nick Clegg left home, everyone
:03:06. > :03:09.thought he had an hour or so awkwardly ahead of him sitting in
:03:09. > :03:14.dutiful support of the Prime Minister. I went to Brussels with
:03:14. > :03:17.one objective, to protect Britain's national interest. When Mr Cameron
:03:17. > :03:23.started his Commons statement, explaining why he had used
:03:23. > :03:32.Britain's veto, his deputy was not there. Nick Clegg, it seemed, had
:03:32. > :03:36.exercised his own eat vow -- veto of sorts, the Labour benches kept
:03:36. > :03:40.saying "Where'S Nick". We notice the absence of the Deputy Prime
:03:40. > :03:43.Minister from his place. Miliband said the veto was all
:03:43. > :03:46.about appeasing Conservative backbenchers. He didn't want to
:03:46. > :03:51.deal because he couldn't deliver it through his party. He responded to
:03:51. > :03:56.the biggest rebellion of his party in Europe in a generation, by
:03:56. > :04:00.making the biggest mistake of Britain in Europe for a generation.
:04:00. > :04:03.But a prosession of Conservative backbenchers saw things very
:04:03. > :04:09.differently. Because he has stood up for democracy, he has stood up
:04:09. > :04:12.for free trade, and he has stood up for free markets, this is to be
:04:12. > :04:14.wonderfully commended. There seemed to be a sort of competition, who
:04:14. > :04:19.could be most extravagant that their praise of the Prime Minister.
:04:19. > :04:21.I would like to pass on the hugs, best wishes and kisses from people
:04:22. > :04:25.in Macclesfield, who are very grateful for the stance the Prime
:04:26. > :04:30.Minister took last week. But there were no hugs or kisses for Nick
:04:30. > :04:34.Clegg from the Conservatives, oh no. The most cowardly and negative
:04:34. > :04:38.attacks over the weekend did not come from the party opposite, who
:04:38. > :04:42.are incapable of opposition, but unfortunately came from the Liberal
:04:42. > :04:46.Democrats. Cowardice only to be surpassed by the absence of the
:04:46. > :04:50.Deputy Prime Minister in the chamber today.
:04:50. > :04:53.I'm afraid I don't agree with my honourable friend. I'm very
:04:53. > :04:56.grateful for her support. We have to recognise, we are in a coalition,
:04:56. > :05:00.and in a coalition parties cannot achieve all the things that they
:05:01. > :05:07.want to achieve, and I think we have to praise each other in the
:05:07. > :05:11.coalition, when we make sacrifices on behalf of the country. Look at
:05:11. > :05:16.the glum faces on the Lib Dem benches, they were clearly not in
:05:16. > :05:22.hugging mood. Some tried to cheer themselves up with tribal clothing,
:05:22. > :05:26.others made measured digs a Lib Dem, it was noted, had led climate
:05:26. > :05:30.change talks in South Africa, and a deal was done there. Would the
:05:30. > :05:33.Prime Minister reflect that constructive and positive tkphrokcy
:05:33. > :05:36.might be a better solution to British politics.
:05:36. > :05:40.Some hadn't made it to the entrance, why wasn't Nick Clegg there,
:05:40. > :05:42.afterwards he gave an interview. don't think people care too much
:05:42. > :05:45.who sits where in the House of Commons. It would have been a
:05:46. > :05:51.distraction if I was there. Because everybody knows that on this issue
:05:51. > :05:56.the Prime Minister and I don't disagree, I have made my views
:05:56. > :06:02.known. This is confusing, he and the Prime Minister don't disagree?,
:06:02. > :06:05.except we know they do, don't they? Mr Clegg had another go? The Prime
:06:05. > :06:10.Minister and I clearly do not agree on the outcome of the summit last
:06:10. > :06:15.year, I made it very clear that I think -- last week, I made it very
:06:15. > :06:19.clear that I think isolation in Europe, one against 26 is
:06:19. > :06:23.potentially bad thing for jobs, for growth, and the livelihoods of
:06:23. > :06:27.millions in this country. What happens now. Both party leaders are
:06:27. > :06:31.clearly very committed to keeping the coalition together, but, as we
:06:31. > :06:35.saw in the Commons today, their backbenchers are more willing than
:06:36. > :06:40.usual to have a pop at each other. With every row a few more stitches
:06:40. > :06:44.in the fabric that holds the coalition together are ripped apart.
