:00:08. > :00:12.Sometime tonight, the Greek financial crisis will be settled
:00:12. > :00:16.and Europe will live happily ever after. Or so we're asked to believe.
:00:16. > :00:19.But even if finance ministers do strike a deal to let Greece borrow
:00:19. > :00:23.more money, are the people of the country willing to suffer for the
:00:23. > :00:26.sake of foreign banks? And will they accept European commissars on
:00:26. > :00:33.the ground dictating day to day policy as some in Northern Europe
:00:33. > :00:36.want..We'll hear from a Greek cabinet minister. And how did
:00:36. > :00:40.Greece get itself into this mess? Step forward Goldman Sachs, the
:00:40. > :00:50.bank that helped to make the books look balanced. And the European
:00:50. > :00:55.officials who like to say yes. wrote to deck Tate letter to
:00:55. > :01:01.Eurostat. Six months later, we got a letter back, saying they veted
:01:01. > :01:05.and we better shut up. Here the coalition wrangles of the budget s
:01:05. > :01:09.the new tension in Government how far to penalise the wealthy to
:01:09. > :01:14.protect the less wealthy. ambition is to end the period of
:01:14. > :01:24.austerity in terms of the incomes of low and middle income families.
:01:24. > :01:27.Our new political editor is here. That language from David Laws man
:01:27. > :01:36.who was the first Chief Secretary to the Treasury in this Government,
:01:36. > :01:41.and is still a big noise in the Lib Dems is illuminating because
:01:41. > :01:44.austerity isn't something the Government likes to boast about.
:01:44. > :01:49.And our borders. It is all right the Greek financial crisis will
:01:49. > :01:53.soon be over, that's what officials close to the negotiations going on
:01:53. > :01:57.in Brussels tonight say. Accept of course it won't be over, the Greeks
:01:57. > :02:00.will merely have succeeded in borrowing billions more to try to
:02:00. > :02:03.pay off billions they've already borrowed while the northern
:02:03. > :02:07.Europeans who got to pay the bill will have got some conditions they
:02:07. > :02:12.attached they believe they can sell to their people. The dux Finance
:02:12. > :02:18.Minister, for example wants a team of commissars installed in Athens
:02:18. > :02:28.to make sure the Greeks stick to the rules. First up Joe Lynam
:02:28. > :02:29.
:02:29. > :02:32.Lent starts this week, followed by 40 days of abstinence and self-
:02:32. > :02:37.denial. Forever many Greeks this week will trigger a decade of
:02:37. > :02:41.economic stress and collapse in their living standards.
:02:41. > :02:46.Their fate was sealed 2,000 piles away in Brussels, where eurozone
:02:46. > :02:50.finance ministers arrived to get a special pleading from the Greek
:02:50. > :02:57.Prime Minister himself. Lucas Papademos argued that Greece had
:02:57. > :03:02.met all that was asked of his people, and was entitle today a
:03:02. > :03:06.further 130 billion euros in loans and guarantees. His audience seemed
:03:06. > :03:10.more responsive than they were a week ago.
:03:10. > :03:13.TRANSLATION: Greece has made very important efforts but we need to
:03:13. > :03:18.continue the work now and all parties need to provide their
:03:18. > :03:23.contribution. The IMF is part of it and working on it.
:03:23. > :03:31.It is the intention of nobody to have Greece outside the Euro area,
:03:31. > :03:38.this would be a big solution for reason. It would be nonetheless but
:03:38. > :03:42.situation for the Euro area. Then came the Dutch finance Prime
:03:42. > :03:47.Minister pouring cold water. He wants to see the troika, based full
:03:47. > :03:55.time in Athens, something which will make the southern Europeans
:03:55. > :04:00.lived. I am, myself, I am in favour of a permanent troika, in Athens.
:04:00. > :04:06.That's my personal position, yes. I think permanent - when you look at
:04:06. > :04:12.the derailment in Greece, which has occurred several times now, it is
:04:12. > :04:16.probably necessary that, some kind of permanent presence of the troika
:04:16. > :04:22.in Athens, not every three months but on a permanent basis. I'm in
:04:22. > :04:28.fave of it that. The comments is schism between the north and south
:04:28. > :04:33.of Europe is real and won't be papered over by warm words. They
:04:33. > :04:40.feel they've been misled by Greek politicians in the past so Cher'
:04:40. > :04:45.exactly a stiff price from ordinary citizens. In a second bail out
:04:45. > :04:50.worth 130 billion euros, Greece has cut tenses of jobs and public
:04:50. > :04:58.sector pensions. Going forward, they agreed to have every key state
:04:58. > :05:04.asset and get used to troika's hot breath over their shoulders, to see
:05:04. > :05:09.they don't deviate. Is it workable? Austerity, won't work, and we've
:05:09. > :05:13.been going down the path for the past few years. We've seen
:05:13. > :05:18.depression level contractions in Greece, and without any economic
:05:18. > :05:22.relief, that is some growth, I don't think you can expect a
:05:22. > :05:27.country such as Greece, to itchment reforms, structural reforms that it
:05:28. > :05:35.needs to do in order to become sustainable, a sustainable member
:05:35. > :05:39.of the eurozone. With youth unemployment at 50% and
:05:39. > :05:44.increasingly angry Greek youth could make any deal signed
:05:45. > :05:49.unimplementable on the ground. we're moving into is a crisis of
:05:49. > :05:55.democracy. Because the Euro as a currency is public good for the
:05:55. > :05:58.citizens of the eurozone. But the decisions taken to the safety of
:05:58. > :06:05.eurozone are taken by individual countries, and might impose,
:06:05. > :06:11.undemocratic, and to a large extent unacceptable constraints on other
:06:11. > :06:16.eurozone countries. This week the Greek Parliament is set to activate
:06:16. > :06:22.a collective action clause, to force all bond holders to take a
:06:22. > :06:27.compulsory hair cut or right down of 70%. The international swaps and
:06:27. > :06:32.derivatives association will decide whether a Greek bail out is in fact
:06:32. > :06:36.a messy default or an awe dor of to a Lehman Brothers moment.
