13/01/2012 Newsnight


Comprehensive coverage of important national and international news stories presented by Emily Maitlis.

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France and eight other countries downgraded, the eurozone bailout in


peril, is this the end of the Franco German access at the heart


of -- axis at the heart of Europe. The world's leading ratings agency


says austerity is failing. 20 months on, why can no-one solve the


crisis that threatens Europe and the world economy.


We speak to the world's largest bond trade year, a G20 adviser, a


former British minister and a French economist. As the head of


the Arab League warns that Syria is sliding towards civil war, we're in


Damascus. We have been told not to travel anywhere outside the city


centre, that is because in the suburbs, on previous Fridays, there


has been serious trouble. Good evening. You don't have to be


superstitious to realise today was a bad one all round for the


eurozone. This evening the confirmation of the news the French


dreaded, the country would lose its triple-A status with Standard &


Poor's. Humiliation on a national level, particularly for paed facing


re-election in spring. The move could spell disaster for the entire


European bailout package, the European Financial Stability Fund.


Spain, Italy and six others were downgraded too, to round things off


talks on Greek debt write-offs have stalled. In a moment we will ask


the world's largest bond trader what impact this will have on the


world economy. We will talk to key figures here in Paris and London.


Will tonight's news spell the end of the Merkozy partnership, the


axis of European leadership. Germany, Finland, the netherlands


and Luxembourg, these are the only countries left in the eurozone,


where lending to them is 100% safe. France tonight had to face a


humiliating debt downgrade. The French Finance Minister shrugged it


off. TRANSLATION: We had warning this


was going to happen a month ago. It is not a big surprise.


No it is not a catastrophy. It is like asking a pupil, who was always


getting 20 out of 20, if getting a 19 out of 20 is a catastrophy. No,


of course it isn't. We have still got a great rating. But the


implications are huge. The ratings agency S & P, which also downgraded


Portugal, Austria and Spain, said the agreement reached on 9th


December has not produced a breakthrough of sufficient size and


scope to fully address the eurozone's financial problems. And


they said, dammingly, a reform process based on a pillar of fiscal


austerity alone, risks become self- defeating. In the short-term all


this makes this a bit more costly for France to borrow money. But the


move now calls into question the viability of the eurozone bailout


fund, the called EFSF, that is backed by Government, and if one of


them loses debt credibility, so does the fund. I don't think that


the ratings agencies are giving us any new information. I think that


they are telling us what we already knew. Part of what wr seeing


happening is the ratings agencies were really humbled in 200, by the


fact that they failed to give people -- 2008, by the fact that


they failed to give people an indication beforehand. I wouldn't


say they are trigger happeny now, but they are determined not to be


caught out again. Meanwhile, in Greece, the eurocrisis took a whole


different turn for the worse. Talks broke down between banks and the


Greek Government over the supposedly big write-off of half


Greek debt. That puts in question the second Greek bailout, worth 130


billion euros. As Greek recoveryle stalls and debt spirals, the


question over Europe's recovery rises. The question of brinkmanship


in Greece is the big financial story today the that is the big


risk. So far Greece has gotten away with this slightly artificial


voluntary restructuring. It hasn't been all that voluntary. But that


has been an important fiction for the markets, because of all sorts


of legal covenants around that. If that breaks down, then I think


really up fortunately we are going to be in a stage in the European


crisis. And while all this happens, Hungary's stand-off with the EU and


IMF continues. Hungary's not in the euro, but its collapsing finances


means it needs up to $20 billion of loans from the IMF. Exposure to


Hungary what prompted S & P to downgrade Austria and Slovakia


tonight. Bit by bit the links in the eurocrisis are being forged.


Let's pick up with that. One reason this throws into


question the whole idea of France and Germany, they lose parity. That


was all so central to the two leaders at the top? Deep within the


inner circle of Mrs Merkel's Government, what they believe is


France and Germany have to be equals at the heart of the Uri


europroject. When you hear the French minister saying it is like


getting 19 out of 206789 the Germans look at it differently,


both in fistle kal terms, who pays to bail out everybody else, and in


moral terms, there has to be equalty. You can't have France


leaving the solution countries, and becoming one of the problem


countries. It is not yet, but this is a first step down that road.