:06:44. > :06:47.At some point, not necessary immediately, it might be beyond the
:06:47. > :06:53.power of the leadership, to hold their respective parties in the
:06:53. > :06:58.coalition. With us now is the former Liberal
:06:58. > :07:04.Democrat leader and Godfather of the party faithful, secular saint,
:07:04. > :07:08.I don't know, Paddy Ashdown, Lord Ashley! Did you ever think you
:07:08. > :07:11.would belong to party which made possible something that was bad for
:07:11. > :07:15.jobs, bad for growth and bad for the livelihoods of millions of
:07:15. > :07:18.people in this country? To be honest, I never thought I would
:07:18. > :07:22.belong to a liberal party that would be in Government, and had to
:07:22. > :07:25.take the tough decisions. Let me address this directly, one, what is
:07:25. > :07:30.the difference between ourselves and the Tories over this? By the
:07:30. > :07:35.way, it was a joint negotiating position. Nick Clegg, not only made
:07:35. > :07:38.sure that the demands that were made were reasonable ones not
:07:38. > :07:41.unreasonable ones, but spent maybe 30 phone calls preparing the way
:07:41. > :07:45.for success. Was he dismayed. couldn't be bothered to go,
:07:45. > :07:49.prepared to be tucked up in bed in Sheffield? That is a position, it
:07:49. > :07:52.is the Prime Minister to be there, and he wanted to be where he felt
:07:53. > :07:57.it was important. If it was so potentially damaging why didn't he
:07:57. > :08:00.go? We can talk about who was in which bed, where, I'm not getting
:08:00. > :08:04.into that. The more important thing is this the joint position put
:08:04. > :08:08.forward by both parties, in which Nick Clegg had a tremendous part in
:08:08. > :08:12.making sure it was acceptable. Are we pleased with the outcome? No, we
:08:12. > :08:17.are dismayed with it. That is the difference, Mr Cameron is pleased
:08:17. > :08:20.with the outcome, we are not. it was a joint decision? No, the
:08:20. > :08:23.negotiating position was a joint position put forward by both
:08:23. > :08:27.parties in the coalition. But conduct of the negotiations was a
:08:27. > :08:31.matter for the Prime Minister. He was pleased by the outcome, we are
:08:31. > :08:36.not. It is as simple as that. had no idea in your party that this
:08:36. > :08:40.was how it would end up? I don't think anybody had any idea how it
:08:40. > :08:44.would end up. The origins of this go way back to the fact that you
:08:44. > :08:50.have now got in Britain a Conservative Party that for so many
:08:50. > :08:53.years have been so euro-sceptic, thats hadth has generated real
:08:53. > :08:56.anti-British fervour on the continent. What is the point of
:08:56. > :09:00.having you in the Government if that sort of happens, this is
:09:00. > :09:03.crucial to the future of the nation, according to your leaders, and yet
:09:03. > :09:07.he doesn't have any idea of how things will turn out. He didn't
:09:07. > :09:10.turn up in the House of Commons today? He was right not to turn up
:09:10. > :09:12.in the House of Commons today. Let's get down to the substance
:09:12. > :09:16.before us. That is this, the difference between ourselves and
:09:16. > :09:20.the stories is this ended up in a position that ended with success,
:09:20. > :09:23.we think it is a failure. The question isn't how did you get here,
:09:23. > :09:27.the question is what happens next. This is where I think we have now a
:09:27. > :09:31.major role to play, again in the Liberal Democrats, which is to make
:09:31. > :09:35.sure that Britain's isolation, Jeremy...You Thought you had major
:09:35. > :09:39.role to play in this negotiation, you didn't, you were irrelevant?
:09:39. > :09:43.That isn't true, as you well know, I have just covered with you...What
:09:43. > :09:47.Relevance did you have in this judgment then? We put together a
:09:47. > :09:51.joint negotiating deal. Which apparently was ignored? It was then
:09:51. > :09:54.in Mr Cameron's hands to deliver. He didn't. We might go into why not
:09:54. > :09:58.on a different occasion. Do we think the outcome is good or bad.
:09:58. > :10:02.We think it is bad, he thinks it is good. The job at present, it seems
:10:02. > :10:07.to me, is to get Britain out of isolation and back into the game.
:10:07. > :10:12.That is a crucial role that we now have to play. Can we discuss how
:10:12. > :10:17.you might do that. Is there any point in discussing any of this
:10:17. > :10:19.with you, with the greatest respect, you are a distinguished figure in
:10:20. > :10:25.your party, but your party is not he will vant in things that happen?
:10:25. > :10:29.That is not true, can we cuss what happens next. It is -- Can we
:10:29. > :10:32.discuss what happens next. You say you had nothing to d with the
:10:32. > :10:38.outcome? We put together a joint negotiating position with the Prime
:10:38. > :10:40.Minister. That's what he took to the negotiations. It is deeply
:10:40. > :10:45.regretable that a negotiating position, which I think would have
:10:45. > :10:51.been won by any other British Prime Minister, save for Mr Cameron of
:10:51. > :10:55.recent times, was not won. That displays and disappoints us.
:10:55. > :10:59.keep this uniquely inept man in office? I don't believe you can
:10:59. > :11:02.describe the Prime Minister as inept. You say his position would
:11:02. > :11:07.have been won by any other Prime Minister? On this occasion. But the
:11:07. > :11:13.coalition is about taking this country through an economic crisis.
:11:13. > :11:17.Do the Liberal Democrats and the Conservatives agree about Europe?
:11:17. > :11:20.Manifestly we do not. The centre of the coalition is not about Europe,
:11:20. > :11:24.it is how to carry the country through an economic crisis, that is
:11:24. > :11:27.work still to be done. What is it we can now do to bring this country
:11:27. > :11:31.out of the desperate isolation that a failure of negotiations in
:11:31. > :11:35.Brussels has left it. The answer is there are some things that we can
:11:35. > :11:38.do, and we can insist are done. Those, I think, will help to try to
:11:38. > :11:42.reconnect Britain with what's happening in Europe, instead of
:11:42. > :11:46.leaving it isolated. How can you insist they are done. You could
:11:46. > :11:49.have insisted on this occasion that there was no walking away, but you
:11:49. > :11:52.didn't? It was Mr Cameron who walked away. So you are not in a
:11:52. > :11:55.position to insist upon anything, are you? I think it is perfectly
:11:55. > :12:00.possible for the Liberal Democrats to say, for instance, that Britain
:12:00. > :12:05.now needs to take a position where we do not act as a break from the
:12:05. > :12:09.26, to use European institutions to put forward what now happens,
:12:09. > :12:12.because it is in our interests to see this succeeds. I think a
:12:12. > :12:16.negotiating position between the Liberal Democrats and the
:12:16. > :12:19.Conservatives, which insists that we should not be a break to the 26
:12:19. > :12:22.finding a solution to this, is exactly what can now be done. The
:12:22. > :12:25.Prime Minister hinted today that was a line that could be taken. I
:12:25. > :12:29.think we have to drive that forward. What matters now, and this is the
:12:29. > :12:33.real thing that matters, Jeremy, is not what happened, and how do we
:12:33. > :12:36.get here, but how do we reconnect Britain instead of leaving it
:12:36. > :12:40.isolated. I suggest to you, how we got into this powerless position?
:12:40. > :12:44.We have just been through this, can we concentrate on what happens next.