:06:36. > :06:39.Joe Lynam is with us in the studio now. Is there going to be a deal
:06:39. > :06:43.tonight? They're talking, eight hours after they started. That
:06:43. > :06:46.means they haven't got the deal they had hoped. They're going to be
:06:46. > :06:52.talking about the monitoring I was referring to there, the
:06:52. > :06:55.surveillance where the hot breath of the troika, the IMF and ECB will
:06:55. > :06:59.be breatheing down on Greek officials and ministers so they
:06:59. > :07:04.don't stray off the path. They're talking about the account in which
:07:04. > :07:07.they will pay the money. It is like giving someone a �0 note with a
:07:07. > :07:12.chain attached to it, because the Greeks won't have access to the
:07:12. > :07:17.money, because the troika will be controlling that account. And even
:07:17. > :07:21.at the end of all that, all they'll have succeeded in doing is
:07:21. > :07:26.borrowing money against imminent rainy day, which will have to be
:07:26. > :07:34.paid off at some point? Will have to be paid, all going for the Greek,
:07:34. > :07:38.all going well they will get the debt down to 120GDP, that's
:07:38. > :07:45.unsustainable by any measure, that's if the economy recovering.
:07:45. > :07:48.It shrank by 7%, that's a depression not recession. For that
:07:48. > :07:52.who happened, there needs to be private sector investment. The rich
:07:52. > :07:56.people are squirrelling their money away out of the country, so the
:07:56. > :08:00.private sector-led recovery, will be a tough one. Why has the mood
:08:00. > :08:07.changed so much snx the mood from north to south has changed, the
:08:07. > :08:11.Germans, and Dutch and Finns, to vote on the bail out deal, may not
:08:11. > :08:15.approve it, saying, we have been lied to by Greek politicians, we
:08:15. > :08:20.don't want to be lieed again, it is moly the triple-A rated countries
:08:20. > :08:27.will put their money on the line. Thank you very much. Now the Greek
:08:27. > :08:31.crisis is not an zept T has human causes. On the one side is the mess
:08:31. > :08:34.Sianic on the political class, and the elass it can view of what
:08:34. > :08:38.constitutes sound Government and good management of the economy. The
:08:38. > :08:43.country's adited to borrowing. Yet, was commit after joining the Euro
:08:43. > :08:46.to cutity debt. How is it to do so? It didn't. It turned instead to one
:08:46. > :08:54.of the world's biggest investment banks, for help in getting around
:08:54. > :08:57.the deficit rules. It was nick Nick Dunbar, author of "The Devil's
:08:57. > :09:04.Derivatives", how Goldman Sachs did Greece a big favour. For the first
:09:04. > :09:10.time, some of those who did the deal talk publicly.
:09:10. > :09:16.The sales, it is a sexy story, between two singers, but the
:09:16. > :09:22.European crisis is not the child of the sex we had.
:09:22. > :09:28.With Goldman Sachs. Perhaps as an electorate we might have agreed
:09:28. > :09:33.this is what we want to, it was nef we were nef consulted and we nef
:09:33. > :09:38.knew. Greece is teetering on the brink. Poor man of the eurozone,
:09:38. > :09:44.dependent on the EU for bail out loans, mistrusted by creditors and
:09:44. > :09:52.poised to default. How did it bring itself to the edge and how did 2.8
:09:52. > :09:55.billion euros of debt disappear in the wind? In 2003, I exposed
:09:55. > :10:01.Greece's attempt with Goldman Sachs to conceal the size of its debt. At
:10:01. > :10:06.that time the Greek authority say I was making something out of nothing.
:10:06. > :10:12.So now I'm back in Athens, to understand how and why the deal was
:10:12. > :10:22.done. What was the deal's cost to Greece, at a profit to Goldman and
:10:22. > :10:23.
:10:23. > :10:29.why were EU watchdogs insistent they knew nothing until 2010? In
:10:29. > :10:34.2001, in a wrestle how to qualify for Euro membership, the Government
:10:34. > :10:39.argued how they could kick the habit of debt. Greece had to
:10:39. > :10:46.promise to show directionability, the debt ratio had to go down every
:10:46. > :10:52.year. With events like the 2004 Olympics coming up, that wouldn't
:10:52. > :10:58.be easy. For the civil servants, an easier solution of at hand., why
:10:58. > :11:04.not hide the borrowing instead? Among the banksers who flocked to
:11:04. > :11:07.and theen, was head of fixed income sales at Goldman Sachs. In 2001,
:11:07. > :11:11.she came to the table with one of the most important deals of her
:11:11. > :11:16.career. She had found a way to give the Greeks what they were looking
:11:16. > :11:22.for, a way of shrinking their debt that was legal and completely
:11:22. > :11:27.secret. I'm going to meet the man tasked by the Government at the
:11:27. > :11:33.time with getting Greece ago debt moving in the right direction. The
:11:33. > :11:38.deal involves swaps, bets to hedge risks. He says from the start he
:11:38. > :11:43.wasn't able to disclose the deal to the market. If you go to the open
:11:43. > :11:46.market, as a secret agent trying to sell bonds, you make allowances
:11:46. > :11:50.because you want to attract investors. When you do it is as a
:11:51. > :11:56.bilateral deal, you don't make announcements about it. No-one did
:11:56. > :12:02.it at that time. If you look around Europe, nobody announces the swaps
:12:02. > :12:07.they did with every counter party. And that was the tradition.
:12:07. > :12:17.swap that Goldman offered Greece would shrink the debt, use ago
:12:17. > :12:17.