There is another political problem, of course, the whole thing rests on


Mr Sarkozy getting re-elected. Because his opponent in France


against the treaty, that isn't now, we hear, working. Mr Sarkozy now


has to go to the polls and say I'm the man who lost our triple-A


rating. Not easy to do. We heard one commentator say this


is a new stage in the European crisis just when you thought it


wasn't going to get any worse. What are the solutions now, are they


changing as a consequence of this? It hasn't got worse in a sense


tonight, S & P says the policy of pumping money into the system is


holding the situation. There is a really interestingp couple of lines


in this, where they say you are misdiagnosing the problem, you


think it is profligacy on the borders, Greece and Ireland, it is


both that and Europe's general lack of competitiveness, its general


malaise and problem. They say if you try to solve this with


austerity alone, it will not work. It will be a spiral that will


simply, the implication is, lead to a whole string of defaults. That


sounds a bit like what Ed Balls says in this country, but in the


eurozone it is what Barroso has been saying, and Dominic Strauss


Khan used to say. You can't cut your way out of the crisis. And for


a very neo-liberal American Wall Street company to back that up is


quite surprising. Thank you very much.


The eurozone crisis threatps the entire world economy, clearly, and


to try to see where it might end, I'm joined now from Paris from


Professor Christian de Boissieu, an economist, and from California by


Mohamed El-Erian, one of the world's biggest bond traders, and


here by the former minister, Baroness Vladivostok, thank you


very much for joining me. Professor De Boissieu, we heard your Finance


Minister say it was not a catastrophy, of course it is not a


catastrophy. As Paul was saying, it puts France now in the position of


being one of the problem countries, not solution countries. That is


bad? It is not a catastrophy, for me it is an event. It it is an


event in the sense that it is creating, as you said, a gap, a


financial gap between France and Germany, and I think that one


purpose of the next summit, at the end of this month, will start to


close this gap. I would say at least from the political viewpoint.


And we have to deepen the Franco German co-operation, not despite


thep gap, but because of the gap. That is interesting. Do you think


that kind of co-operation, that parity can exist in the same way we


have seen it in the last year or so? You are talking about austerity,


you know. Just a word about this, we have to work on the two legs. I


remember that one year ago the rating at were asking only for


fiscal consolidation, and now, they are right when they ask for the two,


fiscal counsel daigs, plus some growth initiative -- consolidation,


plus some growth initiative. The same, the next European Summit at


the end of January, will have to address the growth, the growth


problem for Europe. Very interesting. We will just try to


fix that sound problem. Apologies for that there. If I can turn to


you, Mohamed El-Erian, is it wrong to take too much from one agency.


Will it actually make a difference to how you trade, how you invest?


In the short-term it will not. In fact, the markets had priced in a


much biger downgrade than what S & P delivered for fraps. In the short


run, no, -- France. In the short run, no. In the long run this is


really consequential. First, as has been discussed. It creates a wedge


at the inner core of the eurozone, that makes solutions much more


difficult. Secondly, it undermines pan-European vehicle that is are


there to bail out other countries. Thirdly, let's not forget that when


you lose your triple-A, you change your investor base, there are fewer


people out there, because certain people have a limit of triple-A on


where they are willing to invest. In the short run it is not an


immediate reaction because the market had priced more, but it is a


par dime shift for Europe. leaves -- Pardigm shift. For Europe.


It leaves Germany where it didn't want to be, going it alone? That is


a very valid point, the fund that is there to bailout European


countries has now got fewer triple- A countries backing it. That will


make really hard for it to raise money. Literally one major one, it


is Germany? Indeed. The question that is now facing Europe is, in


the event that Italy and Spain can't access the markets any more,


where is the source of liquidity, if it is not this fund, it doesn't


want to be Germany, and the European Central Bank says it is


constrained and can't do certain things, who going to bail out Italy


and Spain. That is the question we are going to face going forward.


Are you saying this is the end of the EFSF in its current shape now?


To be perfectly Honest, the EFSF has had a limited amount of money,


and the situation hasn't particularly changed. The agreement


they reached to leverage it four or five times was always rather


nonsensical, the situation is actually very similar to where we


were before, which is who going to provide the liquidity. Mohamed El-


Erian, we were talking about the dual angle of the news today, you


were saying that this made it much more difficult for countries to


have a concerted project, if you like, to help others. We know that


Greek debt talks have now stalled, what's the future there, do you


think we're actually going to see that whole debt having to be


written off, because basically defaulted on its own? There is no


doubt in my mind that Greece will default. By he default I mean that


if you are a holder of Greek bonds, the terms of your bonds are change.