:12:44. > :12:53.Would you ever say we will not collaberate in this Government any
:12:53. > :12:58.longer if you continue to act in ways we think are not good for this
:12:58. > :13:02.Government? If the Government was foolish enough to let the euro-
:13:02. > :13:08.sceptics run riot with European policy in future, then I think you
:13:08. > :13:13.would be in a very serious position as a Government in Britain. What we
:13:13. > :13:16.have to now discuss is how can we step back from our position of
:13:16. > :13:20.isolation. Would your party play a part in that Government? Don't take
:13:20. > :13:24.me down a track which is too far away for me to speculate about. You
:13:24. > :13:28.are never in something for all circumstances, but here is the
:13:28. > :13:31.centre of the coalition. It is how you take this country through the
:13:31. > :13:33.economic crisis. The fact that the Liberal Democrats and the
:13:33. > :13:37.Conservatives don't agree about Europe can hardly be a surprise to
:13:37. > :13:42.you or anybody else. We would have wished to see these negotiations
:13:42. > :13:46.succeed, we think it is a disappointment, it is a dismaying
:13:46. > :13:52.act, to use my leader's language, that it did not succeed. Now there
:13:52. > :13:55.are reasons for that, I give you one, I think we have two leaders to
:13:55. > :13:58.international leaders, two leaders of Britain and France, who are
:13:58. > :14:01.probably not up to playing the parts they think they are playing.
:14:01. > :14:06.You have Mr Sarkozy, the French President, who believes he's
:14:06. > :14:10.General de Gaulle, and Mr Cameron who believes that he is Mrs
:14:10. > :14:13.Thatcher. That is one of the ingredients that has brought us to
:14:13. > :14:18.the situation. And Nick Clegg is Gladstone is he? What is clear to
:14:18. > :14:25.me now is what happens next. How we get Britain back into the game and
:14:25. > :14:29.the negotiations is what to do and the Liberal Democrats play an
:14:30. > :14:33.important part in that. It is a liberal assumption that the rest of
:14:33. > :14:37.the European Union is not nattering away about what David Cameron did
:14:37. > :14:44.on Friday morning, there is the slight matter of whether they have
:14:44. > :14:47.done enough for the euro to survive. Britain didn't wield a veto, not in
:14:47. > :14:53.a meaningful sense, because those that wanted one got one.
:14:53. > :14:58.What happened in the heady hours of the night?
:14:58. > :15:03.The desire to remain venerable City interests was at the heart of what
:15:03. > :15:07.happened last week. David Cameron sought to hold Britain's edge in a
:15:07. > :15:10.globalised, regulated world. By ending up in a club of one, he left
:15:10. > :15:16.EU officials implying he hadn't made the slightest difference.
:15:16. > :15:23.this move was intended to prevent bankers and financial corporations
:15:23. > :15:28.or the City from being regulated, that's not going to happen. We must
:15:28. > :15:32.all draw the lessons from the on going crisis and help to solve it,
:15:32. > :15:36.and this goes for the financial sector as well.
:15:36. > :15:39.When the Prime Minister went to Brussels he was taking a big
:15:39. > :15:44.diplomatic gamble. The British draft for safeguarding the City
:15:44. > :15:48.hadn't been circulated in advance in the usual way. Very few Foreign
:15:48. > :15:52.Office people, we understand, had seen it either. Instead, it was
:15:52. > :15:55.kept on a tight Downing Street distribution, and there was little
:15:55. > :16:00.time to canvas for other countries' support in Brussels.
:16:00. > :16:06.In the end, what all of this has done is expose the limits of
:16:06. > :16:11.Britain's influence, in a club of 27, and a system of qualified
:16:11. > :16:16.majority voting. It is not easy to see how that can be dealt with,
:16:16. > :16:20.except by challenging that system of majority voting, as Britain
:16:20. > :16:24.tried to do on Friday in the early hours, and failed. In the absence
:16:24. > :16:27.of some kind of solution, these problems will continue.
:16:27. > :16:32.Britain's last-minute proposal, of which we have obtained a copy,
:16:32. > :16:38.aimed to protect US and other foreign banks in the city from new
:16:38. > :16:42.EU rules. It tried to stop those who want euro transactions to be
:16:42. > :16:48.done only in eurozone countries. But in the key provisions Mr
:16:48. > :16:52.Cameron asked for unanimity, rather than EU majority voting on transfer
:16:52. > :16:57.of powers from national level to EU agencies. The same went for any
:16:57. > :17:00.change to the supervision or regulation of financial houses, or
:17:00. > :17:08.to the location of the European banking authority, currently in
:17:08. > :17:12.London. This looked like trying to turn the clock back on majority
:17:12. > :17:15.voting. The Government kept its cards close to its chest for
:17:15. > :17:19.reasons that baffle the Foreign Office, the European proposals were
:17:19. > :17:25.not given to our partners until the day of the summit. And because of
:17:25. > :17:28.the way the summit was organised, the British protocol was discussed
:17:28. > :17:33.at 2.00am, when everybody was fed up and tired and wanted sleep.
:17:33. > :17:37.Perhaps if they had emerged at 2.30pm, then everyone could have
:17:37. > :17:41.got down to negotiation on them. At the time they emerged people said
:17:41. > :17:46.take them or leave them, Sarkozy said we won't have them, and there
:17:46. > :17:51.was no discussion about which bits of the British proposal were good
:17:51. > :17:54.and not so good. If the British proposal unravelled because of bad
:17:54. > :18:01.tactic, Friday's reverse may be recoverable, that is what many
:18:01. > :18:11.friendly Governments are hoping. Think that this whole situation has
:18:11. > :18:17.
:18:17. > :18:22.been overdrama advertised. -- dramaised.
:18:22. > :18:26.There will be an opportunity to meet some, if not all of the UK's
:18:26. > :18:29.requests at some stage down the line. I think it will be to the
:18:29. > :18:35.benefit of the whole of the European Union for that to happen.