:12:17. > :12:19.foreign exchange transaction. In the same way you or I convert our
:12:19. > :12:25.currency when we come back from holiday, international brotherers
:12:25. > :12:28.convert the foreign bonds into domestic debt. Goldman used a
:12:28. > :12:33.fictitious exchange rate to make the country's debt appear smaller.
:12:33. > :12:37.In this way, 2.8 billion euros, suddenly disappeared, giving the
:12:37. > :12:42.false impression that Greece was convergeing with the Maastricht
:12:42. > :12:49.rules. The debt hadn't really disappeared. In reality, Goldman
:12:49. > :12:55.had secretly lent Greece, 2.8 billion your euros as part of the
:12:55. > :12:59.swap. In an attempt to paying it back with big interest interest
:13:00. > :13:05.rate delts, there was further debt. A year after the Government
:13:05. > :13:14.chaickds. The new Government revealed the spiralling costs of
:13:14. > :13:18.the Goldman deal. TRANSLATION: The dretrimental swap
:13:18. > :13:27.agreement, led to the debt. The swap agreement had a direct cost of
:13:27. > :13:32.500 million euros, and indirect cost of one billion euros. The new
:13:32. > :13:36.boss of Greece's public debt management agency, says the deal
:13:36. > :13:40.ostensibly achieved what the previous Government set out to do.
:13:40. > :13:46.They hid the debt, so they were in agreement, with requirement to be a
:13:46. > :13:51.member of the eurozone, right. But the cost was huge. And when finally
:13:51. > :14:00.they had to come out in the open and acknowledge this debt, this
:14:00. > :14:08.debt ballooned. But big debt? big debt. A bad bet? In prospect
:14:08. > :14:15.yes. Vul of the bets not working out,
:14:15. > :14:19.the loan mushroomed to 5.1 billion, Goldman involved tweaks to ensure
:14:19. > :14:25.the dice was loaded against Greece and in favour of Goldman who were
:14:25. > :14:30.making millions from the deal. asked Goldman to eliminate this
:14:30. > :14:36.feature that was not usual on the market. They refused to. I
:14:36. > :14:40.recommended to write a letter high up to, get rid of this, without any
:14:40. > :14:45.come pen says. But they were asked they couldn't do that, because the
:14:45. > :14:52.traders were in position, and they may lose money. He sympathises with
:14:52. > :14:56.the position his predecessor was in? He was riped off by Goldman. I
:14:56. > :15:00.don't blame him. Because, he was scared and could not go to the
:15:00. > :15:04.market and check, and was asked by the Government to do that.
:15:04. > :15:08.might wonder how such a deal could be allowed, but it was legal.
:15:08. > :15:13.Goldman wanted to be sure, it wouldn't get into trouble for
:15:13. > :15:18.helping the Greek with such a bear- faced trick, so the company said it
:15:18. > :15:24.spoke to the EU accounting agency about the deal, and provided
:15:24. > :15:34.Newsnight, that discusses took place. We asked Eurostat but they
:15:34. > :15:52.
:15:52. > :15:57.For many, questions remain. Why wasn't Eurostat looking out for
:15:57. > :16:03.Greece in the interest of the Euro in the whole. The deal was well
:16:03. > :16:06.known. How could Eurostat stay bliss flee unaware until 2010?
:16:07. > :16:12.Greeks were trying to warn about the dodgy stat in their own
:16:12. > :16:19.country? In 2005, we wrote a detailed letter to Eurostat, dobing
:16:19. > :16:25.in your Government at the time. For, what they were doing in fiddling
:16:25. > :16:29.the Greek's statistics. Three months later, we say they
:16:29. > :16:33.investigated everything and it was above board, so we better shut up.
:16:33. > :16:37.The billions oweed upped the Goldman swap is a small piece of
:16:37. > :16:45.the 350 billion euros, that Greece owes today, only a fraction that
:16:45. > :16:48.will ever be repaid. That 5.7 billion simpliess the sip tenseives
:16:48. > :16:55.for Greeks to fiddle debt, and banks to cook up deals, and
:16:55. > :17:00.Brussels institution toss look the other way. If, you put me back to
:17:00. > :17:05.2001, would you do that again, I would say, no not because of the
:17:05. > :17:12.economics behind it, probably design it a little bit differently,
:17:12. > :17:18.if I knew that September 2011 would happen, but I would never do the
:17:18. > :17:22.type of business because of the political handling and risks of
:17:22. > :17:32.this deal afterwards. Newsnight approached Goldman Sachs but they
:17:32. > :17:51.