You will take what's called a haircut. You will have a lower


claim on Greece. The question how is this done? There was a hope that


you could do this in an orderly fashion, which is is another way of


saying you don't trigger legal contracts. What happened today


makes that more complicated. But I don't think it is that bad news. I


have been stunned as to how tolerant the Greeks have been with


their private creditors. Their private creditors were scaring the


Greek, and I think it is a good thing, that the Greeks have


realised that the balance of power is much more balanced than they had


perceived before today. It is quite interesting, Christian de Boissieu,


does it mean that France no longer has this moral authority then to


turn to other countries and say, you know, you need to cut, you need


to rein in, these are the areas that you need to work on? No, this


is not the end of France. Let's be cautious about this. May I say it


is not either the end of the EFSF, it is going to complicate the


working and the cost of the EFSF. Therefore, I want to open for


debate about the role of the ECB, because I think that beyond what


has been at the sided today by Standard & Poor's, I think that --


decided today by Standard & Poor's. I think that the debate about the


possibility for the ECB to be a full lender of last resorter for


the eurozone will come back. It will come back around the table.


is interesting, isn't it, Germany's resisted this, Baroness Vladivostok,


it is pretty much Germany on its -- Baroness Vader, it is really much


Germany on its own with the fund, really doesn't matter? It does


matter, as far as the ECB is concerned, they have constraints on


their own institution, they can only buy debt on the secondary


market. Today one member of the ECB said they are unhappy at the draft


fistle kal pact that has been circulating, saying -- fiscal pact,


saying that it has been wartrd down. Something to do with the S & P's


downgrading saying austerity is not the only answer. With the ECB


intervening it is asking for much tougher austerity. The other


complication with the Greek debt that we should be aware of. If the


deal becomes coercive not voluntary, it is the ECB, as a significant


holder of Greek debt, will have to take a haircut and a loss. This


idea that too much store was put on austerity, Christian de Boissieu,


and it comes from quite an unusual source. Do you think that Europe


will start to re-think the way it has been talking? We will be


talking about spending rather than cutting? First, let me say, I don't


think this do. Let me first say that there was a word "alone",


fiscal austerity "alone", that is because fiscal solvency has a


numerateor and denominator. You get into problems because you have too


much debt, and also because you have too little growth. Any debt


has to deal with the numerator and the deno mam theator. In Greece all


the focus has been on the numerator. Two years where the Greeks have


consentrated a lot on certain things and given a lot, it is no


better than two years ago. The design of the programme has been


too tilted towards the fistle kal side. It has to be brought back


towards fistle kal and structural reforms to promote economic growth.


How much of the euro zone is currently in resection. We won't


know for sure, but when you look -- recession, we won't know for sure,


but when we look at today and put it into practical terms, do you


think most of the eurozone is in recession now. I do, Germany is


slowing, but it isn't in recession. Everywhere in the world the head


wind will come from Europe in the form of lower growth, and low


demand for exports, and more financial disruptions. He yes,


unfortunately, most European countries are already in what feels


like and what is a recession. Christian de Boissieu, just a very


last question, your Finance Minister said before Christmas that,


actually, Britain was the one that should be downgraded rather than


France, would you go along with that? No, you know, I don't want to


come into this debate between Great Britain and France, you know. I'm


glad that Great Britain still triple-A, and we will see what is


going on. This is not the end of the movie. And to come back to the


growth initiative, I think that we have to do something very quickly,


most European countries to go out of recession and of the zero growth


situation, and to face the challenge of unemployment, which is


the main challenge that we have to face today.


Thank you very much all of you. In Syria, protests have erupted in


several cities and the head of the Arab League says he fears the


bloody unrest could degenerate into civil war. Opposition activists


have called for mass rallies in support of the Free Syrian Army,


defectors seeking to topple the Government. The Arab League sent a


mission into the country to see if authorities were complying with a


plan to halt the violence. One of the monitors said the league


mission has only bought, Assad, the President, more time.


Friday morning, the start of what usually is the biggest day of the


week for anti-Government protests in Syria. Outside Damascus's most


venerable mosque, with Government Goons standing around, all the


voices are pro-regime. TRANSLATION: Everyone loves Bashar


al-Assad, that is why we go out, in the rain, in the cold, even in snow.