:18:35. > :18:38.And for the UK to be able to join at a later stage. Today the Prime
:18:38. > :18:42.Minister suggested again that European institutions, such as its
:18:42. > :18:48.Civil Service, couldn't be used without British agreement. There is
:18:48. > :18:56.some legal sense in that, but it would ratchet the row to new
:18:56. > :19:00.levels? Politically if Mr Cameron really tried to flaunt the Franco-
:19:00. > :19:04.German convention for the European institutions and tried to stop it
:19:04. > :19:08.through one court ace case after another, he would create ill will
:19:08. > :19:13.towards the UK. There is already some of that. The real lesson of
:19:13. > :19:16.the last few days is Britain has no friends and allies in Europe. In
:19:16. > :19:22.the history of the European Union, since Britain joined in 197, I
:19:22. > :19:25.can't recall a time when not a single other Government or country
:19:25. > :19:29.was prepared to standby Britain and help us, we have lost all our
:19:29. > :19:33.allies at the moment. Mr Cameron's attempt to protect the City may
:19:33. > :19:37.have exposed more than just tactical shortcomings, if he is to
:19:37. > :19:44.return to the attack on majority voting, opponents in Europe are
:19:44. > :19:54.bound to question his commitment to the single market, one of the basic
:19:54. > :19:55.
:19:55. > :19:58.tenets of Europe. We're joined by our guests now.
:19:58. > :20:01.Nick Bowles, what do you make of the way the British Government
:20:01. > :20:04.handle these negotiations? I can only think of two compassions how
:20:04. > :20:08.they ended up where they did -- explanations of how they ended up
:20:08. > :20:11.where they did. They didn't take competent steps to get allies on
:20:11. > :20:14.side, they didn't announce it in time and set out what they were
:20:14. > :20:17.trying to do. The other explanation is they were afraid of their own
:20:17. > :20:21.backbenchers, and couldn't get a treaty through parliament, and
:20:21. > :20:27.deliberately went for a failure. Nick Bowles what do you think went
:20:27. > :20:30.wrong? The problem went wrong, it isn't true to say that the
:20:30. > :20:34.proposals were not true to say. The entire piece of paper wasn't
:20:34. > :20:38.released, but the Prime Minister, a few days before in the House of
:20:38. > :20:42.Commons had said what he would be asking forks and said if he didn't
:20:42. > :20:46.get the safeguards he needed, particularly in financial
:20:46. > :20:51.regulation, he wouldn't be able to tack the treaty. It was clear what
:20:51. > :20:54.he would do. They are all wrong? President Sarkozy is running for
:20:54. > :20:59.election, and 15% behind in the poles, and he had a strong interest
:20:59. > :21:03.in showing the French people. are playing the blame game? I'm not
:21:03. > :21:07.saying there weren't contributory factors, everyone accepts it was
:21:07. > :21:12.Sarkozy who was the driving force behind the rejection of every part
:21:12. > :21:15.of the British proposals. You have to ask his benefit in all of this.
:21:15. > :21:20.I think probably he's facing re- election soon, it is a tough fight,
:21:20. > :21:25.and standing up to England has never done the French President any
:21:25. > :21:28.harm. Sophie Intveld, how does it seem in Strasbourg? I think
:21:28. > :21:34.everybody thinks this is very unfortunate. People were very
:21:34. > :21:38.surprised that things turned out the way they did. It is very
:21:38. > :21:42.unusual as a situation. A veto is considered to be a deterrent, it is
:21:42. > :21:47.a nuclear weapon. You are not actually supposed to use it. Unlike
:21:47. > :21:51.the previous speaker I don't think you can blame exclusively Mr
:21:51. > :21:56.Sarkozy. He might well want to be the most powerful man in Europe,
:21:56. > :21:59.but there are 25 other countries as well. I know that some other
:21:59. > :22:05.countries and prime ministers of other countries were equally
:22:05. > :22:11.shocked. I think Paddy Ashdown was right when he said what we need to
:22:11. > :22:17.focus on now is how we reconnect. Once the dust is settled, once all
:22:17. > :22:20.the emotions are settled, then we need to restore calm. Let's engage
:22:20. > :22:26.with that, how long lasting is the damage going to be, Jonathan Powell,
:22:26. > :22:32.you are a veteran of numerous EU investigations? I think people are
:22:32. > :22:36.underestimating how serious this is, there is no way back, apart from a
:22:36. > :22:40.humiliating climb-down from David Cameron. President Sarkozy said
:22:40. > :22:43.there are two Europes, there is no way back, he wanted inter-
:22:43. > :22:48.governmentalism and we have played into that. There is a very clear
:22:48. > :22:52.subtext, there has been a 40-year dream, shared by Jonathan, Paddy
:22:52. > :22:55.Ashdown, Ed Milliband and Charles Grant on your programme, that 40-
:22:55. > :22:58.year dream is Britain would at some point, catch up with the rest of
:22:58. > :23:02.the EU and join that country, called Europe, that they are in the
:23:02. > :23:06.business of creating. That is why we have always wanted us to retain
:23:06. > :23:10.part of the EU treaties, even when we have an opt-out, as we do on
:23:10. > :23:15.monetary union. The reason why there have been the howls of pain
:23:15. > :23:19.from people like Jonathan over the last few days, is that dream has
:23:19. > :23:23.definitively crumbled. Britain is never going to join the monetary
:23:23. > :23:29.union, we are never going to join the fiscal union, we want to remain
:23:29. > :23:32.part of the single market, but but we don't want to call the country
:23:32. > :23:36.called Europe. Jonathan is right, there are two journies, we will
:23:36. > :23:41.remain an enthusiastic part of the single market, and an enthusiastic
:23:41. > :23:46.member of the EU, we will never join the eurozone, it has been his
:23:46. > :23:49.ambition and Paddy's, and I hugely respect them for it to achieve that,
:23:49. > :23:53.that has failed and that is why they are in such pain. You don't
:23:53. > :23:58.speak for the whole of European politicians, but from where you see
:23:58. > :24:03.it, in Europe, do you think you are deprived of anything by the British
:24:04. > :24:08.absence? Yes, I think the European Union without the UK is not the
:24:08. > :24:14.same European Union. I think, you know, we are very obsessed with
:24:14. > :24:17.ourselves at the moment. It is worth having a look at the world
:24:18. > :24:24.out there and ask yourself what position Europe should have in a
:24:24. > :24:27.global economy. I think the British are very well placed to understand
:24:27. > :24:31.the importance of global economy. Is there a way back for David
:24:31. > :24:35.Cameron without eating his words? Yes, there always is. The European
:24:35. > :24:42.Union has a long tradition of clashes and then they sit around
:24:42. > :24:46.the table again and they will find a compromise, and compromises by
:24:46. > :24:52.definition are not pretty or glamorous, thu work though. We
:24:52. > :24:55.should give it a -- but they work. We should give it a bit of time,
:24:55. > :24:59.let everyone vent their emotion and come back to the negotiating table
:24:59. > :25:07.and talk like grown-ups. It is not that serious, the European Union is
:25:07. > :25:13.well in the habit of making people to redo referendums if they produce
:25:13. > :25:19.a decision they don't like. It is never the end? I fear it is, the
:25:19. > :25:23.single market measures are in vast majority QMV, quality majority vote.