:17:51. > :17:55.declined. In a statement they told In and thes today, the legacy of
:17:55. > :18:00.Utopian financial experiment is unstable angry society, reeling
:18:00. > :18:05.from four years of recession, with no end in sight. The Greeks, who
:18:05. > :18:12.itchmented and analyseed these transactions, agree it was a toxic
:18:12. > :18:19.import that played on the weakness,s a sub-prime in the US
:18:19. > :18:26.bankers played on the weak necessarys. The Euro failed the
:18:26. > :18:29.Greeks. Greece is poise today default on the debt and leave the
:18:29. > :18:34.eurozone. Germany and EU institutions expressed outrage how
:18:34. > :18:39.the Greeks cheated their way to disaster. That's hypocrisy. Back in
:18:39. > :18:43.2003, the story of how legalised financial trickery was roting the
:18:43. > :18:48.eurozone from the inside wasn't something the guardians of the Euro
:18:48. > :18:54.want to hear, so they ignored it. It is tempting to ask, whether a
:18:54. > :19:01.single currency, held together with such toxic glue is actually worth
:19:01. > :19:06.saving. Well, joining us now from Athens, is Giorgos Papaconstantinou,
:19:06. > :19:11.until the middle of last year, he was Greece as financial minister,
:19:11. > :19:17.now he is minister for the environment. And also with us, is
:19:17. > :19:23.John Redwood. Mr Giorgos Papaconstantinou, forgive me, I'm
:19:23. > :19:28.so sorry, when you look at that inkoch tense, it is not surprising
:19:28. > :19:35.the northern Europeans want to keep a very close eye on how you get
:19:36. > :19:42.access to any further loans? I can see how the Goldman Sachs story is
:19:42. > :19:47.sexy as your video says. But I don't think it is justice to what
:19:47. > :19:51.is happening in Brussels tonight which is a bigger picture. A few
:19:51. > :19:55.points, point number one, everybody was doing it. Every country in the
:19:55. > :20:00.eurozone was using these kinds of tricks to reduce their debt back
:20:00. > :20:04.then. The difference with Greece is when the rules changeed in 2008,
:20:04. > :20:12.the same Finance Minister you had in the video, saying how terrible
:20:12. > :20:15.it was, forgot to declare it with Eurostat. To pack maick it
:20:15. > :20:24.absolutely clear, this was after the entry in the eurozone, so it
:20:24. > :20:28.had no effect for the rules of us entering. And the debt of 160% of
:20:28. > :20:33.GDP, those% the Goldman Sachs swap was about, is important but it is
:20:33. > :20:38.not the story. The story is about overspending, and receiving less
:20:38. > :20:43.than the taxes that were due to the state. Over years and years, this
:20:43. > :20:47.is where we're at. We will come to tonight in a moment or two. First
:20:47. > :20:52.on the Goldman Sachs story, you used to work in the banking world,
:20:52. > :20:57.what do you make of it? I'm not surprised that Goldman Sachs went
:20:57. > :21:05.off and came up with a clever scheme, which rewarded them as well,
:21:05. > :21:10.because that was the brief they were given. An alleged 600 million
:21:10. > :21:15.Euros. But the mainvilleens in the story are the sponsoring Government
:21:15. > :21:20.that want to do this kind of thing and lost the money, and the
:21:20. > :21:24.European authority who seem to connive at it. Nobody was saying it
:21:24. > :21:29.was illegal, it was Legal Business, and they got the reduction of debt
:21:29. > :21:33.for the period of time they want. What do you make the European
:21:33. > :21:37.authority signed off on it? It is quite wrong, but we know, as we've
:21:38. > :21:42.been hearing from Greece, a lot of countries, massageed or arrangeed
:21:42. > :21:45.their figures to get in the Euro and some carried on doing so
:21:45. > :21:49.afterwards to conform with the sensible rules. We know it was
:21:49. > :21:52.because, most countries ignoreed the rules and got into the Euro,
:21:52. > :21:56.when their figures was way out of order, that we have the crisis
:21:56. > :22:00.we're now facing. There is a big question, these people ought to be
:22:00. > :22:04.answering, why did they turn their backs on it, they must have known
:22:04. > :22:07.what was going on, both the "euroland" people and the national
:22:07. > :22:13.state Government have access to great financial and legal advice,
:22:13. > :22:19.so it is difficult to believe they didn't know what Goldman Sachs was
:22:20. > :22:25.doing. So they turned a blind eye. Mr Papaconstantinou, let talk about
:22:25. > :22:30.tonight and what's going to happen. One more point on the previous
:22:30. > :22:34.story. It is important to remember, the two countries that breached the
:22:34. > :22:39.Maastricht criteria were France and Germany. When Eurostat asked for
:22:39. > :22:42.audit powers to be able to know exactly what's going on in the
:22:42. > :22:47.various countries, the cubs that did the not give them audit powers
:22:48. > :22:52.from the large countries, against France and Germany. And yauro stat
:22:52. > :22:56.only got audit powers after the Greeks statistical mess came to
:22:56. > :23:03.light, after we came claep - the new Government at the time, what
:23:03. > :23:08.the you in numbers were. This is a telling story, of the failings.
:23:08. > :23:11.Everybody was up to no good in one form or another. Let's turn to
:23:11. > :23:16.tonight, are you confident there will be a deal? I think there will
:23:16. > :23:23.be a deal. My understanding is as we speak, the differences are
:23:23. > :23:28.narrowing, it is a question of getting the projection of the debt
:23:29. > :23:32.in 2020 to be around 120%, which the European council decided and
:23:33. > :23:36.the assurance that is will make the finance ministers of the eurozone
:23:36. > :23:40.members comfortable for the new package for Greece. It is an
:23:40. > :23:45.important decision. Because it can turn the page for Greece. It can
:23:45. > :23:50.stabilise the rest of the eurozone. And we can move forward. Do you
:23:50. > :23:54.think it will turn the page as we've just heard? No I'm afraid it
:23:54. > :23:59.won't. The great tragedy is we may get a deal tonight but it delays
:23:59. > :24:03.making the necessary adjustments, the need to be made to give the
:24:03. > :24:08.Greek economy some chance of recovery. We've had several years
:24:08. > :24:14.of depression or recession, because they're locked into a system that
:24:14. > :24:17.doesn't work for them and the wrong exchange rate. If they patch it, it
:24:17. > :24:24.doesn't produce a miracle cure. Why would the second package work when
:24:24. > :24:28.the first one didn't. If the Dutch have their way, there will be
:24:28. > :24:33.representatives of the three main financial institutions involved, in
:24:33. > :24:38.Athens, making sure that you do as you say you'll do. Will the Greeks
:24:38. > :24:43.accept that? Well, let not make a big deal what is actually pretty
:24:43. > :24:48.much common practice. The IMF has a resident office in France, they're
:24:48. > :24:54.there all the time. So I don't think there's an issue in having a
:24:54. > :24:57.permanent presence of the troika. If I could respond, the two ways to
:24:57. > :25:02.go forward. One is to declare bankruptcy and leave the Euro. A
:25:02. > :25:07.lot of people say that. Those who say it, seriously underestimate the
:25:07. > :25:11.economic and social cost for the Greeks, the Greek economy, and the
:25:11. > :25:17.repercussions on the rest of tkpwruerp Europe. The other way is
:25:17. > :25:23.hard, go forward by the necessary austerity and structural reforms
:25:23. > :25:27.that give the country a capacity to grow again. It is not an easy road
:25:27. > :25:32.and there's no magic bullets. We need the first programme, because
:25:32. > :25:38.the first one did not have enough time to get the job done. This is
:25:38. > :25:44.the better of the two roads. What would happen if you left the Euro?