Everyone goes to support him. what do they think of all those who


say there is no democracy here? They are not protesting about the


freedom. They don't want the freedom. What do they want? They


want to destroy our city. They say they simply want democracy, they


want freedom? No, they are liars. This demonstration, in a tightly


controlled environment, is the only one the Government wants us to see


today. We have been told we can't travel anywhere outside the city


centre, and that's because, in the suburbs, on previous Fridays, there


has been serious trouble. Today, all main intersections were


guarded by plain clothes security. The pictures posted on YouTube,


show, what opposition sources say, was a sizeable anti-regime


demonstration, in a suburb today. There was another, according to


those sources, in the eastern day of city of Deraa, others show smoke


billowing over Homs, scene of some of the Washington Post violence in


the ten month uprising. Gunfire can be heard in the streets, and a


Government tank was apparently set on fire. Across the country, at


least ten people were reported killed in protests.


Back in it central Damascus, life appeared to be continuing as normal.


But you could feel the tension in the air.


None of these people were prepared to talk to us. Afraid of opening


their mouths in the presence of our Government minder. This district,


Midian, in the heart of Damascus, has seen many anti-Government


protests in recent months, many shot dead by Government forces. The


regime is finding it harder to keep a grip, even op the capital. The


Government says it has already offered citizens enough concessions.


We see it like two parties, one part is the legitimate demands of


the Syrian people. And the President doing his best with the


Government to respond to legislative demands, he has


completed many benchmarks and is committed to do more. On the other


side there are people who are trying to kidnap the agenda of the


reasonable demands of the people, to ride on it and hit Syria. What


benchmark has he achieved? First, we abolished the martial law. We


have a demonstrations, we are urging the opposition to


demonstrate. These demonstrations are being fired on? It depends on


the sequences you are watching on YouTube. I don't want to justify


violence in any way. There are clear instructions for the security


forces not to shoot, just to contaun. Suddenly somebody will be


shooting at the soldiers, and they will be defending themselves. Yes,


mistakes happened, yes, happened, but what a leader can promise


accountability. There is no systematic or clear instruction to


do a crackdown. I'm going to ask you one of the few opposition


figures not in -- ask one of the few opposition figures not in


hiding, about what the Government has saying, he is a moderate and


wants talks, the regime has not reached out to him. TRANSLATION:


For five months we haven't heard from the Government. They haven't


contacted any opposition group. Maybe they are in touch with some


political forces that are pro- regime, but the authorities are


lying when they say he they want a political solution.


Mobbed by reporters, Sudanese monitor, is the man many hope still


will engineer a political solution. He heads an Arab League mission


supposed to monitor and end violence. Even some of his own


monitors have come under attack from Government forces and


supporters. How worried are you about the safety of your monitors


here? I am not worried about their safety. They are working, and they


are doing their job. As we asked. They have been attacked?


attacked. There has been an attack on them? Some of the monitors'


vehicles tell another story. They have been wrecked by people who


certainly appear to support President Assad.


As the killing continued else, more apparently fervent supporters of


President Assad gathered in a Damascus square today. Many of them


are unlikely to care too much whether the monitoring mission


succeeds. Syria's becoming ever more polarised. The stalemate here,


of more dangerous. I'm joined now from Damascus. We


heard you talking there of that need for a political situation.


Where do you see this ending? strikes you, Emily, most forcibly,


when you come here, that there seems to be almost no meeting point


at all between what opponents and supporters of the Government


believe, and all the talk by the Government of a foreign conspiracy,


against Syria, just seems almost calculated to bring people further


and further apart. Certainly, even the opposition agrees, that


President Assad has some genuine support, on top of that there are


many more people who don't like him, but are certainly afraid of the


consequences of his possible fall. In some cases I have been told what


that means individual families are being split, and on top of that,


you have certainly the threat, now, of an ip creased militarisation of


the conflict -- increased militarisation of conflict on both


sides. You have he defectors carrying arms, and opponents


carrying arms, as they say, to defend themselves. When you talk


about individual families being split, sound like they are already


on the road to civil war, now? think many people think they are.


Really, a great deal depends now on the report of the monitors to the


Arab League, that are come at the end of next week. If that is


critical of the Syrian Government, that possibly opens the door for


more pressure on the country from the UN. Although I think everyone


agrees that intervention here, of the kind of intervention we saw in


Libya completely unthinkable for diplomatic and geographical reasons.


On the other happened, if the report favourable towards the


Syrian Government, you think there is not much sign anything changing


at all. Joining me now, the former US


representative to NATO, and a founderer member of the Syrian


opposition group, Building The Syrian State, and astro fist sis.