:25:23. > :25:26.They will be taken at 26. There will be a group of 26 countries who
:25:26. > :25:31.meet, make decisions, and then couldn't front Britain with them.
:25:31. > :25:36.We will have no say in the -- confront Britain with them. We will
:25:36. > :25:39.have no say in our lives now. We will be excluded from all the key
:25:39. > :25:42.decision making in Europe. People are mission the point on that.
:25:42. > :25:46.don't think that is right, we have had the eurozone for a while, and
:25:46. > :25:50.the eurozone countries, I will admit, they have been meeting
:25:50. > :25:53.separately in these eurozone plus meetings without us. Frankly, we
:25:53. > :25:58.can't stop them picking up the phone to each other. There are
:25:58. > :26:02.always going to be, in the 26 countries, who, on certain issues,
:26:02. > :26:06.will agree with our position, in about the single market. About how
:26:06. > :26:10.it will develop. You have heard from the Polish Finance Minister
:26:10. > :26:13.he's clearly very keen. You have heard from the Dutch MEP with us,
:26:13. > :26:16.she's very keen for Britain to still have a role. We will still
:26:16. > :26:21.have a role, we will have to be part of a negotiation. Just because
:26:21. > :26:25.you have a caucus, doesn't mean the caucus always comes to a unified
:26:25. > :26:30.position. You think this was a great success, was it? No, as David
:26:30. > :26:34.Cameron said today, we wanted to do a deal which had these safeguards
:26:34. > :26:38.that would have enabled us to sign up to the treaty. It didn't need to
:26:38. > :26:43.become clear that if we were going to agree to that we needed to have
:26:43. > :26:47.protections that are not currently in the EU acts? I don't think it is
:26:47. > :26:53.a betrayal of 50 years, it is a betrayal of 200 years, Britain has
:26:54. > :26:58.spent huge amounts of blood and treasure to be involved in blin,
:26:58. > :27:03.right back to the battle of Waterloo. You read the European
:27:03. > :27:07.papers it is more sorrow and anger, Britain has turned away and they
:27:07. > :27:11.are mystified by it. It is a hysterical overreaction, Britain is
:27:11. > :27:15.the sixth or seventh largest economy in the world. We have the
:27:15. > :27:18.fourth-largest military force, even after the defence cuts. We are a
:27:18. > :27:21.permanent member of the Security Council of the UN, the idea of our
:27:21. > :27:23.only way to exercise influence in the world is through the European
:27:24. > :27:27.Union, we are members of the European Union, the British people
:27:27. > :27:31.want to be members of it, because of the single market, because of
:27:31. > :27:34.its economic benefits. We are not members of the European Union in
:27:34. > :27:39.order to exercise political influence, that has never been our
:27:39. > :27:44.purpose or what it has delivered to us. The idea this has been a 200-
:27:44. > :27:50.year plan, seems to forget there were quite a few wars in those 200
:27:50. > :27:56.years, not all about unified Europe. They were? About stopping it.
:27:56. > :28:00.Thank you all very much. They say it is an ill wind that blows no-one
:28:00. > :28:04.any good. This year's shambles in Greece, Ireland, Italy and much of
:28:04. > :28:09.the rest of the eurozone, Maysoon have us all discovering the Joyce
:28:09. > :28:14.of bread, dripping and gruel. They have been a godsend to economists
:28:14. > :28:18.who have been shoved out of the dark corners of offices in the land,
:28:18. > :28:24.to emerge blinking in the glare of the foot lights. Christmas began in
:28:24. > :28:29.January. We have the first of a week of films about the dominating
:28:29. > :28:32.stories of the years. We thought we had turned a corner,
:28:32. > :28:36.the recovery had started and Britain's economy had begun to be
:28:36. > :28:44.transformed. We thought too that Europe's crisis had been stemed at
:28:44. > :28:50.the periphery. But we thought wrong.
:28:50. > :28:55.It all started out so well, for the first three months of the year, the
:28:55. > :29:04.economy grew half a percentage point. It was the right kind of
:29:04. > :29:09.growth. David Cameron had promised to rebalance Britain, through
:29:09. > :29:13.manufacturing. And exports, to replace the jobs lost in the public
:29:13. > :29:17.sector with private sector jobs like these. And, for a while, the
:29:17. > :29:22.facts fitted the narrative. With hindsight, though, things did not
:29:22. > :29:27.turn out as scripted. It is very difficult to argue that we actually
:29:27. > :29:31.produced any home-grown growth, we piggy backed off a global rebound.