:25:44. > :25:48.Well, last Sunday the Greek Parliament voted on the new
:25:48. > :25:53.austerity package, by a large two- thirds majority. If it voted
:25:53. > :26:00.against, then the eurozone would stop, the aid programme for Greece,
:26:00. > :26:04.and then in the next morning you would have queues outside the banks,
:26:04. > :26:08.people trying to send the money out of the country. By midday, would
:26:08. > :26:12.you have to shut down the banking system, by the end of the day, you
:26:12. > :26:16.couldn't buy medicines from abroad or fuel, oil and gas, and soon we
:26:16. > :26:22.wouldn't pay pensions and salaries. That's what would happen. People
:26:22. > :26:30.talk about the exit of the Euro, if they can be done in an automatic
:26:30. > :26:32.way. That's not the way it works. If you are outside, you can think
:26:32. > :26:37.about dedevalueing, you do the adjustments that are necessary to
:26:37. > :26:44.stay within the eurozone in a competitive world. John Redwood who
:26:44. > :26:50.do you think what would happen? you plan it, it wouldn't happen. 87
:26:50. > :26:58.countries, have left single currency, since the Second World
:26:58. > :27:02.War, you plan it, and on a given day, announce the day, and it
:27:02. > :27:07.hasity powers to protectity banks and print the currency. You devalue
:27:07. > :27:11.and establish a new market rate, and that cut your debt burden and
:27:11. > :27:15.makes you competitive. From that moment, you have a chance of
:27:15. > :27:21.recovery. Iceland did it, and Iceland are in a better position
:27:21. > :27:25.than Greece that is old yerg on. Now, tonight, it's my pleasure to
:27:25. > :27:32.introduce our new political editor, Allegra Stratton once a producer on
:27:32. > :27:39.this programme and latterly of the Guardian, it is always about
:27:39. > :27:43.finding diamonds in dunghills, but there have been few from Allegra.
:27:43. > :27:49.Lib Dems want a significant policy to lift the rate of income tax. So
:27:49. > :27:54.before that level, you wouldn't pay any income tax and they want to
:27:54. > :27:58.bring that 2010. Tories liked that, so it baims a coalition pledge. Now
:27:58. > :28:02.what we're hearing is the Lib Dems think this should be faster,
:28:02. > :28:06.furious further. And we don't know what the Tories think, because they
:28:06. > :28:11.think they're not going public how they will negotiate ahead of the
:28:11. > :28:20.Budget. Today we're talking to David Laws why they want to go
:28:20. > :28:25.further, faster, more furious, what I find is if it could be brought in
:28:26. > :28:32.more quickly T would end austerity. I haven't talked to anyone that
:28:32. > :28:37.thinks there's a silver bullet, for austerity and yet this is what the
:28:37. > :28:44.Lib Dems want to that end. He is for many Conservatives, their
:28:44. > :28:47.favourite Lib Dem. When David was in charge of Treasury and in charge
:28:47. > :28:53.of spending cut, George Osborne said it was as if he was put on
:28:53. > :28:56.earth to do the job that was asked of him. But now, in his first
:28:56. > :29:02.television interview, since resigning from the cabinet, David
:29:02. > :29:06.Laws stels George Osborne the time has come to begin answered to
:29:06. > :29:08.austerity. We have to distinguish between the period of austerity for
:29:08. > :29:15.public spending, and public services which is clearly going to
:29:15. > :29:18.go on for a period of time, from the austerity we've seen for
:29:18. > :29:22.household budgets. They've been falling since 2008. Now we've
:29:22. > :29:27.completed most of the tax increases, now we're seeing inflation this
:29:27. > :29:32.year, on a firm downward track, that gives us the opportunity, if
:29:32. > :29:36.we can make these other reductions in taxation, by increasing the
:29:36. > :29:40.income tax thresh holds, as Nick Clegg has suggested, that gives us
:29:40. > :29:44.the opportunity of ending the austerity and household budgets and
:29:44. > :29:48.allowing the Budget of most people, the household budgets of most
:29:48. > :29:51.people, to start expanded from this year to next year. That would make
:29:51. > :29:56.a big difference to the economy and millions of people, who have been
:29:56. > :30:00.through one of the toughest periods in terms of household budgets in
:30:00. > :30:04.living memory. Nick Clegg called for an increase in personal
:30:04. > :30:09.allowances for low and middle earners, but now unone of the
:30:09. > :30:13.advisers raced the stakes. By making the claim it would end
:30:13. > :30:15.austerity, language used by the Opposition, David Laws is telling
:30:15. > :30:21.the Chancellor there's an alternative. The big question
:30:21. > :30:25.remains, how will they pay for it? Will they, for instance, rule out
:30:25. > :30:29.cuts on low and middle income earners to fund the policy. In
:30:29. > :30:34.terms of the party's principles, is it your bottom line now, that any
:30:34. > :30:39.of this, income and thresh holds has to be funded from the well off,
:30:39. > :30:44.it cannot be funded from taking of tax credits? We certainly don't
:30:44. > :30:50.want to be see any measures that would fund the personal allowance
:30:50. > :30:56.that would be regressive. It would be bizarre to take from low incomes,
:30:56. > :30:59.to other people. You're ruling that out? Yes. Measures that would fund
:30:59. > :31:04.the personal allowance by taking money off people on middle and low
:31:04. > :31:08.incomes. The pensions of the most wealthy appear to be in their
:31:08. > :31:14.sights? I suspect what the Government will look at is whether,
:31:14. > :31:18.for the most of fluent, 5%, and 5% of people, across all the
:31:18. > :31:25.allowances, in the system for people, we can make changes, that
:31:25. > :31:29.take away some of the subs zis that are going to the top 1% or 5% delix,
:31:29. > :31:35.and get to them where they're needed. Green faxes has been
:31:35. > :31:39.floated, can you go for a green tax, when that might push up bills more?