-- atrophysicist. Do you feel civil war is inevitable? I think we may


have passed a tipping point, two reasons, one is the degree which


people are defecting from the military to join in armed


opposition to the Government. And secondly, the statements and


actions by Assad himself, both saying that he is accusing the


uprisers of being forp of-inspired, and willing to use force of his own


regime against that really without end. I think that is a really


volatile situation that may have passed a point of no return. Do you


think that what the Arab League hasp done, since December, has


helped or hindered? I think it was a necessary thing to go through. It


was important for the Arab League to raise the issues with Syria, to


give him a chance to change course. To put monitors in there. As we


have seen the monitors have been attacked, more people have been


killed each day, since the monitors have been there, than even before


that. We have to recognise that Assad is digging in, with a


monopoly of force in the military and Intelligence Services and


others, we will see increased bloodshed as he tries to hang on in


this situation. There cannot be a political solution to this, it has


gone too far? We have to force for one, there is no choice in Syria.


As said, the Syrian war already -- the civil war has already started


in areas around Homs, and the countryside. If unrest spreads in


Syria, it will go outside the borders, reaching Lebanon and Iraq


and the other countries. We can't afford to have it. Do you think he


can be encouraged to leave, still? He has to be forced. If the


international community push for a political solution and the


opposition as well, and the Arab League, if everybody pushes for


that solution, eventually we will reach it. We have to reach the


condition where we reach a peaceful, the regime accepts a peaceful


transition plan, there is no other choice, we can't push for force or


foreign interveings. You talk the Arab League, wider, you will not


get UN countries and China and Russia to agree to something like


that? They won't agree to a Libyan- like situation, but a more peaceful


transition plan. You need to put forward something these countries


will accept. Do you think that will happen? No, it would be wonderful


if this did, that would be the best outcome, but I don't think it will.


Assad has made his stand that he will remain in power by force. You


will have countries such as Russia and Iran that will continue to back


him. The population that is suffering these attacks at the


hands of the regime, will continue to suffer them, unless he is forced


to go. Are you advocating what? is a very tough question, it is not


simple, as your reporter said, there are lots of divisions within


Syria, there are legitimate supporters for the regime, but


there is also a lot of fear. There is an idea kicked around, I'm


sympathetic to it, and I have seen it in other places where it is


successful, the idea of a safe zone. You impose a zone where people can


live without fear of attack, where you prevent aircraft or regime


forces from getting there, that gives some space for humanitarian


assistance and co-ordination with some time. It would never work, the


area in north of Syria you are talking about, it is already not


safe. The way to impose is by force, that will be more unsafe. What


about the Syrians killed in the basements of the intelligence


quarters in Homs, or hundreds of kilometres away, how will they be


safe because of the area. How will those civilians be protected by an


area in the north of Syria. Unless you push for a Libyan of-like


scenario and push for civil war. Nobody is suggesting that? I would


point to examples in Croatia, where the UN created safe zones to


protect minority populations. Before it is too late? In the


Kurdish region of Iraq where we had a safe zone in Iraq, that protected


thousands of Kurds for a very long time. What I'm suggesting that


there is a monopoly of force in the hands of the Government, they are


determined to use it. In that situation, if you are going to


bring about a change, you have to help the people push back on that.


Thank you both very much indeed. We have lots of lovely newspapers


for you, including all the French ones and their take on the


downgrade, we have run out of time. Kirsty is here on Monday, good


night from all of uts here. It's already cold outside. There


will be a widespread frost for Saturday morning, there will be


some fog much patches around as well. The fog could take a while to


clear, once it has gone it is looking fine and sunny out there.


Similar sort of day on Sunday morning. There will be stubborn fog


patches, if it lingers tchures are struggle to get much above freezing.


Blue skies by the jaefpb. Temperatures reaching 4-6. Mab a


touch higher in the south west. -- maybe a touch higher in the south


west. A breeze that will drift across Devon and Cornwall. A bit


more of a breeze, for most of Wales fine and sunny. Highs of five or


six. Same sort of temperatures across noerm. A gentle breeze will


bring a little -- Northern Ireland, a gent breeze will bring a little


loud. In Scotland a lot of cloud. The top temperatures seven or eight.


The weather has settled across the UK because high pressure, the same


high pressure system promising fine conditions across France, the low


countries and Germany, chilly but sunny.


Further south across Europe more distubed, rain in Rome, and


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