:29:31. > :29:36.When the global rebound began to lose momentum and run out of steam,
:29:36. > :29:42.so did we. To boost growth, the authorities
:29:43. > :29:46.had tacitly encouraged the pound to fall. That sucked in inflation
:29:46. > :29:51.which went way above target, but the Bank of England did not raise
:29:51. > :29:55.interest rates. Now, questions were asked. REPORTER: Who was it who
:29:55. > :30:00.revelled in the fall of sterling, who was it that printed �200
:30:00. > :30:04.billion of quanative easing, who was it who took interest rates to
:30:04. > :30:08.zero, it was this committee. Therefore, you can't sit there and
:30:08. > :30:12.say we have missed the target by factor of 100% and there is nothing
:30:12. > :30:19.to do about it? What would you have done about it REPORTER: Put me on
:30:19. > :30:21.the committee and I will tell you? The governor spelled out the harsh
:30:21. > :30:25.alternatives. Would you have us raise interest rates by a
:30:25. > :30:30.significant amount to reduce a deeper recession, raise
:30:30. > :30:35.unemployment to push money wages down, in the way it has happened in
:30:35. > :30:40.Ireland, Greece and Portugal. mid-year, CPI inflation had reached
:30:40. > :30:44.5%, that was squeezing people's spending power. Real earnings had
:30:44. > :30:49.been ahead of inflation at the start of 2010, now they moved
:30:49. > :30:52.sharply negative, real wages fell by 1.1% this year and are not
:30:52. > :30:56.protected to go positive again until 2013.
:30:56. > :31:00.By now, the story we thought we might be telling ourselves was one
:31:00. > :31:04.of growth rebounding and an economy rebalancing and the worst of the
:31:04. > :31:09.economy crisis behind us. As it is, things have turned out
:31:09. > :31:18.very differently. With wages squeezed, growth now
:31:18. > :31:22.faltered, from an expected.1% to 0.9%, if -- 2.1% to 0.9% f we're
:31:22. > :31:26.lucky. George Magnus has been writing about the economy since the
:31:26. > :31:33.1970s,'s the senior economist at UBS bank. For me personally and for
:31:33. > :31:37.a lot of economists, this is probably the most riveting and
:31:38. > :31:42.fascinating period that we have ever experience lived through. In
:31:42. > :31:47.some case, it is -- experienced and lived through. In some ways it is
:31:47. > :31:52.bigger than 2008. A lot of things we are seeing in 2011 is so close
:31:52. > :31:58.to home. By high summer, the euro was in crisis, Greece in a spiral
:31:58. > :32:02.of falling growth and rising debt. The world facing a Lehman scale
:32:02. > :32:05.event if it went bust. You are looking at the frontline of the
:32:05. > :32:10.world's financial system. Many people in authority believe if
:32:10. > :32:19.Greece defaults on its debts, as the people here want it to, that
:32:19. > :32:24.will echo across the world, in the same way Lehman Brothers did. Then,
:32:24. > :32:28.month after month of indecision by Mrs Merkel and Mr Sarkozy. I think
:32:29. > :32:32.the financial crunch in Europe during the second half of 2011,
:32:32. > :32:38.particularly the withdrawal of European banks from things like
:32:38. > :32:44.trade finance, aircraft financing and other substantial areas that
:32:44. > :32:47.fix the world's financial plumbing actually has had a very dramatic
:32:47. > :32:51.affect on confidence and on spending and lending. That is
:32:51. > :32:55.essentially what drives economic growth. In America too there was
:32:55. > :33:01.paralysis over debt, the President and Congress took it to the wire to
:33:01. > :33:05.set a budget, and then, the USA lost its AAA credit rating. And now
:33:05. > :33:11.across the world, a slow credit crunch began.
:33:11. > :33:14.It was like a chain reaction, the failure to stablise Greece hit
:33:15. > :33:19.confidence, disrupted the finance system and then rebounded into the
:33:19. > :33:23.real economy. We already knew bankers could cause crises, now we
:33:23. > :33:28.found out politicians can cause them too. In the emerging world,
:33:28. > :33:38.which was always looked upon as being the saviour of the planet,
:33:38. > :33:38.
:33:38. > :33:41.economic growth has slowed down quite presip tusly in some --
:33:41. > :33:49.presippously,ly because they have lost some markets to Europe and
:33:49. > :33:55.partly as a response to their own inflation because of tightening.
:33:55. > :33:58.Britain, buffeted by Europe, then another thing, its own statistician
:33:58. > :34:03.thought it had shrunk more than we had thought. Bad news for growth,
:34:03. > :34:07.worse news for the public finances. So you are going into the next
:34:07. > :34:11.election, promising further billions of bounds in cuts in
:34:11. > :34:15.public spending. That is what you will say in your manifesto at the
:34:15. > :34:21.next election. I'm afraid so, yes. Instead of rapid rebalancing and a
:34:21. > :34:25.returning to growth, Britain faces a long uphill slog, that has begun
:34:25. > :34:28.to raise questions beyond mainstream politics. There is 400
:34:28. > :34:34.years of economic history in this landscape, you can reduce it all to
:34:34. > :34:37.two kinds of tall building. One, devoted to making money, the other
:34:37. > :34:41.devoted to keeping people moral and civilised, while they make money.
:34:41. > :34:48.And this was a year we started to think carefully about the balance
:34:48. > :34:53.between the two. I think the protests resonate with
:34:53. > :34:58.people, because they strike at questions that we are all asking
:34:58. > :35:04.which is really about where do the rights and responsibilities of
:35:04. > :35:08.citizens and the state, how do they change? Though Britain's Occupy
:35:08. > :35:12.movement, found scant support in the mainstream, its moral critque
:35:12. > :35:17.of capitalism has been given a new urgency by the deteriorating
:35:17. > :35:22.economic news. This may go on for a decade, it may go on for longer, it
:35:22. > :35:25.is very difficult to tell. I think when that begins to sink into
:35:25. > :35:28.people's consciousness, that actually things seem relatively
:35:28. > :35:32.homeless and we don't have solutions, people start to look for
:35:32. > :35:35.different kinds of answers. That may involve a rebalancing of our
:35:35. > :35:42.ideas about markets versus the state.
:35:42. > :35:47.After two failed euro summits and one that succeeded in a diplomatic
:35:48. > :35:53.schism, Britain's future and the eurozone's are tied together,
:35:53. > :35:58.although unwillingly. Finally, question how will 2011 go down in
:35:58. > :36:05.economic history? As a bad year, and the precursor of what will be a
:36:05. > :36:10.worse year in 2012, I'm afraid to say.