:31:39. > :31:44.There is a real issue in the short- term, about whether we would want
:31:44. > :31:49.to add, for example, to petrol and energy bills at a time when oil
:31:49. > :31:53.prices have spiraled higher and people's household budgets have
:31:53. > :31:56.been squeezed. To add further to the green taxes with high energy
:31:56. > :32:02.price sincere, something that would not be sensible to do in the short-
:32:02. > :32:06.term. Let look at two alternative ideas being floated, the
:32:06. > :32:11.Conservatives, are our old friend an anonymous sources, why not use
:32:11. > :32:18.the money you are suggested that can be found, use with employers to
:32:18. > :32:23.help with national insurance, so they hire more people? The agreed
:32:23. > :32:28.priority on tax, if the coalition Government is to raise the personal
:32:28. > :32:32.allowance to �10,000, that's what we agreed when the two party got
:32:32. > :32:36.together. That takes precedence over all the other tax priority.
:32:36. > :32:41.Are the libkems right? Could their policy unsqueeze the squeezed
:32:41. > :32:47.middle? Our forecasts take thoo account policies that are announced
:32:47. > :32:52.and middle income is to fall slightly in 2012, but it wouldn't
:32:52. > :32:56.take much to reverse that, and have a small rise, like a give away in a
:32:56. > :33:02.higher personal allowance. Are the Lib Dems, now, Britain's tax
:33:02. > :33:06.cutting party? I think that we are. That will make Conservatives
:33:06. > :33:10.bristle. Opinion on their side ranges the Chancellor should not
:33:10. > :33:15.allow the Lib Dems to own the proposal. Then there is some that
:33:15. > :33:19.propose different tax cuts. And others of a recent warning of the
:33:19. > :33:23.down grade in credit rating, allowance no room for manoeuvre.
:33:23. > :33:28.Conservatives are saying the lick democrat may get the increaseness
:33:28. > :33:33.that Lib Dems, like David Laws are calling for, but there's irritation
:33:33. > :33:39.in the manner if not not the substantial. Is They don't
:33:39. > :33:44.understand why they went early, when David Cameron's loyal advisers,
:33:44. > :33:50.met to discuss long-term strategy, they talked about whether the Lib
:33:51. > :33:55.Dem bail earlier from Government. Do you understand why people are
:33:55. > :34:00.irritated? What I would say as a strong supporter of the coalition,
:34:00. > :34:06.you don't end up with a destructive prose, where both parties are
:34:06. > :34:11.trying to block the proposals, so you independent up with a paralysis,
:34:11. > :34:13.where the Government doesn't get things done. A constructive one
:34:13. > :34:17.will make the coalition more sustainable because the two party
:34:17. > :34:22.will feel happier. And it leads to a competition of ideas, which is
:34:23. > :34:27.potentially good for the country. The Lib Dems have put down a marker
:34:27. > :34:31.they think they can ease the squeeze for the less well off. They
:34:31. > :34:37.want credit from the electorate for trying to do so, if it happens or
:34:37. > :34:44.not. With many cut yet to take effect, the credibility of their
:34:44. > :34:49.claim will be tested. Allegra is still here. I think I can see why
:34:49. > :34:55.you journalists are exr excited about it, but for the public why is
:34:55. > :35:01.it significant? Because, the general public, they know all three
:35:01. > :35:09.political leaders talk about the squeezed middle. It is Ed Miliband
:35:09. > :35:12.phrase, but the other two have jumped on the wagon. When for the
:35:13. > :35:17.previous three years, no-one's talked about the squeezed middle,
:35:17. > :35:23.like it is an easy thing that can go away. We knew they wanted it
:35:23. > :35:28.from the Budget, but we didn't know what magic wand it would end up
:35:28. > :35:31.being. Everybody I talked to over the past year or two years, when
:35:31. > :35:35.you talked about the squeezed middle, for many out there, it is
:35:35. > :35:39.not a theme, it is a way of life, I understand that. But in terms of
:35:39. > :35:43.the political leaders, if they thought it was a way to solve it
:35:43. > :35:51.like that, they would have done it. There's no doubt that David Laws is
:35:51. > :35:56.speaking for the party here? don't doubt it. He is one of Nick
:35:56. > :35:59.Clegg's closest advisers, he doesn't absolve from that label. He
:35:59. > :36:05.is one of the most respected economic minds in not just the Lib
:36:05. > :36:12.Dems but the Government. He is also a big, as he said in the package, a
:36:13. > :36:16.big zel leb for the coalition, still. First, Daniel Finkelstein
:36:16. > :36:23.and Steve Richards are here to shed more light on this. What do you
:36:23. > :36:27.make of it? Well, two things, first, the Lib Dems, even the so-called,
:36:27. > :36:30.orange book Lib Dems, like Nick Clegg and David Laws were always
:36:30. > :36:34.pretty ardent, believers in redistribution through tax. I
:36:34. > :36:38.remember before the election, they were more overt about their support
:36:38. > :36:42.for redistribution, the Gordon Brown, who never used the word,
:36:42. > :36:46.redistribution, didn't dare do so, even though policies did it.