:36:10. > :36:14.That's it for 2011, not much, the collapse of an illusion about rapid
:36:14. > :36:18.growth, wage stagnation, mass protests and a whole new world of
:36:18. > :36:28.uncertainty about Europe. And, there is a few more days of this
:36:28. > :36:33.storm-fosed year still left. -- storm-tossed year still left.
:36:33. > :36:40.I'm joined by Gillian Tett and the chief economist, Richard Koo, and
:36:40. > :36:49.from Stanford political analyst from Stanford. This will go on a
:36:49. > :36:52.long time yet? Once the balance sheets are under water and that is
:36:52. > :36:56.realised, and we are paying down debt even with the record interest
:36:56. > :36:59.rates. People are not supposed to pay debts when interest rates are
:36:59. > :37:04.low, they should borrow money. But the same is happening in this
:37:04. > :37:07.country, the US, in Spain, Portugal and other places, they are paying
:37:07. > :37:12.down debt with low interest rates. That is what happened to us in
:37:12. > :37:18.Japan 15 years earlier. When everybody is paying down debt and
:37:18. > :37:23.no-one is paying for the economy, it won't do too well until private
:37:23. > :37:27.sector balance sheets are well again. I med Richard 15 years in
:37:27. > :37:30.Tokyo and he was talking about balance sheet recessions, for
:37:30. > :37:35.example, you have so much debt you can't get out of it through normal
:37:35. > :37:40.means. Back then people thought it was a weird idea, it was just Japan,
:37:40. > :37:46.it would never happen anywhere else? The tragedy is what we saw
:37:46. > :37:52.unfold in Japan is playing out. It means a long period of belt
:37:52. > :37:57.tightening and a lot of stagnation with accompanying social tensions.
:37:57. > :38:02.Japan has enough social cohesion to make sure the society hangs
:38:02. > :38:12.together. The big question is does Europe, does the UK, does the US
:38:12. > :38:14.
:38:14. > :38:18.Francis Fukuyama, what is your assessment of that? (inaudible)
:38:18. > :38:21.going to have to interrupt you there, we seem to have lost the
:38:21. > :38:26.sound from Stanford rather brilliantly. We will get back to
:38:26. > :38:30.you just a second. There you are, are you back with us. I was asking,
:38:30. > :38:34.the discussion Gillian Tett made was that it would take a lot of
:38:34. > :38:41.social cohesion to come through these times, she doubted whether we
:38:41. > :38:45.all had it, what do you think? think that the social cohesion is a
:38:45. > :38:49.problem, the basic problem is in the political systems, both the
:38:49. > :38:54.ufpl states and Europe have decision making systems that
:38:54. > :38:58.provide a lot of vetos to people who are hurt by any particular
:38:58. > :39:02.decision made. That has paralysed the budget process in Washington.
:39:02. > :39:09.That is really what has paralysed the decision-making process in
:39:09. > :39:14.Europe. Where we have an EU with 27 potentially veto wielding groups,
:39:14. > :39:19.and a smaller group of 17, each with its own domestic politics and
:39:19. > :39:23.audiences that have to be brought along. That is a long-term and
:39:23. > :39:28.difficult process. Implicit indeed, explicit is the idea that
:39:28. > :39:35.democracies can't cope, they can't agree a budget, or agrow it in
:39:35. > :39:40.Europe. Unless you put in -- agree in Europe, unless you put in gofpls
:39:40. > :39:44.of technocrats. -- Governments of technocrats. No-one in the
:39:44. > :39:48.technical world were talking about this morning, people thought
:39:48. > :39:53.economics was about putting in numbers and spread sheets. Japan is
:39:53. > :39:58.a country with lots of social cohesion, America was founded by
:39:58. > :40:03.pilgrims, who thought you never run out of resources, you keep making
:40:03. > :40:09.it bigger so you don't have to think about it. Some countries like
:40:09. > :40:14.Ireland appear to have high levels of social cohesion, other parts do.
:40:14. > :40:20.The question is there cohesion across Europe as a whole to
:40:20. > :40:29.allocate pain. What is your assessment? Gillian was nice enough
:40:29. > :40:33.to mention my balance sheet. Learn this in university, maximising
:40:33. > :40:40.profit, minimiseing losses. University has never trained us for
:40:40. > :40:45.this, where the private sector is lowering down interest rates. The
:40:45. > :40:50.whole thing you learn is the private sector maximising profit,
:40:50. > :40:55.this doesn't work if they have negative equity and pay down debts.
:40:55. > :41:00.If everyone does it for a long time, the economy will be very weak,
:41:00. > :41:06.except from the Government help. If they spend on top of t you can
:41:06. > :41:12.maintain the GDP. That is part of the Japanese story. Don't go below
:41:12. > :41:15.the bubble in the entire period, employment rate never went higher
:41:15. > :41:18.than 5.5%. Because the Government was saving in the private sector,
:41:18. > :41:23.that is what kept the Japanese society going. That is not how it
:41:23. > :41:29.is playing out in the US and UK. Let me bring in Francis Fukuyama,
:41:29. > :41:32.and ask, are youle life we upbeat, these are -- relatively upbeat,
:41:32. > :41:35.these are unprecedented circumstances and many say they
:41:35. > :41:42.will only be solved by a fundamental sorting out of the
:41:42. > :41:46.imbalance geen developing nations and the developed nations.
:41:46. > :41:53.There is problems on multiple levels, even before you get to the
:41:53. > :42:00.structural imbalances in the global economy for which we have really no
:42:00. > :42:09.solution. You have these EU wide split kal obstacles, in terms of
:42:09. > :42:13.the -- with the Germans in their own welfare state may feel an
:42:13. > :42:16.obligation towards poor Germans, they have no sense of obligation
:42:16. > :42:20.towards Greeks and other people who think they are behaving
:42:20. > :42:24.irresponsibly. It means that there has been, in a sense, a deeper
:42:24. > :42:28.problem in the EU, that there is no common sense of citizenship, there
:42:28. > :42:33.is no sense of identity that extends obligation across the whole
:42:33. > :42:37.of an area that is, in many ways, comparable to the United States in
:42:37. > :42:42.terms of the size of the population, and the size of the overall economy.
:42:42. > :42:48.The political systems really do not force, they haven't been able to
:42:48. > :42:55.take advantage of this crisis to force a decision. That is really
:42:55. > :42:59.what gives the terrible irony of the last three years. Gillian Tett?
:42:59. > :43:03.Another way of saying it, the key question for the rest is how to
:43:03. > :43:06.allocate pain. There is too much debt, there will have to be
:43:07. > :43:12.cutbacks. Are you going to stuff it on to the weakest members of
:43:12. > :43:16.society, the debtors and creditors. Can our country do what Japan has
:43:16. > :43:20.done, share out the pain in manner everyone continues to buy in. That
:43:20. > :43:23.is a key question. Congress and the great fights going on with the
:43:23. > :43:27.budget is really about how you actually allocate the pain, nobody
:43:27. > :43:33.really want to talk about it openly, because guess what it is not the
:43:33. > :43:39.kind of thing that gets politicians elected.
:43:39. > :43:45.Richard Koo? Let me bring in Francis Fukuyama there? In a
:43:45. > :43:50.certain sense, Japan hasn't faced up to certain structural problems
:43:50. > :43:55.in its economy. The fact it is not really experiencing a real
:43:55. > :44:04.recession, or a real drop in growth that has been prolonged, has
:44:04. > :44:11.allowed politicians to dither on certain basic issues like
:44:11. > :44:15.liberalisation of its ago cultural section, it is a co--- its
:44:15. > :44:21.agricultural section, it is a cohesion that helps them face up to
:44:21. > :44:27.the structural problems they have. Structural problems are for
:44:27. > :44:30.everyone, everybody has structural problems. They are those -- those
:44:30. > :44:37.are people who can't explain what happened to the Japanese economy in
:44:37. > :44:41.the last 20 years, right up to the 1980s, bang, the bubble burst and
:44:41. > :44:44.the momentum was lost, same in the UK, the US and large parts of
:44:44. > :44:48.Europe. That is not a structural problem, it is a balance sheet
:44:49. > :44:55.problem. The private sector, once every several decades go caidzy
:44:55. > :44:59.about the bubble. Once the -- crazy about the bubble. Once the bubble
:44:59. > :45:05.bursts they realise they are underwater, they have to repair the
:45:05. > :45:10.balance sheets at the same time, if everyone tries to re repair the
:45:10. > :45:14.balance sheets all of the same time, it is very hard, the economy
:45:14. > :45:19.weakens because everybody is saving money, nobody borrowing money, even
:45:19. > :45:24.with zero interest rates, there is no way the economy can move forward.
:45:24. > :45:33.Paul in his clip earlier put it nicely in the sea change of mind
:45:33. > :45:37.set that is going on. Economists used to refer to pre200 era, as the
:45:37. > :45:42.low and stable growth, economists understood the world and predicted
:45:42. > :45:48.the future. Now we are living in a period of great angst, not
:45:48. > :45:51.moderation. The economyists are increasingly at sea. There is a
:45:51. > :45:56.Israelisingation there is no way to resolve it.
:45:57. > :46:00.-- realisation, there is no way to resolve it right now.
:46:00. > :46:05.Dramatic developments in the world of science, but first a look at the
:46:05. > :46:12.papers. The Mail, the big sulk is Nick Clegg's response to the mess
:46:12. > :46:18.Nick Clegg's response to the mess in Europe.
:46:18. > :46:22.The Guardian has news, that apparently is a photograph of the
:46:22. > :46:32.missing stag in Exmoor, that may be hanging on the wall in a hotel. The
:46:32. > :46:36.
:46:36. > :46:41.There is a beautiful trailer for BBC wildlife programmes going out,
:46:41. > :46:47.David Attenborough and Wonderful world, here at the cheerful end of
:46:47. > :46:53.tele, we have to make do with the euro crisis.
:46:53. > :46:57.# I see tree s of green # Red roses too
:46:57. > :47:07.# I see them bloom # For me and you
:47:07. > :47:13.
:47:13. > :47:19.# And I think to myself # What a wonderful world
:47:19. > :47:25.# The colours of the rainbow # So pretty in the sky
:47:25. > :47:34.# Are also on the faces # Of people going by
:47:34. > :47:44.# I see friends shaking hands # Saying how do you do?
:47:44. > :47:47.
:47:47. > :47:50.# They are really saying It is a wet and windy night out
:47:50. > :47:55.there. The rain still clinging across the south-east earlier on. A
:47:55. > :47:58.blustery day on Tuesday, strong winds making it feel cold, and the
:47:58. > :48:02.showers turning increasingly wintry across northern Britain, some snow
:48:02. > :48:06.covering at low levels across parts of North West England. A few
:48:06. > :48:11.centimeters by the end of the day. Not too many showers in
:48:11. > :48:14.Lincolnshire and East Anglia, a sunny afternoon. Some showers in
:48:14. > :48:18.the south-east, having a wintry flavour about them, sleet mixed in,
:48:18. > :48:23.across the south west of England, sleet or snow over the moors and
:48:23. > :48:26.over the hills and mountains of Wales. Even at low levels across
:48:26. > :48:29.parts of North Wales, snow building up. Same across Northern Ireland,
:48:29. > :48:33.with the snow showers coming here by the end of the day. By the end
:48:33. > :48:36.of the afternoon a covering in some places, a windy end to the day
:48:36. > :48:40.across Northern Ireland and western Scotland, where the snow showers
:48:40. > :48:43.continue to feed in across the Highlands. As we go through into
:48:43. > :48:48.Wednesday, it is still looking showery and chilly, but maybe not
:48:48. > :48:51.so many showers, a better chance of seeing more in the way of sunshine.
:48:51. > :48:54.Further south, a bit more sunshine, not so many showers around on
:48:54. > :48:57.Wednesday, still feeling chilly, eventhough the winds will be
:48:57. > :49:00.lighter. There will be some snow on Wednesday, chiefly over the hills
:49:00. > :49:05.of western Scotland, Northern Ireland, but also the hills of