:36:46. > :36:50.They've been keen on the specific policy. Of course it was part of a
:36:50. > :36:54.coalition agreement they would reach, to get people out on low pay
:36:54. > :36:58.out of tax. It is more the manner in way they're promoting this
:36:58. > :37:01.particular policy now, to make it absolutely clear, to the voters,
:37:01. > :37:05.that come the Budget, this will have campaigned for something they
:37:05. > :37:12.believed to be fair, and that they're determined to be associated
:37:12. > :37:16.with, if, and when it is announced. Is George Osborne going to pay
:37:16. > :37:21.attention? He will have to, and I think he will want to. Reducing tax
:37:21. > :37:25.on people is what Conservatives believe and want to do, so
:37:25. > :37:31.therefore, this doesn't cause a fundamental problem. This is one of
:37:31. > :37:36.the glues in the amendment. I am less keen, because if you take
:37:36. > :37:40.people out of tax, they become less responsible for what we spend
:37:40. > :37:45.publicly. This proposal that David Laws goes out and tries to promote
:37:45. > :37:51.the Lib Dems doing it, the problem is in ordertor people to take this
:37:51. > :37:54.idea, they'll have to know who David Laws was and was a tax
:37:54. > :37:58.allowance was. And few people know either of one of those things.
:37:58. > :38:01.That's not cynical, that is what happens when you poll people. They
:38:01. > :38:05.don't know what these things are. They will judge, whether they're
:38:05. > :38:09.better off. It is interesting, isn't it the way in which language
:38:10. > :38:14.is changing, attitudes are changing, too, about the rich and the tax.El
:38:14. > :38:19.What's happened here, or is what happening? When there's no growth,
:38:19. > :38:23.fairness becomes a bigger issue and people get scratchy about fairness
:38:24. > :38:30.issues. Part is reflected in debate about tax, whether the well off is
:38:30. > :38:35.taxed enough and other is reflected in other issues, welfare fraud,
:38:35. > :38:40.emgration, these become emgration issue. It is a big change anding
:38:40. > :38:46.from one. I read most days, since the financial crash the debate in
:38:46. > :38:49.Britain and elsewhere, has moved to the right. Tax, in 199, Gordon
:38:49. > :38:54.Brown and Tony Blair didn't dare say thinking about putting the top
:38:54. > :39:00.rate of tax up. And now you have David Cameron and George Osborne
:39:00. > :39:05.who would die to cut that top rate and all the focus is how you get
:39:05. > :39:11.the low paid and pay less tax and as David Laws implied, get the
:39:11. > :39:15.money from the wealthy as welfare reform. So the focus has changed
:39:15. > :39:20.and to talk about redistribution in some shape or other, has become
:39:20. > :39:25.legitimate. Under Blair and Brown, they didn't utter the words.
:39:25. > :39:29.Because the economy was growing, and therefore people:. They were
:39:30. > :39:35.scared to as well. Scared because they thought they would ruin the
:39:35. > :39:40.thrust of growth. That remains a danger. If you increase tax burden
:39:40. > :39:43.on earning up on the scale, and continues to earn your money that
:39:43. > :39:48.way, you risk retarding growth and that's a risk the Government would
:39:48. > :39:52.run, if it forever, redistributed tax. This is politics, following
:39:52. > :39:58.social change is it? I think it is all created by the fact we've run
:39:58. > :40:03.out of money. In a situation where you've run out of money, how you
:40:03. > :40:07.distribute it, becomes scratchy and ditch. In the 1950s, the Labour
:40:07. > :40:13.Party said it would find it difficult to redistribute it in a
:40:13. > :40:20.situation where there wasn't any growth. He realises it becomes
:40:20. > :40:26.scratchy. It go back to a few years, Blair and Brown loved to be
:40:26. > :40:31.surrounded by bankers, they used them as a shield. Now no-one would
:40:31. > :40:37.go near a banker, so there have been deep changes, in a very short
:40:37. > :40:44.period of time. So, people can talk openly, about whether there should
:40:44. > :40:49.be another tax on banker's bonuses. You are right to raise the issue of
:40:49. > :40:55.growth. But clearly the space between the fairness in the tax
:40:55. > :40:58.system, without jeopardising growth. The important sthing intensifies
:40:58. > :41:02.fairness issues, also like welfare fraud politically, because it is
:41:02. > :41:06.all about, people feeling other people, whoever they are, are
:41:06. > :41:11.putting in, taking out when they haven't put in. When there's no
:41:11. > :41:16.growth and people are feeling pinched that feeling intensifies,
:41:16. > :41:23.not just people at the top end of the spectrum, but like the benefit
:41:23. > :41:28.cap was a popular political measure, because it goes to the bottom area
:41:28. > :41:32.as well. In the end, tax and spend, more than anything else, decides
:41:32. > :41:37.electionness Britain. Thank you. Now it is stop short of saying
:41:37. > :41:42.Britain's borders might have been more secure if they were guarded by
:41:43. > :41:50.Homer Simpson and the dog, but only just. The inquiry into how border
:41:50. > :41:54.controls was suspended, today, res vales a catalogue of ineptness, and
:41:54. > :41:58.confusion at a political level. The Home Secretary's decided as a
:41:58. > :42:04.sequence, to reorganise the whole thing.
:42:04. > :42:09.It was a David Cameron promise, and priority. Real limit, proper
:42:09. > :42:14.enforcement, real control over how many people come here and who they
:42:14. > :42:22.are. But what's transpired is chaos, resignation of a senior civil
:42:22. > :42:26.servant and blame and shame, tossed back and forth. It all invites
:42:26. > :42:31.Mickey Mouse headlines. It turns out in four years, there's no
:42:31. > :42:37.warnings index checks on EU nationals boarding Eurostar trains
:42:37. > :42:42.from EuroDisney and ski resorts. That's about half a million
:42:42. > :42:47.passengers unchecked. Passports we must note were looked at but the
:42:47. > :42:52.extra security measures were too oven suspended forgotten about. The
:42:52. > :42:56.fingerprint checks were suspended no fewer than 480 times in the last
:42:56. > :43:02.15 months. The Home Secretary, who last year, blamed the Border
:43:02. > :43:07.Agency's boss, leading him to quit, now appears to be blaming the
:43:07. > :43:11.entire agency. The Vine Report reveals a border
:43:11. > :43:19.force, that enforced checks without thing, new technologies but chose
:43:19. > :43:24.not to use them. Led to managers that did not communicate with staff,
:43:24. > :43:28.and excluded key information. she didn't say is alongside civil
:43:28. > :43:34.servants her colleagues are accused of lacking clarity, failing to
:43:34. > :43:44.communicate what the Government wanted officials to do. It singles
:43:44. > :43:51.
:43:51. > :43:54.out Damian Green on suspending A former immigration adviser says
:43:54. > :43:57.ministers couldn't have asked the right questions. There was
:43:57. > :44:01.questions they should have been asking about what they were going
:44:01. > :44:05.on at the border, they didn't take interest from an med, which claims
:44:05. > :44:09.to be committed to sorting out. These are obvious questions?
:44:09. > :44:15.Obvious questions like when are the checks spwg suspended, they were
:44:15. > :44:18.supposed to be weekly reports, that they stopped getting and they
:44:18. > :44:23.didn't ask why, there was questions like how many people are turned
:44:23. > :44:27.away, those part of the information were not being given to them, but
:44:27. > :44:30.they should have asked about them. The Home Secretary suggested all
:44:30. > :44:37.the difficulties, dated back to the Labour Government, Labour accused
:44:37. > :44:45.her of ducking responsibility. The watch index checks were
:44:45. > :44:50.suspended zero times in 2007, sim times in 2009, 33 times, in 2010,
:44:50. > :44:54.and 50 times in the first, nine months of 2011. So the clear
:44:54. > :44:57.suggestion in this report is the lack of staff may have increased
:44:57. > :45:01.the problems at the borders agencies in the last year, and
:45:01. > :45:05.she's hidden that information in her statement to Parliament.
:45:05. > :45:10.course, this is all too familiar for a department which, in another
:45:10. > :45:15.context was famously said to be "unfit for purpose". Labour
:45:15. > :45:20.introduced its immigration reforms, now Theresa May say nounsed she's
:45:20. > :45:26.spliting the Border Agency in two. From the March 1, the UK brder
:45:26. > :45:31.force will be split were UCBA and will become a separate operational
:45:31. > :45:38.command with the own law enforcement, and accountability to
:45:38. > :45:43.ministers. A big structural is a class yck tactic, there might be
:45:43. > :45:47.good argument for it, for having a tightly focused boreer force, I
:45:47. > :45:51.myself are sceptical about that. The failings identifyed in this
:45:51. > :45:56.report are all about, everybody in the organisation being clear about,
:45:56. > :45:59.what the policy is and how sincere applied. If you separate it into
:45:59. > :46:04.different agencies, sometimes that gets harder. The other thing is
:46:04. > :46:09.having a big organisation at a time, when the border force is going to
:46:09. > :46:14.try with the Olympics, that's a real risk. Of course, risk is what
:46:14. > :46:18.the Border Agency, is supposed to avert. It is a tall order, and so
:46:18. > :46:23.far, no immigration controls imposed by any Government, have
:46:23. > :46:27.matched up to all the bold promise toss tighten up. Well now before we
:46:27. > :46:30.look at the papers, the Health Secretary, Andrew Lansley had a
:46:30. > :46:38.bruising confrontation with a 75- year-old former trade union rep,
:46:38. > :46:44.who tried to block his path, ahead of a meeting at the NHS reforms.
:46:44. > :46:52.promise you, waiting times in the NHS has gone down. I've had enough
:46:52. > :46:59.of you. I've had enough of you. very sorry. Go home and sit.
:46:59. > :47:04.There's no privatisation. There are cuts, don't you dare lie to mefplt
:47:04. > :47:09.Well, she made the front page of most of the newspapers in front,
:47:09. > :47:13.that lady there. She's on the front that lady there. She's on the front
:47:13. > :47:19.page of the times On the front page of the Guardian and the Independent.
:47:19. > :47:22.And Allegra Stratton is still here. What's caught your eye on
:47:22. > :47:27.tomorrow's papers. My former newspaper, they've done a poll and
:47:27. > :47:31.showed the opinion poll lead, that the David Cameron and Conservatives
:47:31. > :47:37.had post of the year, but lost that, because of the handling of the NHS.
:47:37. > :47:42.This won't be a shock, they have lots of polling, some is public, it
:47:42. > :47:45.shows they're lacking on the NHS handling area. The problem for them
:47:45. > :47:50.is the because there's so many reforms is under way, they are
:47:50. > :47:54.looking at least, worse options, you either shelf something, which
:47:54. > :47:59.is not likely and create chaos, because you Sheffield performance
:47:59. > :48:06.in process, and you shelfed something and create more chaos
:48:06. > :48:12.because reform is under way. Even know the ka kakofy grows louder, it
:48:12. > :48:22.won't budge them. It will continue. Well that's all from Newsnight
:48:22. > :48:27.
:48:27. > :48:32.tonight. More tomorrow, until then Hello a much milder light tonight
:48:32. > :48:41.compared to last night, thanks to a thick blanket of cloud. Eastern
:48:42. > :48:47.areas will brighten up but will keep sunshine in the west.
:48:48. > :48:51.We'll see breaks developing in the cloud, towards north-east. Sunny
:48:51. > :48:56.spells possible across southern counties of England. If the sun
:48:56. > :49:02.pops out, temperatures will pop up, up to 1 degrees.
:49:02. > :49:06.South-west will stay cloudy and Wales. A dull damp start, rain
:49:06. > :49:11.peters out. Brighter skies over north-east Wales. The eastern half
:49:11. > :49:16.of Northern Ireland should brighten up, with sunny spells. It will stay
:49:16. > :49:25.damp, in western parts of Scotland. But across the North-East here,
:49:25. > :49:30.temperatures up to 11, and 1. Along the Murray Firth. We could reach 13
:49:30. > :49:34.on Thursday, but it won't feel like that, because of a strong wind. The